Alaska Legislature: Senate Finance - June 9, 2026 9:00am

Call the Senate Finance Committee to order. Today is June 9th, a couple of minutes after 9:00 a.m. Present today: Chairman Stidman, Chairman Olson, Senator Kiel, Senator Merrick, Senator Kaufman, Senator Cronkite, myself, Senator Hoffman. We have one item on today's agenda relating to the gas pipeline, which is a presentation by Enstar.

The presenter, John Sims, is the president of Enstar. Please introduce yourself and give us the lowdown. Thank you, Mr. Chairman. My name is John Sims. I'm the president of Enstar Natural Gas Company, born and raised Alaskan.

My kids are actually fifth-generation Alaskans. I've been the president at Enstar since 2017, and I've been with the company for 21 years. In my spare time, I'm a high school baseball coach, and I just want to give a shout out to the Juneau boys who came up to Anchorage and whooped up on some other baseball teams there and won the state championship. So congratulations to the Juneau team. But anyway, the real reason I'm here, I wanted to dive into NSTAR, I want, I want to touch on some foundational information that I think is really important for the committee and for the legislature to understand, and then dive into some of the Glenfarn contracts that we're currently working on.

So just to start off, hopefully some of you have seen this slide before. This slide represents a historical production profile on an annual basis. So you can see back in the '80s and '90s with roughly 300 BCF of gas produced on an annual basis. Significant volumes, and that's during the time when there was LNG export and also when the Agrium plant was up and running producing fertilizer that was also shipped out. Now for perspective, NStar on an annual basis, we deliver about 35 to 40 BCF a year.

So you can see, back in the '80s and '90s, someone in my position was typically sitting in their office with their feet up, having great days. It's a little, it's a little different today with the gas supply crunch. You can see in the, you know, 2026 timeframe now, the annual production coming from Cook Inlet is hovering right around 60 to 70 BCF a year. And that represents the total consumption by Cook Inlet natural gas users. So you've got all the utilities, and you've got the Marathon Refinery and also some production that's utilizing natural gas out there, but a significant decline since then.

So gas supply is really a function of two different things. It's about the annual demand, the annual volumes that you need, but also the daily demands. So for example, in the summertime, like on a day like today, the demand for Cook Inlet gas for NStar is hovering right around 40 million a day. When you look at the wintertime though, we have a peak design day of 320 that our customers potentially could use on those long cold spells where it's 20 below in Anchorage or in the valley. And so here we've got a little bit more compressed time frame.

We're showing 2010 to 2026, but you can see in 2010 we used to be producing on a daily basis, and when I say we, that's the royal we from Cook Inlet, the producer. Producers there, we used to be producing on a daily basis around 350 to 300 million cubic feet a day. So you can see that most of our customers' needs were met just coming straight from production. As that has transitioned over time, we are now in a place where we're getting about 200 million a day. And again, going back to what Enstar needs in the wintertime, it's upwards of 300 million a day.

So how do we serve our customers? We utilize natural gas storage that we can, you know, fill and make sure we meet that demand.

This is a really, really busy slide that I'm just gonna touch on a couple things. On the left, what you see is the variance on an annual basis for that daily demand that I was talking about. The heavy red line on the top represents what we call our design day. That's the scenario where extreme cold, prolonged winter days, our customer demand can reach up to 320. The gray bars represent what's typical for NStar.

So we don't always expect that 320, but we have to make sure that we have it just in case. On the right, what we're showing there is the variance on warmer temperatures. So you can see that weather selection, heating degree days. Anytime you get into the 10,000s or above, that's a really, really cold winter. For example, the last winter that we just got through was a cold, cold winter.

And you can see the annual demand there, about 37.9 BCF or 38 BCF. What's important here is the next year, 2029, and these are forecasted, the next year we're forecasting a warm weather. And you can see the variance NSTAR goes from needing 38 BCF down to 30 BCF. So there's a significant swing in demand depending on what that temperature may or may not be. That's really all this was intended to show.

So believe it or not, some of you may remember that the Cook Inlet was going through challenges before, back in 2008, 2009, back when the commission was rejecting natural gas contracts that the utilities brought to them. Marathon decided that they were going to shut down activity, and we started having a hard time getting natural gas contracts with the producers for our customers. So at that time, Enstar, Chugach Electric, and Municipal Light and Power, ML&P, hired Petrotechnical Resources of Alaska to do a study on what it would take from an activity perspective in the Cook Inlet to meet the demand of the utilities and Cook Inlet users going out to 2020. And just to quickly summarize there on the right, the bottom line is they figured that we would need about 185 wells from 2010 to 2020 to meet demand. That would require an estimated $1.8 to $2.8 billion of investment by a producer to go out and do that work.

And the bottom line, if there wasn't an average of 13.6 wells completed per year, that the shortage of gas would occur in 2018. That study you can find on the Petrotechnical Resources of Alaska website right there. I sent the link, but it's important and kind of interesting to see what actually happened since then. Uh, Hilcorp came in, and this was a slide I pulled from their presentation to House Resources this year in January of '28, and they show that in 2012 to 2025, Hilcorp produced over 750 BCF and drilled over 192 wells over that time frame. So again, good job by PRA in forecasting what the needs were going to be for activity.

They guessed 185. Turns out it was 192. And Hilcorp spent over $1.5 billion over that time to drill those wells.

This is just depicting and showing the number of wells that were drilled by Hilcorp versus the other producers. Um, and again, you can see a majority of the activity, especially in the last 5 years, has been from Hilcorp. I mentioned earlier that there are 2 things that are required for gas supply and meeting the needs of your customers. One is annual demand, so the BCF volume. The second thing is having the daily demand required for those peak swings.

The third thing is the balance sheet to actually go out there and drill 192 wells over a 10-year period. So it's important when you think about the other producers that are out there, um, you've got Fury, who has been doing a great job in the Cook Inlet. They are the second largest producer in the Cook Inlet, and you can see over the last couple years since 2011, they have drilled 14 wells. That's not the function of a lack of demand, that's the function of not having the balance sheet to go out there and do the activity that's necessary. They've done a phenomenal job.

As I mentioned, they doubled production from 10 million to 25 million a day. Reminder, NSTAR needs 320. So significantly far away from what we need to be able to serve customers.

Last slide that I pulled from Hillcorp. This is just showing prices. Um, these slides here— one, the top line that's kind of curving upwards. That reflects a since-expired consent decree that was reached with Hilcorp and the Attorney General in order for them to come in and acquire all the assets of the Cook Inlet. The bottom line represents the cost of gas that they've been charging to NStar and other customers.

You can see that's hovering around the, you know, mid-8s from a dollar perspective. The lower star there represents a contract that NStar entered into with Fury that we are receiving that gas today. The contract price was $13.69, and in the contract it said if we— or excuse me, if FURRY received royalty relief, the price would drop down to $12.30. So $12.30 is what we're paying under that contract. Because of the war— excuse me, because of the cold temperatures that we had this past year, we didn't have the gas under contract that we needed for our customers.

So we reached out to Hilcorp. They were able to give us another half a BCF of gas. That gas came at $16 per MCF. So the trend is going up, and we don't see any opportunity for that to be reduced from a cost perspective.

This is our daily delivery profile that we receive from Hilcorp. This contract expires in 2033. It represents about 80 to 90% of the gas volumes that we purchase on an annual basis. And you can see the significant swings there, uh, from the summer, fall, up to the winter, where we're receiving 162 million a day from Hilcorp. Again, uh, Fury's max production is 25 million a day that they're receiving.

So quite a far ways away from what we need.

Mr. Chair. Senator Cronk. Thank you, Mr. Chair.

Quick question. So if you buy gas at, let's just say, the $16, how much more does it cost to deliver that gas? Through the Chair, Senator Cronk. Good question. So the NStar delivery charge that's on top of that is right around $3 per MCF.

So for that $16 gas, you're looking at about $19 delivered. Now, the caveat to that is we take those prices and we bundle them all together and file them with the commission in what we call our gas cost adjustment. So it takes all of the volumes from what you're seeing here, which is right around $8.50, the $12.30 from Fury, and then that $16 gas, average it all together, and that results in a weighted average cost of gas of about $10.80 is what our customers are paying today. Senator Cronk. Thank you, Senator Cronk.

Senator Steadman. Thank you, Mr. Chairman. So we've been talking here at the table and having presentations and using 16 cents for this gas line we're talking about building, plus your additional fee. So the— Anchorage customers then would be looking at 19, 20 cents somewhere through the chair. Senator Stedman, so $16 per MCF is what's been talked about, not cents, right?

Yeah. So moving and transitioning to either a pipeline or an LNG situation, the dollars are upwards of $16 in any scenario that we're looking at today. And I'll get into those in more detail later on the presentation. Okay. Thank you, Senator Steadman.

Mr. Sims. Thank you, Chair.

So again, this is a presentation that Hex gave to ADA on May 13th of this year, just showing the production and the great job that they have been doing in the Cook Inlet. Again, doubling production from about 10 million a day upwards of 25 million a day. And right now we buy about 20 million a day. From HEX, and they have done a great job, but again, not enough to supplant the Hilcorp contract when it expires. Senator Kaufman.

I'm just wondering about that second red comment, and NSTAR elected not to buy gas? Through the chair, Senator Kaufman, yes, so that was during a time where we had a contract dispute.

They were interested in charging the price to consumers not inclusive of royalty relief, and we fought that pretty hard. Ultimately, we were able to work it out and started buying gas from them again. But it was the month of February where we stopped buying gas while we were in that contract dispute. Got it resolved and started buying again in March. Senator Kaufman, I guess the makeup— of the gas for that was out of storage, or what was carrying the volumes during that period?

Through the chair, Senator Kaufman, it's a great question. If you'll remember, we had a bit of a reprieve from a weather perspective in Anchorage. You probably don't remember because you're down here, but, um, and so it actually warmed up a little bit. Now, we did end up having to buy that additional gas from Hilcorp in March because of that, but it was a combination of gas coming from storage, gas coming from other producers and the fact that it warmed up in the month of February that kind of helped out with that situation. Senator Kaufman?

I was here, but I don't remember my gas bills going down. But anyway. Thank you, Senator Kaufman. Mr. Sims. Thank you, Mr.

Chair.

This slide is pulled from the Commissioner's final findings. And determination for Kitchen Lights Unit. And I've heard some discussion about the potential of royalty relief sort of saving the Cook Inlet and bringing more gas to market. And I don't— I don't think there's any doubt that it would bring more gas to market, but what's important is how much more gas would it bring. And so what this shows here is kind of a projection of the end of field life, which is the middle column there.

And you can see that that Scenario 5 normal price They thought that there was a possibility it could extend out to December of 2036 with the royalty relief granted. And in that scenario, if you go over one column to the right, you can see that cumulative production from September 2024, uh, to December of 2036 represents 68,369 million cubic feet. That equates to 68 BCF of gas. So over a 12-year period, with royalty relief, getting the equivalent of about 6 BCF a year. So again, not enough to meet the 35 to 40 BCF of gas that NSTAR consumers need on an annual basis.

And that doesn't even include the electric utilities who have additional requirements.

This is just a summary slide that shows, uh, on the black line, it reflects our forecasted demand. And then you can see all the colors there represent the contracts or the gas that's withdrawn from storage to meet that demand. So the green, whether it's dark green or light green, that represents our Hillcorp contract that expires in 2033. And you can see how that is meeting a significant portion of NStar's demand through that time. The red represents FURIE, and then that pinkish color represents FURIE gas that we expect to receive but isn't contracted for.

And then all of the blue is the gas that we pull out of storage, or in those warmer months where you can see it going below zero, that's where we're injecting into storage. So we're purchasing gas from the producers, injecting it so that we can pull it out during those colder times when the demand increases in the wintertime.

So now kind of getting into the meat of the presentation and probably what you're most interested in, that's kind of the plans for NSTAR over the long term. So first and foremost, we do have needs for additional storage. We have an application in with the, with the Regulatory Commission of Alaska for a predetermination of prudency that will allow us to develop additional storage for when that Hilcorp contract that expires and to accept more Cook Inlet production if it's available. The main focus though for us has been the Glenfarm agreements. We've been negotiating with them for about a year now, and we're negotiating a large gas supply agreement, which is a 30-year term.

And underneath that gas supply agreement, there are 3 main contracts. The fir— first contract is a framework agreement. It's got key definitions, but most importantly, it discusses the transition from the LNG import terminal to the pipeline and how that process is going to work and what the, what the, what the rates are going to be, etc. The LNG import terminal then is a separate agreement for just importing natural gas. Then you've got the Phase 1 pipeline, which is the in-state pipeline portion.

That's the third contract. NStar is not providing any equity for either of these projects. Back in 2024, we were contemplating making an investment in the LNG import terminal. And then on the floor in 2024, HB 307 Amendment 14, with the exception of one vote, the entire House voted to prohibit LNG facilities or infrastructure being recovered by utilities and rates. Now, that didn't eventually become law, but it definitely made our board step back and say, hold on, is this an investment that we want to make if we can't recover the cost from customers?

Ultimately, that amendment cost us about a year in planning, from a planning perspective, where we didn't have the opportunity to go forward with that. So we had to kind of shake things up. And now Glenfarnon is 100% on the hook for those LNG import facilities as opposed to us sharing that. One of the most important points, and I've heard a lot of discussion about protection from customers or for customers, There is no scenario in which a gas supply agreement with Enstar and Glenfarn is not filed with the commission. So we will 100%— as soon as I execute that contract, I will be filing that with the Regulatory Commission of Alaska for their review and for their approval.

A utility is not allowed to charge any rates or any fees on its bill without the approval of the Regulatory Commission of Alaska. So that will be going to the commission as soon as I've executed the contract.

Senator Steadman. Can the utility invest and take the risk of the Phase 1 pipeline as an equity holder? Through the chair, Senator Steadman, yes. It could. But again, to have it charged to customers, it would have to get approval from the RCA.

Okay. There's nothing that specifically prohibits a utility from making an investment. The question is whether or not you can collect those charges on utility bills. So what you're telling me is the regulator then would allow you to have extensive risk exposure unable to collect payment for it and bankrupt the utility? Is that what you're telling me?

If a utility chooses to make an investment in infrastructure, that is up to the choice of the utility.

In order for it to be recovered in bills, the commission would have to determine yay or nay on that. So there are investments that we make, granted not as large as a pipeline coming down from the North Slope, but there are investments that we make that don't have immediate cost recovery from an investment perspective. Okay. Senator Steadman. I'm sorry.

The commission could deem an investment imprudent and, you know, ask the question or call the utility to the commission to see if there's sort of managerial imprudence going on with an investment that they would make. But again, NSTAR is not contemplating any equity ownership or investment in either of these projects, the LNG import or the pipeline. Yeah, Mr. Chairman, so several years ago we were looking at a project going down the continent, and we were told by the administration that the utilities in the Midwest could finance it. And that was erroneous information. They could not finance it.

The regulators would not allow the utilities to extend themselves into that type of a risk exposure and basically put the rate holders on the hook. If you charge them or not, if it's a liability on your balance sheet, you got to feed it. So I would question that answer, frankly, that you've got the ability to extend the utility to the point of insolvency. I don't— and if that's in fact the case, then we probably have some statutory cleanup to do. Well, Senator Steadman, through the chair, as I mentioned, NSTAR has no intention or desire to invest in either project, and we will not be doing so.

So I think that, you know, the necessary review by the Commission is kind of irrelevant because there is no investment happening by NSTAR or its parent company for that matter. Right. Senator Steadman. Yeah, I think we can check into that. I think it's, I don't, I'd be shocked if you're able to do it if you wanted to.

The other point that I'm concerned about dealing with the rail belt, and I'm not a rail belt senator obviously, but we're supposed to look at the whole state, and that's the overall cost of the project. And there's a, opportunity for the gas line to be debt financed, the debt portion backed by the federal government with government-guaranteed loans on, I assume, default because they don't normally guarantee late debt service payments but against default, and lowering the rate of interest to the project. And my understanding is Glenfarm is not going to pursue government-backed debt financing. They're going to go into the private market. And if the spread is 100 basis points or 1%, because we've been told at the federal level it's going to be federal bond rate, if it's 20 years, it's plus 3/8, 20-year bond rate, or 30-year bond rate plus 3/8.

United States. So you just look up the rate, right?

So just say it is 1%. That is an extremely costly financial maneuver to whoever in the state has to pay for it. And the majority of it, if we're stuck with the in-state gas line, we don't get to Phase 2. Is gonna be the people in the corridor of the rail belt. And you're looking at significant amount of funds, like $110 million a year in debt service.

That's $110 million, adding $2.5 billion to the cost, $2.5 billion. So these are not small, inconsequential decisions. That are being made when you actually divert it to putting it in dollars. My concern is if we push the cost of this project up by $2.5 billion for the in-state line, $2.5 billion, the folks in the rail belt are going to be paying that bill one way or the other, even though we cap it at 16 cents plus 2% escalation. I think that's what the conversation is, is roughly what we're looking at.

Um, so when we're asked on one hand to give property tax relief, which I think is needed in some form— 20 mils was too high, that's 2% of the value— and there is no property tax on construction right now, it doesn't exist, it's in statute, there won't be— but at the end of that, there'd be the property tax would kick in. So if we give them, say, $150 million in tax relief, yet they cost us another $110, we only have a margin of $40. That doesn't make good business sense to me from a consumer's perspective. So I'm a little concerned about that. I don't know what the total dollars that we're asking are going to end up taking off the table for which wouldn't have been collected by property tax.

Clearly, like I said, there does need to be— 2 mills is way too high, too big of a strain on the cash flow. But you've got this other offset. So if we gave up $110 million in property tax collection, and it doesn't go to the state, it goes to the boroughs and all that, right? But I'm just using the aggregate numbers. Yet you go through a financing package that costs you another $110 million, you haven't moved the needle at all for the ratepayer.

So I think that we need to take a look at that. There is significant concerns when the loan— federal loan guarantee opportunity is not exercised.— and it's big dollars. And it's probably $2 to $2.5 billion.

Senator Steadman, through the chair, so those are all fantastic points that you raise and concerns for anyone that's investing or developing the project. From my perspective, and one of the reasons why we've taken the better part of a year to negotiate this contract, my job is to ensure that my kids and my kids' kids have low cost of energy. And so when I evaluate and negotiate this contract, it doesn't matter to me what the project cost is. It only matters what the price I can receive through this contract as it relates to the alternatives for receiving natural gas in the community. And so that, that's what I balance.

I balance a contract for a price per MCF with a certain inflation factor what that price looks like over a long period of time, which is 30 years, and how that compares to the other alternatives. And NSTAR has spent over $4.5 million on analysis, demand studies, worldwide RFPs to bring in the best of the best to meet our customers' needs. And this is the project that's selected— that we selected because of the potential it has to reduce the cost of energy and how it compares to the other alternatives. So all those points that you're making are 100% legitimate points, but they're for the developer and those on the other side of the negotiating table. From my perspective, I care about cost, ensuring that my customers don't have any cost overruns that they're going to be burdened with, and then the term and the service, so the reliability of that contract, again, as it compares to the other alternatives.

And in our review, there are no other options options that we can have that will have the potential to reduce the price of energy. The price of energy that we're going to be receiving if there is no export facility is 100% going to be a challenge, but so is imported LNG. So when we review the options, you know, I've been saying it for years, neither of them are good for the state of Alaska, but it's unfortunately the only way we can have reliable energy to our homes and to our businesses in south central Alaska. Senator Steadman. I'm warming up the table this morning before I leave town to Energy Council here at the end of this meeting.

Is in your contract, is there opportunities to have openers so you can renegotiate in the event that costs actually come in lower and/or the cost of your escalating amount, if it's 2% a year, is what we've been kicking around, whatever it is in that range, is substantially less than inflation or other economic trends that maybe delink that? Or is this contract put your feet in concrete blocks for 30 years with no reopeners? Senator Stebbins, through the Chair, I have not executed this contract yet, so everything's fair game at this point. Granted, we have come to, you know, I'd say a majority of terms. But some of those options that you're talking about, in some ways to be flexible, this is a 30-year deal.

And so we need to ensure that we have flexibility for a variety of different situations because, again, ultimately, it's our customers that are going to be burdened with the cost and we want to make sure that we have the best contract we can on their behalf. I'd recommend that you put put in reopeners not to pierce the ceiling of 16% plus 2%, but to pierce the floor and go down. They don't have a project without you. And I would recommend to my rail belt colleagues that they encourage you to have reopeners so if there ever is an opportunity to move the price of energy down, You can exercise that if it's every 5 years, every 10 years, or some form. We made the mistake years ago, several decades ago, Mr. Chairman, of not having reopeners on our royalties.

And our royalty contracts on the North Slope are out of the '60s, early '70s. And they've been very, very expensive because of no reopeners. Senator Stammen, through the Chair. Every word matters in this contract. And we are seeking every opportunity, whether it's upfront or along the 30-year term, to find ways to reduce the cost of energy to our customers.

I love the ideas, and I'd appreciate if you kept them coming. So we'll take advantage of every idea we can and try to get those in the contract. That's it, Mr. Chairman. Thank you, Senator Stidmus. Senator Kaufman.

Thank you. And, Mr. Sims, I don't know if this is a place, but I think it's timely on the heels of those conversations of, you know, this project is— there's a number of essential worries. You have the concern that the project won't happen and then we'll end up being, you know, on bottled gas addiction basically. We'll be having to buy it and bring it in and all the cost and I would almost say embarrassment that that brings because we are Alaska and we've got a lot of it. So I think we, we need to avoid that if we can.

So there's concern if the project doesn't happen, there's concern if the project does happen that will somehow be open to cost overruns of the project and we won't be able to contain the cost to the consumer. And I know you don't necessarily have much to do with the total project cost overrun piece of it, But you're right in the middle of trying to assure that you have a reliable supply of gas delivered at the best possible cost. I don't know if it's going to come a little bit later, but I think it's one of the things that the people are most concerned about. They're afraid we're somehow going to give away the farm through tax relief to get a project going and we're still going to get expensive gas. There's just a lot of worry that we're not, we're not going to get you know, what the Alaska people deserve out of these conversations and agreements that are happening.

Can you explain a little bit the mechanism behind how ANSTAR and the RCA work together, of the deliverable that you have as a provider and that they have as a regulatory group, of how that all works together? And let's just surface that for the folks that are listening. Yes, Senator Kaufman, through the chair. So really great and important question and something that we've been, you know, over this 3.5-year timeframe, really trying to balance is first and foremost, you know, when the customers go to turn on their thermostats, there has to be gas in the pipes to do so. And so we've been struggling with that on a daily basis.

In the wintertime, the collaboration and coordination that's going on with the Cook Inlet producers and the other utilities is hourly during those, during those really challenging times. And so when we're looking at long-term solutions, we have to first and foremost find a reliable source of the commodity. And that's the challenge that we have in Cook Inlet today, is the firm contracts where where we have a producer that's obligated to deliver on a certain day at a certain time a certain volume are a thing of the past. There is no Cook Inlet producer that will enter into a long-term firm, and I mean truly firm, contract with NStar today. So, what are the other options?

We've got LNG import and we've got a pipeline from some other place. If there was a non-Alaskans sitting in the NSTAR president's seat, the trigger would have been pulled a— probably a couple years ago on the LNG import solution. But I'm similar to you. It would be an embarrassment for Alaska to do that. So we're giving this a try.

And the solution that was presented to us, as I mentioned to Senator Steadman, is equivalent and in my perspective, from my perspective, better than the alternative solutions. So when we present that contract to the commission, the commission reviews a number of things, or should be reviewing a number of things. First off, what is the reliability factor of the contract? Is this something that our customers can bank on, that when they turn their thermostats on, it's gonna produce that energy for it? The second thing is the contemplation of term.

Some of the challenges and concerns about fluctuation in project cost or inflation, you know, those things Is that reasonable? Is a 30-year term a reasonable term for NSTAR to enter into? And then lastly, the price. You know, is that price competitive to the alternative options? And so when we present this in front of the Commission, we're going to have to make all those arguments and show them why we selected and executed the contract that we did.

And they're going to dive into that contract, and they're going to take a look and determine ultimately, is this better than the alternative options, and what are the ramifications? And this is something that is in statute. What are the ramifications if the commission rejects that contract. So that's what the commission is going to be tasked with doing. It is a major, major lift for them.

Um, it's going to be a challenge, and equally challenging is our presentation to them to show them that this is the best result for Alaskans, and again, the only project that has the potential to reduce the cost of energy down to $5, uh, which is equivalent to what we were paying back in 2006. So there's a lot of optimism with this project, with this contract, because it's getting us to a place back where our economies were thriving. I probably over-elaborated there, but I hopefully answered your question. I'm good, thank you. Thank you, Senator Kaufman.

Senator Steadman. Mr. Chairman, in my enthusiasm I misspoke a minute ago. I used an erroneous number that a 1% change in cost of debt would be $2.5 billion. $3.3 Billion. $3.3 Billion.

That's one heck of a lot of money over 30 years. And that's if it escalates 1% over cost of the federal debt, roughly. So I think it's an issue. And I think we need to have dialogue on that issue, Mr. Chairman, at some point. Thank you.

Thank you, Senator Steadman. Mr. Sims, please proceed. Thank you. So diving into just kind of operationally how an LNG facility would operate. And again, this is one of the contracts that we're close to executing.

You have about 3.8 BCF per cargo. You can see an example of the number of deliveries that would be required to get to the 38 BCF that we need. On the right, anything in orange shows a gap in storage. So we don't have the storage requirements as we sit today, which is why we're working on that with the commission to hopefully put something in place by 2027. But this is just really kind of a summary slide.

With a, with a picture there of kind of conceptual where that facility would go as it relates to the LNG property that is currently owned by Glenfarnon 8 Star. Diving into the price, which has been talked about recently, if you were to Google, and I did this yesterday, so when I say today it's $18 per MMBtu, You can Google JKM prices and it'll show you, you know, right away what they are today. JKM is the Japan-Korean Marker. It is, you know, one of the largest trading hubs for LNG. It's hovering around that $18 per MMBtu.

The one thing that you can be guaranteed of is that there's going to be volatility. So if you were to look at the JKM forecasts 10 years ago, and look at what the actuals were, it wasn't anything close to what the forecasts were. Shocker. It's a commodity. It's going to bounce up and down and be all over the place.

The question is, how high is it going to go as it relates to what the forecast has been? And recently, because of the, you know, different conflicts that have been going on and, you know, across the world, it's been challenged, as is every commodity price. You have to tack on a $1 per MMBtu shipping cost. And then what a lot of people miss out is, you know, they just focus on what the JKM commodity price is and they don't consider the infrastructure that's required to actually be able to receive the commodity itself. We don't have that set up in the state of Alaska today.

So when you look at that infrastructure that's required, it's about an additional 3 to 5 MMBTU in addition to the commodity price plus the shipping price. So when you're looking at the total all-in cost for LNG imports, assuming that the JKM forecast is correct, you're looking at somewhere from $16 to $22 per MMBtu. Um, again, when you compare that to what we're currently paying, it's $10.80. So you've got a situation where you have the infrastructure, you have the ability to accept LNG import. The question is, what's the commodity price going to be and how badly is it fluctuating, uh, either up or down.

That will be the determination of what our prices and what our customers are paying. Um, and from my perspective, uh, I don't like going to the commission and saying, here's our contract, here's what it looks like, and they ask me what's the price going to be in 2030. I have no idea, and I can't tell either the RCA or my customers what the price of gas is going to be in 4 years, because it's all dependent upon that market and that volatility. Senator Kaufman. Thank you.

Um, when you, you talk about the LNG terminal infrastructure, is that including the additional storage that's shown as needed on your next slide? Uh, Senator Kaufman, through the chair, that is not inclusive of the storage that's required. So you have to take that $16 and $22. This, um, this slide is intended to show what the replacement gas cost, the weighted average cost of gas, would look like. So we're going from $10.80.

You then take that $10.80 and add the $3 per MCF, which is the NSTAR charge for distribution of that service. Same thing applies to the JKM costs and the import costs. You have to add that distribution charge that NSTAR would be charging. Senator Kaufman. But I understand that additional storage is, is also a component of the LNG import because of the offloading dynamics.

Senator Kaufman, through the chair, that's absolutely correct. And that was the slide earlier. We need additional storage that will more than likely cost an additional $1 per MCF in addition to the $3 per MCF that NSTAR is currently charging. So that's where I was going. Yes, sir.

Thank you, Mr. Chairman. I think your explanation is reassuring on how you priced your— pricing your contract. We've been under the assumption since we've been working on this project here the last couple of weeks that NSTAR is using the imported LNG as a ceiling, for lack of a better word, to protect the ratepayers. So we understand that and appreciate that, so we're not concerned in that regard.

So you have options. So we— uh, Senator Steadman, through the chair. So, um, the challenge as we've been evaluating the, the different projects that have come before us, uh, you know, from LNG providers from across the world, and there's a big difference in distinction between the two. Uh, we know that we can control whether or not an LNG import facility is built. We can't do that with the pipeline.

So that's why we have the two contracts. And, and from a commercial eloquence perspective, the flexibility to, to bounce from an LNG import facility to the pipeline if it's built again for the potential of receiving low-cost natural gas, that's really the unique aspect that this contract brings to the table. If, if I'm entering into a contract with some other entity for just LNG import, I'm going to be entering into a 20 or 30-year agreement with them with no flexibility to bounce over to the AK LNG pipeline when it's built. And so that, that to me was, was, you know, sort of minimizing regret cost as much as possible. I, I'm forecasting the need for LNG import.

But if that pipeline's built, gosh, I would really be, you know, punching myself if that pipeline was built and here I am importing LNG and watching the gas fly right by. So that's why I really like the construct that we have set up with Glenfarm, because it allows us to take advantage of that pipeline when it's built.

Senator Steadman. No, that's— I just wanted to mention that because We've been working on this for several weeks and working under that assumption. So we were correct. Thank you, Senator Steadman. Please proceed, Mr. Sims.

Thank you, Mr. Chair. So hopping into the AK LNG pipeline and again, the delivery profiles, similar chart as we showed for the LNG import scenario. There's still the need for additional storage and, you know, the pipeline— everybody's seen the pipeline map, so they know where it's coming from. Hopping into pricing for the AKLNG pipeline as it sits, the fixed price at $16 per MMBtu, not subject to cost overruns, but it is subject to an annual inflation factor.

We're still in negotiations, as I've mentioned, so nothing here is set in stone. As volumes on the pipeline increase, the price to consumers decreases. And again, this is the only project that has the potential to reduce the price of energy.

I talked a lot about earlier the flexibility from a commercial perspective of bouncing from the LNG import facility over to the pipeline. And this third bullet really touches to that, is as contemplated in the agreement, in the framework agreement, when the pipeline is built, after a certain transition period, the AK LNG project will, will will buy the assets of the LNG import project. And why that's important is they're currently two independent projects. And if that wasn't set up that way, we would still have to pay for the LNG infrastructure even though we're not bringing in LNG import. So that's, that's the principle behind this is the AK LNG project will procure the LNG import infrastructure and assets that have already been built that will remove the cost obligation from the ratepayers.

And then we can transition over to the LNG pipeline. So from my perspective, it's a win-win for the consumer. Again, addressing the reliability aspect, we're building the LNG import terminal so we'll know we'll have gas for our customers. And if that pipeline project comes down, it'll procure or buy the assets that then resolve that issue. So, um, again, really optimistic about this and just wanted to make sure you guys had that information.

And I think that was my last slide, so happy to address any other questions. Thank you, Mr. Sittman. Senator Steadman. Thank you, Mr. Chairman. I think one of the critical factors that we're struggling with here is just volume.

The size and scope of the gas line at $18 billion with that 20% contingency added in the mid-value.

And 80% debt or whatever they're going to look at doing. But then when we look at how much gas the rail belt consumes, you're right under 200 million cubic feet a day, I think. Is that correct? And those economics, they're not close. They just don't work.

So there's got to be more gas buyers at the end. And when you you know, look at your business model and look around the rail belt, what do you see as potential expansions for, you know, your utility to sell more gas that are reasonably deliverable? Senator Stabenow, through the chair. So that point that you're making goes back to my comment about how we can't control whether or not a pipeline is built. Because we see the same thing.

The volumes for the utilities in South Central that they challenge the economics of, you know, a multibillion-dollar project. So that's why, you know, we're focusing on the LNG import first, along with the pipeline to support those efforts. As far as what additional demand do I see, I think we can get up to 500 million a day pretty quickly. That's 182.5 Bcf of gas on an annual basis. When you look at the opportunity from Donlin,, who is aggressively updating their cost estimates today.

That's a significant volume that would be attributed to the pipeline. When you look at, the potential for the Nutrien facility to come back online, they're a significant load. I believe twice the size of NStar when they were fully operating. The potential for some exports, back in February, which I'm, you know, hopefully you all have heard, the military sent out a request request for interest for developers to put data farms at J-Bear, at Clear, and at Eielson. Because of the interest, they moved that to an RFP, and those RFPs are due— or were due, I believe— May 30th.

So a data farm on any one of those bases significantly can impact the volumes to that pipeline depending on how large it is. I've looked through all the RFP documents. I haven't actually seen what it is. I believe it's dependent on the project that the developer is proposing. But a data farm volume on base is a significant increase in volume.

So as far as getting to the 500 million a day, I don't think there's going to be much challenge if we have access to reliable gas coming from the North Slope. Senator Steadman. I think Donnellan Creek is 30. So that's— gets you a little over 200, 220. That seems to be pretty likely.

We've had presentations on that with or without this gas line. The data farms definitely have some interest in big loads. Agrium needs low-cost gas and a billion-dollar investment, so I'm not so sure about if I'd bet the farm on that one.

But I thought it would be interesting just to see your perspective.

Senator Stemnath through the chair, just to elaborate a little bit more. So just speaking specifically for NSTAR, when you look at our growth, it's not going to get us, you know, up to the $500 million by itself. It definitely is going to take some large industrial customers to come online. We grow at about 1% a year from a customer perspective. Now, I have been asked as recent as late last year whether or not I had 30 BCF for a data farm in the Northern Division.

Obviously, I don't. But they were looking at, you know, developing something large in the Matsu. So there's definite interest out there. And we keep getting calls. Unfortunately, we're having to turn some customers away because we don't have the volumes for them.

Senator Steadman. Thank you, Mr. Chairman. I'm pretty sure to get to FID you have to have signed contracts, take-or-pay contracts. I'm not so sure we're very close to those for Phase 2. That will be something else we need to have dialogue about when we get to Phase 2.

Senator Steadman through the Chair, I can't speak to who may or may not be signing a contract soon, but I can just speak to our experiences and our current negotiations and things are going well. Thank you, Senator Stidman. Senator Kaufman. Thank you. Yes, sir.

One of the things that I've been thinking about a lot lately is if— so if we have this large volume potentially coming down in the future, the pipe is coming closer and closer and it's a done deal, I'm afraid we're disincentivizing production of what we have in Cook Inlet. Because the economic case for it, if it's about to be displaced, that will create more of a potential gap in local production and end up where we're trying to unstrand one resource, we're then suddenly branding another that is still potentially viable. And I mean, there's everything from jobs, you know, out in the inlet to local production. There's— it's part of the economic fabric of what we're doing. It's also part of our constitutional mandate to develop and produce for best use.

And one of the conversations that I want to have as we continue on this is how are we looking at that big picture. And it enters into the arena that you're in right now because if you have a contract that has no room to take gas that may arguably be cheaper, I mean, who knows, if there's no trap door there so that you could buy, if somebody can produce below that $16 plus inflation number, they can come in at $15.50 or whatever, if there's room there, I just hope what we're doing isn't structured so that it's almost just disincentivizing us to continue to produce and develop what we could otherwise be doing with the idea that it's futile, this thing's coming and we're buying gas and then we're just abandoning an otherwise valuable and important asset for Alaskans. So I hope that's part of the puzzle. I want to have a conversation. I don't know if it's with DNR or whoever.

Who's looking at that big picture? Because the AOGCC, they're looking at it with the blinders of— they're looking at pools. But who's looking at all of Alaska in this sense as pertains to this project and the economic displacement or loss of value that could be created as we do this? Senator Coffin, through the chair. So it is a challenge.

And, you know, I think you would hear from Cook Inlet producers, what do you expect me to do with all this talk about a pipeline coming down from the North Slope, imported LNG, you know, LNG? Am I supposed to be continuing to invest? I think, you know, from Enstar's perspective, our number one priority from a resource perspective is the Cook Inlet. When you look at how our system is designed, it wraps around the Cook Inlet because that's where we've been buying gas for 60 years. We want to continue to do that.

But the market is telling us today that it can't be reliable. And so we have to find another resource besides the Cook Inlet because it is not reliable. Hilcorp is drilling 27 wells this year. That's their, that's their projection. And that is to meet existing contractual obligations.

So again, going back to the balance sheet question, there's no other producer in the Cook Inlet that has the balance sheet to do 27 wells a year to meet the needs of the consumer. So I, you know, there's some of me, a part of me that feels badly for the Cook Inlet producers and the fact that their business line may be ending. But it's my obligation to make sure that I have gas for customers. And today it is not forecasted to come out of the Cook Inlet. So there's businesses that are growing, there's businesses that are failing, and I think we really need to look at why they're failing.

And, you know, I don't know that I can say much more than that about it. Ultimately, it's up to DNR to manage those resources. But if there's gas available on a firm basis from Cook Inlet producers, we will buy it. Senator Kaufman. Yeah, thanks for that.

I mean, it's a difficult situation. I just hope if there's a way we can navigate through it as elegantly as possible, that we do. And I, you know, right now you have firm commitments, and then you have, I guess, like peak load demands, other contracts, and the future may actually be inverted where you have kind of a baseline supply supply, but you also have a local take thing that if somebody can come in cheaper, they do. And, you know, even if it's smaller production, it's not baseload demand firm contracts. It's more— it's just flipping the current model, which is doing short-term to meet demand.

So it's a slightly different paradigm we're about to move into, but it would be a structure that could possibly allow all to participate until we're just— we're done and it's a done deal. Yes, Senator Coffman, through the Chair, we have an enormous challenge in the next 3 to 4 years meeting our customers' needs during this transition period. We had an enormous challenge this year. There was a time when I called the Governor and the chair of the RCA, and I said, if those temperatures that are forecast to materialize, we won't have the gas to meet our customers' needs. And that's only going to get worse.

As the risk increases, the angst and the stress increases. And that's usually not a good environment for utilities. We don't like to be presenting in front of Senate Finance on our inability to meet customers' needs. But that's where we're at today. We see a serious, serious challenge in the next 5 years, and we're trying to address it and fix it with a long-term strategy that hopefully is supported by the state.

But ultimately, these next couple years are going to be incredibly challenging, and it's going to need collaboration and communication from all the utilities and all the producers that we're currently doing. But again, The producers are a business. And if they don't see long-term viability for their investment, they might not make it. And that puts even more challenge and strain on us. So we're trying to manage all those things at once and come up with a solution so that we can meet our customers' needs.

But there are going to be more challenging times ahead for sure. Thank you, Senator Kaufman. Senator Kiel. Oh, Senator Kaufman. Follow-up.

We were talking about storage before, Singsa, and that's— there were some troubles, sand causing troubles, and there was some shortage of nitrogen, I believe, at one point in order to try and clear the bore. So could you just talk a little bit about what you're doing around reliability of that? Yes, Senator Kaufman, through the chair, it's a great question. It's an ongoing activity. So because of the pressure and stress that we put on the wells this year, withdrawing the high quantities of gas because of the demand that we saw, because the colder temperatures, we've had some sanding-in issues.

And, you know, one of the challenges I think you'll hear from a lot of the folks that are working in the Cook Inlet from an oil and gas perspective is is the limited access to service companies, to resources to actually do the work because there's not as much activity as there once was. So those service companies and those resources have slowly kind of gone away and found other ways to make money. So yeah, there's a premium mainly for time for certain resources and you gotta work your way into the schedule and you know when you have Hillcorp, who's doing 27 wells, thank them for that. But they're sucking up some of those resources. We have to get in line.

And same thing with Fury and Hex. We have to get in line. And when we can take advantage of the resources that are there, we'll do it and we'll fix things. We've been relatively successful, so we're not in a point right now where we're concerned. And we'll get things up and ready for the next withdrawal season, which is— coming up here in a few months.

Senator Kaufman. These are big things we're talking about here. It's really existential, you know, keeping gas flowing. And I— the presentation that you gave, it was showing additional storage. So I would assume that part of what helps maintain our storage well bores right now is the resources that are in Cook Inlet because of the work, so it's part of an ecosystem that I spoke of earlier.

So if we need additional storage and we develop additional storage, do you have a line of sight on what the maintenance network for that might be if we're not actively drilling? Senator Coffman, through the chair, it's a tough thing to forecast. You know, you don't know when wells are going to go down or when you're going to need to do maintenance on them. The need for storage is significant. Hilcorp is actively working on, you know, their storage projects.

Chugach Electric is, you know, looking at additional storage, and we obviously are as well. I think it's a critical piece to the puzzle. And what it would allow us to do today is whatever is produced— let's say HEX decides they want to do 4 wells. We will buy that gas and put it into storage and kind of save it for a rainy day from a reliability perspective. So it's going to be critical.

It's a huge piece to the reliability puzzle that we're trying to fix. And the resources and the services that are required, that's a piece that's going to have to be figured out along the way because you can't forecast when the needs come.

Thanks for that. It's just a big thing to think about, you know, not only creating it but maintaining it. The other thing I was going to mention, the talk of data centers, and so that's consumption, but the waste heat of that in Alaska, in Texas, that waste heat is a nightmare. How do you get rid of all that heat? And you have cooling towers, et cetera.

The waste heat of a center like that at a base, that could actually become a commodity that's then run through pipes and, you know, so it could be a much more efficient system than just the heat loss systems that we have in the lower 48 or in other temperate zones. So that would be an interesting thing if we did have that of how we could capitalize on that waste heat. And then the other thing as to the demand, and I don't know if this is something that NSTAR would ever play a role in, I've been in other locations where LNG is a fuel for vehicles to a much greater extent than it is here, where maybe a majority of the vehicles are running around with, you know, tanks in the back, but they're not gasoline tanks or diesel tanks. So I think there's an expansion of use that if we had the availability that we could look at, you know, that maybe just it's hidden. You know, you don't see what the demand might be, and part of that is because we haven't had the availability to fill it.

Senator Coffman, through the chair, so on the data farms, you know, as that picture gets clearer, I think all the utilities will look at how they can maximize That's what would be a fantastic industry coming to Alaska. So the, you know, the potential of, you know, utilizing that waste heat, you know, absolutely those things will be definitely run to ground and see if there's a way to take advantage of that. And then on the, you know, the different uses for LNG, there's a lot out there. Back in the day, Enstar used to have a fleet of CNG vehicles. Ultimately, the technology wasn't great, and so we went back— kind of the normal.

But definitely that's something that could be taken advantage of. You see it a lot in big cities with the LNG buses and those types of things. So maybe there's potential there. But I'm not sure how much that would truly increase demand. It would be something we'd have to look at.

Thank you, Senator Kaufman. Senator Keele. Thank you, Mr. Chairman. Mr. Sims, thanks for Thanks for coming and helping us think through some of these big issues and the challenges. I'm interested, similarly to Senator Kaufman, in some of the sort of bigger picture items, and I was struck by the number you gave for what NSTAR is needing to spend on having a couple of options.

Pipeline 1, Import 2. Can you help us out with some rough understanding of some of the options that you're not pursuing? So one of those comes to my mind might be, what would it cost your customer— what would it cost you for the gas, I guess, if you just went all in Cook Inlet? You said, I think on a previous slide you said one company has given you peaking gas at $14, another is hitting an emergency need at $16. Is that what it would be for the next 10, 15 years if you just said we're buying it all out of Cook Inlet?

Senator Kiel, through the chair. So we've thrown out the number $16 publicly for a number of years. We're— we paid it this year in 2026. We had one entity that was willing to give us half a BCF at that price. It's not price.

We can't go to the producers and say, "We'll give you X amount," and they'll go out and do it. The reliability is the cook-in, the challenge. Because they spend millions of dollars drilling a well and then don't get the production that they expected out of it. And so that means they can't commit to firm deliveries of natural gas. So it— a lot of people have said that, like, well, if you just make the price, you know, $20, $30, then development will happen in the Cook Inlet.

Well, if I were paying $20 or $30, I might as well be having a reliable source of gas coming down from the North Slope that's $16, or I might as well be importing LNG at, you know, $22, because at least I have the reliability component that the Cook Inlet is not providing today. So we can, we can talk a lot about increasing the price, but price is only as good as the alternative solutions that are out there. And ultimately, when we look at a long-term solution, we have to have our customers in mind. So, you know, I—. We've—.

We actually did a survey, uh, when this first started, uh, to customers. How much more would you pay for cooking with gas? And it was interesting Some of the responses we got, 10%, "Yeah, sure, you know, go Alaska." 20%, the numbers started getting a lot lower. 30%, It flipped. So when you start paying 30% more than what we're paying today, the consumer was not happy with that.

And so, you know, we took that to heart a little bit. The unfortunate reality is every solution that we're looking at is more than 30%. Whether it's imported LNG, whether it's pipeline gas, unless the export project happens. So, um, we could increase the price that we're paying to Cook Inlet producers. It has to be firm, and it has to be competitive to the alternative solutions.

Senator Kiel. Sure, and I appreciate the reason you're not going down these alternate roads. Yeah. But it helps me to sort of try and get some sense of what what they look like. The other would be on your slide 15, you talk about price volatility, you talk about today's JKM price.

With a long-term contract, I would think you could bring that down. Now maybe I don't understand the market. Obviously that locks you in, I understand that too, but what would that look like? Let's take the trolley, let's go to the neighborhood of make-believe just for a minute. What would— might that price look like if you said, "We are importing for the next 20 years"?

Senator Kiel, through the Chair. So it's a great question. It's one that we asked, and it's one that we've analyzed. So when you lock in to what is a daily traded commodity, they actually throw a premium onto it because they can't take a risk. Of supplying gas at a cheaper rate, and then all of a sudden the price spikes, right?

So it would be like, um, buying a gallon of fuel for $4, holding on to it, hoping to sell it to somebody, and then the price drops down to $2. They're not going to be able to sell it because they're trying to sell $4 gas. So that volatility on a longer-term contract is addressed by adding a volatility premium on there for the seller. So I think there's ways to get shorter terms, so maybe a 1-year, a 2-year, that, that limits that exposure to the volatility in the market. But a longer 30-year, I don't think you could find that on the market because there's no seller that would be willing to take the risk of what that volatility could be.

For example, on the JKM, when it was projecting to be in the $8 range and then all of a sudden sudden, you know, we had a war in Iran, that price shot up to $30. So whoever is selling that commodity at an $8, you know, missed out significantly on an opportunity there.

Senator Kyl. Thank you, Mr. Chairman. So it's, you know, my understanding of some of these projects like the export terminal, or export project we're all hoping to get to, is that you sign the take or pay, you have an opportunity then to lock in maybe a better price long-term. So am I fundamentally misunderstanding that? Does that take being an equity owner in the project?

Does that just take bigger volumes than NSTAR would buy? Senator Kiel, through the chair. So the long-term option, I think you have to look at whether or not the commodity is traded on a worldwide basis or not. The Alaska gas coming from the North Slope, for example, it's stranded. That's why you can set a fixed cost with an annual inflation factor, and it's not subject to those same fluctuations that LNG would be.

So I think the general principle or concept of locking into a long-term LNG commodity contract at a, at a lower or fixed rate than what the market is bringing, I think, is, uh, would, would be false. Okay, thanks. Thank you, Senator Keogh. Senator Steadman. Thank you, Mr. Chairman.

I'd like to shift gears a little bit and talk about the spur line to Fairbanks, because we've been looking at that and it appears that that line would have to be paid for by somebody outside of, you know, the in-state line. It's kind of like in-state line option A being the spur line to Fairbanks, but Fairbanks has their— they'd have to have a tariff on that line to pay for the $200 million plus or minus whatever it costs to build it. And then to buy the gas, and it looks like the rough numbers, they would be somewhere around 25 cents. Once they get the gas for 16, somewhere in that range, 24, 23. And when I'm just kind of curious if you can help us with any information dealing with the gas line to— or the spur line to Fairbanks, if there's other options or other arrangements that we need to be aware of, or— because we want to try to gasify that community also, but not put them at an economic disadvantage.

Senator Stabenow, through the chair. So, yeah, no, Fairbanks, You know, they've spent a lot of time and energy on developing the natural gas infrastructure in that community. A couple years ago they laid distribution pipe through almost the entirety of North Pole and Fairbanks, and we actually provided some resources to assist with that effort. We work closely with IGU to, you know, we're kind of like utility siblings. So we want to make sure that both are successful.

Getting pipeline gas to Fairbanks, from my perspective, is the only opportunity for that borough to really grow and prosper. So getting natural gas via pipeline is critical to that community. An example of that is IGU Fairbanks Natural Gas. They started in the late '90s, and I believe it was last year they just got their 3,000th customer. In 2014, uh, we expanded down to Homer, and last year we got our 3,000th customer.

There, there's a difference in price. Um, they're paying around $23 an MCF for trucked LNG, uh, to their communities, and the break-even for converting your home, uh, is quite a ways off because the fuel cost versus the LNG cost are pretty similar. So there's really not an incentive outside of convenience to convert over. So getting low-cost natural gas via pipeline will be critical to that growth. And the question on cost is the same discussion we're having today on the AKLNG pipeline.

It's going to require demand. So that's going to require Allison, Fort Wainwright, the university, some of the mines in the area for it to reduce the cost of that spur line over. We have done the engineering for that. It's about $180 million. To your point, there's some plus or minus, and there needs to be some contingency there.

But that $180 million estimate that we worked up is all the way to the power plants there in Golden Valley Electric. So they need demand. I am aware of some plans to convert Ilsen and some discussions to convert Wainwright over to natural gas. Which would be a huge lift for that community. Senator Steadman.

Yeah, just because the conversations we've had is the truck gas at $0.23 is about equivalent to what they're going to have to pay with the gas line gas with the spur line. Didn't appear to be much of a marginal difference there at all. So they wouldn't get the economic boost.

So I guess the question that we should actually take a look at on this is if you increase the volume in Fairbanks substantially, there would be more volume going through the spur line, right, to bring that tariff down. Then how much can we compress that price down from the 23 cents?

Senator Steadman, through the chair, if I were king for a day, how I would structure that if I were the Fairbanks community, we have infrastructure in place today. One of the reasons why they struggled so much in the interior was they didn't have what's called economy energy sales where the Southcentral Utilities produce energy and send it up the Intertie. So to your point about the high cost of the in-state pipeline to Fairbanks with a spur, if I were a member of the Fairbanks community, what I would do once a pipeline is built is I would have it sent up the Intertie. So have the local electrics in Southcentral send it up the existing infrastructure on the Intertie until the AKLNG project is exporting. Then build the spur line over, then you have access to the $5 gas and reduced cost, and that is really a benefit to the community.

But to the point about additional volumes and the spur line, don't do that until you have the low-cost commodity. Take advantage of the existing infrastructure. That's going to save ratepayers money and reduce cost and be a benefit to the entire rail belt. This is a follow-up. On the tariff, because there's cost of rolling in the tariff for the spur line of Fairbanks into the whole aggregate line, and that would have to be blessed by RCA.

Is that, in your opinion, or do you even want to venture opinion, likely or unlikely for RCA to allow that tariff for the spur line to be rolled into the rates of entire gas line or not. Senator Steadman, through the chair, so if it's in statute, that they're going to have to find a way to make it happen. I looked at the language a while ago, so I'm not up to speed on what it currently states, but I believe it was something along the lines of a reasonable sharing between the Interior and the South Central users of pipeline gas. It would be up to the commission to determine what that reasonable sharing is or looks like, But if it's in statute, ultimately, they're bound by that and they would have to come up with some kind of a solution. Senator Steadman.

Thank you. I'm not going to be able to attend the meeting this afternoon. I've got other meetings I've got to go to out of state. But I would like that question by one of my colleagues here to be asked directly to RCA this afternoon because I think it's a significant issue. So there's no misunderstanding as we go forward on how that spur line would be paid for.

In other words, you know, there's no potential disappointment because we want to have gas to Fairbanks for not only the economic issues but the air emission issues that they're faced with in the military bases.

Thank you, Cindy. Senator Cronk. Thank you, Mr. Chairman. I appreciate Senator Steadman, uh, bringing up the spur line. Um, obviously, um, in my mind, this big picture, this gas line is for Alaska.

You know, oil brings us revenue, right? Oil was never going to lower our energy costs because we just sell it. It's— we don't refine enough to, to, to make, you know, where we just sell it at a low price. But this is that, right? And, and I I agree the spur line is important, but I mean, we talk about paying for the spur line, yet we're going to spend $18 billion to have gas right to Southcentral Alaska at per se no cost to the ratepayer.

It's just coming. It's going to be paid for. So however we have to figure out how to do this, but there's got to be a bigger picture here. It's like my picture is, okay, are we going to bring this down to Southcentral? That's going to, you know, it's going to suffice.

That's going to take care of things. And we build a spur line to Fairbanks, but it's the after projects that could happen for the rest of rural Alaska that if you can connect or bring natural gas, even if it's just for generating electricity in some of our communities, to lower those costs. This is a win-win for everybody. So I just think we have to have a bigger picture. And, you know, I think it's up to Fairbanks to whether, you know, if they build a spur line, whether to have any tax on that line.

I think we need to make sure that Fairbanks has the opportunity to not have any tariffs or any taxes on their section of line so the ratepayers do get the lowest, you know, rate to be paid for. So that's just my opinion. But also, I, you know, there's one thing I really am pretty adamant about, that the legislation cannot be dictating what prices can be set. That is between producers and the buyers. I don't think the legislature should be sitting and making any decisions on, hey, we're going to set a rate, this is all you can pay, because like you said, the markets fluctuate.

That is totally out of most of our wheelhouses to determine those kind of things. Senator Crocker, through the chair, if I could just opine a little bit on that. I think, and I've said this privately to folks when I get a little bit of push back on it, but the— but the pipe— as a pipeline utility, if the large pipeline comes down from the North Slope, the lateral or the spur line to Fairbanks is an easy problem. That will happen because there is potential demand in that area that will push for that pipeline to happen. Now the cost, that definitely needs to be worked out, but a pipeline, a lateral of that size that diameter is a very easy job that we would happily do.

So I think that's going to happen regardless of whether or not there's legislation or not if the AK LNG project happens.

Now, speaking to the principle of the legislature, you know, price caps or, you know, kind of hopping into commercial terms, I think what's really important for folks, and we've had this challenge down at the RCA as well, where they kind of cherry-pick terms that they like or don't like. A contract negotiation is a process in which you give and take. And you don't just give or take on price. You give or take on a lot of operational, on terms, on opt-outs, as Senator Stedman was mentioning. And all those things impact the overall cost to customer.

So we have a tendency to just look at price. What's the price, what's the price, what's the price. But there are so many different components of a contract that make up the total cost. So to your point, principally, I agree 100%. It can actually hinder negotiation and progress by setting something like that in there, especially when we already have the mechanisms in place to ensure that there are protections for customers.

We are self-interested in ensuring that we have the lowest price possible. A lot of people don't believe this, but there are competitors to natural gas in South Central, whether it's fuel oil or electricity. So all of those things, if our price is too high, could be replaced by other sources of energy. And so just— it's really important. And then you have the commission, of course, that comes in and determines ultimately what gets charged to customers.

But the sole focus on price from a legislative perspective can be very dangerous because there are multiple components of negotiations and all of them ultimately drive the cost that results to consumers. But if you look at the alternatives that you mentioned, electricity or diesel, homeowners aren't in— many instances have the finances to convert, which is a reality. Mr. Chair, you are 100% correct. And we actually, in the very early stages of this, looked at what the cost would be for a natural gas customer in NSTAR service territory to convert over to electricity.

So, for example, let's, let's do Susitna-Wintana and, and provide low-cost energy electricity for folks so that they could heat with electricity. That cost was over $75,000 for one single-family home to convert over. The realistic situation is that, you know, homeowners don't have that kind of dollar to be able to convert their homes over to electricity. So that is a very valid point. Senator Kaufman.

Thank you. Talking about the Fairbanks situation with energy costs reminded me of the phrase that The future is already here, it's just not well distributed. And I think Fairbanks is serving as a spark plug for the engine of the pipeline proposal because they've already experienced the tremendous cost. So they're doing a good job of helping us to remember what might be in store if we don't make the right decisions on energy availability.

The question that I had for you is a little bit in the weeds different than what we've had. And I guess, how closely have you been able to look at what your actual tie-in— so assuming the pipeline gets built and it's down— of what your connection point is, geographically where that is? And, you know, Phase 1 and having a period of operations— Phase 1 assumes that there will be the isolations that allow us to run in phase 1 and then continue to build phase 2. So I'm just curious mechanically about what the tie-in points, the isolations that will enable a two-phase project and, and just how well sorted out, you know, that is, since that's key to the whole concept of a two-stage project. Yes, Senator Kaufman, through the chair, it's a great question.

So for both the LNG import facility, which will require a pipeline directly to our storage facilities and the Phase 1 pipeline project. Those have been engineered. We know exactly where the connection points will be. And so we've got that figured out. And I'm trying to think— I don't think there'd be any harm in showing you some of those if you're interested.

We can definitely send over that and show you exactly where the interconnection points would be. It is somewhat confidential just because we don't like to show connection points on our pipeline because of terrorism type. So I would bring it to your office and— or anyone here, but I don't know that I could show it on the screen. We're somewhat sensitive to showing our pipeline system publicly just for that point, but I have no issue sharing with that— sharing that with you. Thank you for that.

Do any other members of the Senate Finance Committee have questions for Mr. Simpson? Mr. Sims at this time. Any closing comments, Mr. Sims? Mr. Chair, just again, I want to thank the Finance Committee for the opportunity to be here today.

I can't stress the urgency that NSTAR is looking at a long-term solution. I get asked a lot when we are going to execute the contract, when we are going to submit it to the Commission. We will submit it to the Commission. When it is right for my signature. It is not right for my signature yet.

There are still terms that we are negotiating, and again, trying to get it in the best interest of our customers. So I would love to be able to say a date. I'm not going to. I've also been asked what I believe is appropriate taxing structure, and let me just say that that is way out of the realm of my responsibility. That is— the legislature's responsibility, and, and NSTAR and all of its employees appreciate the due diligence that you guys have gone through, the study, the analysis, and the contemplation.

We do need a long-term solution. We have selected Glenfarnon in this project as the one that is going to meet those needs for our customers in the future, and thank you for working diligently and some long, hard days on meeting your obligation to the state. So thank you very much for this opportunity. Thank you, Mr. Sims. We will be at ease until 1:30 this afternoon, at which time we will be hearing from the Regulatory Commission of Alaska.

We'll be at ease.