Legislature(2007 - 2008)SENATE FINANCE 532
05/10/2007 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB229 | |
| SB144 | |
| HB238 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 229 | TELECONFERENCED | |
| + | SB 144 | TELECONFERENCED | |
| + | HB 238 | TELECONFERENCED | |
| + | HB 162 | TELECONFERENCED | |
| + | TELECONFERENCED |
9:41:38 AM HOUSE BILL NO. 229 am "An Act authorizing the Alaska Railroad Corporation to participate in a project consisting of the acquisition, construction, improvement, maintenance, equipping, or operation of real and personal property, including facilities and equipment, for the Kenai gasification project and Port MacKenzie rail link, authorizing the corporation to issue bonds to finance all or a portion of the project, and identifying these as bonds for an essential public and governmental purpose; and providing for an effective date." This was the second hearing for this bill in the Senate Finance Committee. 9:42:30 AM PAT GAMBLE, President and Chief Executive Officer, Alaska Railroad Corporation, testified that this bill would allow the Railroad to utilize its tax-free bonding authority to issue up to $2.9 billion in bonds to enable the construction of the Agrium Gasification Plant in Kenai. He identified the three components of the bond proposition as funding for the plant, the ability to purchase assets necessary to facilitate the movement of coal for the plant, and the authorization of the Railroad to use its bonding authority to support a potential rail extension from Willow to Port MacKenzie. 9:44:39 AM Mr. Gamble reminded that tax free bonds would carry no recourse to State. The bonds would carry no recourse to the Alaska Railroad for the Agrium or the portions of the bonds dedicated to the rail extension. The Railroad would finance the costs of two trains to be used to transport materials to the plant. 9:45:18 AM Co-Chair Stedman asked if these would be considered "conduit bonds". Mr. Gamble affirmed that the bill called for conduit financing for the rail extension and the gasification plant. 9:45:26 AM Co-Chair Stedman asked the expected length of time that the Railroad would retain authorization for this type of financing. Mr. Gamble understood the question to relate to the term of the bonds. Co-Chair Stedman clarified that he wanted to know how long the Railroad would continue to hold the authorization for the issuance of the bonds. 9:46:01 AM Mr. Gamble replied that, for accounting purposes, the authorization would not be "carried on the company's balance sheet." The period of authorization was not specified and would carry no commitment, but would remain in perpetuity unless exercised or amended within the bill. 9:46:52 AM Co-Chair Stedman proposed that the authorization be accompanied by a termination date to stipulate that if the project did not reach fruition, the authorization would expire. Mr. Gamble replied that he would not expect a termination date on the bond authorization to affect the Railroad's financing, and deferred to Agrium to respond independently. 9:47:44 AM LISA PARKER, Manager, Government Relations, Agrium Inc., informed that Agrium had experienced difficulties operating its plants at capacity due to declining resources. Agrium currently operated its plant at 50 percent capacity, yet intended to operate permanently at full capacity as soon as possible. Agrium would potentially be prepared to bring the project "online" by late 2011 or early 2012. 9:49:25 AM Co-Chair Stedman asked regarding a "reasonable" timeframe for the authorization of the $300 million for the Mat-Su rail extension. Mr. Gamble responded that the Environmental Impact Statement (EIS) would take a minimum of two years to complete. Due to the fact that construction would be possible only seasonally, he estimated project completion at a minimum of five years, but deferred to the Mat-Su Borough for verification of his calculation. 9:50:53 AM Senator Elton understood the definition of a "mega project" to be a project exceeding one or two billion dollars. According to that definition, this proposal would be considered a mega project. He asked the types of preparation and diligence performed by the Railroad's board of directors in relation to a mega project. 9:51:41 AM Mr. Gamble informed that the board of directors was a management board rather than an oversight board. The board delegated the authority to run the day to day operations of the Railroad. The bonds would not be issued all at once and the board would approve each issuance of bonds separately, based on an evaluation of the risks related to each phase of the project. 9:53:11 AM Senator Elton inquired as to the diligence exercised by the board with regard to financial matters. 9:53:35 AM Mr. Gamble told of the debt management office managed by the Chief Financial Officer of the Railroad which was dedicated to that work. Additionally, the market itself would determine the risk and the interest rates, allowing the buyers to participate in the diligence process. 9:54:41 AM Ms. Parker added that Agrium had been a publicly traded company on the New York and Toronto stock exchanges for the past 12 years. The company would conduct internal due diligence before the project was initiated. 9:55:26 AM Senator Thomas was unsure of the source of the aforementioned $300 million figure. Mr. Gamble answered that that amount would be "rolled into" the general bonding authorization. Senator Thomas understood that those funds would specifically be Railroad bonding and not associated with State liability. Mr. Gamble confirmed that the funds would be conduit financing, akin to the Agrium project financing. 9:56:09 AM Senator Thomas observed that when an extension of exportation of natural gas from Cook Inlet seemed likely, the expected reserves increased. He asked if this trend would impact the proposed project. 9:57:07 AM Ms. Parker reiterated that Agrium would prefer to continue to utilize natural gas, which would save the company $2 billion on this project. However, natural gas reserves were diminishing, and the plant was currently operating for only half of the year, at 50 percent capacity. The North Slope would not be a supplier of gas for at least ten years. Agrium's intent was to purchase gas from Cook Inlet producers to operate the plant at 50 percent capacity until its conversion to coal, and then to remain using coal. 9:58:51 AM Senator Olson asked if a market for the plant's product would develop if it were operating at 100 percent capacity. Ms. Parker affirmed. Senator Olson identified a five year difference between the estimated completion dates of the gasification plant and the natural gas pipeline from the North Slope. He asked how Agrium planned to repay the bond debt in that five year time frame. 9:59:41 AM Ms. Parker explained that if Agrium converted the plant to a coal gasification facility, it would continue to employ coal and would not return to natural gas. The bond repayment would be negotiated with the bond market and the Alaska Railroad Corporation. Senator Olson commented that the public was "very satisfied" with the impacts of natural gas usage, and asked the reaction of residents of the Kenai Peninsula to the proposed coal burning facility. Ms. Parker shared that Agrium had received positive comments from people in the community. New technologies would make a coal project much cleaner than in the past. Extensive permitting would be required, including air and water quality permits and an environmental assessment. 10:01:16 AM Senator Huggins stated that Agrium was one of the few industrial production bases in Alaska. The rail spur would serve approximately 50 percent of the State's population in the Anchorage and Kenai areas, as well as provide alternate transportation for hauling construction materials to the North Slope for the erection of a natural gas pipeline. The State built very little new infrastructure, and the rail spur would decrease the wear on area roads, thus decreasing the needed maintenance and upkeep of the existing infrastructure. He relayed that the communities he had contacted supported the proposal. 10:04:25 AM Senator Elton asked for clarification that the only asset that the Railroad would commit to the project was the "rolling stock". Mr. Gamble affirmed. 10:04:49 AM Senator Thomas asked if Agrium intended to sell electrical surplus energy back into "the grid". Ms. Parker affirmed. She elaborated that the arrangement was currently to produce 190 megawatts of power, of which the plant would use 120 megawatts and sell 70 megawatts to the grid. The Homer Electric Association had been involved in those discussions. 10:05:27 AM Senator Dyson asked if the project would require a new intertie line to transport the power produced. Ms. Parker responded that the project would not require a new intertie line. 10:06:00 AM Senator Dyson had received contradictory information. 10:06:08 AM JOHN DUFFY, Borough Manager, Matanuska Susitna Borough, testified via teleconference from an offnet location in support of the project and the bill as amended. He referenced three studies that examined the impact of the proposed rail spur, and informed that the studies supported the project, as it would allow for increased efficiency and mining development. He set forth that Alaska currently imported cement, but could produce its own cement and transport that product to market with the construction of the rail spur. The railroad would also provide savings for the transportation of materials to the North Slope when construction of the gasline began. The Borough would assist in the attainment of an EIS. 10:08:25 AM Co-Chair Stedman shared that the Committee was considering the inclusion of a termination date of five years for the authorization of the Mat-Su rail extension, and asked Mr. Duffy's reaction. 10:09:01 AM Mr. Duffy agreed with Mr. Gamble that a five year termination date was "appropriate". 10:09:09 AM Co-Chair Stedman proposed an eight year time frame for authorization of Agrium's bonding portion of the project, after which time Agrium could request reauthorization if necessary. 10:09:39 AM Mr. Gamble voiced that Railroad's support of that proposal, and deferred to Agrium. Ms. Parker concurred. 10:09:58 AM Amendment #1: This conceptual amendment reads as follows. Place a five year sunset date on the portion of authorization ($300 million) in the bill allocated to the Mat-Su Rail extension to Pt. Mackenzie. Place an eight year sunset date on the balance of the authorization ($2.6 billion) to finance the facilities and equipment associated with the Agrium Kenai Gasification Project. Co-Chair Stedman moved for adoption. There was no objection and the amendment was ADOPTED. 10:10:40 AM Co-Chair Hoffman offered a motion to report the bill from Committee as amended with individual recommendations and accompanying fiscal note. There was no objection and SCS HB 229 (FIN) was MOVED from Committee with previous zero fiscal note #1 from the Department of Commerce, Community and Economic Development, Alaska Railroad Corporation.
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