04/05/2010 10:00 AM Senate FINANCE

SENATE BILL NO. 287                                                                                                           
                                                                                                                                
     "An Act  amending the powers  and duties of  the Alaska                                                                    
     Railroad  Corporation and  the  Alaska Housing  Finance                                                                    
     Corporation  related to  the exercise  of authority  to                                                                    
     purchase, transport,  and sell natural gas  produced on                                                                    
     the  North Slope  for  in-state  use, and  transferring                                                                    
     exclusive   and   primary    responsibility   for   the                                                                    
     initiation  and development  of that  project from  the                                                                    
     Office of  the Governor  and the Department  of Natural                                                                    
     Resources to  those corporations; and providing  for an                                                                    
     effective date."                                                                                                           
                                                                                                                                
11:28:13 AM                                                                                                                   
                                                                                                                                
MICHAEL  PAWLOWSKI, STAFF,  SENATOR  MCGUIRE, discussed  the                                                                    
legislation. He stated  that SB 287 attempts to  find a more                                                                    
permanent  statutory  framework  to  advance  the  gas  line                                                                    
project to  feasibility on prior to  a bankable feasibility.                                                                    
Completing the  right of way, gathering  letters of interest                                                                    
from  commercial  buyers  and  sellers of  gas,  along  with                                                                    
seeking  interest  from  private pipe  line  companies  that                                                                    
might be  interested in constructing an  instate natural gas                                                                    
pipe line  are all  accomplished by amending  the provisions                                                                    
that  govern the  Alaska railroad.  He stated  that explicit                                                                    
authority   for    the   construction,    acquisition,   and                                                                    
development of  the gas  pipe line  project. An  instate gas                                                                    
pipe  line project  has been  inserted  into the  railroad's                                                                    
existing  authorities. He  pointed  out  several efforts  to                                                                    
capitalize  on Alaska's  North Slope  gas.  The language  on                                                                    
Page 3  attempts to  limit the  authorization to  the Alaska                                                                    
railroad for the project that  money was appropriated for in                                                                    
the   Supplemental  appropriations   bill   last  year.   He                                                                    
explained that Page 3, Lines  29-31, states that the goal of                                                                    
the effort  is to  be compatible,  but not  competitive with                                                                    
other  efforts   to  commercialize  instate   gas.  Explicit                                                                    
direction is  found in  Section 4 on  Page 4  describing the                                                                    
mechanisms  through which  the  Railroad is  required to  go                                                                    
through to  develop the  project and bring  it to  the point                                                                    
where the big decisions can be made.                                                                                            
                                                                                                                                
Mr. Pawlowski stated that the  important points in Section 4                                                                    
are  found  on Page  4,  Line  26  through  Page 5,  Line  6                                                                    
including the grant  of the nonexclusive right of  way and a                                                                    
process to achieve that right  of way from the Department of                                                                    
Natural Resources (DNR). Section 5  is in the uncodified law                                                                    
and is  transitional language that gives  distinct tasks and                                                                    
line  items  to  the  Railroad Corporation  to  advance  the                                                                    
project. He  pointed out a  provision on Page 6,  Lines 8-19                                                                    
that  was  added  in the  Senate  Resources  Committee  that                                                                    
provides a mechanism to cancel  progress on the project. The                                                                    
Alaska  Railroad  is a  strong  institution  with a  vibrant                                                                    
board of directors that is  accustomed to overseeing project                                                                    
management.  The original  version  of SB  287 included  the                                                                    
Alaska Housing Finance Corporation  to discuss the financing                                                                    
of the line, however, the  entire project was limited to the                                                                    
definition and  feasibility of the  project as stated  in SB
. He  commented that several  fiscal notes  were received                                                                    
that deserve further attention from the committee.                                                                              
                                                                                                                                
11:34:20 AM                                                                                                                   
                                                                                                                                
Senator  Thomas  asked  about  Page   3,  Line  16  and  the                                                                    
commercial  development  of  the central  gas  facility.  He                                                                    
asked  if the  reference to  a  central gas  facility was  a                                                                    
reference  to a  new gas  pipeline. Mr.  Pawlowski responded                                                                    
that  the gas  treatment  plant would  be  required for  any                                                                    
project. The goal  of Subsection 2 is to  identify points of                                                                    
supply for the project.                                                                                                         
                                                                                                                                
Senator Olson  asked if  a new CEO  for the  Alaska Railroad                                                                    
will have expertise  in the construction of  a gas pipeline.                                                                    
Mr. Pawlowski responded that the  CEO is not as important as                                                                    
the structure of the Railroad,  in that they are exempt from                                                                    
the executive budget act.                                                                                                       
                                                                                                                                
Co-Chair  Stedman   referred  to   the  fiscal   notes  from                                                                    
Department  of Revenue.  He detailed  the  fiscal notes.  He                                                                    
discussed   the  difference   and   the   new  fiscal   note                                                                    
forthcoming from the Department of Natural Resources.                                                                           
                                                                                                                                
11:37:50 AM                                                                                                                   
                                                                                                                                
FORMER  GOVERNOR SHEFFIELD  (via teleconference),  testified                                                                    
in  support   of  the  legislation.   He  stated   that  the                                                                    
legislation   could  advance   the  project   following  the                                                                    
foundation work  provided in the  bill. He pointed  out that                                                                    
the Alaska Railroad Corporation  is competent to support the                                                                    
issue. He  spoke to the importance  of the gas line  and the                                                                    
creation  of jobs  including construction.  He testified  to                                                                    
the Railroad's capabilities.                                                                                                    
                                                                                                                                
11:41:42 AM                                                                                                                   
                                                                                                                                
JOHN  COOK,   ALASKA  RAILROAD   BOARD  OF   DIRECTORS  (via                                                                    
teleconference) testified in support  of the legislation. He                                                                    
stated that  a bill approved  by the legislature  and signed                                                                    
by  the governor  will be  carried out  to the  best of  the                                                                    
Alaska  Railroad's  ability.  The railroad  appreciates  the                                                                    
faith in the industry. He  stressed that the backup plan for                                                                    
gas includes  the need for  a bridging solution in  the near                                                                    
term. He  noted that the lack  of a gas supply  is affecting                                                                    
the  private sector  economy. He  provided examples  of this                                                                    
lack  of gas  supply  and the  effect  on various  potential                                                                    
projects.                                                                                                                       
                                                                                                                                
11:45:25 AM                                                                                                                   
                                                                                                                                
JOHN  BINKLEY,   ALASKA  RAILROAD   ASSOCIATION,  FAIRBANKS,                                                                    
testified in support of the  legislation. He stated that the                                                                    
Alaska Railroad Corporation Act created  by the body and the                                                                    
legislature has  a public  purpose of  economic development.                                                                    
He stressed  the need for  a strong and  profitable customer                                                                    
base.  With  this  bill,  the   Alaska  Railroad  will  take                                                                    
responsibility for  the existing  work program with  a focus                                                                    
on  permitting,  right  of  way, and  design  to  present  a                                                                    
feasibility  study  to  the   legislature  followed  by  the                                                                    
bankable  feasibility  statement.  He  commended  the  great                                                                    
management  team of  the Alaska  Railroad  that despite  the                                                                    
transition  appreciates the  opportunity to  be included  in                                                                    
the project.                                                                                                                    
                                                                                                                                
11:48:40 AM                                                                                                                   
                                                                                                                                
Senator  Huggins  asked  if  the  transition  of  leadership                                                                    
impedes the Alaskan Railroad in relation to this project.                                                                       
                                                                                                                                
Mr. Binkley  responded that  no one  individual adds  to the                                                                    
success  of the  railroad. He  believed that  the transition                                                                    
allowed for  opportunity to  shape the  Railroad and  in the                                                                    
choosing of  a new leader.  He pointed out the  strong board                                                                    
of directors. The structure of  the railroad has created the                                                                    
vision  of public  purpose through  private sector  means to                                                                    
achieve  success and  provide for  economic development  for                                                                    
Alaskans.                                                                                                                       
                                                                                                                                
Senator  Huggins commented  that  a  successful instate  gas                                                                    
pipeline  is  in the  best  interest  of the  Railroad.  Mr.                                                                    
Binkley  responded  that  the   Alaska  Railroad  feels  the                                                                    
economic  downturn. A  period of  contraction occurred  over                                                                    
the last  period of  years as  revenues have  decreased. The                                                                    
economic  viability  with  the  advent  of  instate  gas  is                                                                    
critical  to  the Alaska  Railroad.  He  mentioned that  the                                                                    
legislature   set   up   the   board   of   directors   with                                                                    
commissioners  from  the  Department of  Transportation  and                                                                    
Public Facilities and the  Department of Commerce, Community                                                                    
and Economic  Development who  work to  further the  goal of                                                                    
economic     development     through    a     transportation                                                                    
infrastructure.                                                                                                                 
                                                                                                                                
11:53:58 AM                                                                                                                   
                                                                                                                                
Co-Chair Hoffman  pointed out the  fiscal note and  the $9.5                                                                    
million  estimate for  pipeline engineering.  He asked  what                                                                    
product would be procured for the $9.5 million.                                                                                 
                                                                                                                                
Mr.  Binkley  answered  that  the   anticipated  cost  is  a                                                                    
preliminary estimate. He noted that  the board is waiting to                                                                    
observe   the  evolution   of  the   legislation  prior   to                                                                    
determining  an exact  fiscal  note.  The anticipated  costs                                                                    
with the existing contracts and  personnel to pursue the pre                                                                    
feasibility study  and the  feasibility study  contribute to                                                                    
the quoted numbers.                                                                                                             
                                                                                                                                
Co-Chair  Stedman discussed  the  fiscal note  and the  well                                                                    
founded cost estimate for construction due in June 2010.                                                                        
                                                                                                                                
Mr. Pawolowski responded that the  issue was raised with the                                                                    
liaison   to  the   Alaska  Railroad.   The  original   bill                                                                    
referenced  a permit  schedule designed  in  2009. With  the                                                                    
management transition, the  schedule slipped. Current fiscal                                                                    
year work is scheduled for  completion on July 1, 2011 which                                                                    
should be  accounted for  in the  current fiscal  year. This                                                                    
fiscal note must change to reflect that change in the bill.                                                                     
                                                                                                                                
11:56:08 AM                                                                                                                   
                                                                                                                                
Senator   Thomas  suggested   that  the   Alaska  Railroad's                                                                    
intention  is not  to build  a pipeline.  He hoped  that the                                                                    
work on  permits and engineering  would be  subcontracted to                                                                    
corporations   or  entities   that   have  the   appropriate                                                                    
experience.                                                                                                                     
                                                                                                                                
Mr.  Pawlowski   responded  that  insulating   the  existing                                                                    
operations of  the railroad  from the  initial task  was the                                                                    
reason for the creation of a subsidiary corporation.                                                                            
                                                                                                                                
Senator  Thomas recognized  the importance  of the  bill and                                                                    
the issues  that include the  Alaska hire and  Alaska Native                                                                    
hire.  He  recommended  changing the  timelines  to  include                                                                    
training programs ensuring that  the employees necessary are                                                                    
trained.                                                                                                                        
                                                                                                                                
Co-Chair Stedman  commented about  the union  agreements and                                                                    
the  0.5  Billion Cubic  Feet  (BCF)  limit of  AGIA,  which                                                                    
restricts the transportation of the gas supply.                                                                                 
                                                                                                                                
11:59:33 AM                                                                                                                   
                                                                                                                                
Mr. Pawlowski referenced Page 3,  Lines 29-31 which resulted                                                                    
from communication  with the administration.  The compatible                                                                    
yet not  competitive language  referencing the  AGIA project                                                                    
was  an explicit  acknowledgement of  the 500  million cubic                                                                    
feet per day limit under AGIA.                                                                                                  
                                                                                                                                
Co-Chair Stedman  asked if  the language  included restricts                                                                    
the development to .5 BCF per day or less.                                                                                      
                                                                                                                                
Mr. Pawlowski  stated that the language  specifically states                                                                    
that the  state cannot exceed the  half a BCF per  day limit                                                                    
without  exceeding the  trouble damage  provision. Scenarios                                                                    
can be  reviewed that might exceed  0.5 BCF per day,  but in                                                                    
terms of advancing the project,  that decision must be taken                                                                    
later.                                                                                                                          
                                                                                                                                
Co-Chair  Stedman asked  if 1  BCF per  day is  required for                                                                    
efficiency  the state  might encounter  triple damage  issue                                                                    
under the AGIA contract.                                                                                                        
                                                                                                                                
Mr. Pawlowski responded  that Page 5, Lines  22-24 tasks the                                                                    
Alaskan  Railroad  with  the identification  of  legislation                                                                    
that  is necessary.  He  noted that  the  letters of  intent                                                                    
found in  sub 2 Lines  16-18 in  that the producers  and the                                                                    
market of  the gas express  an interest in  something larger                                                                    
than  0.5 BCG  per day,  legislation might  be necessary  to                                                                    
change that in the future.                                                                                                      
                                                                                                                                
Co-Chair Stedman  asked if this language  was too simplistic                                                                    
with  the contractual  arrangement  between TransCanada  and                                                                    
Alaska  under   AGIA.  Mr.  Pawlowski  responded   that  the                                                                    
contractual  obligation  is  important  in  the  event  that                                                                    
greater  than 0.5  BCF  per day  becomes  necessary for  the                                                                    
project.                                                                                                                        
                                                                                                                                
Co-Chair  Stedman  commented  that with  the  efficiency  of                                                                    
scale issue, the price at the  consumer level is high at 250                                                                    
million and  efficiency of scale  is not realized  until 750                                                                    
million  is  reached.  Mr.   Pawlowski  commented  that  the                                                                    
official analysis  will not be  complete until July  1, 2011                                                                    
under the current cost estimate work carried out.                                                                               
                                                                                                                                
SB  287  was  HEARD  and   HELD  in  Committee  for  further                                                                    
consideration.