Senate Finance, 6/2/26, 9am

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Follow Senate Finance committee to order June 2nd we're in the State Capitol Senate Finance Room President today Senator Stedman, Senator Olson should be on his way. Senator Keel, Senator Merrick, Senator Coffman, Senator Cronk and myself, Senator Hoffman also in attendance. We have Senators Senator Riyant, Senator Bjorgman and Senator Myers attending the committee as well. Today we have a hearing on mega projects by Pegasus Global holdings. Consideration of Alaska LNG project.

The presenters this morning, Jeremy Clark, the Chief Operating Officer and Joe Miller, President and CEO of Pegasus Global who is online. Please come forward, introduce yourself and present the committee with what thinking projects are about. My name is Jeremy Clark, CEO of Pegasus Global holdings and Joe Miller is our President and CEO and he has called into this meeting as well.

First, brief introduction to our company. We have experience on a variety of mega projects. That includes services offered in the planning, execution and post execution phases of megaprojects, allowing us to have firsthand insights into the good and bad of megaproject delivery.

First, to set the stage on what exactly is a mega project. This term is. Thank you. This term is frequently used in the industry and it has common elements that are typically applied. Cost in excess of a billion dollars, multi year execution timelines, high political involvement in public interest, many stakeholders, many contractors and vendors, suppliers.

At its essence, megaprojects are very large projects that have very long implementation timelines. And the complexities of these projects along with their scale and development timelines means it is often very difficult to accurately predict their cost and schedule.

Taking it a step further, some within the industry have added the term gigaprojects to represent very large mega projects. With these generally defined as having capital cost of over 10 billion. With their size and scale, they become a class of project of their own. And you can see the common characteristics here. Essentially again, a gigaproject is a very large megaproject.

With that background on mega and gigaprojects, we can see that the Alaska LNG Project Center. Steadman, we back up slide four please. Can we go through the slides in more detail? Certainly. Would you like to start back on this one here?

Number page, page three. Yeah. Can you get the bullet points? Yep. Okay, so this is the common characteristics of what defines a mega project.

The main element that you'll commonly hear cited is the cost of $1 billion or more.

These projects have high benefits and correspondingly high risk. There's a multi year construction, typically it can be longer than a decade from the feasibility, planning through execution and startup. Of course there's heightened political involvement in public interest. With projects of this size and scale, with that comes many diverse stakeholders that can have substantial impacts on the project in a variety of ways. They also involve multiple prime contractors and vendors and suppliers to execute and typically have unique aspects or scopes.

So they're not just simply a bigger version of a smaller project. They really are a unique beast of their own. And with that, conventional project management processes and priorities often are not sufficient to address the issues that megaprojects encounter. Mr. Clerk, do you have an idea of the number of mega projects that are going on currently in the United States?

I do not. Off the top of my head, it would have to be, I would imagine, at least on the dozens, if not more.

Senator steadman. Thank you, Mr. Chairman. I think just as a reminder, decade and a half ago, or maybe maybe a little bit longer, probably somewhere in there, we had a. The legislature had a class on megaprojects for a couple of days in Anchorage. Then that was repeated maybe four or five years later, went through that class again.

Today we have a presentation that's, you know, 20 some slides roughly. But to go into the detail, these mega projects, it took two days going through that class, I think. I think it was two or three, something like that. And then maybe just to kind of set the stage here and then maybe we can have the presenter tell us who Pegasus is and if they've done any reports for us or what their involvement is before we get too far along in the presentation.

Mr. Miller, do you want to address Senator Stedman's point?

Certainly. Secret Global has often been engaged in supporting. Please identify yourself for the record.

Identify yourself for the record. Identify yourself for the record, please. Yes, for the record. Joe Miller, president and CEO of Pegasus Global.

Pegasus Global has often been engaged by entities that are large and complex projects, often mega projects that were $10 billion. So we support elements, regulators, states that are involved in those projects, either on the front end helping the owner to get approval to commence those projects, or during execution to monitor those projects on behalf of owners, regulators or state, then on the back end supporting the ultimate rate case where the owners seeking inclusion of those costs into rates.

They've been in existence for over 20 years and worked on a variety of project in that time period.

Thank you, Mr. Miller. Senator Stedman, I think the sound system in here is calling is about as good as the information we've been getting on this project Costs pretty much garbage. Can we maybe have Mr. Clark kind of give us that kind of a rundown from the best of his ability and then his than Mr. Miller, the chief, the president, chief operating officer can maybe fill in because I don't think the public can understand what's coming across the speakers. It's very, very difficult. Just mumble jumble.

Our speaker system in here isn't very good. I think he's on speakerphone.

Mr. Clark. Yes. Senator Sedman, through the chair to reiterate what Joe was saying, we've are often involved in mega projects at different points of the project, including pre execution looking at the readiness to execute during execution, monitoring the ongoing progress and post execution to support final regulatory filings. And also as any disputes that we may be assisting with. On the Alaska project, we were originally engaged back in late 2018 and performed a similar assessment of megaproject risks.

It also looked at the TAPS project and the lessons learned from that project that culminated in a report that I believe was delivered in early 2019. And then on this project we kind of paused our efforts for a few years and then were re engaged last year to give a couple presentations to the House and Senate Resources Committee on the similar themes of megaprojects and the risks and challenges they face. Senator Steadman, just thank you for the background.

I think we were very interested in a couple years ago bringing Pegasus back to do a review because the conversations in the building, Mr. Chairman, I don't think reflected the magnitude of the project in front of us. And the conversation seemed to hover around like we're going to build pothole repair or repaving a highway or some of the more mundane projects that we deal with constantly throughout the winter in our budgetary process. Not a project of this scale. So this is not a $300 or $300 million bridge or $100 million repave of Seward highway or anywhere close. And the I think it's important for the our colleagues to and the public to recognize the scale of what we're dealing with.

And it's hard to get your mind around billions of dollars. And just the project cost update I would expect is going to be well in excess of 10 billion probably tomorrow morning when we sit at this table after the meeting this afternoon or 20 from what we've been working with. Mr. Miller, is it possible for you to go to a hard line instead of using a speakerphone? As Senator Steadman said, it is very difficult to concentrate on what you're trying to say to the committee. I think it's very important that we hear from you in a more distinct and clear voice.

Senator Keel, is this more clear now? Yes, it is. Thank you, Mr. Chairman. I guess a question still on who we're talking to because I haven't met either of you yet.

Who does Pegasus tend to work for? Is it people who want to do these projects? People who oppose these projects? Regulators or governments who need to have a connection to these projects? Bankers who are looking at the.

Who are your clients? Thank you. Senator Keel, through the chair. Our clients vary really like the projects that we're involved with. Sometimes it is a regulator or a state entity, sometimes it is the project owner or developer.

In other cases it may be the contractor that's involved with the execution. So it is really across the board. Senator Kiel, thank you, that's very helpful. Mr. Chairman, having missed the class, I guess I am particularly interested here on slide three in these last two bullets in sort of, not necessarily the quantitative a billion, 10 billion, whatever the number is, but qualitatively, what. What is just different and why is it just different, if I'm understanding correctly about the scopes of these projects and how they're managed.

Senator Kiel, through the chair. The unique aspects, it really relates to the size, scale and then the interfaces and complexities. So these are very large scale projects, obviously. And then you have one piece that may be totally unrelated to a different piece, but because of the nature of it all being under one project, they can have a direct risk impact on each other if one isn't executed as planned, for instance. So it's really that the size, scale and then the complexity of all the different interfaces, as well as the internal and external factors that can influence the projects.

Senator Keogh. Thank you, Mr. Chairman. As my colleagues around the table would tell you, I tend to tell very long boring stories, which means I really like examples. So as we go through, if you could help to illustrate some of these things, it will help the way I think, help me get a sense of when you say this thing's not connected to that thing. What?

I'm not a project manager. Senator Kiel, through the chair. We do have examples of both common issues as well as a few case studies that we'll be diving into later in the presentation. Thank you. Please proceed.

And so again, looking at distinction between mega and gigaprojects. Gigaprojects is a term not super commonly used within the industry, but it has gained more traction just to kind of raise the distinction of a, quote, typical mega project versus one that is even more large and more complex. And you see that those factors here where a gigaproject May involve multiple megaprojects. They're often entirely transformational for the region and have maybe even national security type importance of the types of projects you're getting into with that scale.

So do you have in a decade how many giga projects and what was the last one that was a giga project that was dealt with in the United States?

To the chair. We were recently involved with reviewing the Vogel nuclear power plant down in Georgia. Units 3 and 4 that were completed a few years ago. That project, I believe, ended up at roughly $36 billion and took, I believe it was seven years longer than planned to complete. It was the first new nuclear project in the United States in many decades.

So it faced a number of challenges. And do you have access or can you provide the committee with the amount of overruns on that project in dollars and percentage?

I would. I could take the initiative to research that information and deliver back to the committee. I don't have that off the top of my head. Thank you, Senator kiel. Thank you, Mr. Chairman.

I think you. I appreciate that you gave us an example of a project that Pegasus was involved in that has come to fruition. I believe that nuclear reactor is making electricity today.

At the same time, if memory serves, there was another comparably sized traditional nuclear light water reactor nearby that got some billions in and they pulled the figurative plug. Right. They stop the project.

As you go through it would be really helpful to get a sense of what the things are that make these projects go and what the things are that make these projects stop. Because obviously some of them do get done.

This is Joe Miller again for the record, president and CEO of Pegasus Global. So I live in South Carolina and I followed that nuclear plant that did not come to fruition. It was mentioned, I believe that is BC Summer Units 2 and 3. And so the BC Summer Nuclear Plant that was being built along with Vogel 3 and 4 were being built around the same time period. In parallel, Vogel 3 and 4 was completed DC Summer 2 and 3.

Approximately $9 billion had been incurred on that project at the time the plug was pulled on that project.

And so that's an example of two large projects. One got completed, one did not. One had significant stranded investment to deal with. Senator kiel. Thank you, Mr. Chairman.

I don't know if you have a point later in your presentation that would be good, but I'd love to know more about what separated the two. Why a success and a failure. Senator Kiel, through the chair, I personally haven't looked into the one that was canceled so much on Vogel. We Spent I think close to a year reviewing that project in quite detail. So I. I'd be comfortable speaking to Vogel, but unfortunately I don't have a lot of insight into the canceled project.

Senator Merrick. Thank you, Mr. Chairman. Has there ever been a project that. Included three giga projects?

Senator Merrick, through the chair. It's certainly possible. I am unaware off the top of my head. Again, it kind of goes into what you're classifying them as. There's not a hard definition for a mega verse giga project.

These are just the common kind of elements to them. Thank you. Thank you, Senator Merrick. Further question of the committee, Senator Steadman. Yeah, I'd like to go through these line by line.

I don't like the skipping over things. I think the public has a hard time following the conversation. So could we go through under scale each of those cells and drop down to Governance and go through each of those cells? Sure. Senator Steadman, through the chair, I'd be happy to do that.

Starting at the top here. The cost of megaprojects, again is typically defined within that 1 to 10 billion capital cost range. For GigaProjects, you're looking at 10 to 100 billion or more in capital cost.

For the scale of a megaproject, it's typically a large single asset or tightly integrated set of assets. For gigaprojects, it may involve multiple megaprojects within the overall scope and may represent a strategic transformation by the project sponsor.

For the governance on megaprojects, it's often an owner team with EPC or EPCM contractor that form the core project governance, which is typically focused on project controls. Senator Steadman, I don't understand code epc? I have no idea what you're talking about. Senator Steadman, through the chair. EPC and EPCM are types of contractors that perform services on these large and complex projects.

EPC is Engineer, Procure and Construct, or EPCM is Engineer, Procure and Construction Management. The EPCM performs more of a project management type function where the EPC is more focused on the delivery of the physical asset itself. Senator Steadman. And then our project here that we're looking at what I assume it's the GIGA project classification. That's where we're going to head down after we get through this slide into the project.

Senator Sidman, through the chair. Yes, we've. We consider the Alaska LNG project to be a giga project.

Senator Stedman. Yes. And then can we continue on the slide? And I think it's important because the the public needs to be able to follow this and if we just glance over the slides, it doesn't do any any good at all.

Returning. Please continue with. Thank you Mr. Clark. Again, for the record, governance again for the mega projects, it's really the owner team and the prime contractors that form the core of the project governance and they typically are focused on the project controls and the execution itself. For gigaprojects, the governance often goes beyond the direct project itself and may cover political, economic and social aspects.

And again, just to stress, every project is unique and different, so each has its own set of circumstances and stakeholder needs to be responsive to.

On the risk profile, it's fairly. Before you leave governance under owner teams, is it typical that the owner team would be a multimillion dollar corporation.

To the chair, it is certainly possible and not unheard of.

Senator keel. Thank you Mr. Chairman. So this would be a great place for maybe an example. When I see multi layer governance, does that mean that you got to get some permits from the government or does that mean that the government's a co owner or. And what is a social aspect of governance?

Help me with some details on those please. Sure. Senator Keel, through the chair. So an example of those kind of multi layer governance would you would have maybe like a steering committee or project review committee that would have stakeholders from outside the owner and contractor teams that represent, you know, the stakeholders that have an active interest in the project and making sure that their needs are reflected and that project impacts are understood and accounted for and just basically gets that alignment across the various stakeholders that are involved in delivering these very large projects. In this case, would it mean that Exxon would be a stakeholder to the chair?

They would be one of the stakeholders for the project? Certainly.

Please continue.

Moving down to the risk profile. The feature with megaprojects is that they have increased exposure to Black Swan events, which would be like your COVID 19 or a natural disaster type event that you just typically don't plan for in project management. But because of the long timelines these projects face, they have just a higher degree of exposure to it and they also have higher impacts when those types of events are encountered just because of their scale. So with GIGA projects that exposure increases just based on the size and scale of the project itself. Would one of those risk profiles be construction in Northern hemisphere, like in the Arctic?

To the chair, that I would probably classify more as a standard project risk that would certainly be relevant to this project.

The intent of the line here was to really Highlight just the systemic type risks that are out beyond the project execution, risks that have an influence and impact on the project. Senator steadman. Thank you, Mr. Chairman. I'm just wondering what your thoughts are on Arctic risk exposure. Is it.

Do we have a tendency in the Arctic to have more risk of cost overruns with Arctic projects? Senator Steadman, through the chair, Arctic projects certainly have their own set of challenges.

Be difficult to say whether that's more or less than challenges in other areas, but, you know, construction in the permafrost is obviously a challenge. Productivity in cold weather can be a challenge as well. Those are just a couple examples of specific kind of Arctic related factors. Well, outdoor work at 10 below is a major handicap, Senator Steadman. I'd say a little bit more than down in Louisiana or Texas, say the least.

So the previous testimony and work we've done in the past, there was significant risk increases in the Arctic projects around the globe.

So I would question your answer on that question. It doesn't correlate with previous testimony over the years dealing with difficult projects where they actually targeted Arctic projects as significantly as more challenging and subject to cost overruns. Senator Steadman, through the chair, I certainly would agree that Arctic projects are challenging. I just have not done the exercise to compare Arctic versus non Arctic projects.

Senator Kaufman.

Thank you. The major projects that I've been on, they have very detailed risk management. They, they prepare something that looks like this risk management profile that I created, mapped to the bill that we're looking at. And it'll consider everything from supply chain risk to technological risk. Is there something novel or unique that needs to be managed?

You end up with a very complete matrix of all the different things that have to be evaluated. And some things that. That seem like risks are really just because of the magnitude on this project. There's a lot of repetition in running pipe that distance. And Arctic risks are pretty well mapped from all the activity that we've had.

So that's a pretty knowable set of information other than the specifics of the logistics and magnitude of the project. So logistical risk, supply chain risk, there's some big things that pop up there, but all that is is generally managed at the project level. Thank you, Senator Kaufman. Senator Keel. So then I guess, Mr. Clark, just so I understand what we're talking about here, it sounds like it's less the environment you work in and the size of your labor force and more.

I think the term black swan came out. So I think about aluminum, right? There was some significant price impacts to the tariffs.

And now we're in a situation where I think, I don't know, 10 or 15% of the world's aluminum comes from Bahrain and Qatar. Right. It's not going through the Strait, so it's a steel pipe.

But I think LNG trains use a colossal quantity of aluminum in their heat exchangers. Right. So I mean, are we talking about things like wars and regime changes and new tariff regimes? Is that what we're talking about? Senator Kiel, through the Chair, those wars or tariff, significant tariff impacts.

Those would be the types of events that would be typically outside the project risk profile, but would have an impact to the project if they were experienced. And the point here is that because of the timeline of mega and gigaprojects, you just have increased exposure when you're talking five plus years out into the future.

Senator Keel, I guess to follow up on that, is there a reason in Pegasus experience that these things don't all balance out? Right. Five years out, is it safe to assume that the. What's it going to be? 20,000 Tons of aluminum, metric tons?

We'll just go back to regular price and that'll offset something else? Senator Kiel, through the Chair, it's possible that those ebbs and flows would offset, but it really depends on the specific timing and the characteristics of the project.

Senator Keel, maybe the follow up for you or for Mr. Miller? Right. In Pegasus experience across a lot of these, do they generally average out? Do they generally end up costing more? Do they generally end up being a savings?

What's the experience? Senator Keel, through the Chair, I would say the experience is mega projects typically cost more than what they're initially estimated as. There's a variety of factors to that. Some of it is the exposure to Black Swan events. Some of it may be just overly optimistic.

Initial estimate, again, a variety of factors that can influence the ultimate cost and delivery. Can you explain to the committee and the audience that's watching what a Black Swan event is? Yes, to the Chair, a Black Swan event is just something that is unplanned for as low probability, but high impact when it does occur. COVID 19 was a great example of a Black Swan event. It, you know, severely disrupted the flow of really the ability to get anything done.

And then it also had the supply chain impacts that followed with that. So very disruptive and wouldn't have been part of the typical project planning processes. Senator Steadman? Yes, thank you, Mr. Chairman. As I recall that from those classes that we had years ago on a mega project, if, if you were only 20% or less overrun, that was a successful project.

And if you had 50% or 100% or more, it was a little more difficult to classify it as a success. So it would be more of a rarity, of an event to actually come in on target and not have the overrun.

And for the analysis and work that whatever company does to manage these Sakhlin Islands, I think was a significant overrun for Exxon. There were significant overruns in Australia with ConocoPhillips projects. We can bring those subjects to the table. If there's some confusion over the risk of overrunning big projects. There's this is not a, again, it is not a grind and repave highway in Alaska.

This is a whole different scale. So, you know, the 20% definitely is burned into my mind and a few others that attended those classes, you know, classified as success. So we need to take those things into consideration. Thank you, Senator steadman. Further questions.

Mr. Clark, please proceed. Mr. Clark, again for the record. And the final two items on the slide here relate to the financing and the community impact, similarly to the other themes of this slide. With the gigaproject you just get a much larger scale, so you have higher impacts, more broad impacts across a larger area, as well as more complex financing due to the size and scale of the project.

Which leads us to the Alaska LNG project itself. And we grabbed these figures from a AGDC presentation to the House Resource committee back in January 2020. So they're dated numbers from the pre feed cost estimate, but you can see each of the three main projects within this scope could be classified as a gigaproject on their own, certainly qualify as a mega project on their.

Questions on this slide. I think we've went over this. Many people feel that these numbers are well, outdated.

Please proceed.

So again, with their size and scale, megaprojects execution challenges above and beyond typical projects. An overarching driver to the challenges faced by megaprojects is their long timeline from initiation through planning and execution and delivery of the project. The Alaska LNG Project is a great example of that. With AGDC established around 16 years ago and from 2014 has had the mission to specifically develop the Alaska LNG project. And now in 2026, we're nearing FID for phase one of the project.

So on the points that we've identified here for common megaproject and gigaproject challenges, again, that long planning and execution horizon, which also typically spans multiple political cycles, so the political influence may change throughout the course of the project. Complex interfaces and interdependent risks, scope components that are often not standard, including first of a kind or foak.

Decision making and planning involves multiple parties with conflicting interests. Can you go into a little more detail? First of a kind?

Yes, certainly. So an example would be the Vogel nuclear project that I spoke of earlier down in Georgia. That was the first of the advanced reactors that was built in the US had never been built before. So they had to use a number of assumptions in the planning. Encountered a number of challenges throughout the execution, some of which stemmed from that first of a kind nature of the project.

And in Alaska or regarding this gas line that's 800 miles, what are some comparable lines in the world that have been built? Do you know that information.

To the chair, one that comes to mind would be an oil pipeline, not a gas pipeline, but the Trans Mountain expansion project in Canada that was recently completed.

I don't have the exact distance off the top of my head, but it was a fairly long pipeline across you know, mountainous terrain, several water crossings, so a somewhat similar environment, although not explicitly in the Arctic itself.

Senator Kaufman, I just want to give an example of what in my background we used to refer to as like a serial number one risk. If you had operating conditions that that required a compressor that had not been built before, that was capable of volume and pressure at a certain amount and that had not existed, you were buying what was basically a serial number 00001. And so that represents technological risks, reliability risks that then you have to factor into your risk management matrix. Thank you Senator Coffman, Senator Steadman, and thank you. With the pipeline in British Columbia, could you help us?

Was that like poor planning because they didn't have the agreements with the first nations? Or was it black swan events or what was the misstep that forced that and planning forced that project to go substantially over funded to the point Ottawa had to come in and bail them out. Senator Sidman, through the chair, we do have a slide specifically on that project coming up. We can wait, Mr. Chairman. Okay.

Please proceed. Mr. Clark. The last two bullets. Here again the unplanned events or black swans are often not accounted for. But again the mega and giga projects have high exposure and high resulting impacts when they do occur.

And then a tendency for over optimism on schedule. Cost benefits and risk treatment. Question on this slide.

Next slide please.

This brings us to the iron law of megaprojects within the industry. Bent Flyberg is recognized as one of, if not the preeminent researcher of megaprojects. Through his research of Thousands of projects. He's found 92% of megaprojects are over budget, over schedule or both, which he has dubbed the Iron Law megaprojects. Ernst and Young conducted a similar review in 2014 that examined 205 oil and gas projects.

They found similar themes of regular cost and schedule overruns with the average cost overruns of 70% above budget for LNG projects and 41% above budget for pipeline projects.

Senator Kiel. Thank you, Mr. Chairman. The first two are proportions of projects. Are those individual risks or are those stacked? Are those compound.

On the Ernst and Young graphic there? Yes. Senator Keel through the chair. Those are individual.

So could you. Mr. Chairman, maybe I'm a little thick headed this morning, a little slow, but you open the slide with a 92% quote. Could you repeat that, make sure I understood what you told us? Yeah. Senator Sedman, through the chair.

The 92% comes from Ben Flyberg who dubbed this Iron Law. And that was from his research of thousands of mega projects. So that covers virtually every type of mega project there is, not exclusive to oil and gas projects.

And that would be over budget, over time, under benefits, over and over again. But Mr. Chairman, what was the percentage he used? 92%. So can we, Mr. Chairman, can we get maybe that refined to pipeline in LNG projects, take out refining and upstream?

Because 92 is an awful alarming number. Senator Sedman, through the chair, I wouldn't be privy to that data. This is from Ben Flyberg's research. So I've relied on his findings, but I don't believe I've seen where he's segregated it by specific project type.

And can you give us who this individual is again, his credentials to make the statement that you saw fit to put into the slide deck? Sure. To the chair. Ben Flyberg is again probably the preeminent researcher of megaprojects. I believe he's currently at Oxford University where he runs the, the Strategic Projects Department I believe it's called, and he's written several books on the execution of beggar projects.

Is published material going back at least a decade or more on exclusively on the topic of megaprojects. Senator Stedman? Well, just looking at this slide, it looks like LNG is at 67 for facing cost overruns and facing schedule delays of 68%. So I mean that's significant, significant numbers. And then pipelines at 64 and 50.

So I would maybe roll the dice and say we got a 50, 50 chance of cost overruns.

Senator Steadman, through the chair, that is you know I want to be able to peg it at a specific probability. But the theme today is that megaprojects are risky endeavors and do face cost and schedule overruns often. But megaprojects in general, the average projected budget overruns are the highest number at 70%.

To the chair on that LNG line item there. Yes. Further questions on this slide. Just if I could, Senator Steadman, such a rosy picture we're painting here. Yeah.

Breakdown of the mega projects to gigaprojects on this fellow's data. Do you have any idea what that seems like? Alaska's project is clearly colossal by about any measure somewhere around 60 billion. Or you can take a decade old number at 45. Pick your number.

It's still probably the biggest project in North America that I'm aware of. Senator Sedman, through the chair. It.

Is certainly one of if not the largest project that's being considered in North America. I wouldn't be able to say it is the largest, but it is amongst that class for sure. Can you go over the. The gray component, what entails refinancing? Is that going.

Finding another banker. Refining. Sorry. Oh, that's refining. Okay.

It's kind of blurry. It is a little blurry. Sorry about that. Okay. They may need another banker.

60%. Please proceed, Mr. Clerk. Before we move on from this slide, I would just like to point out that despite the challenges and the cost overruns and delays faced by mega projects, they generally still provide their intended benefits when delivered. Going back to that Vogel nuclear project as a prime example, it had its early estimates of around 14 billion and was completed at over 36 billion.

It took over seven years longer than initially planned. But despite all that, it now provides power to over 2 million homes, over 2,000 megawatts of reliable energy that will operate for 60 to 80 years. So just something additional to be aware of there, there do remain benefits to these projects despite the challenges and issues that they face. Senator Coffman, I think. Thank you.

I think that's a good point to make these projects climb a wall of worry. If we look back at taps it it barely got sanctioned was by one vote and look at the enduring benefit that it's provided. And so I think that's why these projects get built at all ever is because even though they may exceed their estimates or their schedules, in the end they end up pulling through by delivering value because of the long duration. I just think we have to remember that it's worked out. Otherwise nobody would ever build a megaproject.

There would never no one would dare walk up to it. And so there is an economic value to it. But that said, there's also execution bias. Generally someone that gets on a project wants to have a project, so they try to work it out so they have a project to manage. And that's where the assurance teams that look at the project do evaluations to try and be sure that the economics, the technological competencies and everything are there, the labor agreements, whatever to make the project actually happen.

But then things happen along the way. The price goes up, but the thing works. It makes money for a long time. Thank you. Thank you.

Senator Coffman, further questions on slide number seven.

Please proceed.

So here we look at some of the root causes for the cost overruns and delays. On this slide you can see examples across various aspects of the project, including different project phases, as well as internal and external factors. And these are just high level examples. Under each of these there are would be a number of specific instances that may apply.

The takeaway here is really that cost and schedule impacts can come from anywhere. Stressing the importance of strong project management to identify and mitigate issues before they have more severe impacts to the project.

Taking a step to walk through this, starting on the left side when you have the front end effort definition, an insufficient feed and overly optimistic cost and schedule would be one of the drivers that you might see for cost and schedule delays. Project management, insufficient project controls, just not having the ability to manage the project and understand what's driving the cost and schedule. Inexperienced owner, technical support for the to resolve technical issues that may be encountered and then poor interface management across the different subscopes within the project. On the construction side you may see labor shortages or lack of skilled labor as well as relatedly contractor underperformance site conditions very common to see unforeseen site conditions that may require methodology, changes that may be more costly or take longer to complete and then remote location logistics, just the challenge of remote project sites. Regulatory and stakeholder friction.

Stakeholder disputes have the ability to stop the project at times or cause cost impacts. Permitting delays and regulatory uncertainty similarly can influence the project and organizational, organizational and contractual misalignment. This can relate to an insufficient owner team to manage claims and contractor performance as well as ambiguous contract structures where it's just not well defined who has ownership of the risks and maybe a misalignment amongst the parties the themselves.

Any questions on this slide here? Question on slide eight. Senator Kaufman, thank you. I think it'd be interesting. So the taps experience cost overruns, a lot of it was because of handling the terrain and logistics of construction.

And I guess how so, therefore, how well known is that kind of terrain logistics risk map when we think of this project? So when I before I talked about a serial number one, something you've never done before, and the risks that come with it. Does this have benefit of a reiteration of some of the workflow that was done to build taps, and are some of those risks therefore better defined on this project? Senator Coffman, through the Chair, the TAPS project certainly provided a number of lessons learned that are certainly applicable applicable to this project. The specific geotechnical data I want to be privy to offer an opinion on certainly could be leveraged to at least as a basis for developing further research and analysis into it.

Senator Coffman, I think that might be something we ask about just if that, if that data has been available, incorporated it in, into any of the planning that's being done for this, that would be lessons learned are one of the things that you really look for when you're doing capital project management of how did the other one go wrong? And so that would be a good data set. Senator Merrick. Thank you, Mr. Chairman. Which of these examples should we be most concerned with for this specific project?

Senator Merrick, through the chair, I don't know that you could prioritize any one of these other than from the perspective of the legislature, you know, the construction one wouldn't be necessarily directly applicable. You'd probably look more at the front end definition, how it was prepared and planned, as well as the regulatory and stakeholder alignment and then the organizational and contractual alignment as well. So kind of the two tail ends of the slide I would suggest to focus on from the legislator's perspective. Thank you. Thank you.

Senator Merrick, regarding the front end definition, insufficient feed, is that a document that can be looked at on each specific project?

To the Chair, the feed study refers to the front end engineering and design. It typically is a very voluminous report that is produced as part of that has tremendous amount of detail into the project. Whether it's available or not depends on the specific project and the relationship between the developer and the other stakeholders, others.

Senator Kiel, then Senator Steadman, then Senator Coffman. Senator kiel. Thank you, Mr. Chairman. Questions about your last column here. So again, I'm not in construction or project management.

When you talk about the risks of insufficient owner team, what does sufficiency look like when you are evaluating a project? Are you looking for a primary proponent who's done this in a bunch of Places. Are you looking for a primary proponent who has assembled a team of experienced contractors? Both. Am I missing something here?

Senator Keel, through the chair on that item, it really depends on the makeup and the characteristics of the owner or the developer. If they've done like a number of these projects, then they probably have very strong internal capabilities and they wouldn't need to leverage as much outside support. On the other hand, there's cases where the owners may be very inexperienced and they do have to rely heavily on external support and contractors to provide that oversight and support. So it really just depends on the makeup of the teams that are involved. But it can run across the board.

There a follow up under Keogh.

How do other jurisdictions in industry make these assessments? Do you leave it to the banker? Right before I put my money up, I'm going to evaluate your team. Do permitters tend to look at that? Is it up to every investor before they put cash in or make a concession on their land?

How does that tend to work? Senator Kiel, through the chair. It really depends on, sorry to keep repeating this, but the characteristics of the project. Some may have, you know, certain regulatory approvals to get approved for execution, where you would look into those types of reviews. Some it may be on the tail end where you're looking to recover the cost of the project through rates.

And you may do like a prudence review to look at the management during the project. So it can be before, it can be during, it can be after. It is really kind of a project specific type function. How ought this particular proposal be evaluated for the management sufficiency?

Senator Keel, through the chair.

As far as how to evaluate the management sufficiency, you would look to the organizational chart within the project team, how they're structured, what kind of functional support they have, the types of policies and procedures that they have in place to support their roles, whether you know, it's risk or management schedule management, cost management, whatever it may be. And then you would ideally, depending on where the project's at, you could also look at how they are actually implementing those tools and processes to see if they're effective. Senator Keel, thank you. That's. That's helpful.

I guess when you talked about the box below it, ambiguous contact structures, you were talking about assumption of risk and that there are sort of two pieces to the proposal that the state has before it. One of which has the capacity, I think to absorb some risk. 3.8, 3.9 Billion cubic feet a day and one of which has almost no capacity to absorb risk. 180 Maybe even 300 million cubic feet a day. And I've been public at this table before.

My worry is that that project, if you get $9 billion in, you don't pull the plug. You come to the earnings reserve of the Permanent Fund for Public Sector Cash. Right. So when we look at a project proposal, how much can be done through contract structures? When you're talking about a potential public sector risk as well.

Senator Kiel, through the chair, If I may restate your question. You're asking if how the contract structures could influence the risk to the public at large, is that more or less?

It's really as far as the contracts themselves, you know, they, they define who ultimately pays for the cost overruns and has that risk. So you would like it there to be alignment amongst the stakeholders so that the risk is allocated to the party best suited to manage it and have control over it, as well as just maintaining awareness for all the parties that how the risks are being responded to. And sometimes we've seen where contracts have involved shared risk and reward pools where there's kind of a collective incentive to guide the project to the best outcome, regardless of kind of individual objectives, but just to kind of gain that broader alignment amongst the parties through the contract structure itself. Senator keel. Thank you, Mr. Chairman.

I think those are good things to think about. As long as there is the capacity within the project and the parties to carry that risk. So committee has heard me say before, that leads us toward focusing on the whole project and not the one that just doesn't have any margin at all for absorbing error. Thank you, Senator Keel. Senator Steadman, just a couple points.

Mr. Chairman. Earlier a point brought up calling across the table, the construction risk, I think is on point that we have a defined right of way and road that runs up for the pipeline, the oil pipeline, which facilitates the construction and makes this a lot easier because. And that's helpful. But taps, I think it went over eight or 10 times and we're talking here of a 20% overrun, you know, being successful or somewhere in those ranges. Right.

We're not doing multiples of 50, 60 billion up to, you know, 600 billion or some number. So the scale of the overrun isn't like TAPS that we're concerned about. That would be a real colossal disaster. But clearly on the far right, the point of organizational contractual misalignment. When we looked at the project that the statutes were written for several years ago, we had three majors at the table, Exxon, BP and Conoco and the state, all equal, roughly.

There's a Little bit different ownership, but roughly 25% each. And one of the themes that they kept industry kept pursuing and working with the state on is the idea of alignment. So everybody's at the table, everybody wins or everybody loses. There isn't going to be a squeeze out. This project is complete misalignment, virtually that those statutes were written for another project, not for the project that's being pursued.

So clearly that is one of the risk components that we're facing. And we even offered months ago or asked what statutes need to be changed to start rectifying the alignment issue. And we were told nothing, nothing needs to be changed, which is complete hogwash, as we can see today.

So there is that risk component that is significant, I think, and then there's probably several other components on this page. But the misalignment I think is a problem with this project that we need to recognize. Thank you, Senator Steadman. Senator Coffman, thank you. In my experience in the private sector, what we saw in project management was that being properly planned and defined for the given stage gate that you were at and managing those sequences.

So you would think of it like you have to get through your first gate, your second, your third gate. And at those times there's cross functional check ins of readiness for that next stage that you're going into. And some of the problems that you can get into that can burn money. So if you don't have your concept nailed down, but you start to do detailed engineering, you're starting to spend engineering hours on something that could change. And so you want to keep your readiness bubble in a sweet spot where you're not getting too far over your skis on anything.

And so if you think of the project timeline and then down below it, put a separate line for what each of the different functions needs to be doing. What does procurement need to be doing at a given stage? What does engineering need to be doing at a given stage? What does project controls need to be doing? Project controls, that's the thing that controls your cost and schedule.

Project controls, you create a work breakdown structure when you start to get the project nailed down enough and that assigns elements to everything. That's how you can track and trend. You can manage costs and you can know if you're keeping your schedule and also your cost. So you need to nail down all of those to the proper level of detail when they become relevant. As you move through the stage gate process, if you don't do what's referred to generally as front end loading, where you get the right amount of work, you work a little bit ahead so that you really know what you're doing before you move into the next stage.

Well, then you can get into things where your work processes are misaligned. They're not delivering value because they're not doing the work that you really need to be doing at that time. You're overworking something or under working something. And then that has a cascade effect once you start to actually, when the project goes into the next stage, you may think you're ready to do some work that you're not because you haven't done the prerequisites for it or you burnt too many hours on polishing those prerequisites and they're not really ready for prime time because they were done to the wrong concept. So you have to make manage that awareness bubble all the way across the continuum for each of the different disciplines that are part of the project.

And then the other thing, if you go back to this last couple of boxes here, Regulatory stakeholder friction, organizational contractual management. There's a huge element there of stakeholder management as far as an interface management plan that has all the different people or entities that have to be involved and then you have to have a very detailed plan for how to work through all of that. So these are all project management things that will be running in the background of a well run or even a poorly run project. Usually they're there, but they may not be utilized well. So the trick of the trade is to actually use all these tools that's it's been named different things, capital value process or different brand names for how to manage through a stage gate system and do peer reviews where teams look at what's being done at that stage and are we ready?

And do we check the box to go? So that's the, the operational matrix that's behind anything other than a kitchen remodel, I guess, you know. So if you're, if you're managing a big project. Thanks. Thank you.

Senator Coffman. Further questions on slide number eight. With that, we'll take a five minute break at this point before we proceed. Everybody stretch your legs. We're at ease.

Sa.

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Call Senate Finance Committee back to order. We're proceeding with our presentation, Mr. Clark. Thank you. Mr. Clark. Again, for the record, We're now going to turn and look at a few pipeline case studies of recently completed one gas that was completed, one gas that was canceled, and then also the Trans Mountain project I mentioned earlier.

Joe, are you on the call still?

Mr. Miller? Yes, Joe Miller. For the record. So we have to do three case studies.

The first two I was very familiar with. They occurred in my part of the country. And I spent many years working for one of the partners involved in the Atlantic Coast Pipeline. First of all, the Mountain Valley Pipeline. So Mountain Valley Pipeline and the Atlantic Coast Pipeline, their purpose was to get gas from the Marcellus Shale region to the East Coast.

The pipeline that currently provides gas to the east coast is the Transco Pipeline, which extends from the Gulf up to the Northeast. And for several years it has been completely full while there has been an increase in demand for gas. And so the Mountain Valley pipeline of 40th pipeline, similar to the Alaska LNG pipeline, extended extent from West Virginia to Virginia. It has a capacity of 2 billion cubic feet per day compared to what I believe is a estimate of 3.5 billion cubic feet per day for the Alaska pipeline. Cost initially estimated at three and a half billion and came in ultimately at around nine point.

Construction commenced in 2018 and was put in service six years later. General issues were terrain and legal and permitting challenges. And I will say for both the Mountain Valley Pipeline and Atlantic Coast Pipeline, their largest challenge was traffic. A legal and permitting standpoint. They went through multiple cycles of receiving permits, beginning construction, those permits getting challenged, construction being halted when the permits got pulled, and ultimately those permits got reissued and construction commenced.

Only for additional challenges to occur and to go back through that cycle. Mountain Valley Pipeline was able to be completed. And to give an example of what it took to ultimately complete that, after it was over 90% complete, it was hung up in a permit legal challenge. And Senator Joe Manchin of West Virginia ended up striking a deal to get this swing vote for the Inflation reduction act in 2022. One of the things he got in exchange for that vote was the ability to complete that Mountain Valley Pipeline.

The Atlantic Coast Pipeline, 600 mile 42 inch pipe, one and a half billion cubic feet per day, originally estimated in the range of 4.5 to 5 billion. And at the time it was canceled in 2020, that projection was up to over 8 billion. And while nothing formally published, there are many people and organizations believe that approximately $3.5 billion had been sunk in that pipeline at the time the plug was pulled on that in 2020 and at that time it was canceled, it was about three and a half years. Any questions on those two.

Seeing? No questions, please proceed.

Okay, I'll move to the Trans Mountain Pipeline in Canada extending from Edmonton to the coast in British Columbia. 36 Inch pipeline cost originally estimated at 5.4 billion with a final cost estimate of 34 billion. Initially planned to be completed at the end of 2019 and ultimately ended up being completed about four and a half years later in spring of 24.

Importantly, its federal CPCN was revoked for nearly a one year period of time. We suffered from many different types of challenges.

You know that I mentioned the CTCN being revoked had very significant acts of God. I would say the COVID pandemic, extreme flooding, wildfires may appear.

Information maturity was a challenge. Lack of specific knowledge of the geotechnical aspects of the route.

So the construction challenges ended up being more significant than originally thought. Accommodations with indigenous groups ended up being much more costly than originally expected. And the time it took to acquire permits and acquisition of land rights was more costly than originally expected.

I also say there were additional and evolving compliance requirements from a pertinent standpoint that were not originally expected as well. Those are a few of the categories of cost increase on that project.

Any questions on any of those projects before we move forward? Senator Keel, Senator Cronk and Senator Coffman. Senator keel. Thank you, Mr. Chairman. When you say information maturity was a problem and knowledge of the terrain.

This was a pipeline expansion. The tmx, were they running through substantially different areas than the original had run through?

Yes, more than half of the pipeline's path was in a different corridor in the original pipeline.

But I guess, Mr. Chairman, and that existing. I would just also offer that existing pipeline was also built 50 years ago. And so, you know, the knowledge of that, of the geotechnical characteristics were not, I would say known at the time of the construction of the second pipeline. Senator Kiel? Well, thank you, Mr. Chairman.

I just.

The same mountain ranges, same environmental conditions, same general geography. And then on that project you mentioned the difference between original estimate and final cost. Can you talk about about the public sector levers that help with the cost overruns? Because if memory serves, I think that's somewhat different than Mountain Valley and Atlantic Coast.

You say public sector levers.

It's probably important for me to mention that the Trans Mountain pipeline is up owned by Canada, by a corporation within Canada. Not all of that increase, that nearly $3 billion increase was passed on to producers. The contract with producers exposed them to cost overruns for certain segments of that 600 mile pipe, but not all of that pipe. So in other words, the owner had the risk exposure for cost overrun on a significant portion of that length. But the two riskier portions, the portion that went through the mountain area and the portion in the urban area, the producers did have exposure in terms of cost overrun on those two pieces.

Senator Keel, just to follow up, Mr. Chairman, I mean, is now public, but weren't there sections of it that were Kinder Morgan and didn't the government have to bail them out for $4.7 billion? And now the government owns it?

Yes. Kinder Morgan originally was developing this pipeline and was the owner of the pipeline. And Kinder Morgan, due to at least in part challenges and getting it originally permitted, was ready to walk away from that pipeline. And the government of Canada stepped in and took it over and completed it. Thank you, Mr. Chairman.

I think there was a government loan too, but that was the point I was driving toward. Thank you. Thank you, Senator Kiel. Senator cronk. Thank you, Mr.

Chair. You know, first thing I looked at. When I looked at these, all of. Them have permit challenges. Permit challenges.

Challenges. Permit challenges. And our project is fully permitted. And we already do know the route. We've already built the Trans Alaska Pipeline through the mountain range.

So it's like comparing apples to oranges here. But just having their permitting process not in place and having those cost overruns, that's not similar to what we have in front of us. Thank you, Senator Cronk. Senator Coffman, thank you. I'm curious between the interaction of the current slide and going back to slide seven, where we saw the relative cost overruns of gas pipeline projects, and I'm just wondering, is there anything unique that we could isolate?

So, as Senator Cronk just mentioned, we seem to have our route and our permits nailed down. So in the areas of uncertainty, is there anything outside of permitting that is specific to this type of project and cost overruns that might occur?

Senator, I think it is important that it appears that there is more significant land access for the Alaska LNG pipeline than existed early on for the Trans Mountain pipeline. A member of Our team spent 40 years of his career as a pipeliner, many years leading a team of pipeline project managers. He looked at the environmental impact statement for the Alaska LNG pipeline and I would say was relatively pleased with the level of engineering that he saw and the design maturity from review of that document. And so I think the Alaska LNG pipeline does have greater level of access to the route currently. I've seen that they have access to, you know, upwards of 90% of that route.

So they should be in a position to have a greater level of knowledge of that path.

Senator, Coffee? Yes. Full federal permitting for the Alaska LNG project, which is very significant.

The FERC permit exists. U.S. army Corps permit exists. Endangered species permit exists, there are local permits that will still be needed, that having the FERC permit and those others that I named is very significant.

Thank you, Senator Coffman. I'm good. Thank you. Please proceed. Mr. Clark, again, for the record, and I would just add on these projects, they all faced scheduled delays for a variety of reasons.

Sometimes it was the permit, sometimes it was the environment, the project environment itself. But due to the specific project environment, these scheduled delays may have additional impacts beyond just the initial delay event itself. As an example, if there's in stream work that's required to be performed in low flow periods like in the late summer, any delay in that period potentially pushes those activities out almost a year till the next available window. And so if those activities are on the project's critical path, driving the ultimate project end date, that will shift the whole project out. And when you get on projects of this scale, delays are extremely costly, you know, millions of dollars a day at times.

So, Mr. Miller, do you know of any of the projects out there that are proposed as this one is in. In phases where we have the first, the pipeline being built and then at a halt, hoping that we get to the next stage. And if not, do you see that as consequential?

I think the phase. And we have a slide coming up. Again, this is Joe Miller for the record, we have a slide coming up, a couple slides discussing the phased approach. Okay, okay, we'll wait. We'll wait till then.

No, that is, that is not common,.

Mr. Clark. Thank you, Mr. Clark. For the record. Now we're returning to look at the challenges and resulting cost overruns realized on Alaska's other pipeline mega project, the TAPS project. The TAPS project, while it was constructed in the mid-70s, faced many of the challenges that exist today on the Alaska LNG project.

The project was obviously completed and has been operating for around 50 years. But at the start of construction, the project estimate was just over 4 billion, while at completion it had risen to about 8 billion, roughly I think close to $40 billion in today's dollars.

And here this is from a GAO report that looked into the TAPS project. The site specific challenges included more groundwater than anticipated. Underground construction required deeper, wider trenches than planned, wide variations in soil conditions, permafrost more difficult to move and drill than planned, less backfill material sites available, requiring additional hauling to the site. Tolerances for valve support structures were far more critical than planned. And temperature changes in settlement required realignment.

And then the productivity impacts in cold weather. Those challenges led to cost overruns. The cost Overruns were seen as the result of feasibility estimate that contained no allowance for escalation. And they also had a four year delay right at the start of construction. They had a 10% contingency in their budget which was found to be insufficient compared to the status of engineering and project risks.

When that budget was approved, an underestimated amount of elevated pipe, additional infrastructure required, but not in the initial scope, underestimated support structures and underestimated scope for environmental requirements. So really the estimate just kind of missed what was ultimately required to deliver the project and the result was cost overruns.

Question on this slide, Senator keough. Thank you, Mr. Chairman. Actually a question I should have asked at the beginning of the hearing. When we talk about cost overruns, do we talk about cost overruns from original cost estimate without contingency or original cost estimate including contingency? Senator Keel, through the chair.

That would be with contingency. Contingency funds are typically expected to be expended. As you know, you encounter risks on the project, so those would include it. Thanks. Thank you, Senator Keel.

Further questions on this slide, please proceed.

The GAO report also identified lessons learned, several of which are relevant to nearly all megaprojects and specifically included the note that the experience gained from the TAPS project should be applied to projects like the Alaska LNG project.

These lessons learned include incorporating as much project specific data as feasible while also having awareness of existing uncertainties and other risks. It also identified linking government approvals and expenditures to detailed planning and ongoing government audits.

Concerning the note of viewing the cost estimates with skepticism, there are several factors that influence estimate accuracy. One specific factor relevant to mega and gigaprojects is with the multi year development efforts ahead of multi year execution in even basic general market conditions. Changing during that multi year period can have a large impact on the ultimate cost of the project, which makes it key to both have awareness of the risk of cost overruns and protection from it.

Questions on this slide? Question on this slide seeing none, please proceed, Mr. Clark.

Here we look at high level cost control strategies and at the highest level it's the project owner, the main contractors and the end users collectively that each have exposure to the project cost overruns between the owner and contractors. The construction contracts provide the mechanism for which cost overruns are allocated and between the owner and end user. Tolling and sales agreements similarly provide the mechanism for cost overruns to be allocated. Mr. Miller mentioned the Transit Mountain expansion project had utilized capped and uncapped segments in its tolling agreement. This allowed the more riskier segments of the pipeline to be uncapped where the risk was shared with the shippers versus the less riskier segments where the owner had the risk of any cost overruns.

And of course, contracts and agreements can vary widely in their quality and ability to appropriately address project needs and issues. Ideally, the contracting approach should support the strategic vision of the project's owners while providing alignment amongst the parties and allowing adaptation to address the complexities and uncertainties.

Risk management efforts must also remain robust with wide participation amongst the project partners throughout the planning and execution phases, and the better aligned stakeholders and partners are, the more prepared they are to address and mitigate risks.

Any questions here? Question on slide 12 please proceed Mr. Clerk.

Here we turn back to focus on the Alaska LNG project itself. The left hand of the slide here borrows a slide from a March AGDC presentation that summarized the pre FID status including gas sales precedent agreements, downstream letters of intent, pipe supply, preliminary agreements and engagement with EPCM and EPC contractors.

As noted on the AGDC slide, Glenfarn has entered into an EPCM agreement and has conditional awards for EPCs by spread of the pipeline on the right hand side of the slide Here we've provided a bit of context on the distinction between an EPCM and epc. Essentially the EPCM will manage and control the work, while the EPCs will physically deliver the scope of work for the EPC M contractor. Typically they don't take on the cost and schedule risk that's usually held by the owner. On the EPC contractor side they may hold some of the cost and schedule risk depending on the contract type and terms.

Using an EPCM with EPCs, does it provide flexibility to the project such as by assigning risks to the party best suited to manage it and avoids having a single large contractor responsible for the full scope.

Questions on this slide, can you go. To the bottom half of the line that says FID and cod? The time frame there? Yes to the chair this the graphic there at the bottom under the AGDC slide kind of provides a very high level timeline of how we've gotten to where we are three around three years of it being producer led, around eight years of it being AGDC led, and then the last year plus of it being Glenfarn led as we approach the FID and then approximately four years out from FID to get to ultimate COD where it's commercially operating and do we. Have a rough estimate from Glenn Farm on when FID will take place?

To the chair I've the most recent information I've heard is that it's imminent. I understand it's pushed from what was previously forecasted, but I believe it's still expected the first half of this year.

And what leads you to that conclusion to the chair? That was just from statements that I've seen glenfard make publicly.

Mr. Steadman. Thank you, Mr. Chairman. I think this has been a moving target. Glenfarn has a couple other projects in the states. Are you involved in any of those or aware of those?

And have they gone to FID and completed FID in any of those two projects? Senator Stedman, through the chair, we are familiar with Glenn Farnes, Texas LNG project, which I believe is also close to fid. I am not intimately familiar with the details of the project, though.

So if you're looking at FID at 6, 20, 26.

And the completion for around four years, that would be June of 2030. Is that realistic from your understanding and looking at megaprojects.

To the chair, the highest level, it seems like a reasonable duration. Obviously have not been privy to the specifics of the schedule and the characteristics of the project. Like I mentioned a couple slides back where there may be specific narrow execution windows for certain portions of the pipeline. Those raise the risk to, to the schedule pretty significantly. So.

But if you're, if FID is imminent, would you assume that there is contracts for steel and labor and construction sites and a timeframe for those and contractors identified.

To the chair? Yeah, we, we do understand that Glenfarn has entered into a number of preliminary agreements and letters of intent. We would expect those to be finalized at or near the time that FID is entered into it. Somewhat a chicken and an egg type scenario where they are advancing the project to be prepared to execute while still also working towards that final investment decision. Wouldn't they even be further along than letters of intent?

Wouldn't there be heads of agreement already signed and in place.

To the chair? I couldn't specifically offer an opinion on that.

Further questions. Senator Steadman, then Senator Keel. Well, would it be appropriate to pursue FID without heads of agreement with just with letters of intent? Skipping that portion then? Senator Steadman, through the chair, I would imagine it would depend really on the what's written into those letters of intent and how serious they are, you know, is likely to proceed going forward.

And can you give us Senator KEOGH. Thank you, Mr. Chairman.

Maybe a little help with megaprojects generally and risks. Using this slide as an example of the items here with check marks by them.

Can you give some sense of what things can slip when project timelines slip or can change when costs change. The example that comes to mind is pipe supply, right. This project has federal loan guarantees. Those trigger Buy America, Build America. This is not American steel.

There isn't a Buy America waiver, at least not yet. Let's assume as the developers do that one's coming. But that's an example of something that could be an oops, right if that waiver doesn't come. Can you help me with some of these other items here you mentioned or the co chairs mentioned the gas sales. Right.

We don't have have permanent binding contracts. What can you walk us through some of these others? Certainly. Senator Keel through the chair looking at these list of items here, starting with pre FID activities, it notes the developer's completed feed for phase one and is initiating phase two. That speaks to the phased approach that we will be speaking to another slide or two.

But having the feed for phase one is certainly a prerequisite on construction management. The EPCM agreement with really has been entered into which sounds like that is a definitive agreement on the pipeline construction. The conditional awards for UPCs without being privy, you know to the specific terms and conditions, I'd imagine that those basically reserve the contractor resources to execute the project when a decision is made for it to go forward. So rather than scrambling to line up contractors, they've identified potential contractors to support the project on the line pipe supply. Preliminary agreements again were entered into.

The benefit for that is I imagine that it provided a basis from which they could estimate costs for the pipe material, which is a significant component of the overall project cost.

And then the financing, the last item just notes the developer is advancing a debt finance structure which does not provide really any insight there other than that's their structure that they're pursuing follow up Keel. So I mean each of these things when checked off is a major milestone, right? Is great progress. But as you say when financing advancing a debt structure doesn't mean the financing is locked in. If you have to switch to American Steel, that's a big bump in cost.

How many of these other things are not potentially as locked in as they look when you look at a check mark on a slide but you mentioned the reserving contractor capacity. Does that ticket to cost, is that usually good for three years or five years or how long can a contractor hold capacity for? You help me through some of those things or alternately tell me yeah, this one's locked in and it looks great because I would love to hear that. Senator Keel through the chair unfortunately we don't have insights into any of these agreements or letters of intent to offer really much in the way of an opinion other than again, I would note that while there is a check mark, many of these are pretty preliminary agreements or letters of intent. So they're indicating there's more work to do to actually complete that task and advance the project.

That's fair. Thank you. But if you're this close to fid, wouldn't there be transportation of the steel construction sites? There's going to be multiple contracts going at the same time for the. For the completion of this pipeline.

So that would entail three or four different camps and the construction of those camps. Would we see letters of intent of those camps and intent to get the steel to those sites and. And the labor agreements.

To the chair? I wouldn't be able to specifically comment. Just don't have the information or data from this project to have really any insight into those activities. Well, we will be hearing from Glenn Fern tomorrow, so. Further questions on this slide?

Seeing none. Please proceed. Mr. Clark.

I'm looking at the phased approach to the project. From what we've reviewed, it appears the phased approach was introduced in early 2024. You can see the AGDC quote on this slide that the intent was to quickly provide gas to Alaskans, reduce the project risk and increase the outlook for LNG export investment. Under this phased approach, the pipeline execution would start ahead of the gas treatment plant and LNG terminal. Based on the AGDC information provided, it suggested the phased approach could deliver first gas roughly two to three years earlier than the full program approach.

We haven't seen an updated project schedule, but you can see that the plan at the time was to start construction in 2025 and have first gas in 2029 versus 2031 or 32 for the full program.

And then the FIDs for the other components are noted in the bottom left corner of the slide. Here from a recent AGDC presentation. Phase one again remains for a forecasted 2026 fidget followed by the gas treatment plant and LNG facility anticipated for 2027.

Any questions on this slide?

What obstacles does a phased approach present, including overruns, time delays, all the problems that megaprojects present. Thank you for the chair. This actually is the topic of our next slide here, the considerations before we. Go to the next slide. Senator Stedman?

No, I can wait for the next slide. Thank you. So with any strategic change like splitting the project into phases, it will influence the risk profile of the project, ideally lowering the overall risk, but certainly changing the risks Some existing risks may be mitigated, some new risks may emerge. As AGDC recognized, the phased approach reduces the initial capital for the overall project and provides earlier in state gas delivery, but does introduce structural risks as the economics of the pipeline are tied to LNG export revenue.

And if phase two is delayed, those risks would further increase.

So the questions we identified on this phased approach, is phase one financeable on a standalone basis? If costs are not fully recovered by phase one customers, and that again relates to the economics for the project really being driven by that export capacity,. Building. The pipeline first shifts the risk for the full project, but overall risks largely, largely remain. What we mean by this is that the execution risks to the pipeline are still going to be there.

Whether it's a phased approach or one collective project type approach, there may still be a requirement for LNG imports to meet near term in state demand.

And what if only phase one is completed? The revenue impact from reduced flows. Question of FERC approving a full project, the pipeline, gas treatment and export facility and the phase one gas supply cost versus other options.

Questions on the slide. Has there ever been a mega project that was phased that was successful? From your understanding. To the chair, it somewhat depends on the nature of the project. It's not unusual for projects of this size to be done in various scales.

One that comes to mind that we worked on was the Darlington refurbishment project in Ontario, Canada. It was $12.8 billion refurbishment of four nuclear units. And they structured it such that they did the first unit almost as a standalone to be able to gain lessons learned and kind of understand what it was really going to take to do that refurbishment, incorporated those lessons learned into the planning then for the units 2, 3 and 4 and kind of did it on a similar phased approach.

So it can be done.

I suppose the wrinkle here that I would add is typically you would have FID for the overall project and you may not split FID for the different phases. Can you have FID and still have the phases FID for the whole project and still have phases of construction to. The chair, it would be possible. And it probably largely reflects on the specific needs and demands of whoever is making that fid. You know, if they are comfortable with that phased approach versus doing it more of as a one time project.

Senator Stegman got two questions. So I guess in English what you just said, you're referring to the lender or whoever's going to issue the debt. They're going to be comfortable sticking their neck out that far and then whoever's going to put the equity position down. The cash down. Senator Steadman.

Through the chair. Yes. That's a simple way to put it. Yes. Okay, and then can you help me on the second to the last bullet where it says FERC approved the full project gas.

You know, the pipeline and the treatment plant, the export facility. But what is. What is the context of that ferc? I don't. I know they're a federal permitting agency, but I don't know what this infers.

Mr. Miller. Would you like to field that one, Mr. Miller? Sure. For the record, this is Joe Miller. So FERCC approved the overall project on the basis that it was an LNG export facility and thereby having authority over that type of project.

And so if it's conducted in phases, or if only phase one is completed, then they would have effectively approved an intrastate pipeline. And I know that's not the intent of the project team. The intent of the project team is to complete all three. But we just see that as a risk. It's.

Should only phase one be completed, Mr. Chairman. Senator Steadman. Well, I need a little more data. Do they just send you a letter that you're a bunch of bad boys and you only built the first phase and not the second one? Or do they come in with penalties or come in with, you know, the big stick, or what's the ramifications?

I'm not sure if that would take some kind of reapproval or at least acknowledgement by ferc. I'm not sure what their process would be there. Okay. Senator Stigman. I think we should ask FERC.

Mr. Chairman, ask FERC. I mean, they're not online, but we should contact them sometime. And you make a note and. And send a letter to them to see if they can respond. Yes, in a timely manner.

Senator Stedman. Thanks. Senator steadman. Senator Keogh. Mr. Chairman, I'll just flag that.

17 Years ago, there was a hydro project built a little bit west of here, and I think two months ago, the owner of that got a letter from FERC saying you haven't met all your conditions, and so get spending.

It's been a while, but FERC reserves the right to come back in and enforce their certificate as they originally issued it.

There's a lawsuit now between various folks to try and get those conditions met,. But may be costly, complicates the project. Senator Coffman?

I think it's probably likely that if phase one gets built, the rest of it won't be a problem. I think economically, that's the hurdle. Phase one is kind of the critical path. If you can get that built, then having the gas brought across Alaska to Tidewater basically is, then that's the prize. So I think the project, if we're achieving that, I would expect the project to almost cascade into phase two just with the, I guess the momentum of solving that trans Alaska problem with the gas.

But that's just me. I think the de risking goes way down and the interest is going to spike. So I think it'll almost be a, a continuum of activity. I don't anticipate that we wouldn't go to the next phase if we get the gas all the way across Alaska. Thank you.

Well, that may be well and good, Senator Coffman, but if the next phases aren't built and it's just an in state gas line, the question that. Your. Constituents have, I think they would have grave concerns that there is no assurances, even though as you said, the potential is high, but the assurances aren't there. And we went through yesterday what the cost of gas would be if, if in fact it was just a standalone pipeline at 42 inches to the users of Fairbanks in South Central. And when you're considering that authorization at the Senate on the Senate floor and the House floor, I think reality sets in and I don't know if we get there.

So that's the concern. What are the deliverables? Senator Coffman, I appreciate that. I'm just speaking in kind of the, I guess what I think are the real world perspective that if we can get the gas that close to, you know, to Tidewater, that the I have a hard time imagining that there won't be support to go the rest of the way with it just from a practical sense. But I appreciate what you're saying about.

The legislative sense and I would agree. If we're that close, then why not just make it one project, let's go forward. And you know, I think that is the safest if it's going to pan out.

To me that that is the path forward that makes most sense. Senator Coffman, I wouldn't argue with that. I think if the one project approach is fine, I think maybe someone was trying to think of like a emphasize getting gas to the rail belt first perspective and thinking that that would be helpful. But it does raise questions. The economics of the project are definitely driven by the export scenario and so I think that's profoundly important for offsetting what would be the high cost of the gas if it's only in state.

I Agree. Thank you, Senator Kaufman, Senator keel. Thank you, Mr. Chairman. And on exactly that discussion, I think it's a very good discussion. You know, I think our friends down the hall had a little field hearing yesterday and the head of nstar, if I understood him right, I think said he's got a contract to buy $16 gas from this thing with and it's locked in.

If there's cost overruns, he still pays 16, which is cool, but that takes about a quarter or maybe when we add Fairbanks, 20% of the volume out of any potential cost overrun risk and any recourse to that, that price tag to help finance it. So the question then is where does that risk swing? Whereas that whole project I agree completely with Senator Coffman. Right. You got a little piece of the equity investor, you got a little piece of the banker, you got a little piece of the upstream, the producers and their price, you got the Asian LNG buyer, you can handle that risk potentially.

So I think it's a good conversation and I think that whole project is the prize.

Million dollar question. Further questions on slide number 15. Mr. Clark, Mr. Clark, again for the record, one more point on the phased approach. I would just add is we don't really have a lot of insight into what the plan for the phased approach is. Whether it's truly complete the pipeline, then start the other facilities or to do it more in parallel.

We just don't know at this time.

This is Jill Miller. Financially it does sound difficult for it to be to occur on its own, to be financed on its own. We heard John Sims from MSTAR speak about the $16 as well. Then we saw the Department of Revenue presentation yesterday which had the slides showing the break even cost for in state utilities. And that was based on old price and not updated pricing, different gas supply assumptions, but those break even prices were much higher than the $16.

And so, and I've heard some discussion of Glenn Farn, maybe some of those phase one costs out later to coincide with the phase two customers. In that kind of scenario you don't have your phase one cost recovered by phase one customers. And that doesn't sound possible financially and so it may sound difficult on a standalone basis. I also just mentioned that we saw cost to internal Alaskan customers as a very large risk when we first started on this project. And we were glad to hear a willingness to cap that cost for internal customers that would need to be memorialized in some fashion.

Also the import LNG project, we have an understanding of how that works with the Alaska LNG project and really offering a backstop to the Alaska LNG project not happen or if only phase one happens?

So you mentioned capping the cost to the customers.

Was there a capped cost that was presented?

I just heard Glenn Farnes state that they're willing to cap that cost and not expose them to capital. Project cost overruns.

Were the question, son.

You were saying, Mr. Miller,.

What was that again? Were you continuing?

No, I think that's all my statement. Further Questions on slide 16?

Seeing none. Mr. Clerk,.

Mr. Clark, for the record, this brings us nearly to the end of our presentation on this slide. We've identified various points for the legislature to consider based on our review of the project and its current status. The three primary points here are what amount of tax reform works for the state and the project, how are Alaskans protected from capital cost overruns and what amount of oversight is needed and from where? It appears there's mechanisms for providing municipal funding to offset project impacts in the proposed legislation for the capital cost overrun and required oversight. These questions are both largely driven by if the state takes an equity position in the project, among other factors.

Mr. Clark, did we skip slide 16?

Yes, I apologize for that.

Returning to slide 16, Mr. Miller spoke to a lot of these points, but just to reiterate, this is one of the issues faced by the state of Alaska is just the supply of gas itself. With Cook Inlet production expected to be Depleted by the mid-2030s, limited success in recent exploration. The key risk there is just the uncertainty in the supply for the Phase one pipeline. It has a very high capital investment and more uncertainty in the schedule potential for overbuild. The Phase two is never completed and the gas costs potentially influenced by the capital cost of the project.

The key risks there are just the timing and the project costs. For LNG imports, it's a lower capital investment and less uncertainty in the schedule compared to the pipeline. There's a potential for overbuild if multiple LNG import proposals move forward, as well as the pipeline moving forward. Certain assets may be obsolete or stranded if the Alaska LNG is completed, and then the higher exposure to market price impacts. So the key risk there is just the gas supply cost, but at a high level.

These are kind of the three gas supply options available to the state and the key risks associated with each. Questions on this slide. I think Senator Coffman had transitional costs. Transitional between Cook Inlet and Phase one and the LNG project. Do you have a separate question, Senator Kaufman?

Yes, I do. Just on the the third column. Certain assets may be obsolete Stranded if Alaska LNG completed. I'm just curious about that. That bullet,.

Senator Coffman, through the chair, that relates to if we understand there's multiple proposals for an LNG import facility. If they advance, are and are completed, they may be rendered obsolete if the pipeline is also completed. So that's LNG imports, not Alaska lng. Right. So I'm just, that's with, I'm just pointing out that's within the context of importing.

Correct. I just, if seen alone, it could say that Alaska LNG could strand in state resources and I'm not sure if that's the case. For instance, I think there will be a period of time if we have we're operating phase one where the in state gas other than the sloped gas could actually be cheaper, come in at a lower price point. So the inlet may actually be a cost source of reduced cost gas if it's coming in below the price of what the gas from the slope carrying the whole tariff at whatever cap is put. So I think there's an important transition period there where the net cost of gas will be what we're producing at Cook Inlet and perhaps other locations relative to the tariff burdened portion that's coming down the line to us.

Thank you. Further Questions on Slide 16.

Seeing none. Mr. Clark,.

Back to Slide 17.

This is, we've just highlighted a few points from our review of the project and its current status. The three primary points here, what amount of tax reform works for the state and the project? How are Alaskans protected from capital cost overruns and what amount of oversight is needed and from where.

It appears that some of this, some of these points have been certainly considered in the proposed legislation. There's mechanisms for providing municipal funding, for instance, and the amount of oversight specifically that can relate to whether or not the state takes an equity position is one of the key factors for what type of oversight they would be looking to pursue.

But general questions on this slide.

Senator kiel. Thank you, Mr. Chairman. I'd love for you to flesh out that very last bullet. Little bit of what do you see in each direction? What would we be more likely to need if we do or if we don't take an equity stake?

Senator Keel, through the chair at the highest level with an equity position, you know, you are one of the project owners, so you would want all sorts of information and to make sure that project is on track and being executed in a cost efficient manner. You know, not incurring large cost overruns, just having a lot more visibility into the project itself with that equity position. Without the equity position, I'd imagine the primary focus is just on the delivery of the project itself and the impacts to the Alaskans, whether that's the delivered cost of gas or the revenue that the pipeline will generate from the exports. Thanks. Further questions I have a question in general, other projects, what off ramps do other mega projects have had, such as we have FID as being imminent and if we proceed in sign get legislation into law, would it be unreasonable to have say that if FID does not come within 24 months, the provisions of the legislation no longer exist.

To the chair? I think that would be a reasonable ask to include. Certainly you would want it to sunset at some point and just not be hanging left hanging out there in that case.

Further questions that Senate Finance members may have at this time.

Do you have any closing comments, Mr. Miller?

I would just say I think the committee is focused on the right issues, asking the right questions. I was glad to hear a direct linkage, a direct linkage to the governor's office. I think it's very important to have that direct communication between the legislature, governor's office and Glenn Khan to help find middle ground on these remaining important issues. All over from stakeholders. That's all I've done.

Anyone else have any closing comments before we adjourn the meeting? Mr. Clark, for the record? Mr. Clark. Yes. Just like to thank the committee for having us and allowing us to give this presentation and also just stress the importance that mega projects are big, hard, complex and challenging projects.

And one of the main factors that can drive success or failure is stakeholder alignment. So getting the alignment of all the key parties, making sure everybody's on the same page and understands the needs and the demands from each position can really go a long way to helping the project be successful. One final question regarding mega projects. Is it typical to have federal concessions made to make those mega projects profitable. To the chair?

Federal involvement in megaprojects is certainly common. You know, again, the conditions vary, project to project, depending on, depending on the needs, the strategic importance of the project as well as other factors. But federal support can certainly help advance megaprojects. What about specifically to property tax relief.

To the chair? That is one of the mechanisms that we've seen in other projects in other areas.

It's the nature of these projects that they're all unique. They all have different circumstances around them that allows them to proceed and ultimately be successful. And property tax reform is one of those factors that can be looked at. Thank you, Jeremy Clark. Thank you, Joe Miller, for the presentation.

That concludes this morning's meeting. Our next meeting is scheduled for tomorrow, June 3rd at 9:00am we will be hearing from Glenfarn, Alaska LNG, LLC. Anything else to come before the community. See None. We are adjourned.