HOUSE BILL NO. 9 "An Act requiring the Joint In-State Gasline Development Team to report to the legislature recommended changes to state law that are required to enable or facilitate the design, financing, and construction of an in-state natural gas pipeline so that the in- state natural gas pipeline is operational before 2016; and providing for an effective date." Co-Chair Stoltze asked for a brief recap of the legislation. REPRESENTATIVE MIKE HAWKER, CO-SPONSOR, briefly explained the bill. He relayed that Representative Mike Chenault was the prime sponsor of the legislation. The bill would advance the state's ability to construct a gasline from the North Slope to tidewater. He stated that the ability was a long held dream of Alaskans. The bill elaborated on HB 369, legislation that had passed unanimously two years earlier that directed AHFC to establish a working group with the goal of developing a pipeline proposal. The plan had been completed July 1, 2011 in accordance with the best management practices of the Institute for Project Analysis. He detailed that the plan informed the legislature how it could facilitate monetizing Alaska's gas with a pipeline from the North Slope to tidewater and make gas available to Alaskans at the lowest possible cost. He furthered that the plan identified numerous empowerments needed for a state agency to move the project forward; HB 9 was an empowerment bill that gave the Alaska Gasline Development Corporation (AGDC) the necessary tools to advance a specific pipeline project forward. He elaborated that the specific pipeline project was the only pipeline allowed under the previously passed Alaska Gasline Inducement Act (AGIA) law, which granted an exclusive license to the TransCanada Corporation (and its partner ExxonMobil) for the monetization of a pipeline that would handle all of the North Slope gas (with the exception of 500,000 cubic feet per day) and had any state involvement. He stated that the bill had been developed respectful of the constraints under AGIA. He relayed that the sponsor believed that a larger project that monetized a greater amount of Alaska's gas would be in the state's greater good; however, a larger line was prohibited under AGIA. Representative Hawker addressed that HB 9 additionally empowered AGDC to act as the state's representative in negotiations with TransCanada and ExxonMobil in hopes of bringing a larger project to fruition; however, if a larger project was not feasible, the bill provided AGDC with the necessary tools to move forward to an open season within the constraints of AGIA to determine whether there was a market of willing buyers and sellers of Alaska's gas. He emphasized that without the bill the state did not have a seat at the table with the producers and would not have a project moving forward. He concluded that HB 9 was about taking steps to move a project forward to get Alaska's North Slope gas to instate consumers at the least possible cost. He pointed to the online legislative information system (BASIS) that contained an outline of the regulatory authority. He relayed that an amendment had been passed the previous day that created the full framework for the regulation of a contract carriage pipeline in the state, which was critical to obtaining financing and empowering AGDC to bring a project to fruition. 5:18:55 PM JEFF COOK, REGIONAL DIRECTOR, EXTERNAL AFFAIRS, FLINT HILLS RESOURCES, FAIRBANKS (via teleconference), spoke in support of the legislation. He relayed that the Flint Hills and other nearby refineries at North Pole and in Valdez were the only refineries in the country that did not have natural gas; the company had to refine oil to energize its refinery resulting in expensive energy costs. He relayed that the expense put the company at a competitive disadvantage; the situation was exacerbated by the high oil prices. The company was working with others on an LNG trucking project to bring cheaper and cleaner energy from its refinery to Fairbanks sooner; however, the project had always been viewed as a bridge project to a gas pipeline that would go to Fairbanks. He urged the committee to move forward with the bill and to make sure that affordable gas was made available to Interior residents and businesses. He opined that something needed to be done about the expensive heating costs facing families. He referred to a quote "it's better to do something that may not be perfect than to do nothing and do so flawlessly." Representative Wilson asked whether people were moving out of Fairbanks due to high energy costs. Mr. Cook replied in the affirmative. He told a story about a friend with a used car business who had reported that many people were selling their cars and moving. His house had used a high amount of fuel during the month of February when he had been out of town. He opined that people could not continue to pay the high costs. 5:23:12 PM BILL WALKER, OWNER, WALKER LEVESQUE, LLC, ANCHORAGE, spoke against the bill. He listed several of his clients including the Alaska Gasline Port Authority, City of Valdez, and other. He testified that HB 9 was not the problem or the solution. He believed control of the decision making process for bringing oil off of the North Slope had been lost. The world had changed since the AGIA contract had been granted. He was frustrated about talk related to a change in the oil and gas tax structure, but people were leaving the state because the cost of energy was too high; the state needed to focus on providing cheaper energy to its residents through a large volume gasline. He relayed that his background was in building. He believed that credence was given to the faulty footing and that the state needed to move away from AGIA; without action the state would be destined to argue about a series of bad options. He believed it was possible to do much better than HB 9. He stressed that the state should work to peel away layers of confidentiality, not to increase it. Mr. Walker opined that the bill did not bring economical gas to Alaskans or put any more oil in the pipeline. He pointed to an analysis that showed a large line would reduce the cost of energy in Fairbanks by 80 percent. He stressed that the bill should not be used as the answer and that it would not result in a gas pipeline. He believed the bill took the state's eyes off of the ball, which should be a large gasline for cheap energy and increased revenues to the state. He pointed to a Wood MacKenzie estimate of as much as $419 billion to Alaska for export to Asia. He emphasized the world market was filling up by projects with lesser economics. He stressed the importance of fixing the problem; the state needed to take control of its future. Mr. Walker explained why he believed the problem would not be solved under AGIA; it was not in TransCanada's best interest to take a gasline to tidewater. TransCanada and Foothills Pipelines were co-owners of the license and had tried to stop an export license for Yukon Pacific Corporation. He stressed that the companies wanted gas to go to Canada and not to tidewater. The Port Authority partners had tried without success to get a letter from TransCanada stating that it would build a line to tidewater. He opined that $60 million in the current operating budget was being spent to study a line into Canada; he wondered why. He discussed national terminals that had become export terminals as a result of shale gas and others in British Columbia that were export terminals of LNG to Asia. He emphasized that Alaska was the only place that had not changed and that a gasline would not result from the current structure. He asked "how do we get out of AGIA?" He pointed to an abandonment clause in the contract that would allow either side to claim that it was not working. He opined that the state should take the action. He surmised that if the state did not get out there would continue to be an open season every two years and that all of the open seasons were focused on a market with 100-plus years of gas at $2.00 or $3.00. Mr. Walker accentuated that the problem needed to be fixed; a mistake had not been made, but the world had changed. He highlighted that the economics were there and that the focus should be on the Asian market and on the upstream side. He listed various reasons that the response in the market place had been rewarding. A relevant question was whether Alaska had time to get into the market; if the state waited too long its gas would be stranded. He had taken many offers to Houston to buy gas at the wellhead from the Asian market that had been turned down. He predicted that Point Thompson would be returned to ExxonMobil and that it would do an LNG study. He stated that numerous gas studies in the state had resulted in nothing. He believed that gas in Alaska was being used by companies as negotiation material for lower oil taxes; people were moving either to urban areas with gas or out of state as a result. He reiterated that HB 9 was not what was best for Alaska; he was concerned that the bill gave credence to an AGIA process. He opined that the economy of scale on large project was what the state needed. He stated the federal government had described North Slope as a gas deal with some oil left. He urged the importance of extracting the gas in a way that would bring low cost energy. 5:37:05 PM Mr. Walker stressed that if the state did not react to changes in the marketplace that its future would not be productive for later generations. He discussed that for $250 million and in 36 months it would be possible to have trucked gas to Fairbanks for approximately $7.00. He reiterated that if the problem was not acknowledged there would never be a solution. Co-Chair Stoltze believed Mr. Walker and the bill sponsors shared many opinions about problems with AGIA. Mr. Walker reiterated that he did not support HB 9. He believed the problem was the AGIA contract. Representative Wilson did not believe that the bill set the size of the pipeline. She queried whether Mr. Walker's strongest concern was that the line would not be large enough. Mr. Walker replied that the volume of the line was set by AGIA and could not be over 0.5 billion cubic feet. Representative Wilson explained that the legislature had the ability to determine that AGIA was no longer economical in the future. Mr. Walker answered it would be more difficult down the road if the problem was not fixed at present. 5:40:45 PM Representative Neuman stated that the larger line would cost $30 billion to $40 billion. He believed an analysis of the project's economic and viability plan was lacking including timelines, work plans, budgets, in-field work assessments, environmental impact statements, right-of- ways, LNG components, and other. He wondered where the project plan was. Mr. Walker replied that the project plan was that Alaska needed to own the infrastructure. He had provided detail on a financial analysis and a document generated by Wood MacKenzie had been provided to legislators. He explained that if state owned the pipeline its equity would be from $4 billion to $6 billion with a return of 12 percent. He emphasized that a small volume line would require the same cost input, but would have no financial return. He was not coming forward to ask for money for a gasline; his message was related to what had been learned and what the state should do. He believed Alaska needed to take care of itself, not necessarily through the Alaska Gasline Port Authority. He expressed his frustration about items happening in the state. He pointed to dramatic population declines in areas due to the high cost of energy. He discussed contracts the port authority had lost because of industry influence; he stressed that the situation was not right and should not happen. The group was a not for profit made up of Fairbanks-born individuals who were trying to do the right thing. Representative Gara asked for an explanation of the difference in price of energy to consumers between a large line versus (i.e. 3 billion cubic feet) versus a smaller line under HB 9 line (i.e. 500 or 250 million cubic feet). Mr. Walker replied that a large line would reduce the price of energy in Fairbanks down to the $3.00 to $4.00 range versus the $10.00 to $14.00 range. Representative Gara asked for Mr. Walker's take on the argument that the state would run out of gas if it waited for a big line. Mr. Walker did not believe the state would run out of gas; he was impressed by gas estimates for Cook Inlet and stated that even if the estimates were wrong by three-quarters there would still be a significant amount of gas in the area. He discussed that more economical and quicker options existed including bringing gas down by truck or train to Fairbanks; the options would be labor intensive, which would not be a bad thing; however, he reiterated his belief that Cook Inlet would not run out of gas. 5:46:51 PM Representative Guttenberg thanked Mr. Walker for his work over the years. He asked for an expansion of detail related to the transparency and confidentiality issue. Mr. Walker was concerned that the structure under HB 9 could be handed off to anyone. He opined that it was the wrong direction for the state to put money into a project and not know what was being done or negotiated to ensure that Alaska was getting the best deal. He believed that a considerable amount items related to oil and gas in Alaska was not disclosed to the state. He stressed that an additional layer of confidentiality was "absolutely the wrong direction." Vice-chair Fairclough thanked Mr. Walker for being an advocate of natural gas for the people of Alaska. She relayed that there were many rural communities that had been screaming for a fuel source for decades. The goal of HB 9 was to have a window of opportunity open to the state. She believed that AGIA could not go forward and agreed that TransCanada was not motivated; however, the state was in a predicament and HB 9 was a step forward and allowed a big diameter pipeline. She wondered why HB 9 was a barrier to Mr. Walker's ideas. She stated that the bill did not specify anything related to the size of the pipeline; numbers thrown against it were for a different route. She did not understand the opposition to an opportunity to move forward. She opined that it would take something along the lines of a special act from Congress (as with the Trans- Alaska Pipeline) to get a natural gas pipeline in Alaska regardless of the size. She believed that if the state failed to do something exceptional it would never see a pipeline. Mr. Walker responded that the act of Congress had been used to bypass an environmental process in order to expedite the project. A right-of-way from Prudhoe Bay to Valdez had already been issued for a natural gas pipeline and a federal environmental impact statement in addition to approval from 23 state and federal agencies; therefore, he did not see the necessity of an act of Congress related to the project. He stressed that HB 9 was the wrong path because it did not solve the problem; additionally, as long as AGIA was in place it did have a volume limitation. His largest concern was that it did not do "anything good for the State of Alaska." He pointed to a Harris report showing that the cost of energy would drop by 65 percent in Bethel with a large volume line to Valdez. He agreed that the problem of high energy costs worsened in rural areas. He wondered what a small volume line would do for places like Bethel and other areas of the state. He believed the bill sold the state short. Vice-chair Fairclough replied that the legislature was playing by the existing rules; until the governor triggered the abandonment clause (the legislature could pass a law, but the governor could veto it) the state could not move forward. She emphasized that the bill did not specify a small diameter gasline; it said that the state would be in compliance with AGIA to move the process forward. She believed that using personal beliefs related to the legislation did not provide Alaskans the opportunity to see that the goal was to shed light on a path forward and the only path forward currently available to the legislature. She accentuated that the goal was to respond to Alaskans' need for reduced energy costs. She agreed that the desired outcome was the lowest energy cost, but she believed it was not possible under the scenario Mr. Walker had provided. She understood that a large diameter line was the right way to go, but that it was not currently an option. She supported efforts made for an all-Alaska gasline and stated that the bill also guaranteed an all-Alaska line. 5:54:22 PM Co-Chair Stoltze referred to concerns about constraints of the AGIA process and of the bill. He surmised that Mr. Walker had provided his opinion about the myth of AGIA yielding anything and asked whether the assessment was fair. Mr. Walker agreed. Co-Chair Stoltze did not believe that the big line used for comparison existed through the AGIA process. Mr. Walker concurred. He did not believe anyone in the current legislature would vote for AGIA at present. He believed the legislature could send a message to the governor about requesting him to exercise the abandonment clause [in the AGIA contract]. He stressed that HB 9 was not the answer. He concluded that AGIA would inhibit the state's ability to be the state that it should be. 5:56:27 PM DOUG SMITH, PRESIDENT and CEO, LITTLE RED SERVICES and CHAIR, THE ALLIANCE, supported the legislation. He relayed that high energy costs were inhibiting Fairbanks businesses from being competitive in the marketplace. He believed the playing field needed to be leveled; a home run would be a large gasline, but a base hit would be affordable utilities for all residents. The Alliance recognized that the bill did not solve everyone's problems; however, he thought affordable energy may not reach those in need if the state waited for a large diameter gasline for the lowest possible price. He shared that he had worked on a gasline fee study in 2000; the project was large and would take certain economics to support an LNG line to tidewater. He stated that a primary objective was more affordable utilities to Alaskans. Representative Gara discussed that a smaller gasline could set prices between $10 and $16 that consumers would be obligated to for 20 to 30 years. He asked whether Mr. Smith would remain supportive of the line if a large line came along, but the small line prevented consumers from having access to the cheaper gas. Mr. Smith answered that options needed to be kept open. He would take the price over some prices offered currently, especially if the price was predictable. 6:00:03 PM RICHARD FINEBERG, SELF, FAIRBANKS (via teleconference), spoke in opposition to the bill. He believed the bill had been misguided from its inception. He stated that the major North Slope producers were the only ones who would benefit. He believed that confidentiality created a political circumstance in which bad things happened; if system safeguards were in place, the state would lose. He referred to TAPS and stated that the state lost $3.4 billion due to tariff overcharges in 1985. He stressed that part of the reason the loss took place was because of confidentiality. He referred to documentation of the incident that he had provided the legislature in 1990. He continued to discuss the loss and referenced a U.S. Supreme Court decision that gave up refunds. He emphasized that history showed that the state did not get the low tariffs. He discussed that industry had stonewalled the state related to the tariffs. He asserted that the bill was a recipe for disaster because of increasing confidentiality, eliminating transparency, eroding checks and balances, eviscerating judicial review, and its failure to solve fundamental policy problems. 6:05:39 PM JAMES MERY, VICE PRESIDENT, LANDS AND NATURAL RESOURCES, DOYON LIMITED, spoke in favor of the bill. He noted the need for affordable energy in rural and smaller communities. The company believed in options and that HB 9 had a significant amount of momentum; he believed it needed to keep moving. He spoke to the pursuit of oil and natural gas along the corridor. He urged the committee to support the legislation. Representative Guttenberg asked whether an imminent domain issue was a concern to Doyon. Mr. Mery answered that the state exercised imminent domain on a regular basis. He noted that generally state law was an extension of imminent domain to a promoter of a project; he believed it had been obtained during the building of the TAPS line as well. The organization was not crazy about imminent domain issues but there was a process to sort out the value of property in state law that he believed Doyon could work with. 6:08:53 PM LYNN WILLIS, SELF, EAGLE RIVER (via teleconference), shared that he supported the bill if it served to support the alignment of pipeline projects; however, he did not support the bill if it would focus on advancing a single project that would be built without regard to other projects. He thought all Alaskans cringed at the thought of having a large pipeline built with a duplicate smaller line running along next to it. He believed that it was time to define the various viable scenarios that would result in the necessary infrastructure to utilize the state's natural gas resources. He stressed that HB 9 must contribute to the goal of maximum use of the resource consistent with public interest and for the maximum benefit of Alaskans. He discussed several concerns. He wondered whether the bill provided the mechanism to allow construction of the Cook Inlet to Fairbanks segment independently from the segment to tidewater. He wondered whether the bill would allow a small diameter line from Fairbanks to Cook Inlet and a large line from North Slope to Fairbanks that could be used later as the first phase of a large line to tidewater, Canada, or the Lower 48. He wondered whether a line between Fairbanks and Cook Inlet would preclude the Glenn Allen spur line. He queried whether the bill provided for the possibility that the line could be used to transport gas from Cook Inlet to the major export line. He wondered whether the bill's mandate that corporations shall analyze additional natural gas pipelines connecting to customers in other regions of the state included other connections such as surface transport of gas or gas products by rail, truck, and barge. He summarized that his support was contingent on the legislation's application to its total effort to exploit the natural resource for the benefit of Alaskans. RICHARD PETERSON, SELF, ANCHORAGE (via teleconference), communicated that he had provided written testimony to the committee. He saw two issues with the bill that derived from HB 369. He stated that the legislature was evaluating a pipeline based upon conditions that AGIA placed on it; if there was going to be an AGIA line, the bills supported a line from Fairbanks or Glennallen to Southcentral. He questioned why the bill asked AGDC to look at a gasline from the North Slope past Fairbanks to South Central, but placed constraints that would only occur if an AGIA gasline was built. He recommended that the legislature ask AGDC to present two options to the people of Alaska: (1) the best spur line option if an AGIA line was built and (2) the best option from the North Slope through the Railbelt to Southcentral if an AGIA line was not built. He questioned why AGDC was evaluating a high pressure line that would transport liquids. He thought the idea may have made sense if the line was built to Canada where there was an existing market for liquids, but it did not make sense for Alaska instate use. 6:14:30 PM Vice-chair Fairclough thanked Glenn Allen residents for their involvement and their testimony on the previous day. BRAD HENSPETER, SELF, COPPER RIVER (via teleconference), spoke in opposition to the bill. He shared that the average homeowner needed affordable energy and believed that the gasline was the way to accomplish the goal to help people in Glenn Allen, Fairbanks, Delta Junction, Copper Center, Valdez, and other. He stressed that Copper River residents paid higher costs for goods and services due to high energy costs; the same was true for the state when it heated school buildings, transportation buildings, the legislative information office, and more. He relayed that it required more energy to heat a home in the Copper Basin than it did in Fairbanks. He recommended that committee members look at the scientific heating degree tables for Interior Alaska communities showing that 55 percent to 60 percent of the coldest days happened from November to February; during the time it was not possible to use wind, solar, or hydro power. He discussed that biomass was a good option, but a vehicle would have to drive to each of the trees in the forest to harvest the energy; he opined that there would need to be many new roads to reach harvestable timber; the option may be cheaper than oil, but it would significantly change the landscape and it was very labor intensive. He encouraged a pipeline to Valdez with access for communities along the way; gas could be sold from the Port of Valdez to help pay for the line. He stressed that a large supply of fuel was needed to reduce costs. LISA HERBERT, EXECUTIVE DIRECTOR, GREATER FAIRBANKS CHAMBER OF COMMERCE (via teleconference), vocalized support for the bill. She informed the committee that the chamber's board of directors had specified the high cost of energy as its top priority for the current year; the board's membership represented a diverse group of businesses, all of which were impacted by "staggering" energy costs in the Interior. She discussed a priority list that included the support of HB 9. The chamber would work diligently to ensure that issues such as fair tariffs would be addressed. She stated that natural gas to the community would allow for economic growth and lower costs for residents and businesses. Her energy costs were as much as her mortgage payment (approximately $1,400 per month). She remained hopeful that the energy costs would be solved soon. She believed that the rest of Alaska would be hurting if the state's second largest city was hurting; she was fearful that the chamber would be handing out relocation packets to business members instead of welcoming new businesses. She urged the committee to pass the legislation. 6:22:18 PM GEORGE PIERCE, SELF, KASILOF (via teleconference), voiced his strong opposition to the bill. He stressed that voters wanted a large instate pipeline. He was tired of producers holding the gas hostage. He believed the legislature could tell the governor no. 6:23:55 PM CLAI PORTER, SELF, ANCHORAGE (via teleconference), strongly supported HB 9. He had spoken to builders and members of the real estate community and believed that if the state did not solve its problem and make progress it would lose energy and population. He supported steady economic growth and he felt the bill was a move in the right direction. He did not believe the federal government would solve the problem. He believed the state should take the opportunity and that it could afford the project; the line would create jobs, provide needed fuels, and would serve all of the communities across the state. He added that the state could not wait 10 or 15 years to solve the problem. 6:25:58 PM GENE THERRIAULT, VICE PRESIDENT, RESOURCE DEVELOPMENT and EXTERNAL AFFAIRS, GOLDEN VALLEY ELECTRIC (GVE), FAIRBANKS (via teleconference), voiced his support for HB 9. He discussed that the company provided electric needs for the Interior. He relayed that GVE had participated in the open season that AGDC had held in June 2011. The company hoped that resources would reach Interior Alaska at a price that would help to relieve the burden of current energy costs. The company supported state participation in the development of an AGDC pipeline and the associated development of an affordable tariff structure for residents. He understood that there was concern about the cost of spur line that would be needed to get gas to the greater Fairbanks and North Pole area off of the AGDC line; he trusted that their efforts would produce a commercially reasonable result. The company believed that a large volume line may still be constructed for export, but that it was prudent to continue the AGDC effort focused on instate needs. The work AGDC had done would still be very helpful if the governor requested that North Slope producers aligned under a new effort to build a large line to tidewater. He opined that the environmental design and right-of-way work of the agency would be beneficial if the recent exploration success in Cook Inlet resulted in new gas resources. CHUCK WIEGERS, SELF, FAIRBANKS (via teleconference), supported HB 9. He believed that clean gas and inexpensive natural gas was the obvious replacement for diesel; the replacement would not happen overnight or without a plan. Efforts to truck gas from the North Slope would begin a process; the bill facilitated the next step and brought AGDC to an open season in 2013. Once the open season was conducted the agency could determine the best way to deliver gas to the Interior at the lowest price possible. He expressed that the bill also provided AGDC the tools to deliver a project to bring gas to the Interior and would provide the flexibility to coordinate with the producers. He urged support of the legislation. 6:30:38 PM AT EASE 6:51:38 PM RECONVENED DEBORAH BROLLINI, SELF, ANCHORAGE (via teleconference), testified in support of HB 9. She had wondered why Anchorage had to plan for brownouts in 2009. She referred to a recent earthquake and explained that she was not prepared to keep her family warm in an emergency or if there was a shortage of natural gas. She emphasized the need for additional energy infrastructure to assure utility services would not be interrupted. She expressed appreciation to the legislature for looking for solutions to the problem. JULIE DUQUETTE, SELF, FAIRBANKS (via teleconference), testified in support of HB 9. She stated that the bill provided the framework to get gas to Fairbanks; the community was currently feeling the impact of high energy costs. She relayed that residents with fixed and low income were hit the hardest. She explained that money once spent on goods was now spent on fuel and electricity. She believed natural gas was the obvious replacement for much of the fuel used currently. She believed a trucking project that was underway by Flint Hills and Golden Valley Electric was a good start and an instate pipeline was the next logical step. She opined that taking action would help ensure residents' future while possible. The bill would allow AGDC to hold an open season in 2013 and to provide options for the construction of a pipeline to provide gas at the lowest possible cost. She encouraged support of the legislation. 6:55:26 PM DAVID OWENS, OWENS INSPECTION SERVICES, PALMER (via teleconference), spoke in favor of HB 9. He was in support of recommendations by AGDC. CHUCK RENFRO, HOME BUILDERS ASSOCIATION, ANCHORAGE (via teleconference), testified in support of HB 9. He echoed the prior speaker's testimony. He stressed the need for low cost gas in the Willow area and for prompt action. 6:57:38 PM AT EASE 7:07:06 PM RECONVENED LEIGH SKILES, SELF, HOMER (via teleconference), testified in support of HB 9. She emphasized the need for affordable gas and noted that the bill represented a first step. She believed that the bill was about moving forward to obtain more information to make the future possible related to gas for Alaskans. Representative Mike Hawker addressed the AGDC project plan and corrected what he felt was a misrepresentation of the facts. He noted that $17 a million cubic feet (mcf) could be found in the AGDC plan (Commercial Analysis and Findings, page 3-3); the section summarized options for capacities and products. He explained that the tariff estimate calculated to a $17 cubic foot delivery price was option number 4 (a 250,000 mcf per day) and involved conditioned natural gas and an enriched NGL [Natural Gas Liquids] stream. He clarified that the option was described as "unacceptable tariff," but was maintained as an option for comparative purposes. He emphasized that the number was included as a benchmark and not as the base scenario that the project had been built on. 7:12:51 PM Representative Gara responded that AGDC had produced a report of options for a 250,000 mcf line and a 500,000 mcf line; the 500 mcf line only worked if there was an export component. He stated that the export component was questionable because under the study terms the cost of gas equaled approximately $15 to $16 when factoring in the cost of conditioning at a natural gas plant, possible expansion of the plant, shipping to Asia, and the cost of gas. He was skeptical that the state would find a great market for the price for the long-term in Asia. He observed that the option would be the 250,000 mcf line if the larger option did not work. He stressed that there was nothing in the bill that said AGDC could not build a 250,000 mcf line. He did not appreciate being "accused of misleading anybody." He stated that smaller line would produce gas combined with NGL, which would make the gas cheaper, at roughly $14 an mcf plus the cost of local distribution. He opined that the gas under the scenario was expensive. He thought that if the intention was to build a line larger than the 250,000 mcf that it should be stated in the bill. He stressed that the problem with the bill was that AGDC was given the power to move forward with the project, but it did not seem like the legislature would have the power to stop it. He referred to his upcoming amendment that would provide the legislature the power to stop the project if it looked like a bad idea. 7:15:51 PM Representative Gara MOVED to ADOPT Amendment 4, 27- LS0075\K.4 (Bullock, 3/19/12): Page 1, line 2, following "Corporation;": Insert "requiring legislative approval before construction of an in-state natural gas pipeline developed by the Alaska Gasline Development Corporation;" Page 4, following line 4: Insert a new subsection to read: "(b) The Alaska Gasline Development Corporation may not begin to construct an in-state natural gas pipeline before project sanction and before receiving authorization by law to proceed with the construction. In this subsection, "sanction" has the meaning given in AS 43.90.900." Reletter the following subsections accordingly. Page 5, line 15: Delete "(c) and (d)" Insert "(d) and (e)" Co-Chair Stoltze OBJECTED. Representative Gara explained that Amendment 4 would provide the legislature with the chance to stop the project if it produced gas that was too expensive. The amendment would prevent construction of a pipeline before project sanction and before receiving authorization by law to proceed. He opined that the legislature did not want to give away the power to stop the project. Representative Hawker testified in opposition to the amendment. He stated that the amendment said that AGDC could not begin to construct an instate gasline before a project was sanctioned and before receiving authorization by law. He relayed that the definition of "sanction" fell under AS 43.90.900, which was the AGIA statute; AGDC would be linked to the AGIA sanctioning process. He relayed that as defined in the statute, the term sanction was to make financial commitments to go forward with the project as evidenced by entering into financial commitments of at least $1 billion with third parties. He stressed that the only reference to sanctioning within AGIA was AS 43.90.200, which required TransCanada (license holder under AGIA) to sanction within certain times and parameters. He believed the amendment would give TransCanada the ability to sanction the project. Representative Hawker emphasized that the amendment was flawed and that AGDC was to provide the legislature with options to move forward with once it deemed a project was commercially reasonable. He stated that the bill contained specific provisions that required AGDC to follow its project plan. He accentuated that the project plan was not the 250,000 mcf; the base plan was the 500,000 mcf line to tidewater with an open season to determine its viability. He furthered that the bill contained specific requirements for AGDC to adhere to the principle of making gas available at the lowest possible cost to Alaskans. He stressed that AGDC would not be able to lock consumers into an unreasonable rate of gas for 20 to 30 years. He explained that state investment could not be made without express approval of the legislature; however, if a project could be developed by the private sector it would not require legislative approval. 7:21:39 PM Representative Guttenberg suggested that the amendment addressed his concern that the state would have no say on the tariffs or other nature of the gasline; there could be a successor that took over the project in the future and the state would have no input. He acknowledged that the amendment was flawed but stressed that the intent was clear. 7:23:45 PM Representative Chenault testified in opposition to the amendment and asserted that AGIA already provided action without additional input from the legislature. He believed the only way the legislature would have any input was if it was asked for more sanctions or money to complete a project. He opined that the legislature should not be in the pipeline business because road blocks that it put up either slowed or quashed projects. He stressed that there were enough safe guards in the legislation as written and echoed that the legislature had the power of the purse strings. Representative Gara surmised that there would be no opportunity for legislative approval of the project if additional money was not requested. He noted that subsequently there would be no recourse to binding consumers to high priced gas for 20 years or more. He thought the idea was bad and that the legislature should have a say in whether the project was good. He disputed that the legislature's ability to weigh in on the project would act as a road block and stressed that it would be the public's opportunity to express its opinion. He suggested that there could be better options down the road. 7:27:14 PM Representative Gara stated that the amendment pertained to the definition of sanction under Section 43.90.900. He addressed that the definition of sanction had nothing to do with providing TransCanada or AGIA with any power over anything. He read the definition as follows: Sec. 43.90.900. Definitions. In this chapter, unless the context otherwise requires, (22) "sanction" means to make financial commitments to go forward with the project as evidenced by entering into financial commitments of at least $1,000,000,000 with third parties; Representative Gara did not believe the amendment was flawed, but would accept an amendment with different language on project sanction if the sponsors' supported one. 7:29:16 PM A roll call vote was taken on the motion to adopt Amendment 4. IN FAVOR: Gara, Guttenberg OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule, Thomas, Stoltze The MOTION FAILED (2-7). Representative Gara MOVED to ADOPT Amendment 5, 27- LS0075\K.5 (Bullock, 3/19/12): Page 1, line 2, following "Corporation;": Insert "requiring legislative approval before certain expansion of an in-state natural gas pipeline developed by the Alaska Gasline Development Corporation;" Page 4, following line 4: Insert a new subsection to read: "(b) The Alaska Gasline Development Corporation may not expand the design capacity of an in-state natural gas pipeline to accommodate throughput of more than 500,000,000 cubic feet a day of North Slope gas to market before receiving authorization by law to proceed with the expansion." Reletter the following subsections accordingly. Page 5, line 15: Delete "(c) and (d)" Insert "(d) and (e)" Co-Chair Stoltze OBJECTED. Representative Gara explained that Amendment 5 would ensure that a violation of the AGIA statute would require the responsible entity to come to the legislature to get the law changed; it would prevent the state from being liable for any trouble damages. Representative Hawker communicated that the bill included language requiring that the pipeline would not violate AGIA covenants. He was concerned that the amendment would not allow AGDC to expand the design capacity beyond the 0.5 bcf per day before being authorized by law. He opined that the constraint violated one of the bill's most important concepts that would allow the alignment of an AGDC and AGIA project and the ability to exceed the 0.5 bcf per day limit. He maintained that the amendment could close out options. 7:32:03 PM Representative Guttenberg referred to comments by Mr. Walker related to transparency. He referred to a court case that due to a lack of transparency the state had had little information to base decisions upon. The intent was to allow for legislative and public input and an understanding of the project. 7:33:16 PM Representative Gara WITHDREW Amendment 5. He stated he was unhappy with the drafting of the amendment. Representative Gara MOVED to ADOPT Amendment 6, 27- LS0075\K.16 (Bullock, 3/20/12): Page 1, line 2, following "Corporation;": Insert "requiring legislative approval for the Alaska Gasline Development Corporation to continue the development of an in-state natural gas pipeline after a certain amount of money has been spent to develop the project;" Page 4, following line 4: Insert a new subsection to read: "(b) The Alaska Gasline Development Corporation may not continue the development of an in-state natural gas pipeline without legislative approval after the Alaska Gasline Development Corporation spends $100,000,000 for the development of the in-state natural gas pipeline after the effective date of this section. Legislative approval may be in the form of an appropriation to the Alaska Gasline Development Corporation for the purpose of developing an in-state natural gas pipeline." Reletter the following subsections accordingly. Page 5, line 15: Delete "(c) and (d)" Insert "(d) and (e)" Co-Chair Stoltze OBJECTED. Representative Gara stated that the amendment would require AGDC to report to the legislature to seek further approval after spending $100 million; the legislature would have the ability to determine whether money had been spent wisely. 7:34:11 PM Representative Hawker testified in opposition to the amendment. He stressed that the goal was to get government and politics out of the way. The legislature had appropriated $200 million the prior year. He stressed that a project could only go as far as the legislature was willing to fund. The bill required that the Regulatory Commission of Alaska would review any proposed ownership changes. He felt that HB 9 contained adequate provisions to protect the public. He urged the committee not to lose sight that the public wanted a pipeline to move forward. 7:36:07 PM Representative Wilson testified in opposition to the amendment and asserted that Fairbanks could not keep waiting. Representative Guttenberg emphasized that following a deliberate and accurate path was due diligence, not slowing down the process. He stressed that the goal was to avoid mistakes. 7:38:17 PM Representative Chenault referred to Mr. Walker and recalled his statements that the road to cheaper gas in Alaska was to retract AGIA, thereby removing restriction of the project. He discussed that the prior year the legislature had approved a $200 million appropriation for funding AGDC's work to get them to the open season. He furthered that including money already spent and the proposed fund, the total was between $240 million to $260 million. The entity had estimated that it would cost approximately $400 million to get to the open season in 2013. He opined that the entity would be back the following year for an additional appropriation and that the legislature could have conversations on the project at that time. The AGIA process did not provide the same option; TransCanada had not disclosed the work done or the progress after $500 million dollars. He reiterated that the bill included safeguards for the legislature to get more information on the project in the future. 7:41:01 PM Representative Gara concluded that the public wanted the legislature to make sure that due diligence was done and that the public did not end up with high prices. He observed that Cook Inlet gas might better protect the consumer. He believed the legislature should see how money was spent and whether the project should go forward. He stressed that the legislature should have the ability to act if a better project with cheaper gas was identified; private companies should not be relied upon to make the decision. A roll call vote was taken on the motion to adopt Amendment 6. IN FAVOR: Gara, Guttenberg OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule, Thomas, Stoltze The MOTION FAILED (2-7). 7:43:07 PM Representative Guttenberg MOVED to ADOPT Amendment 7, 27- LS0075\K.6 (Bullock, 3/19/12): Page 1, line 2, following "Corporation;": Insert "relating to the tariff for transporting natural gas liquids in an in-state natural gas pipeline developed by the Alaska Gasline Development Corporation;" Page 6, following line 10: Insert a new subsection to read: "(h) If the Alaska Gasline Development Corporation or a joint venture, partnership, or other entity that includes the Alaska Gasline Development Corporation elects to be subject to regulation under AS 42.05 or AS 42.06, the Alaska Gasline Development Corporation shall propose and support separate rates for the transportation of gas liquids to be paid by the shippers of gas liquids." Reletter the following subsection accordingly. Co-Chair Stoltze OBJECTED. Representative Guttenberg explained that the amendment took the straddle plant off of the backs of Fairbanks and the Interior rate payers and gas users. He discussed a flow schematic that was divided into the North Slope facilities (including conditioning and compressor plants and NGL pumps), a compressor station north of the Yukon, and a straddle plant in Fairbanks with a continuation to an NGL extraction facility in Cook Inlet. The rate base in the project plan placed the sole responsibility of the straddle plant on Fairbanks. He maintained that Fairbanks would not be taking any NGL; the NGL would be taken off in Southcentral. The cost of the plant should be to the rate payers or shippers, not just the Interior users of the gas. The amendment would place the cost on the shippers that would use the NGL. 7:45:55 PM Representative Hawker testified in opposition to the amendment and maintained that it was technically flawed. He explained that the amendment provided a provision that its consequences were effective if AGDC elected to be subject to regulation under the Public Utilities Act or the Alaska Pipeline Act. He stressed that the provision was not an option based on a regulatory amendment that had passed the prior day; the adopted amendment required that AGDC must operate under the contract carriage statutes in HB 9. He accentuated that the goal was to keep the legislature out of rate decisions. He discussed that the concept of the initial plan was for a wet gas pipeline and two straddle plants that would be the financial responsibility of the users; the concept created a burden due to the relatively small population of Interior Alaska. He surmised that a dry gas pipeline could increase costs to the Interior. He reiterated the desire to keep the state out of anticipating "single hypotheticals in a world of unlimited hypotheticals." 7:48:47 PM Representative Guttenberg noted that the amendment had been drafted prior to other amendments. He asserted that the plant would not benefit the people of Interior Alaska, but those down the line who would take the NGL. There would be no issue if there was dry gas down the road because there would be no need for a straddle plant. He believed the Interior would be subsidizing the rate payers at the end of the line. 7:50:59 PM A roll call vote was taken on the motion to adopt Amendment 7. IN FAVOR: Gara, Guttenberg OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule, Thomas, Stoltze The MOTION FAILED (2-7). Representative Guttenberg MOVED to ADOPT Amendment 8, 27- LS0075\K.7 (Bullock, 3/19/12): Page 1, line 2, following "Corporation;": Insert "relating to the tariff for transporting natural gas in an in-state natural gas pipeline developed by the Alaska Gasline Development Corporation;" Page 6, following line 10: Insert a new subsection to read: "(h) If the Alaska Gasline Development Corporation or a joint venture, partnership, or other entity that includes the Alaska Gasline Development Corporation elects to be subject to regulation under AS 42.05 or AS 42.06, the Alaska Gasline Development Corporation shall propose and support rates for the transportation of gas to delivery points along the in-state natural gas pipeline that are based on the costs to deliver natural gas to each delivery point and that do not include the costs to make deliveries downstream from each delivery point for which a separate rate is set." Reletter the following subsection accordingly. Co-Chair Stoltze OBJECTED. Representative Guttenberg explained the amendment would make tariffs distance sensitive. He was concerned that there could be successors who did not agree that more people had to be paying for tariffs or other. He furthered that at some point there could be gas taken off at the Yukon River. The amendment would mean that users would pay tariffs based on the point where the gas was taken off of the line. 7:53:32 PM Representative Hawker testified in opposition to Amendment 8. He observed that the opportunity was not available in the bill due to previously adopted amendment. He discussed that related to the transportation of gas rates would be proposed and supported that were based on the cost to deliver natural gas to each delivery point (that did not include the cost to make deliveries downstream from the delivery point). He asserted that the amendment required AGDC to pass costs onto Fairbanks if there was a straddle plant constructed in the area; it would be the incremental cost of making dry consumer ready gas available to Fairbanks. The sponsors did not want to burden the Interior with an inappropriate or unnecessary cost structure; they believed in moving forward to an open season where the market could determine the best project. He stressed that cost checks were included in the legislation and felt the amendment would be counterproductive. 7:55:59 PM Representative Gara understood that the amendment sponsor was working to protect his community from the high prices of gas. He opined that the gas prices under the proposed project were phenomenally high. He explained that he could not support the amendment due to problems he had with the legislation. He explained that the amendment would result in higher prices for Anchorage and maintained that Interior costs would be high and that other options would result in cheaper prices. 7:57:25 PM Representative Wilson asked for a clarification on the costs to users related to the straddle plant. Representative Chenault explained that under the current plan the rates were tied to the straddle plant. Under a distance sensitive plan rates would be tied to the costs to deliver. 7:59:34 PM Representative Guttenberg surmised that the lateral line and the straddle plant would be borne by Fairbanks. TOM WRIGHT, STAFF, REPRESENTATIVE MIKE CHENAULT, explained that the bill included an additional tariff for the straddle plant and the lateral line to Fairbanks. A roll call vote was taken on the motion to adopt Amendment 8. IN FAVOR: Wilson, Guttenberg OPPOSED: Costello, Edgmon, Fairclough, Gara, Joule, Thomas, Stoltze The MOTION FAILED (2-7). 8:01:33 PM Representative Gara MOVED to ADOPT Amendment 9, 27- LS0075\K.14 (Bullock, 3/19/12): Page 2, lines 1 -3: Delete "relating to the Alaska Natural Gas Development Authority; relating to the procurement of certain services by the Alaska Natural Gas Development Authority;" Page 16, line 20, through page 19, line 16: Delete all material Renumber the following bill sections accordingly. Page 21, lines 30-31: Delete "38.34.060; AS 41.41.030, 41.41.040, AS 41.41.050, and 41.41.080" Insert "and 38.34.060" Co-Chair Stoltze OBJECTED. Representative Gara explained that the amendment worked to preserve the powers of Alaska Natural Gas Development Authority (ANGDA) that had been established by statute. The entity had been looking for the most cost effective options to deliver gas on the road system and to rural Alaska. He believed the entity served a valid purpose and did not want to see its powers weakened. Mr. Wright clarified that the legislation would not eliminate AGNDA. The only duty that had been taken away from the entity was the role of a builder. He detailed that references (AS 41.41.030) related to the ANGDA board of director's term of office had been deleted; Section 18 established that ANGDA would be governed by the AHFC board of directors. He furthered that the bill removed redundant information; 41.41.040 was the removal and vacancy of the ANGDA board of directors, 41.41.050 was the board quorum and voting, and 41.41.080 was legal counsel (Section 20 that allowed ANGDA to have legal counsel). 8:03:21 PM Representative Gara believed that the bill removed ANGDA's power to pursue a gas pipeline that would result in lower costs to Alaskans. He opined that page 19 of the legislation abolished the ANGDA board, which would become the AHFC board. He did not believe the action was consistent with voter initiative. A roll call vote was taken on the motion to adopt Amendment 9. IN FAVOR: Gara, Guttenberg OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule, Thomas, Stoltze The MOTION FAILED (2-7). 8:04:25 PM Representative Gara MOVED to ADOPT Amendment 11 [Amendment 10 was previously offered as an amendment to Amendment 3.]: Page 2, line 27 through Page 3, line 2 Delete all material Renumber the following subsection accordingly. Co-Chair Stoltze OBJECTED. Representative Gara explained that the amendment removed two sentences from the bill that he believed were inaccurate. First, it would remove "passage of this Act constitutes a finding of public convenience and necessity," given his belief that the legislature should make the finding. Second, it would delete that the project selected by AHFC was in the best interest of the state. He did not know how anyone on the committee could know that to be true. He stressed that future pipelines could be more attractive. 8:06:23 PM Representative Hawker testified in opposition to the amendment. He believed the amendment would reduce the effectiveness of the legislation. Vice-chair Fairclough noted that AGIA had passed in 2008; the state had been waiting four years to find out whether there was a valid project. She opined that the legislation provided a window for the legislature to look forward as it awaited information from AGIA. Co-Chair Stoltze recalled from Mr. Walker's testimony that AGIA had "put the nail" in ANGDA. 8:08:33 PM Representative Gara pointed to subsection 6, page 3, line 1 of the legislation and explained that it said the pipeline chosen by AHFC was in the state's best interest. He maintained that the legislature did not know what the pipeline would be and queried how anyone could know. He guessed that it was an unconstitutional delegation of authority. A roll call vote was taken on the motion to adopt Amendment 11. IN FAVOR: Gara, Guttenberg OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule, Thomas, Stoltze The MOTION FAILED (2-7). 8:09:50 PM Representative Guttenberg MOVED to ADOPT Amendment 12, 27- LS0075\K.18 (Bullock, 3/20/12): Page 4, line 5: Delete "Upon commencement of construction of" Insert "When designing" Co-Chair Stoltze OBJECTED. Representative Guttenberg explained the amendment. He read from page 4, line 5 of the bill: Upon commencement of construction of an in-state natural gas pipeline, the Alaska Gasline Development Corporation shall analyze additional gas pipelines connecting to industrial, residential, or utility customers in other regions of the state. Representative Guttenberg removed the language "upon commencement of construction" and replaced it with "when designing." He stressed that the time to determine the demand was during the design process. 8:11:02 PM Representative Chenault opposed Amendment 12 and maintained that it would add a huge cost to the legislation and was not the right time in the process. He related that once construction started the engineers responsible for the design would have time to look at designs for other possibilities and to bring them into alignment. Representative Guttenberg asserted that the designers would only need to look at the instate demand study that had been done and to determine whether anyone else wanted something. He discussed that there were infrastructure projects farther out than the Railbelt. He stated that it was never too early to understand what the project was prior to the commencement of design or construction. Representative Chenault observed that designing the project included environmental impact studies, right-of-way studies, and other. He believed the process was time consuming. He opined that design of gas distribution systems could occur during the construction process. Representative Guttenberg clarified that the amendment related to the commencement of design, not construction. Representative Chenault responded that designing the project had to do with the development of tariff rates from one location to another. He stated that the state could spend years designing different gas extension proposals to serve every community instead of concentrating the project at hand, which was the development of a pipeline project. 8:14:37 PM A roll call vote was taken on the motion to adopt Amendment 12. IN FAVOR: Gara, Guttenberg OPPOSED: Wilson, Costello, Edgmon, Fairclough, Joule, Thomas, Stoltze The MOTION FAILED (2-7). Representative Joule observed that he would have liked to see a tax cap on some communities; however, it had not fit within the legislation. The amendment would have resulted in a net zero and would have allowed two boroughs to function in a more fiscally responsible way. Representative Hawker appreciated the concept brought forward by Representative Joule and relayed his commitment to help find an appropriate legislative vehicle for the issue. TOM LAKOSH, SELF, ANCHORAGE (via teleconference), spoke in opposition to the bill. He felt that HB 9 may be premature given the possibility of the development of a line with natural gas. He was very concerned that there were not sufficient checks and balances in the legislation. He urged review of Cook Inlet development, the option to truck or rail LNG to Fairbanks, or propane from the North Slope. Based on the cost estimates he believed the legislation was a "boondoggle" that would serve no one but the builders. He hoped the committee would reconsider the legislation. He pointed to a potential Susitna dam project that may benefit from a superconductor; research showed that superconductors were capable of being run by LNG instead of liquid nitrogen. He believed the legislature should look at the entire energy distribution systems throughout the Railbelt in conjunction with other transmission schemes. He reiterated that the bill was premature. He discussed other energy resources including fossil fuels or electricity generation form. Representative Gara relayed that one amendment remained that he had worked with the sponsor on. He asked for the status. Co-Chair Stoltze responded that the committee would take up any remaining amendments the following morning. 8:20:23 PM Representative Wilson noted that the North Star Borough met during the evening and provided support for the legislation. Co-Chair Stoltze CLOSED public testimony. HB 9 was HEARD and HELD in Committee for further consideration.