Legislature(2015 - 2016)BARNES 124

03/06/2015 01:00 PM House RESOURCES

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
Moved CSHB 109(RES) Out of Committee
-- Public Testimony --
Scheduled but Not Heard
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
          HB 132-AGDC SUPPORT OF NATURAL GAS PROJECTS                                                                       
1:03:20 PM                                                                                                                    
CO-CHAIR NAGEAK  announced that  the first  order of  business is                                                               
HOUSE  BILL NO.  132,  "An Act  relating to  the  support of  the                                                               
Alaska  liquefied  natural  gas  project by  the  Alaska  Gasline                                                               
Development Corporation."                                                                                                       
1:04:18 PM                                                                                                                    
REPRESENTATIVE MIKE  CHENAULT, Alaska  State Legislature,  as the                                                               
sponsor, introduced  HB 132.   He paraphrased from  the following                                                               
sponsor statement [original punctuation provided]:                                                                              
     House  Bill 132  affirms the  policy direction  for the                                                                    
     Alaska Gasline Development Corporation (AGDC).                                                                             
     The Legislature set this policy  direction in 2013 when                                                                    
     creating  AGDC,  and  in  2014  when  approving  AGDC's                                                                    
     involvement in  the Alaska LNG [Liquefied  Natural Gas]                                                                    
     Project in conjunction with SB 138.                                                                                        
     HB 132  recognizes that  AGDC is  already engaged  as a                                                                    
     partner  on  behalf of  the  State  in the  Alaska  LNG                                                                    
     Project, which  is the project  most likely  to deliver                                                                    
     the greatest benefit to Alaskans.                                                                                          
     Because  the  Alaska  LNG Project  is  most  likely  to                                                                    
     deliver the  greatest benefits to Alaskans,  House Bill                                                                    
     132 ensures that AGDC maintains  its commitment to this                                                                    
     project  and   does  not   embark  on   a  duplicative,                                                                    
     competing project,  until the future of  the Alaska LNG                                                                    
     Project  is  more certain.  Per  House  Bill 132,  AGDC                                                                    
     would be free to pursue  other projects at the earliest                                                                    
     of  three  dates; 1)  if  a  party  to the  Alaska  LNG                                                                    
     Project  withdraws,  2)  if   the  Alaska  LNG  Project                                                                    
     proceeds  into  the  Front-End Engineering  and  Design                                                                    
     (FEED) phase, and 3), July 1, 2017.                                                                                        
     The legislation  further recognizes  that the  State is                                                                    
     prudent to maintain its back-up  plan, the ASAP [Alaska                                                                    
     Stand  Alone Pipeline]  project,  in  case the  State's                                                                    
     partners in  the Alaska LNG  Project fail to  commit to                                                                    
     the next  development phase,  FEED. Should  that occur,                                                                    
     AGDC  is  poised  to  re-solicit  gas  buyers  and  gas                                                                    
     sellers, and to upgrade  the ASAP proposal as supported                                                                    
     by the market.                                                                                                             
     To  avoid  a  duplicative  or  competing  project,  the                                                                    
     legislation prohibits  use of  the Instate  Natural Gas                                                                    
     Pipeline Fund to  pay for work on a  project that would                                                                    
     export more  gas than it  would deliver  instate. House                                                                    
     Bill  132  also  requires  AGDC  to  have  the  written                                                                    
     consent of a gas  owner/controller before attempting to                                                                    
     market that entity's gas to a third party.                                                                                 
     Keys to megaproject success  include the elimination of                                                                    
     competing    objectives,   and    the   alignment    of                                                                    
     stakeholders   along  a   single   project.  With   the                                                                    
     unprecedented momentum  to date  of the  aligned Alaska                                                                    
     LNG  Project,   contemplation  of   competing  projects                                                                    
     increases risk and uncertainty that threaten success.                                                                      
     This legislation  ensures that  AGDC retain  the course                                                                    
     set by  the Legislature in creating  AGDC and providing                                                                    
     a framework  for AGDC to advance  the state's interests                                                                    
     as a full participant in the Alaska LNG Project.                                                                           
1:08:36 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON said  that in his review  of the minutes                                                               
for House Bill  4 [passed into law in  2013, Twenty-Eighth Alaska                                                               
State Legislature],  just about every hearing  included reference                                                               
to the Alaska Gasline Inducement Act  (AGIA) and if the limits on                                                               
AGIA were lifted.  There was  never any discussion of capping the                                                               
amount that could be exported at  a number equal to what would be                                                               
consumed in  Alaska.  He asked  whether this provision in  HB 132                                                               
is a departure from what House Bill 4 intended.                                                                                 
REPRESENTATIVE  CHENAULT  deferred  to   Ms.  Rena  Delbridge  to                                                               
answer, saying she was one of the architects of House Bill 4.                                                                   
RENA DELBRIDGE,  Staff, Representative Mike Hawker,  Alaska State                                                               
Legislature,  replied   that  House   Bill  4   was  specifically                                                               
structured to  comply with  the AGIA  limitations of  500 million                                                               
cubic feet per  day (MMCF/day), but to also be  cognizant that in                                                               
the future  the time would  likely come at which  that constraint                                                               
was no longer there  on the volume.  Thus, in  House Bill 4 under                                                               
purpose, AGDC  was told to  pursue that 500 MMCF/day  pipeline as                                                               
described  in   AGDC's  project   plan,  with   modifications  as                                                               
necessary.  Through testimony,  "with modifications as necessary"                                                               
was intended to give AGDC  an opening should the AGIA limitations                                                               
no longer  apply to  increase the volume  of that  in-state line.                                                               
Secondly, in House Bill 4, the  ASAP Project under AGDC was never                                                               
contemplated as an  LNG project.  It was very  narrowly a project                                                               
to  get gas  to  Alaskans  because producers  with  the gas  were                                                               
working already on  another project that at the time  was a Lower                                                               
48 line, but also during  that time was slowly transitioning into                                                               
an LNG  project.  Therefore  the backup  plan was really  for the                                                               
legislature to consider  the pressing needs of  Alaskans in their                                                               
communities in  having a  low cost,  reliable, secure  gas source                                                               
and  not concerned  about export.    While it  was possible  that                                                               
there might  be an export  tenant at the  end of that  line, that                                                               
was not part of the project.                                                                                                    
1:11:20 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  said it seems like  HB 132 contemplates                                                               
export, so what is being talked about is amount of export.                                                                      
MS. DELBRIDGE responded  HB 132 contemplates export  in the sense                                                               
of hope of avoiding a competing  project to the Alaska LNG export                                                               
project.   Announcements  indicate the  governor desires  to make                                                               
that  a  pipeline  that  supports  an LNG  project  that  is  not                                                               
affiliated with the  pipeline.  To avoid  creating that competing                                                               
LNG project that in-state gas pipeline  would be capped as to the                                                               
amount of gas going through the line that could go to export.                                                                   
1:12:12 PM                                                                                                                    
REPRESENTATIVE  HAWKER  said the  dialogue  behind  this bill  is                                                               
whether  it is  advisable  for  the state  to  establish a  state                                                               
sanctioned  pipeline  project  to  compete with  the  Alaska  LNG                                                               
Project  (AK  LNG).     The  bill  would   put  some  significant                                                               
constraints  around [the  state's]  ability to  compete with  the                                                               
Alaska LNG  Project.   He requested Ms.  Delbridge to  provide an                                                               
explanation  regarding the  difference in  the concepts  behind a                                                               
competing project and a backstop project.                                                                                       
MS.  DELBRIDGE  first  clarified  that  while  she  is  staff  to                                                               
Representative  Hawker,   she  is  working   with  Representative                                                               
Chenault on  HB 132.  She  answered that a backstop  project is a                                                               
project that  the legislature  and state  can go  to in  case the                                                               
number one  priority project that  seems to deliver  the greatest                                                               
possible   benefits  fails   to   materialize,   fails  to   meet                                                               
milestones.  It  is something to turn  back to in that  event.  A                                                               
competing project is something that  would likely run on parallel                                                               
courses,  perhaps almost  in a  time sensitive  competition to  a                                                               
finish  line to  a  point  in time  called  the final  investment                                                               
decision.  A  competing project will compete to  meet that finish                                                               
line, as well  as compete for resources, support, and  focus.  It                                                               
is  something  that  if  there  are  competing  projects,  it  is                                                               
difficult potentially for a party such  as the state that has two                                                               
competing projects  to fully commit to  one or the other.   It is                                                               
of critical importance  that all parties in a  project be aligned                                                               
and committed to following through on a given project.                                                                          
REPRESENTATIVE  HAWKER  said  HB  132 proposes  to  preserve  the                                                               
state's status  quo for a certain  period of time, which  is that                                                               
there  are two  projects.    One would  be  characterized as  the                                                               
backstop project and  the other as the main  or priority project,                                                               
the Alaska LNG  Project.  He asked Ms. Delbridge  whether this is                                                               
a fair characterization.                                                                                                        
MS. DELBRIDGE agreed it is a fair characterization.                                                                             
1:15:19 PM                                                                                                                    
REPRESENTATIVE HAWKER  noted the state  has a main project  and a                                                               
backstop project,  but now  the governor  is introducing  a third                                                               
and competing  project.  He asked  why the state would  even want                                                               
to have the backstop project to the Alaska LNG Project.                                                                         
MS.  DELBRIDGE replied  the state  backup, ASAP,  is an  in-state                                                               
pipeline that  would meet  the needs  of Alaskans.   It  would be                                                               
able to  meet supply and  demand within  Alaska and take  care of                                                               
things like  getting reliable energy to  Alaska's communities and                                                               
industrial projects,  such as large-scale mines  that are looking                                                               
for  reasonably priced  energy to  continue  with their  planning                                                               
operations, and  providing potentially lower-cost energy  to much                                                               
of the  state's population  along the  Railbelt and  the pipeline                                                               
route.   Maintaining  that backup  option  is wanted  to have  it                                                               
ready to bring back  on the table and ready to go.   There are no                                                               
guarantees that the Alaska LNG Project  is going to be built, but                                                               
everything  is looking  very favorable.    A few  weeks ago  this                                                               
committee  heard testimony  from the  Alaska LNG  Project sponsor                                                               
group that talked  about how optimistic the group  is that things                                                               
are on the right track and  proceeding as needed.  However, there                                                               
are market  realities and  ensuring that  the Alaska  LNG Project                                                               
actually  pencils out  on  a  commercial basis  once  all of  the                                                               
engineering work is  done.  It must be made  sure that buyers are                                                               
lined up at  a price that is  acceptable to the project.   So, it                                                               
is good  to preserve an  option for  Alaskans in case  the Alaska                                                               
LNG Project  doesn't materialize  commercially for the  state and                                                               
the producers.                                                                                                                  
1:17:21 PM                                                                                                                    
REPRESENTATIVE OLSON  asked whether  AGDC can statutorily  do the                                                               
liquefaction component.                                                                                                         
MS. DELBRIDGE  responded AGDC has  the ability to  participate in                                                               
the liquefaction  facility in conjunction with  an Alaska natural                                                               
gas pipeline  project, an Alaska  liquefied natural  gas project.                                                               
Right now AGDC's ability to  do liquefaction pertains directly to                                                               
a project  that brings in the  Prudhoe Bay and the  Point Thomson                                                               
gas; it  was loosely  defined as the  Alaska LNG  Project without                                                               
having a proper  project name to reference to.   There is nothing                                                               
that statutorily  prohibits AGDC  from participating in  that for                                                               
the Alaska LNG Project.                                                                                                         
REPRESENTATIVE OLSON  asked whether this  would also be  the case                                                               
with the governor's proposed new plan.                                                                                          
MS. DELBRIDGE  answered that, to  her knowledge,  statements made                                                               
to date indicate  that the administration doesn't  intend to have                                                               
AGDC participate in  liquefaction in the new project.   It is one                                                               
of the  many details that remains  to be seen.   She advised that                                                               
Legislative Legal  and Research  Services should be  consulted as                                                               
to whether  AGDC could  do that in  conjunction with  an in-state                                                               
natural gas pipeline.                                                                                                           
REPRESENTATIVE OLSON said this begs the question then of who.                                                                   
MS. DELBRIDGE replied  she believes that statements  made to date                                                               
by the administration have indicated  that a third party separate                                                               
from  the project  would.   Theoretically  that  could be  anyone                                                               
having title to  the gas at the  end of a pipeline  and that also                                                               
has the financial  wherewithal to build, maintain,  and operate a                                                               
liquefaction facility.  Presumably  that party would then liquefy                                                               
the gas,  store it, and ship  it to the party's  end-user clients                                                               
where they would get money for the LNG.                                                                                         
1:19:20 PM                                                                                                                    
REPRESENTATIVE SEATON noted that  in its legislative updates AGDC                                                               
has said  there is no  longer the  constraint of 500  MMCF/day so                                                               
the pipeline  that AGDC  is developing is  for 1.6  billion cubic                                                               
feet  per  day  (BCF/day)  through the  existing  pipe  with  the                                                               
existing structure,  which could  be expanded  to 2.5  BCF/day by                                                               
changing  the pipe  material.   He concluded  that this  backstop                                                               
pipeline  of 1.6  BCF/day means  there  would have  to be  export                                                               
because there is not that much  in-state usage.  He asked whether                                                               
HB  132 would  therefore constrain  AGDC from  doing any  work on                                                               
this larger sized backstop project.                                                                                             
MS.  DELBRIDGE  responded  the sponsors  don't  believe  it  does                                                               
because currently AGDC  is not pursuing the ASAP  Project as part                                                               
of  an LNG  project; AGDC  is  still working  on engineering  and                                                               
design to  take a project to  an open season at  which AGDC would                                                               
determine who  wants to sell  gas and who wants  to buy gas.   At                                                               
that point it  would be known potentially if there  is a customer                                                               
for export  that was  larger than  half the  volume of  the line.                                                               
However, the  legislature's intent  with Senate  Bill 138  was to                                                               
encourage AGDC to  slow down some of the work  on the backup plan                                                               
because,  in  passing  Senate  Bill   138,  the  legislature  was                                                               
essentially endorsing the state's  participation as a priority in                                                               
the Alaska  LNG Project.   So, yes,  theoretically the  line that                                                               
AGDC is  engineering without the  AGIA limitations could  carry a                                                               
much larger volume;  as well, it could carry  the smaller volume.                                                               
That volume  ultimately would depend on  who is there to  buy the                                                               
gas and  who is  there to  sell the  gas and  at that  point AGDC                                                               
would know if  a customer was intending it for  export.  It would                                                               
not feed an export facility, though.                                                                                            
1:22:24 PM                                                                                                                    
REPRESENTATIVE SEATON  expressed his concern that  the wording in                                                               
HB 132 could possibly constrain  AGDC's work going forward on the                                                               
current project should AGDC find  that 500 MMCF/day is uneconomic                                                               
and must  therefore go to a  project size of 1.6  or 2.2 BCF/day.                                                               
Based on  AGDC's reports  to the legislature,  he said  he thinks                                                               
the bill  would prevent  work on  the current  AGDC project.   He                                                               
urged the wording be looked  at carefully to avoid any unintended                                                               
MS.  DELBRIDGE answered  that the  sponsors will  re-evaluate the                                                               
wording.    She  offered  her  belief  that  from  the  sponsors'                                                               
position  part  of   this  becomes  a  judgement   call  for  the                                                               
legislature as to  whether it wants AGDC to  proceed with another                                                               
project  that  would  involve  liquefaction  until  it  is  known                                                               
whether The  Alaska LNG Project  is going  forward.  That  is why                                                               
that majority for export language  prohibiting an increase in the                                                               
size would go away  at those points in time coming  up when it is                                                               
known what the  future of the Alaska LNG Project  will likely be.                                                               
At that point in time the  legislature would be able to have AGDC                                                               
go ahead  and upsize the  backup plan  to however big  the market                                                               
could support.                                                                                                                  
1:24:27 PM                                                                                                                    
REPRESENTATIVE  HAWKER  said   Representative  Seaton's  question                                                               
segues into  his next concern  as the committee talks  about what                                                               
AGDC was  at the end  of the last  legislature and what  this new                                                               
third option is.   He requested Ms. Delbridge to  address what is                                                               
known by the sponsors about this third and competing option.                                                                    
MS. DELBRIDGE replied  very little is known about  this third and                                                               
competing option announced  [by Governor Walker].   To date, [the                                                               
governor's] press  releases are  where things have  been relayed.                                                               
An  opinion piece  laid out  an  initial concept,  followed by  a                                                               
press conference,  and that is  where the sponsors  gleaned these                                                               
details.   Generally  speaking it  sounds like  the third  option                                                               
would be  taking the in-state  ASAP line and increasing  its size                                                               
to  one  that would  feed  an  independent non-affiliated  export                                                               
facility, thus creating  an LNG project in which  the state would                                                               
only be involved in the  midstream - the gas treatment processing                                                               
and the  pipeline -  with third party  separate ownership  of the                                                               
LNG  export facility.   The  intent  was clearly  stated [by  the                                                               
governor] that these  two would both proceed at the  same time on                                                               
parallel tracks and that whichever  project is first to produce a                                                               
solid plan  and at  conditions acceptable to  the state  will get                                                               
the state's  full support.  Responding  to Representative Hawker,                                                               
she confirmed  that this is  a quote from the  governor's opinion                                                               
piece, and added  that the governor gave a little  more detail in                                                               
some  press conferences.   It  is  unknown exactly  how long  the                                                               
state would  pursue both these competing  trajectories, she said.                                                               
At one  point it  was mentioned  it would  probably be  until one                                                               
reaches  a final  investment decision,  which means  it would  go                                                               
through FEED and involve a lot  of permitting and people with gas                                                               
committing gas to the projects.                                                                                                 
1:27:04 PM                                                                                                                    
REPRESENTATIVE JOHNSON related he heard  the governor say that he                                                               
is going to  wall off the two projects.   However, he noted, part                                                               
of the  reason [the legislature] set  things up the way  they are                                                               
is  so  that information  could  be  shared  and not  be  working                                                               
competitively,  and whoever  ended up  with the  best deal  would                                                               
share the  information.  He  inquired whether costs would  now be                                                               
duplicated if the state goes through with competing lines.                                                                      
MS.  DELBRIDGE responded  AGDC is  the entity  to ask  about cost                                                               
estimates given it is the  most knowledgeable about what has been                                                               
done  to  date that  could  be  parlayed  into a  larger  project                                                               
feeding an LNG  facility.  She said the  legislature has invested                                                               
nearly $400 million in getting  AGDC from its initial scoping and                                                               
design concepts  surrounding the 500  MMCB/day line.   That money                                                               
was  intended  to  get  AGDC   just  to  open  season  where  the                                                               
commercial support  needed for  the project  would be  firmed up.                                                               
Some level  of redesign and potentially  some reengineering would                                                               
be needed to expand the amount  of gas going through AGDC's line.                                                               
If the  line is 36  or 42  inches, additional compressors  may be                                                               
needed.  The original ASAP  line had only one compressor station.                                                               
There  may  also  need  to  be  some  reengineering  on  the  gas                                                               
treatment  facility on  the North  Slope,  potentially to  handle                                                               
LNG-grade  instead of  utility-grade gas.   There  might be  some                                                               
permitting   and  right-of-way   complications   if  looking   at                                                               
additional compressors  and land  disturbance.  Therefore,  it is                                                               
difficult to put  a cost estimate on it.   She surmised, however,                                                               
that AGDC is working on that now.                                                                                               
1:29:11 PM                                                                                                                    
REPRESENTATIVE JOHNSON  said he  is not looking  for a  number as                                                               
much as he  is looking for the ability to  share what has already                                                               
been done.   If the new  project is walled off,  he presumed, new                                                               
information would have to be created  that may already be had in-                                                               
house.   He asked  whether the  new project  would have  to start                                                               
from scratch.                                                                                                                   
MS. DELBRIDGE  offered her belief that  quite a bit of  what AGDC                                                               
has accumulated,  acquired, and built  to date for ASAP  could be                                                               
used as  a basis for amending  ASAP into something larger.   That                                                               
said, the complications come related  to the relationship between                                                               
ASAP and  the Alaska LNG Project  where AGDC is concerned.   When                                                               
passing  Senate  Bill 138  last  year  the legislature  was  very                                                               
careful  that  in having  the  state  pursue partnership  in  the                                                               
Alaska LNG  Project that  the state  maintaining its  backup plan                                                               
would  not  be wasting  money,  duplicating,  being redundant  in                                                               
resources,  or  growing  government  that   way.    Quite  a  few                                                               
agreements were reached  between the Alaska LNG  Project and AGDC                                                               
that would essentially  govern what kind of  information they can                                                               
share  with  each other  and  on  what  terms.   Some  of  AGDC's                                                               
spending has  been for work  that would have  to be done  for the                                                               
ASAP Project  but is also needed  for the Alaska LNG  Project, so                                                               
there is some sharing and reimbursement related to that.                                                                        
1:31:00 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON, in  regard to  redundancy and  walling                                                               
off,  said  it seems  like  déjà  vu  from when  the  legislature                                                               
previously looked  at the same  kinds of questions;  for example,                                                               
sharing  of information,  redundancy, and  conflict between  ASAP                                                               
and the Alaska LNG Project.                                                                                                     
MS.  DELBRIDGE answered  that legislators  certainly had  quite a                                                               
few conversations  in this committee  and others related  to that                                                               
exact matter.   The difference at  that point was that  the state                                                               
was maintaining  ASAP as a  backup project  that would not  be in                                                               
direct competition with the Alaska LNG Project.                                                                                 
REPRESENTATIVE  JOSEPHSON noted  that  as recently  as this  year                                                               
there has been an effort  in committees to solicit testimony from                                                               
AGDC that  it is indeed  marching forward  with House Bill  4 and                                                               
that that project  is going just as strong as  it otherwise would                                                               
have  had there  not  been Senate  Bill 138.    He requested  Ms.                                                               
Delbridge to respond in this regard.                                                                                            
MS. DELBRIDGE replied that over  the past several months AGDC has                                                               
slowed some  spending on the  ASAP backup  plan in response  to a                                                               
requirement in  an Administrative  Order issued by  the governor,                                                               
but  AGDC had  already  started to  do  so prior  to  that.   The                                                               
project is  there and  going well,  but at this  point it  is not                                                               
something AGDC  is proceeding  with to an  open season,  the next                                                               
phase of that  project.  This is in part  because the legislature                                                               
directed  AGDC to  pursue the  Alaska  LNG Project  as a  primary                                                               
objective  until it  is found  out how  that project  went.   She                                                               
suggested AGDC  be asked about what  it is moving forward  and at                                                               
what rate.                                                                                                                      
1:33:16 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  noted that some legislators  think this                                                               
isn't  a  third project,  but  rather  the first  project  that's                                                               
morphed with  the lapsing  of the AGIA  limitation.   He inquired                                                               
whether it  is potentially true that  it would be in  the state's                                                               
best  interest to  have an  alternative  project for  negotiating                                                               
leverage  when  the producers  seek  concessions  from the  state                                                               
later this year.                                                                                                                
MS. DELBRIDGE  responded that  is potentially  true in  the sense                                                               
that that  is up  to individuals  and what  they perceive  as the                                                               
state's   competition  and   with  whom   the  state   will  need                                                               
negotiating leverage.  The sponsors  have thought at length about                                                               
who the  state's partners would  be in an  alternative LNG-geared                                                               
project, particularly  in light  of the governor's  comments that                                                               
the state  would need to  bring in market as  equity participants                                                               
in  the project.   There  is a  school of  thought that  says the                                                               
state is  going to  be negotiating against  the producers  on the                                                               
Alaska LNG Project for terms - yes.   There is also the school of                                                               
thought that if the state brings  into the project the people who                                                               
it will  be selling gas to  and wanting to negotiate  a good deal                                                               
with, those people would then  know the state's costs, goals, and                                                               
priorities, which  would basically  be pulling back  the curtains                                                               
and may not be the course  of action that is most prudent either.                                                               
A lot  of gas buyers, particularly  in Asia and Japan,  have been                                                               
buying into  LNG projects  all around the  world because  it lets                                                               
them understand the  project better and lets them  feel like they                                                               
can negotiate greater  reliability of supply as well  as a better                                                               
price  for the  gas that  they  are buying.   There  is also  the                                                               
question  of  who  the  state's competition  really  is  in  that                                                               
context.  The sponsors evaluated  some of the governor's comments                                                               
and realized it may not really  be Exxon, BP, and Conoco that the                                                               
state is  competing with on an  LNG project level, as  in whether                                                               
it is the British Columbia project  that goes first or the Alaska                                                               
project that  goes first.  It  very well may be  those buyers who                                                               
have actually  greater financial interest  in the West  Coast LNG                                                               
projects  than  the producer  companies  in  Alaska  do.   Of  18                                                               
projects currently being proposed for  getting gas off of Western                                                               
Canada, BP  and Conoco have  no interest in  any of them,  to her                                                               
knowledge,  and  Exxon  has  interest  in  one  project  that  is                                                               
generally considered  far down the  list of the top  three likely                                                               
projects to  move forward.   The parties  that do  have financial                                                               
ownership  interest in  those projects  that are  likely to  move                                                               
forward  off the  West Coast  are actually  some of  the Japanese                                                               
utility  buyers  and  also  some   of  the  trading  groups  like                                                               
Mitsubishi.  So, there is some  concern that the state might want                                                               
to re-evaluate who it considers is its competition.                                                                             
1:36:39 PM                                                                                                                    
REPRESENTATIVE HAWKER said a very  clear statement was heard from                                                               
the governor  that it is  the state's producer partners  that the                                                               
state would  be competing  with on  the West Coast.   He  said he                                                               
doesn't think  that holds  up when  the facts  are examined.   He                                                               
brought attention to a large  notebook containing the minutes for                                                               
the committee's  hearings last  year on  Senate Bill  138, saying                                                               
[the size  of the notebook] shows  how much time was  spent going                                                               
over in detail all of the  various aspects of where gas was going                                                               
to come  from, how it was  going to come, and  what the financial                                                               
modeling would be.  While going  through the minutes, he said, it                                                               
struck him  that the state's  North Slope gas has  been committed                                                               
to the Alaska  LNG Project.  He asked Ms.  Delbridge whether that                                                               
same gas can be committed  to a competing project.  Additionally,                                                               
he  pointed  out, the  U.S.  Department  of Energy  (DOE)  grants                                                               
export  license permits  for LNG  facilities.   He further  asked                                                               
whether the  DOE will  allow the  state to  permit simultaneously                                                               
two  facilities.   He also  asked  whether the  state can  really                                                               
compete if it  gets to the question of viability,  or whether the                                                               
state is just throwing good money after bad.                                                                                    
MS.  DELBRIDGE  answered she  will  take  the third  question  as                                                               
rhetorical.  Regarding  whether the state can  commit North Slope                                                               
gas to  a competing project if  it has already been  committed to                                                               
the Alaska LNG Project, she  said the legislature probably cannot                                                               
commit that gas to any project if  it is gas that has been leased                                                               
under contract to  the North Slope producers; that will  be up to                                                               
the  producers to  commit to  a project.   She  advised that  the                                                               
legislature will  have to  ask the producers  as to  what project                                                               
phase they feel they will have  firmly committed their gas to the                                                               
project.   She offered  her understanding  that if  the producers                                                               
enter into a FEED decision they  are committing their gas to this                                                               
project.  The  producers are working on  marketing agreements and                                                               
are getting ready to sign  some serious long-term agreements that                                                               
have implications.   If their gas is committed to  the Alaska LNG                                                               
Project the legislature is left  with the state's royalty gas, if                                                               
the state  in fact  chooses to  take royalty as  gas.   Given the                                                               
royalty gas is  12-16 percent, she said she  doesn't know whether                                                               
that is  enough to support another  pipeline.  As far  as whether                                                               
the DOE would grant two  export licenses simultaneously, she said                                                               
the Alaska LNG Project has applied  to DOE for an export license.                                                               
Some standards have to be met  for that:  the applicant must have                                                               
gas  that is  being committed  to the  project; the  project must                                                               
have some  certainty of happening in  the eyes of DOE;  and there                                                               
needs to  be an end  site, land, for  the LNG facility.   Because                                                               
export licenses  require things  like gas,  she said  she doesn't                                                               
know that  the legislature would  be able to have  another export                                                               
license for a  different project; that would be an  issue for the                                                               
DOE at some point.                                                                                                              
1:40:46 PM                                                                                                                    
REPRESENTATIVE  SEATON, in  regard to  having gas  to sell,  drew                                                               
attention to  the bill, page 3,  lines 23-24, which state:   "The                                                               
corporation may not  market gas owned or controlled  by an entity                                                               
other  than  itself without  express  written  consent from  that                                                               
entity."  He  inquired whether this language means  the state has                                                               
no gas  because it  hasn't committed to  taking gas  in-kind, and                                                               
that the state cannot go to open season or solicit market sales.                                                                
MS. DELBRIDGE replied this language is  in the bill to provide an                                                               
important distinction.   Under the  ASAP and Alaska  LNG projects                                                               
it  has never  been conceived  that  AGDC ever  takes control  or                                                               
ownership of the  producers' gas or the state's gas.   During the                                                               
committee's  discussions of  Senate Bill  138, the  Department of                                                               
Natural  Resources  (DNR)  and   the  prior  administration  were                                                               
adamant that  full control over  the state's gas was  retained by                                                               
DNR; DNR is the resource manager  and is responsible.  So DNR, in                                                               
conjunction with  the commissioner  of the Department  of Revenue                                                               
(DOR), would  be making the  decisions about  what to do,  how to                                                               
manage, and how to sell or dispose of the state's royalty gas.                                                                  
1:42:14 PM                                                                                                                    
REPRESENTATIVE SEATON understood Ms.  Delbridge to be saying that                                                               
the way the  bill is written the  state can go ahead  and have an                                                               
open season and market a project's gas  as long as it is not AGDC                                                               
marketing gas because AGDC will never own any gas.                                                                              
MS. DELBRIDGE responded there are  two different paths forward on                                                               
that for  the two  different projects.   Only  the ASAP,  the in-                                                               
state pipeline, requires an open  season.  The Alaska LNG Project                                                               
is viewed  as a federally  regulated feeder pipeline  straight to                                                               
an LNG facility.   The committee heard  extensive testimony about                                                               
keeping the supply  chain intact from production  to treatment to                                                               
pipe to facility,  and the need to ensure there  are no breaks in                                                               
that chain.   So, as an  LNG project, the Alaska  LNG Project has                                                               
followed  this  format.   For  the  ASAP  Project, AGDC,  with  a                                                               
transportation service  company, would  put forth a  proposal via                                                               
an  open  season  to  determine  the  demand  for  transportation                                                               
service and  who wants  to move  the gas.   It  could be  the gas                                                               
holder on  the North Slope  that wants to  move the gas  and then                                                               
sell it  to someone.   Or it could be  that someone wants  to buy                                                               
the gas on the  North Slope from a producer and  then pay AGDC to                                                               
move it.   So,  AGDC would  not really have  a marketing  role in                                                               
that  context, AGDC  would simply  be providing  a transportation                                                               
service.   In  the  Alaska LNG  Project, the  state  will have  a                                                               
significant amount of  gas that it needs to do  something with if                                                               
it takes its  royalty gas as gas, and particularly  if it chooses                                                               
to take  its tax  as gas.   Senate  Bill 138  specifically leaves                                                               
that authority  within DNR in  consultation with DOR.   There has                                                               
always been  the possibility and  the option  for DNR and  DOR to                                                               
essentially  contract  with  AGDC,  which  could  then  create  a                                                               
marketing  subsidiary to  market  the state's  gas.   That  said,                                                               
nobody has  stopped the  state from  marketing its  gas.   If the                                                               
state believes it  has gas because it  foresees a royalty-in-kind                                                               
decision or it  assumes the Alaska LNG Project  is moving forward                                                               
and so  the state  will also  have tax gas,  the state  can start                                                               
marketing  that  gas  today.     To  date  the  state  has  three                                                               
memorandums of  understanding (MOUs)  related to marketing.   The                                                               
administration  signed  an  agreement  with  the  Japan  Bank  of                                                               
International   Cooperation  (JBIC),   a  financing   entity  for                                                               
utilities in  Japan, to keep an  open dialogue on what  Alaska is                                                               
doing in terms  of an LNG project and what  the opportunities may                                                               
be.   The  former  administration  also signed  an  MOU with  the                                                               
Japanese  government's Ministry  of Economy,  Trade and  Industry                                                               
(METI)  to do  the  same  thing.   This  administration signed  a                                                               
cooperative  agreement  with  Resources  Energy,  Inc.  (REI),  a                                                               
company  that  is looking  to  link  Alaska's gas  resource  with                                                               
Japanese buyers.   So,  while those  dialogues have  been opened,                                                               
they only  move forward as quickly  as certainty is built  in the                                                               
project.  Not  until the state is prepared to  actually commit to                                                               
selling something through  a project it is  committed to building                                                               
is it able to get buyers to commit to buying on certain terms.                                                                  
1:46:00 PM                                                                                                                    
REPRESENTATIVE  SEATON said  those  agreements  were made  before                                                               
this would be a bill.  He understood  that if HB 132 was in place                                                               
it would limit  AGDC from being the marketer and  the state could                                                               
continue to market through the DOR and DNR.                                                                                     
MS.  DELBRIDGE answered  yes, unless  AGDC  receives the  written                                                               
consent of DNR  and DOR to go  market the state's gas.   She said                                                               
DNR  currently  has a  one-year  contract  with consultant  Audie                                                               
Setters, an industry marketing expert,  to help the state develop                                                               
the infrastructure  that will  guide the state  in how  to market                                                               
its gas as LNG to get the best possible returns to the state.                                                                   
1:47:18 PM                                                                                                                    
REPRESENTATIVE OLSON  asked why it  is in Alaska's  best interest                                                               
to be first in the market  on the state's gas rather than waiting                                                               
for  the producers  to do  it.   That  way, he  said, instead  of                                                               
looking  for somebody  wanting to  buy  the gas  at the  cheapest                                                               
price the state would have  somebody marketing the gas that wants                                                               
to get the  highest price for it,  which is in theirs  as well as                                                               
the state's best interest.                                                                                                      
MS.  DELBRIDGE  replied the  committee  has  heard from  multiple                                                               
experts talking about  those kinds of consideration.   There is a                                                               
lot that is going to go  into marketing decisions, but there is a                                                               
lot built into  Senate Bill 138 and the Heads  of Agreement (HOA)                                                               
that it  triggered that give the  state a lot of  options.  Under                                                               
Representative Tarr's amendment to Senate  Bill 138 last year, if                                                               
the state agrees  to modify a lease and take  its royalty in-kind                                                               
and adjust sliding scales, that  producer, that leaseholder, must                                                               
have agreed that it will take  the state's share of gas from that                                                               
lease and  make available to the  state the disposal of  that gas                                                               
on the same terms as the producer.   So, a lot of neat things are                                                               
built  in,  but  Representative  Olson  is  correct  about  being                                                               
careful on  how the marketing  is phased in, time-wise,  with the                                                               
status of the project.                                                                                                          
1:49:02 PM                                                                                                                    
REPRESENTATIVE  HAWKER requested  Ms.  Delbridge  to provide  the                                                               
sponsors' position in regard to  criticism that HB 132 would take                                                               
away the state's negotiating powers and is unconstitutional.                                                                    
MS. DELBRIDGE responded the sponsors  don't understand how HB 132                                                               
would  diminish the  state's negotiating  powers.   Is the  state                                                               
negotiating  with  the producers  and  so  it needs  a  competing                                                               
project?   It is difficult  to fully understand what  is intended                                                               
when  people  are saying  that.    Additional feedback  has  been                                                               
solicited  to try  to understand  this new  approach so  that the                                                               
sponsors can have  greater clarity on that.   If it's negotiating                                                               
powers in  relation to being  able to  market the state's  gas or                                                               
someone else's gas, then, yes, the  bill makes sure that AGDC can                                                               
only market gas  that it has permission to market.   The sponsors                                                               
don't believe that that curtails  the state's powers to negotiate                                                               
terms  with a  project.   As far  as being  unconstitutional, she                                                               
understood there  is concern  that HB  132 would  prohibit Alaska                                                               
from  developing  its  resources  for  the  greatest  benefit  of                                                               
Alaskans.  She said the bill  directs AGDC to continue on the two                                                               
courses that the  legislature has already seen fit  to commit the                                                               
state to  after hours of testimony  and process.  The  number one                                                               
purpose of AGDC in  pursuing any project is to do  so in a manner                                                               
that generates the  greatest possible benefits for  Alaskans.  It                                                               
further  encourages  AGDC  to do  projects  that  bring  economic                                                               
benefit and  that maximize the value  of the state's gas  back to                                                               
the treasury.                                                                                                                   
1:51:32 PM                                                                                                                    
REPRESENTATIVE HAWKER  said the  bill is  trying to  find clarity                                                               
and  interpretation.    Earlier  this  week  the  sponsors  heard                                                               
horrific  criticisms   of  HB  132,   he  related.     After  the                                                               
administration announced  its competing  project the  sponsors of                                                               
the bill  approached the administration and  requested in writing                                                               
some clarity on  these positions so this sort  of confusion could                                                               
be avoided.  However, he  continued, the response to this request                                                               
did not provide any clarity.                                                                                                    
REPRESENTATIVE CHENAULT confirmed that  on February 20, 2015, the                                                               
sponsors sent  a letter to Governor  Walker in which a  number of                                                               
questions were  asked in  regard to  the project.   The  March 2,                                                               
2015, response did not answer any  of the questions.  He said the                                                               
committee has the ability to put these letters on the record.                                                                   
MS. DELBRIDGE stated she will  provide the aforementioned letters                                                               
to the committee after today's hearing.                                                                                         
1:53:29 PM                                                                                                                    
REPRESENTATIVE TARR addressed the date  of July 1, 2017, included                                                               
in the bill,  saying she is concerned with including  a hard date                                                               
in case there is any slippage in the timeline.                                                                                  
MS. DELBRIDGE  answered the dates are  in there for a  reason and                                                               
the sponsors struggled  with what is the right date  and how long                                                               
to  wait  before moving  forward  on  the  state's backup.    She                                                               
explained  that  by July  1,  2017,  it  will  be known  what  is                                                               
happening with  the Alaska LNG  Project and whether there  is any                                                               
dissolution.   Provisions within  the agreements under  which the                                                               
parties are working  today allow for how to dissolve  and what to                                                               
do with  assets developed by the  project.  Then the  state could                                                               
move forward.   If the parties enter the FEED  decision, which is                                                               
expected as  early as first quarter  2016, then it is  known what                                                               
is happening with the Alaska  LNG Project and it seems reasonable                                                               
that AGDC's options going forward  would not be curtailed at that                                                               
point; the  horse will have  been picked.   July 1, 2017,  is the                                                               
ultimate  backstop in  case things  get drawn  out.   If time  is                                                               
needed  beyond  first  quarter  2016,  the  agreements  give  the                                                               
parties up  to a year to  iron out any lingering  issues that are                                                               
going to  be the deciding  factor for  them to invest  into FEED.                                                               
During  that time,  finalizing or  bringing to  the next  level a                                                               
preliminary  marketing agreement  may be  wanted so  it is  known                                                               
what  is needed  to make  that next  commitment.   Therefore that                                                               
sounded like a  reasonable time period that went  past the second                                                               
quarter 2017 when that drop deadline seems to be.                                                                               
REPRESENTATIVE TARR recalled that  some advance funding was given                                                               
and July 1, 2017, would be the  2018 fiscal year (FY).  She asked                                                               
whether that  date coincides with  when the  previously allocated                                                               
funds would run out.                                                                                                            
MS.  DELBRIDGE replied  she does  not  know when  the Alaska  LNG                                                               
Project funding  runs out.   She offered to get  that information                                                               
to  the  committee.     For  the  ASAP  Project,   she  said  the                                                               
appropriations simply  went to the in-state  natural gas pipeline                                                               
fund and  AGDC can draw  on that fund  as needed, aside  from the                                                               
current Administrative Order that curtails some of that.                                                                        
1:57:25 PM                                                                                                                    
REPRESENTATIVE  JOHNSON related  that the  question he  most gets                                                               
asked is a competing line  versus a backstop.  The administration                                                               
has proposed a  competing project, he said,  while his conception                                                               
of the ASAP  Project is that it  is a backup plan.   He requested                                                               
Ms.  Delbridge to  discuss the  difference between  a competitive                                                               
project and a backstop project.                                                                                                 
MS. DELBRIDGE responded:                                                                                                        
     Your  backstop is  something  where you're  essentially                                                                    
     saying if  X happens or  if X  does not happen,  then I                                                                    
     have Y to  move forward on.  It's an  either or, you're                                                                    
     looking for one to be  successful or not, for some sort                                                                    
     of point to be reached  before you go to your fallback.                                                                    
     The fallback in  this case was conceived  as strictly a                                                                    
     line that  gets gas  to Alaskans.   It  had to  have an                                                                    
     open season,  which means it  would be financed  on the                                                                    
     backs  of the  long-term commitments  from sellers  and                                                                    
     buyers  and shippers  of  gas rather  than  on a  state                                                                    
     subsidy  or  a  state  equity infusion.    A  competing                                                                    
     project ...  is something  that you're looking  to move                                                                    
     forward  on parallel  tracks.   That you're  looking to                                                                    
     see  whose [project]  you  can  push forward  farthest.                                                                    
     You're  looking for  advantage, you're  looking to  see                                                                    
     which  one turns  up something  optimal to  you in  the                                                                    
     end.   What that is  defined as  right now, as  in what                                                                    
     ends  up  being the  "best  project,"  we don't  really                                                                    
     know.   There  is certainly  concern from  the sponsors                                                                    
     that  the  state  competing  with  this  other  private                                                                    
     sector project  that the state  is a partner  in, there                                                                    
     is  ...  an  understanding that  we've  invested  state                                                                    
     resources  in  advancing  one project  and  wanting  to                                                                    
     protect the  progress of that  project in  that context                                                                    
     and  also protect  the value  of those  state resources                                                                    
     that  have been  invested  in it  to  date.   Competing                                                                    
     could deter  from that in  some ways, in  the sponsors'                                                                    
REPRESENTATIVE JOHNSON noted the state  is partners in the Alaska                                                               
LNG Project.                                                                                                                    
MS. DELBRIDGE  said the state  is a  25 percent partner  from the                                                               
gas treatment plant (GTP) through  the pipeline midstream all the                                                               
way to  the liquefaction, with  TransCanada as the  state's agent                                                               
in the midstream.                                                                                                               
REPRESENTATIVE JOHNSON maintained what  the governor is proposing                                                               
is that the state is competing against itself.                                                                                  
MS. DELBRIDGE  stated, "In a  partial project ... that's  the way                                                               
that it's been portrayed."                                                                                                      
2:00:20 PM                                                                                                                    
REPRESENTATIVE HAWKER  said the  state has  equity in  the Alaska                                                               
LNG Project.   He asked whether the statement that  the state has                                                               
a  minority position  in the  Alaska LNG  Project is  an accurate                                                               
MS. DELBRIDGE answered the state is  a full 25 percent owner with                                                               
three other 25  percent owners.  The only way  to conceive of the                                                               
state as  a minority partner  is to  lump together as  one entity                                                               
the other three partners, Exxon,  BP, and Conoco.  Those familiar                                                               
with  the industry  understand that  those  three companies  have                                                               
very divergent  interests and  don't always  agree on  things and                                                               
are not acting  as one entity in this project,  but as three very                                                               
distinct and  separate entities,  some absolutely with  their own                                                               
unique circumstances in  the Alaska LNG Project  related to where                                                               
gas comes from when.                                                                                                            
REPRESENTATIVE  HAWKER suspected  that collusion  by those  three                                                               
entities would  involve a certain  amount of fair  trade concerns                                                               
and anti-competitiveness.                                                                                                       
MS.  DELBRIDGE  replied she  imagines  so,  particularly when  it                                                               
comes to the interaction with the marketplace.                                                                                  
2:01:51 PM                                                                                                                    
REPRESENTATIVE HAWKER said that under  the Alaska LNG Project the                                                               
state  has  25  percent  in   the  GTP,  the  pipeline,  and  the                                                               
liquefaction  facility.    As  best as  can  be  understood,  the                                                               
competing project concept is to have  the GTP up north, the pipe,                                                               
and  then let  a  third  party own  all  of  the LNG  facilities.                                                               
Referring to  last year's  arguments in favor  of the  Alaska LNG                                                               
Project, he  noted that an  LNG facility is where  very low-value                                                               
gas is  converted to high-value LNG.   Even if the  state were to                                                               
embark on a competing project,  he continued, the question is why                                                               
the state would  give up the component of the  project that makes                                                               
the most money.                                                                                                                 
MS. DELBRIDGE replied that is the  crux of which the sponsors are                                                               
having a difficult time trying to  figure out.  It was very clear                                                               
through  Senate   Bill  138  testimony  that   that  liquefaction                                                               
facility  and the  state's participation  as a  25 percent  owner                                                               
commensurate with  the amount of gas  the state was able  to move                                                               
in this  project of its own  was truly the place  to increase and                                                               
build on the  value of the state's  gas.  To provide  that gas to                                                               
someone else to do from there  would be the state potentially not                                                               
maximizing  the  value.   Because  so  many details  are  missing                                                               
[about the competing  project], it is difficult  to make absolute                                                               
statements in  that context.   The third party  ownership coupled                                                               
with the concerns  of bringing market buyers in  as equity owners                                                               
in the entire GTP and  pipeline and the discussion of potentially                                                               
selling  them part  of the  state's gas  share is  going to  have                                                               
implications  on what  the state  ultimately reaps  from its  gas                                                               
from a project.                                                                                                                 
2:04:16 PM                                                                                                                    
CO-CHAIR TALERICO remarked  that at some juncture  the state will                                                               
get to a level  where it cannot try to sell  the same gas through                                                               
three different  projects.   There needs  to be  a clear  path to                                                               
move forward, he  said.  He surmised there is  a big advantage to                                                               
people  that  already  have a  vested  interest  and  substantial                                                               
investment to  be part  of a partnership,  rather than  to pursue                                                               
someone that doesn't have that vested interest at this point.                                                                   
MS. DELBRIDGE responded  the sponsors believe that  is correct in                                                               
that context.   Senate  Bill 138 provided  the structure  for the                                                               
state's participation in  the Alaska LNG Project.   The state was                                                               
able  to work  together with  the  companies that  have a  vested                                                               
interest  in working  long term  in  Alaska in  a framework  that                                                               
allowed everyone, through a lot  of negotiation, to get what they                                                               
need out of  things with the mutual goal of  getting Alaska's gas                                                               
into  market and  having returns  to both  the companies  and the                                                               
state.  The alternative is to  partner with people who have money                                                               
to pay  for the infrastructure  and want to  buy gas or  LNG, but                                                               
their  tie to  Alaska  would not  be  necessarily that  long-term                                                               
vested  interest  in  additional   North  Slope  development  and                                                               
leaseholds except for through their  current participation in the                                                               
2:06:24 PM                                                                                                                    
REPRESENTATIVE JOSEPHSON  stated that if  he had the  Senate Bill                                                               
138 vote  before him again he  would again vote yes  and he would                                                               
vote  yes tomorrow  as well.    He recalled  that enalytica,  the                                                               
consulting firm hired  by the legislature for  its expertise, has                                                               
said many times  that half of these projects will  fail.  He also                                                               
noted  that yesterday's  lead article  in  Larry Persily's  daily                                                               
download of  worldwide LNG activity stated  that British Columbia                                                               
will  not  be exporting  LNG  for  40  years because  of  various                                                               
problems.   He inquired as  to what  to tell his  constituents if                                                               
they  say the  state  isn't creating  a  bonafide alternative  as                                                               
allowed by  House Bill 4 when  it freed the state  from AGIA, and                                                               
that the state  is relying on something and its  only fallback is                                                               
500 MMCF/day, which  gets the state closer to a  state income tax                                                               
or a  state sales  tax because  the state  must have  the revenue                                                               
shown by enalytica and DOR, which is somewhere over $3 billion.                                                                 
MS. DELBRIDGE  replied that Representative Josephson  will answer                                                               
his constituents  as he sees fit  with what he believes  from all                                                               
of the body of evidence before  him and Mr. Persily's oil and gas                                                               
briefings.  The  sponsors' concern is that if  industry is unable                                                               
to  make the  Alaska LNG  Project commercially  viable, then  the                                                               
state  probably  isn't going  to  be  able  to  either.   If  the                                                               
producers  cannot make  it economic  and commercial  and do  this                                                               
project, the  state could consider it,  but the state may  end up                                                               
in  a difficult  position.   If  the state  wants to  do this  so                                                               
badly,  what gives  would the  state have  to make  to make  this                                                               
project happen that  diminish the value that the  state gets back                                                               
from it?   That's why the backup plan looked  to an in-state-only                                                               
line.   People  in Alaska  need lower  cost reliable  energy that                                                               
will also let economies grow and  industry start.  That is why to                                                               
date the state hasn't taken ASAP  into an LNG project backup type                                                               
scheme.  If the Alaska  LNG Project doesn't work economically and                                                               
commercially  in its  current component,  might industry  and the                                                               
partners decide that  they need to downsize it  somewhat?  Maybe.                                                               
Might  they decide  that the  market  simply isn't  there at  the                                                               
price required to  pay for the $45-$65  billion in infrastructure                                                               
to get  the gas  to the  markets?   It's possible.   And  at that                                                               
point it would  be hard to imagine a scenario  in which the state                                                               
could change  those dynamics in  a meaningful way  without giving                                                               
up the value that the state needs in return.                                                                                    
2:09:34 PM                                                                                                                    
REPRESENTATIVE  OLSON  said he  thinks  the  small diameter  line                                                               
would be reliable, but asked whether it would be affordable.                                                                    
MS. DELBRIDGE responded  it depends on who is using  the gas from                                                               
that line, what  they are paying now, and what  they expect to be                                                               
paying  in  the future.    The  ASAP  line started  truly  coming                                                               
together when  House Bill  369 passed  in 2010.   That  bill told                                                               
this group to study  an in-state line to see if  it could be done                                                               
economically.   Fairbanks  [still] has  tremendously high  prices                                                               
and  at the  time Southcentral  was looking  at some  real supply                                                               
concerns, to the point that utilities  were in a working group to                                                               
talk about  how to import LNG  to Southcentral.  At  the time the                                                               
direction to this team under  House Bill 369 was essentially that                                                               
it  has to  be economic.   Can  it beat  the anticipated  cost of                                                               
importing LNG  to Southcentral  Alaska?   That estimated  cost in                                                               
2011 was $16  or more at the burner tip;  the cost that customers                                                               
of ENSTAR  Natural Gas Company were  paying was around $9.   This                                                               
line could  get gas  to Southcentral at  $9-$11 depending  on the                                                               
engineering  features,  which  seemed  to  be  in  the  realm  of                                                               
economic.    The  benefits to  Fairbanks  were  potentially  more                                                               
significant  given their  burner tip  cost was  around $23.   She                                                               
said  AGDC has  upgraded some  of those  estimates and  while she                                                               
doesn't know what the current  estimates are she thinks the price                                                               
of gas in  that small line has increased a  little bit over time,                                                               
which is  to be expected  because of the several  hundred million                                                               
dollars  a year  of inflation  on  project costs  for every  year                                                               
waited.    She  offered  her  belief  that  the  legislature  was                                                               
convinced in passing  House Bill 4 that a small  line would never                                                               
be built unless  it was economic because buyers  and sellers were                                                               
needed to make the line happen.                                                                                                 
2:12:09 PM                                                                                                                    
REPRESENTATIVE  SEATON  recalled that  when  House  Bill 138  was                                                               
before the  committee he  proposed an  amendment that  would have                                                               
provided the  state with access  to all the information  that was                                                               
developed should the Alaska LNG Project  not proceed on time.  He                                                               
said he offered the amendment because  he was worried that if the                                                               
producers  decided  not  to  go  forward and  yet  never  made  a                                                               
cancellation decision, the  state would be stopped  and unable to                                                               
go  forward.   While the  administration then  negotiated to  get                                                               
that same thing,  it negotiated that any party has  access to all                                                               
the information for  free if that goes forward.   That's been one                                                               
of the  problems with AGDC  working on information that  would be                                                               
available to the  Alaska LNG Project - AGDC is  100 percent state                                                               
funded and yet  the information would all flow to  the Alaska LNG                                                               
Project.   He surmised that what  is being done now  is that AGDC                                                               
is only doing those things for  the project for which it is under                                                               
contract  and  being  reimbursed  such that  the  state  is  only                                                               
putting  in its  25  percent  of the  costs.    He requested  Ms.                                                               
Delbridge to address  why it is being said it  would be redundant                                                               
work if any work is done "on planning AGDC."                                                                                    
MS.  DELBRIDGE answered  AGDC is  currently  doing some  mutually                                                               
beneficial work  for which it  is being reimbursed by  the Alaska                                                               
LNG Project.  Less than $10 million  of work is going on that way                                                               
and is  generally geared toward  gathering data along  the right-                                                               
of-way that is necessary to  support the filings with the Federal                                                               
Energy  Regulatory  Commission  (FERC).   The  sponsors'  current                                                               
concern  with  redundancy is  their  fear  that if  ASAP  becomes                                                               
something other than  an in-state backstop, and  thus somewhat of                                                               
a  competing project,  the  state's partners  in  the Alaska  LNG                                                               
Project   may  require   additional  firewalls   and  regulations                                                               
governing what  data can  be shared,  how, and  on what  terms to                                                               
avoid  their data  on the  Alaska LNG  Project paid  for by  them                                                               
being used by the state via AGDC  on a competing project.  So, if                                                               
what  is being  developed via  the Alaska  LNG Project  cannot be                                                               
used by the state, even though the  state is paying for that as a                                                               
partner, the state would be forced  to also develop it on its own                                                               
if the  state is going  to be using  it for a  competing project,                                                               
unless there is  some agreement that can be  hammered out between                                                               
AGDC and  the Alaska LNG  Project partners allowing AGDC  to work                                                               
on a competing project.                                                                                                         
2:15:35 PM                                                                                                                    
REPRESENTATIVE SEATON  brought attention to page  2, lines 30-31,                                                               
of the  bill which  state that  the corporation  may not  plan or                                                               
take any  step to develop  an in-state gas pipeline  that intends                                                               
to export  more than 50  percent of the  gas.  He  understood Ms.                                                               
Delbridge to be saying that AGDC  could still work on the current                                                               
pipeline of 1.6  BCF/day because that pipeline  according to AGDC                                                               
is uneconomic  without export of most  of that volume.   He asked                                                               
whether it  is being  said that [legislators]  will kind  of hide                                                               
from this and  work will continue on that  pipeline pretending it                                                               
is somehow economic if none of the gas is exported.                                                                             
MS. DELBRIDGE  offered her  belief that AGDC  has all  along said                                                               
export or some  other large-scale industrial end  anchor.  Export                                                               
of LNG out of  Cook Inlet is an obvious answer  as an end anchor,                                                               
but other things could be  significant anchors, such as customers                                                               
like a  large mining operation or  the reopening of Agrium.   She                                                               
said [the  sponsors] will want to  follow up on the  concern with                                                               
AGDC  and with  attorneys because  the sponsors'  intent is  that                                                               
ASAP, an in-state  line as big as mandated by  supply and demand,                                                               
is still on the back burner.                                                                                                    
2:17:31 PM                                                                                                                    
REPRESENTATIVE JOHNSON recalled the  governor saying in the press                                                               
conferences that the  market came to Alaska in 2012.   He said he                                                               
would like some clarity on why  the market came to Alaska in 2012                                                               
but a pipeline isn't being built.                                                                                               
MS.  DELBRIDGE replied  she will  provide a  brief overview,  but                                                               
noted there is  a limit as to what is  publically available about                                                               
that event.  She said  TransCanada was the state's licensee under                                                               
AGIA and  per the statute  held an open  season in 2010  that was                                                               
ultimately unsuccessful.  According  to TransCanada's Tony Palmer                                                               
there  were  significant,  but   not  sufficient,  bids  to  move                                                               
forward.  Under  AGIA, TransCanada was required, up  to a certain                                                               
point in  the project process,  to hold a re-solicitation  of the                                                               
market every  two years.   A formal open season  wasn't required,                                                               
but  TransCanada had  to open  a nonbinding  window where  people                                                               
could  express interest.   So,  in 2012  TransCanada held  one of                                                               
those  solicitations of  interest.   At the  same time,  however,                                                               
plans were  already kind of shifting  to an LNG option.   In late                                                               
2011 the former governor asked  the parties - TransCanada, Exxon,                                                               
BP, and Conoco - to start working  together and to look at an LNG                                                               
option.   So,  when TransCanada  held that  2012 solicitation  of                                                               
interest, it put out two options  in its advertising all over the                                                               
world.   One asked about interest  in a Lower 48  pipeline, which                                                               
was  supported   by  at   least  three   years  of   Exxon's  and                                                               
TransCanada's work;  it had a  tariff, route design,  and volume.                                                               
The  other asked  about  interest  in an  LNG  export project  in                                                               
Alaska; it had no tariff, no  design, and no volume.  She related                                                               
that she heard  from TransCanada that the Lower 48  option had no                                                               
more  interest,  but there  was  some  market interest  from  the                                                               
producers  and  from  potential  buyers  in  looking  at  an  LNG                                                               
alternative.  Governor  Walker has said that  he, working through                                                               
the  Alaska Gasline  Port Authority  (AGPA), submitted  a letter,                                                               
presumably  representing clients  in  the  marketplace, that  had                                                               
interest in  a certain  level of  capacity should  TransCanada go                                                               
with that  LNG line.   She offered her  belief that to  date that                                                               
letter has never been released  and is confidential and therefore                                                               
it is  unknown who the players  were, how formal of  an agreement                                                               
they were  interested in entering  into, and the  volumes, terms,                                                               
and price.   She understood that outside of what  was involved in                                                               
that AGPA  letter, there were  some others that  floated interest                                                               
but said they wanted to be  involved but didn't have gas and that                                                               
to get involved they would need to find a gas supply.                                                                           
2:21:41 PM                                                                                                                    
REPRESENTATIVE  TARR noted  that the  state is  a partner  in the                                                               
Alaska LNG Project,  that ASAP is different, and  that this third                                                               
option is being  described as the merchant model  and is bringing                                                               
in the  buyers to help  with the  financing.  However,  the third                                                               
option, she said, is a bit  different than what Ms. Delbridge was                                                               
talking about in regard to pulling  back the curtains, but it may                                                               
have some  of the  same challenges  in that  financing mechanism.                                                               
She requested  Ms. Delbridge to  compare the  financing mechanism                                                               
of the  third option to the  other two options and  the strengths                                                               
and weaknesses among the three.                                                                                                 
MS. DELBRIDGE said  she will briefly discuss  the three different                                                               
options, but for  the relative strengths and  weaknesses she must                                                               
defer  to expert  analysts.    She said  the  Alaska LNG  Project                                                               
model, with  four owners  and four  pieces of  pipe so  to speak,                                                               
would  each be  generally  able  to finance  their  share of  the                                                               
project as  the owners individually  saw fit providing  they were                                                               
bringing  to  the   project  what  was  needed.     As  currently                                                               
contemplated, the  owners of  the gas  would own  a slice  of the                                                               
project commensurate with the amount  of gas that each planned to                                                               
ship in it.   In the ASAP Project, AGDC  was strictly providing a                                                               
transportation  option, like  a railroad  that provides  shipping                                                               
for  customers.   In that  case  AGDC would  be able  to sign  on                                                               
shippers in long-term firm commitments  promising to pay for that                                                               
pipeline space whether  or not they shipped, and  then AGDC would                                                               
be able  to take that  to the market  and finance based  on those                                                               
long-term  commitments.   Regarding the  third concept,  she said                                                               
not much is yet  known.  What has been heard  is that [the state]                                                               
would bring  in the  market for  equity in  the project  and also                                                               
sell them  gas; the parties would  be brought in and  would own a                                                               
piece,  similar  to  the  Alaska LNG  Project  where  Exxon,  BP,                                                               
Conoco, and the  state are owning a  piece of the project.   In a                                                               
way the  state is doing  that right  now with TransCanada  on the                                                               
midstream  in the  Alaska LNG  Project -  Alaska is  giving up  a                                                               
little  piece   of  its  ownership  in   exchange  for  something                                                               
provided.    If  Mitsubishi  was  brought  in,  for  example,  an                                                               
ownership  percentage   would  be   given  up  in   exchange  for                                                               
Mitsubishi  providing additional  capital for  that piece  of the                                                               
project.   She said there  are different levels around  the world                                                               
for  most projects.   Utilities  are  buying what  she has  heard                                                               
described as "slivers" of ownership, just  enough to be part of a                                                               
project  and understand  what is  going on,  not a  voting share.                                                               
There  are instances  where utility  consortiums, Mitsubishi,  or                                                               
co-ventures have bought more than  just slivers, maybe 16 percent                                                               
or higher,  and in those cases  she said she thinks  the terms of                                                               
each  individual  deal  would  disclose how  much  of  an  actual                                                               
working partner they end up being.                                                                                              
2:25:13 PM                                                                                                                    
REPRESENTATIVE  TARR said  that raises  a challenge  in that  the                                                               
state cannot  force the producers  to sell  their gas and  so the                                                               
state would  be limited  to its  roughly 25  percent share.   She                                                               
inquired whether that  has enough potential given  there would be                                                               
many fewer  slivers to sell  under that  and how the  state might                                                               
force a  situation that would  make that other gas  available for                                                               
sale.  She  said she cannot picture how the  alignment would work                                                               
in terms of getting enough gas to have a project.                                                                               
MS. DELBRIDGE  replied she thinks  the sponsors would  agree with                                                               
aforementioned.  In particular, the  gas must have been committed                                                               
to  the  project  in  order  to  have  the  sellers  involved  in                                                               
contracts that allow any individual  owner to provide the capital                                                               
and the  financing and  everything else that  goes into  making a                                                               
project happen.   The  state's share  on its own  is not  even 25                                                               
percent unless industry elects to pay  its tax as gas for certain                                                               
leases, so the state could have as  little as half of that at its                                                               
disposal.   The sponsors agree  it would be difficult  to support                                                               
another project based on only the state's share of gas.                                                                         
2:26:50 PM                                                                                                                    
REPRESENTATIVE  OLSON  asked  whether   he  heard  Ms.  Delbridge                                                               
correctly  that the  results of  the responses  to the  AGPA open                                                               
season were never released to the public.                                                                                       
MS.  DELBRIDGE explained  it was  a  TransCanada solicitation  of                                                               
interest in which  Governor Walker, through AGPA  in his capacity                                                               
as  AGPA's  counsel, she  believes,  submitted  a letter  voicing                                                               
interest.   To  her knowledge,  that actual  letter has  not been                                                               
made available.                                                                                                                 
REPRESENTATIVE OLSON  inquired whether the committee  could get a                                                               
copy of this letter, given this period of transparency.                                                                         
MS. DELBRIDGE  answered that  the sponsors  or the  committee can                                                               
make that request.                                                                                                              
REPRESENTATIVE  CHENAULT   stated  the  committee   co-chair  can                                                               
request a copy and, if received, can distribute it to members.                                                                  
CO-CHAIR NAGEAK directed staff to request the information.                                                                      
REPRESENTATIVE JOHNSON  commented that  the committee  could save                                                               
itself a lot of time if  the administration is in possession of a                                                               
letter that  would finance the pipeline.   He said he  would like                                                               
to see the letter and whether there is a market.                                                                                
2:29:21 PM                                                                                                                    
CO-CHAIR NAGEAK held over HB 132.                                                                                               

Document Name Date/Time Subjects
3.6.15 HRES HJR 8 - Sponsor Statement.pdf HRES 3/6/2015 1:00:00 PM
3.6.15 HRES HJR 8 - CSHJR 8(ENE).pdf HRES 3/6/2015 1:00:00 PM
3.6.15 HRES HJR 8 - Summary of Changes.pdf HRES 3/6/2015 1:00:00 PM
3.6.15 HRES HJR 8 - Fiscal Note.pdf HRES 3/6/2015 1:00:00 PM
3.6.15 HRES HJR 8 - AK Power Association LOS.pdf HRES 3/6/2015 1:00:00 PM
3.6.15 HRES HJR 8 - GVEA LOS.pdf HRES 3/6/2015 1:00:00 PM
3.6.15 HRES HJR 8 - RCA Summary on EPA's Clean Power Plan.pdf HRES 3/6/2015 1:00:00 PM
3.6.15 HRES HJR 8 EPA Clean Power Plan Fact Sheet.pdf HRES 3/6/2015 1:00:00 PM
3.6.15 HB 109 Fiscal Note.pdf HRES 3/6/2015 1:00:00 PM
HB 109
3.6.15 HRES HB 109 Legislative Legal Analysis.pdf HRES 3/6/2015 1:00:00 PM
HB 109
3.6.15 HRES HB 109 Sectional Analysis.pdf HRES 3/6/2015 1:00:00 PM
HB 109
3.6.15 HRES HB 109 Transmittal Letter Oil And Gas Litigation Settlements.pdf HRES 3/6/2015 1:00:00 PM
HB 109
3.6.15 HRES HB 109 ver A.pdf HRES 3/6/2015 1:00:00 PM
HB 109
3.6.15 HRES HB 132 Sectional.pdf HRES 3/6/2015 1:00:00 PM
HB 132
3.6.15 HRES HB 132 Sponsor Statement.pdf HRES 3/6/2015 1:00:00 PM
HB 132
3.6.15 HRES HB 132 29-LS0623 E.pdf HRES 3/6/2015 1:00:00 PM
HB 132
3.6.15 HRES House Letter to Gov AK LNG Policy.pdf HRES 3/6/2015 1:00:00 PM
3.6.15 HRES Gov Letter for AK LNG Policy.pdf HRES 3/6/2015 1:00:00 PM
3.6.15 HRES HB 132 Fiscal Note.pdf HRES 3/6/2015 1:00:00 PM
HB 132
3.6.15 HRES HB 132 - H Heinze comments 3.17.15.pdf HRES 3/6/2015 1:00:00 PM
HB 132
3.6.15 HRES HB 132 - The Alliance - Letter of Support.pdf HRES 3/6/2015 1:00:00 PM
HB 132