Legislature(2007 - 2008)BUTROVICH 205
04/16/2007 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Overview: Enstar Presentation – Curtis Thayer, Director, Corporate/external Affairs, Enstar and George Schreiber, Ceo of Semco | |
| Lisa Parker, Specialist, Government/community Relations, Agrium | |
| Bill Sheffield, Director, Port of Anchorage | |
| John Duffy, Manager, Matanuska-susitna Borough | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
April 16, 2007
3:37 p.m.
MEMBERS PRESENT
Senator Charlie Huggins, Chair
Senator Bert Stedman, Vice Chair
Senator Lyda Green
Senator Bill Wielechowski
Senator Thomas Wagoner
Senator Gary Stevens
Senator Lesil McGuire
MEMBERS ABSENT
All Members Present
OTHER LEGISLATORS PRESENT
REPRESENTATIVE NEUMAN
COMMITTEE CALENDAR
Presentation: Enstar
George Schreiber, President/CEO of SEMCO
Curtis Thayer, Director, Corporate External Affairs
Presentation: Southcentral Rail Corridor
Lisa Parker, Government and Community Relations Specialist,
Agrium
Patrick Gamble, President/CEO, Alaska Railroad Corporation
(ARRC)
PREVIOUS COMMITTEE ACTION
No previous action to consider
WITNESS REGISTER
CURTIS THAYER, Director
Corporate/External Affairs
Enstar
POSITION STATEMENT: Gave Enstar presentation.
GEORGE SCHREIBER, President/CEO
SEMCO Energy Gas Company (Parent Company of Enstar)
POSITION STATEMENT: Gave Enstar presentation.
LISA PARKER, Specialist
Government/Community Relations
Agrium
POSITION STATEMENT: Discussed Agrium's energy supply issues.
BILL SHEFFIELD, Director
Port of Anchorage
Anchorage AK
POSITION STATEMENT: Discussed using the Port of Anchorage for
Agrium's energy supply.
JOHN DUFFY, Manager
Matanuska-Susitna Borough
350 East Dahlia Avenue
Palmer, Alaska 99645
POSITION STATEMENT: Discussed Southcentral Rail Corridor.
MURPH O'BRIEN, Director
Planning Division
Mat-Su Borough
POSITION STATEMENT: Commented on rights-of-way.
PAT GAMBLE, President/CEO
Alaska Railroad Corporation (ARRC)
Anchorage AK
POSITION STATEMENT: Discussed Railroad development issues with
Agrium energy supply.
ACTION NARRATIVE
CHAIR CHARLIE HUGGINS called the Senate Resources Standing
Committee meeting to order at 3:37:45 PM. Present at the call to
order were Senators Wielechowski, Wagoner, Stedman, Green and
Huggins. Chair Huggins asked Mr. Thayer to introduce himself and
begin his presentation.
3:38:24 PM
^Overview: Enstar presentation - Curtis Thayer, Director,
Corporate/External Affairs, Enstar and George Schreiber, CEO of
SEMCO
CURTIS THAYER, Director, Corporate/External Affairs, Enstar,
briefed the committee that Enstar was established in 1961 and
has 125,000 meters on buildings in Alaska, which is equivalent
to serving half the state's population. It owns and operates
3,000 miles of distribution and transmission mains in Cook
Inlet. Its impact on Alaska's economy is over $300 million.
Enstar has 168 full-time employees and that will go up to 225
during summer construction. It is ranked number one among Alaska
energy utilities and has a net gain of about 3,400 new customers
a year or a 3-percent growth rate, which is one of highest in
the country.
3:39:23 PM
MR. THAYER said Enstar owns and operates everything they see in
blue [referencing a chart] in the Cook Inlet - the Beluga
pipeline, which is a 20-inch pipeline on the west side of the
Inlet and the original Enstar system, which is a 10-inch
pipeline on the east side. Marathon and Chevron own most of the
other natural gas systems and Enstar is the operator for some of
those. He said Chugach Electric has the next highest number of
meters at 69,000 and Matanuska Electric at 50,000.
MR. THAYER went to another slide from the Department of Energy
2004 that showed that Enstar operates under long-term contracts
and uses 18 to 20 percent of the gas produced in Cook Inlet. It
indicated that Matanuska Power and Chugach Electric use about 16
to 18 percent.
He said that Enstar has two primary contracts and its Marathon
contract is based on the price of oil indexed during a three-
month period from July through September of a given year. It was
initiated in 1988, 19 years ago. Its newer contract, the Unocal
contract, which is now Chevron, is based off a discounted three-
year average of Henry Hub prices and it was initiated in 2000.
He said that prices were high this year with a 30 percent
increase - primarily because of what they call a "perfect
storm." Crude oil prices were the highest they have ever been at
$72/barrel and that is during the index they used for the past
19 years. He showed the spike in natural gas prices and remarked
that was when Hurricanes Rita and Katrina shut down the Henry
Hub last year. He remarked when the Chevron contract was
negotiated in 2000, there had never been a natural disaster that
had affect natural gas prices, let alone Henry Hub pricing, for
the last 25 years. Mr. Thayer pointed out a stable supply last
winter in the Lower 48 (Henry Hub) using a chart of trailing
averages that dropped years off at the end and picked them up at
the front.
3:42:41 PM
MR. THAYER said Unocal supplies 55 percent of Enstar's natural
gas supply at $7.98/mcf. Marathon supplies 42 percent at
$5.81/mcf and Beluga supplies 3 percent at $6.33. The weight cog
is $7.03/mcf and is based on an average of those. Their prices
get changed once a year in January.
3:43:24 PM
CHAIR HUGGINS asked him to explain how the price of gas is
irrelevant to the customer base.
GEORGE SCHREIBER, CEO of SEMCO, parent company of Enstar,
answered:
We are not irrelevant to the price of gas and the
reason is that as our rates are currently configured
to charge customers, we have a customer charge which
is a fixed charge. We have distribution charge, which
is a volume-determined amount of revenues that we
recover from customers and then we have the cost of
gas. The cost of gas in Alaska is 75 percent of the
bill. Now, if our profitability is tied to that middle
rate, that distribution charge that I talked to, which
is dependent on the volume that the customers use,
then as prices go up, we know that usage is going to
go down. It has happened in Alaska; it has happened in
our other service areas in Michigan. It is actually a
phenomenon that is happening in the gas industry in
general. So that as prices go up, customers use less.
Our profitability declines as prices go up. It is
completely illogical. It is contrary to what most
people think. Most people think well if prices are
going up, then Enstar is making a whole lot more money
than they were when you had $5-gas. And it is simply
not true because of the way we charge customers.
3:45:02 PM
MR. THAYER explained that gas costs $7.03 and Enstar adds $1.70
more, which consists of the regulated rate of return, employee
costs, trucks on the road, servicemen, and its integrity
management plan and includes the addition of new customers and
maintaining the pipeline system. This charge has remained flat
for 5 years and has actually gone down over the last 10 years.
The cost comparison percentage of annual bill shows that 45
percent of the bills in 1996 was the cost of the gas and 55
percent of it was Enstar's charge at $1.93/mcf. Last year
Enstar's piece was only 19 percent of the bill at $1.70/mcf and
its natural gas price was 81 percent of the bill. He explained
that higher prices have made people conserve so he didn't use
the 2007 numbers.
SENATOR STEVENS joined the committee at 3:45.
3:46:34 PM
MR. SCHREIBER added that Enstar's charges have gone down from
$1.93 to $1.70 over the last 10 years, but it can't reduce its
costs enough to make up for what's happening in the energy
markets where all energy costs are going up.
MR. THAYER went to the average annual bill comparison and said
that the average annual in 1996 was $363 and the cost of the gas
$297. Now the supply receives $887 of an average bill and Enstar
is receiving $301. So, Enstar is been making $62 less per year
per customer than it was ten years ago. This is just related to
customers conserving more.
SENATOR STEDMAN asked if Enstar's customer base had have gone up
in that time.
MR. THAYER replied yes; that it has gone up by approximately
45,000 customers and that Enstar had grown more efficient in the
last 10 years as the operation has grown.
MR. SCHREIBER added, however, that the usage per customer has
declined over that time.
3:48:01 PM
MR. THAYER stated that the higher cost of natural gas does not
benefit Enstar and the market has moved from excess
deliverability to an environment where the deliverability does
not meet the demand. He said the cost of natural gas will
probably continue to go up and that more supply contracts are
needed. These contracts are for smaller volumes and are getting
more complicated. He explained that contracts used to be for 20
years at one indexed price. Now, three different pricing
mechanisms might be in one contract. A flat gas price is used
for a peak in a winter day, but a needle peak where it's 20
below for a week-long cold spell would be another price.
He said the pipeline system is also becoming more complicated to
operate. Enstar used to balance its gas with its producers on a
monthly basis and the producers now want to do it daily. Higher
energy costs are not good for utilities either and their
commodity costs are passed through to the customer with no
additional profit for the utility. High gas price causes
consumers to conserve more and cause higher bad debt. Customer
satisfaction decreases because they see Enstar's name on the
bill. So, Enstar gets higher call volumes and they are also
seeing an increase in theft of service.
MR. THAYER said that new rate designs are needed that will allow
a utility to encourage conservation, which would also be good
policy. In southcentral Alaska, at $8.73/mmbtu natural gas is
still the best bargain compared to fuel oil or municipal light
and power.
3:50:08 PM
SENATOR STEDMAN asked for the backup data that was used for
slide 13 that compared costs of energy to homeowners.
MR. THAYER replied that he would get that for him. He went on to
the slide that showed a $506 million cost if Southcentral had to
switch to fuel oil - just for the cost of the commodity itself.
For propane it would be almost $900 million. A 2006 cost
comparison for Fairbanks indicated that customers would pay
approximately $64 million a year if they could get natural gas.
Right now they pay $115 million for fuel oil. So, they would pay
$50 million less for natural gas.
3:52:18 PM
MR. THAYER said the Regulatory Commission of Alaska (RCA)
rejected one of Enstar's contracts last year and Marathon has
since pulled back and is not negotiating any more. That supply
was to fill needs in 2009 through 2016; it had a floor and a
ceiling and used a trailing 12-month average of Henry Hub
prices. So, that gas supply still needs to be secured.
3:52:59 PM
MR. SCHREIBER added that Enstar issued an RFP to find the supply
to replace the contract and has received a couple of indications
of interest. They are finding that terms are now shorter -
basically for five years term and have various pricing
mechanisms. So, Enstar is working to solve those supply
problems.
3:54:25 PM
SENATOR MCGUIRE joined the meeting.
3:55:39 PM
MR. THAYER said Enstar had deliverability issues this past
winter on very cold days and as the system grows, more gas will
be needed for those coldest days. Agrium used to be its backup
supply, but it doesn't operate in the winter any more; so they
now have a backup agreement with the LNG plant to make up that
supply.
3:58:15 PM
MR. SCHREIBER explained why having a backup supply is critical
to natural gas systems because unlike a electric utility, the
circuits don't automatically reset once the power comes back.
Enstar needs to send technicians out to relight all the pilot
lights. This year Enstar is supplying natural gas to Fairbanks,
so when it's cold in both places, a much bigger supply will be
needed out of Cook Inlet.
4:00:51 PM
MR. SCHREIBER also pointed out that last year a natural gas
supplier failed to deliver on its contracts and Enstar had to
step in to make sure several large users, like the hospital, had
gas.
4:01:02 PM
CHAIR HUGGINS asked if Point MacKenzie had a small natural gas
operation.
MR. THAYER replied that would be Northern Eclipse. They are the
ones who are sending LNG to Fairbanks.
MR. SCHREIBER added that it had just enough gas to serve the
peak requirements. He said Enstar's system can handle 400
mcf/day so the issue is deliverability. It has four natural gas
projects in operation today and is encouraging addition natural
gas storage facilities in the Kenai Peninsula.
4:02:26 PM
MR. THAYER indicated gasline options for southcentral Alaska on
another slide and summarized that the least attractive option
was importing LNG into the LNG facility.
4:03:24 PM
SENATOR STEDMAN asked how much gas Cook Inlet holds and recalled
how a few years ago pricing didn't encourage exploration
development. He said those dynamics have changed along with some
credit enhancements and other incentives from the Legislature
and he asked what the chances are for its development now.
4:04:53 PM
MR. THAYER replied that a 2004 Department of Energy (DOE) study
said finding and developing gas onshore in Cook Inlet would be
about a $5 billon prospect and that even more measures are
needed to promote more exploration. He said no exploration was
going on in 2000 in Cook Inlet when Enstar signed its contract
with Unocal using Henry Hub pricing. Unocal did not have the gas
it committed to Enstar today and that spurred development.
4:05:25 PM
MR. SCHREIBER went to the appendix on page 30 that illustrated
what Mr. Thayer just said.
SENATOR STEDMAN asked him to define "Henry Hub" for the public.
4:06:19 PM
MR. SCHREIBER replied that Henry Hub is a pricing off of a point
in Louisiana which is where most of the gas in the United States
flows through. It is a reference point for natural gas used on
the Mercantile Exchange (NYMEX) that the gas industry looks at
in terms of pricing its product.
4:06:29 PM
SENATOR WIELECHOWSKI opined that no matter what the Legislature
does to solve the Cook Inlet issue, it would still cost $4
billion or $5 billion to either build an LNG regasification
plant in Kenai or to explore in Cook Inlet or to build the spur
line down from Prudhoe Bay into Southcentral.
MR. THAYER answered that the Cook Inlet costs came from a DOE
study. The spur line from Fairbanks has been estimated to cost
about $800 million and a bullet line has been estimated to cost
about $2.5 billion to $3 billion. The regasification study is
ongoing, but it appears that it will cost under $100 million.
4:07:58 PM
MR. SCHREIBER added that Enstar is attacking this on two fronts
by looking for new gas supply contracts for the near term and at
other options like the intrastate line, a five-year project at
$2.5 billion to $3 billion, for the intermediate term. While a
big line to the Lower 48 would be good, it would not fill the
hole in his customers' supply in the meantime.
4:10:27 PM
SENATOR WIELECHOWSKI asked how much a bullet line would cost per
mcf to each customer.
MR. SCHREIBER replied that at $7 Henry Hub, Alaska is paying the
market price because it has a closer supply. If the LNG plant
were operating, he guessed the tariff would be about $1.80. So
gas would be about $8.80 delivered into the Cook Inlet. He
thought market price was the best way to think about it.
4:12:01 PM
SENATOR WAGONER asked what kind of control Enstar has on
construction costs and how could he assure Enstar's piece could
be kept at $1.80.
MR. THAYER replied that Enstar is the largest and only pipeline
builder of natural gas systems in the state. That is their
expertise.
4:14:12 PM
SENATOR WAGONER asked how soon Enstar's engineering would be
complete enough to know what construction would cost.
MR. SCHREIBER replied the engineering and right-of-way work is
happening now with the help of federal grants and that it might
go into next year.
4:16:20 PM
He added that Enstar would see no change when it becomes owned
by Cap Rock, a private investment company. From the public's
point of view, the only thing that will happen is that instead
of having many investors in the public arena, Enstar would be
owned by a private investment company.
CHAIR HUGGINS thanked them for the presentation.
4:18:59 PM at ease 4:30:15 PM
^Overview: Southcentral Railroad Corridor and Resource
Development
CHAIR HUGGINS invited Ms. Parker to present for Agrium on
Southcentral railroad corridor issues.
^ Lisa Parker, Specialist, Government/Community Relations,
Agrium
4:31:15 PM
LISA PARKER, Specialist Government/Community Relations, Agrium,
said Agrium is configured to run on natural gas; it had to shut
down its plant during the winter and won't be operational again
until around the first part of May. Its challenge is to find a
reliable feedstock that will keep its billion-dollar facility
operational and while it is looking for Cook Inlet gas along
with everyone else, Agrium is seriously looking at using coal
gasification. However, getting coal from the Healy coal mines to
their facility in Nikiski is a complex task.
She said if everything were equal between the Port of Anchorage
and Port MacKenzie, their preferred alternative would be to ship
through Port MacKenzie because it has the space. But everything
isn't equal today and their timeline is 2011 to 2012.
4:35:03 PM
CHAIR HUGGINS asked her to explain a getting coal to the Port of
Anchorage scenario.
MS. PARKER replied that the Port of Anchorage would have a
covered unloading facility. The railroad is looking into having
bottom-dump cars that will dump into a covered conveyor and from
there it would go into four 100-ft. diameter silos. From there
it would be shipped by barge to the Agrium facility. Delivery
would be based on tides. Their barge operations have a 38-hour
cycle timeframe and the dock would be available about 290 days
per year.
4:36:58 PM
CHAIR HUGGINS asked what future decision points Agrium has.
MS. PARKER replied July is their next decision as to whether or
not they will continue to work on this project. If it is decided
to continue, their next point would be in 2008. Their decision
in July will be dependent on getting bankable documents together
and giving the railroad the authority to issue the tax free
bonds.
4:37:56 PM
SENATOR WAGONER said he heard about how bad coal dust is for the
environment.
MS. PARKER answered that she is not an expert, but the moisture
content of Healy coal is around 27 percent. The Port of
Anchorage facility would be covered within contained systems,
but Agrium would still need an air quality permit, but it
already has two Class-1 air sheds.
4:39:27 PM
SENATOR WIELECHOWSKI asked if she has talked to Enstar about
whether it makes sense to build a gas spur line from the North
Slope to Southcentral. Its construction is estimated to cost
$2.5 billion, but it would benefit half the population of the
state whereas this project would cost roughly the same amount,
and benefit only one company. It makes so much more sense to
build the spur line.
MS. PARKER replied that some Agrium folks have had conversations
with Enstar, but she couldn't elaborate on them at this time.
4:40:53 PM
CHAIR HUGGINS asked if they talked about the cost factor.
MS. PARKER replied that the dynamics in the fertilizer industry
have changed and the days of cheap gas don't exist any more.
CHAIR HUGGINS asked Mr. Sheffield to comment on the role of the
Port of Anchorage in this scenario.
^Bill Sheffield, Director, Port of Anchorage
4:41:50 PM
BILL SHEFFIELD, Director, Port of Anchorage, explained that a
train would probably deliver coal into silos at the Port of
Anchorage every 18 hours. Then it goes to the dock underground
and gets pumped onto the coal barge. The Port of Anchorage
wouldn't be able to provide a looped track for them, but rather
have three separate sites from the rail line that exists into
the rear of Port now. It would be ready to meet Agrium's
schedule and facility demands in 2009, but Agrium won't be ready
for them until 2012.
MR. SHEFFIELD said it would take a $274 million rail line to get
to their preferred alternative at Mat-Su.
4:45:27 PM
CHAIR HUGGINS asked what the upgrades to the Port of Anchorage
would cost for this project.
MR. SHEFFIELD replied that the railroad would have the land and
the barge docks in, because it is planning to do that anyway,
but putting in a coal-loading facility is an unknown and that
would be Agrium's responsibility.
CHAIR HUGGINS said he had heard about environmental concerns.
MR. SHEFFIELD responded that the Government Hill facility is
within a mile of the port and he doubted the public would hear
more noise than it does now or see the coal coming in. The coal
is low-sulphur and there would probably be very little dust
because of the underground facilities that would be used.
4:49:47 PM
^John Duffy, Manager, Matanuska-Susitna Borough
JOHN DUFFY, Manager, Matanuska-Susitna Borough, said he had a
brief presentation about their part in this project. He
supported the Kenai gasification project saying that for a $2.6
billion-dollar project, benefits should be maximized statewide.
and dropping a rail extension to the Mat-Su port would do that.
MR. DUFFY said that two studies, one by Dr. Metz at the
University of Alaska Fairbanks and another by Northern
Economics, have found that bringing a rail line to Port
MacKenzie lowers the cost for opening up significant mineral
reserves north of the Alaska Range. Some of the examples are
limestone near Fairbanks, which creates the opportunity for
cement manufacture. There are a number of strategic mineral
reserves in that area - nickel, bmolibnium components for
stainless steel and other export opportunities for manufacturing
in Alaska.
In addition, Mr. Duffy said, using Port MacKenzie would provide
them the opportunity to reduce the cost of Usibelli's coal
making it more competitive on the world market. It would also
provide an alternate rail link to the Interior and increase
royalties, rents and corporate income taxes to the state from
additional large-scale mines. The Northern Economics cost
comparison study of using Port MacKenzie with a rail line or
other Southcentral ports for the proposed natural gas pipeline
and indicated that using Port MacKenzie lowers the cost of
constructing the natural gas line significantly.
4:52:38 PM
MR. DUFFY pointed out a table prepared by Dr. Metz that compared
Port MacKenzie with the Port of Anchorage. It showed that Port
MacKenzie is 26 miles closer to tide water, which translates
into savings of $1.58 per ton. For the Agrium project alone that
would be a savings of $5.2 million per year in transport costs.
It would provide significant savings to other mines as well.
"Port MacKenzie is the only port that maximizes statewide
benefits and opportunities."
He said that no annual dredging is required at Port MacKenzie
and it is capable of handling Cape-sized vessels. The Borough
has 9,000 acres of land on its side and can put in a three-mile
loop and provide a very cost-effective and efficient coal off-
loading operation for Agrium.
MR. DUFFY said Port MacKenzie is the most cost effective
efficient location for transporting pipe for a natural gas
pipeline. Using Port MacKenzie would avoid problems related to
coal dust and noise because there is no residential development
nearby. Dropping a line to Port MacKenzie would relieve an
already very congested rail network.
He said using the Port of Anchorage, which has limited upland
facilities, would create added costs for additional siting,
load-off facilities and additional labor costs associated with
breaking up the trains there. He said it would have significant
socio-environmental costs at Government Hill. Bringing the
trains around, not with a rail extension, aggravates transport
conflicts in the central area of the borough, particularly at
the Knik Bay/Parks Highway intersection as well as 17 other at-
grade crossings. To improve all that and get rid of those
conflicts would cost about $140 million. There are also
conflicts with containerized cargo coal as well as gravel and
the goal of having computer rail service from the Valley into
Anchorage would be further reduced.
4:56:10 PM
He said the Port MacKenzie schedule was put together by an
independent contractor and the Alaska Railroad has reviewed it
and agreed. It has been provided to Agrium and shows that it can
be designed, constructed and in operation in the 2011 to 2012
timeframe that Agrium needs.
4:56:53 PM
SENATOR WIELECHOWSKI commented that the Enstar bullet line and
the ANGDA project both rely heavily on supplying Agrium's
additional energy needs and are therefore mutually exclusive.
However, a bullet line would provide natural gas for half the
state as well. He asked which one the Mat-Su Borough would pick.
MR. DUFFY replied that he would pick the rail extension down to
their port. The reason is that it would provide statewide
benefits - even without an Agrium project.
CHAIR HUGGINS asked him how using Port MacKenzie would benefit
building the gas pipeline and hauling things north.
MR. DUFFY replied that Northern Economics completed a study
comparing Port MacKenzie, with and without a rail line, with the
Ports of Anchorage, Seward and Whittier. It concluded that the
lowest cost alternative was Port MacKenzie with a rail line.
5:00:20 PM
SENATOR WAGONER asked the status of the right-of-way to put the
track on.
MURPH O'BRIEN, Director, Planning Division, Mat-Su Borough, said
there are no Native allotments in this right-of-way corridor and
over 90 percent of the proposed line would go through either
state or borough property. Some private property exists towards
the port end and up in the Willow area. "To say that the right-
of-way acquisition would be a slam-dunk would not be fair, but
if we can show the major benefits and negotiate effectively, we
should be able to acquire the right-of-way within that
timeframe."
5:01:59 PM
SENATOR STEDMAN asked if they are looking at any eminent domain
or land claims.
MR. O'BRIEN replied that negotiations always happen first for
acquisitions, then federal rules apply, which are initiated with
an appraisal. If the property owner feels it's not sufficient,
another appraisal is contracted. If there is still a need to
negotiate, a third appraisal is done. After that point it goes
to more formal proceedings. Every effort is made to acquire the
property through mutual negotiation.
CHAIR HUGGINS remarked that flying the route, one see about 90
percent of it is totally unoccupied along with some wetlands.
5:03:08 PM
PAT GAMBLE, President/CEO, Alaska Railroad (ARRC), said the
railroad is a central player in Agrium's coal option and so it
has been dealing with all the interested parties for a number of
months. Each site has pluses and minuses. He supported the Port
MacKenzie site for all the reasons that have been stated.
However, he said ARRC's customer right now is Agrium and when it
decides what it wants to do, the ARRC will be responsive to
them.
5:04:37 PM
MR. GAMBLE said a lot of details get worked out in figuring what
it will cost to move a ton of coal. The ARRC has experience in
building large projects over extended pieces of real estate in
Alaska and once you scrape the ground, all of a sudden the
permitting process becomes a big unknown. So, to sync the
railroad project up with Agrium's timeline, whichever port it
decides to use, is going to be fundamental and key to the
successful completion of this project in a reasonable amount of
time. He summarized saying that ARRC supports developing Port
MacKenzie for the good of the state.
5:07:43 PM
CHAIR HUGGINS noted that REPRESENTATIVE NEUMAN had been with the
committee for an hour already.
5:08:01 PM
SENATOR WIELECHOWSKI asked if the state has any liability if it
agrees to issue the $2.5 billion bond.
MR. GAMBLE replied that there is no recourse to the state for
the Agrium portion of the tax free bonds; he added that the ARRC
doesn't have liability either. He explained that a portion of
the $2.6 billion would be used to buy certain equipment -
locomotives and trains that would actually move the coal - for
the railroad for which it would have financial liability, but it
is a small fraction of the overall bond amount.
SENATOR WIELECHOWSKI asked if there are legal opinions that say
the state has no liability at all.
MR. GAMBLE replied yes, there are several.
5:08:54 PM
SENATOR WAGONER asked Mr. Duffy to estimate how much limestone
Alaska has.
MR. DUFFY replied that Dr. Metz reported 1.2 billion tons of
limestone deposits in Alaska - in other words, world class.
5:09:29 PM
CHAIR HUGGINS asked if the space available at the Port of
Anchorage is very doable for this project.
MR. GAMBLE replied that the project could be done there, but
it's not optimal. The preferred site is Port MacKenzie.
5:10:18 PM
SENATOR GREEN asked what the $2.6 billion would do.
MR. GAMBLE replied that figure is an estimate of the all-in
costs of the financing for the Agrium portion of the project and
for purchase of facilities and equipment assets for the ARRC
part of the project.
SENATOR GREEN asked how much money goes to the port.
MR. GAMBLE replied that some confidentiality applies here,
because this would translate into fees and costs per ton of
coal. But, of the railroad's (up to) $200 million portion, if he
adds in the cost of the 9 locomotives and the 212 new modern
coal cars, the remaining portion is about $75 million to $100
million. Twenty-five million would have to do with facilities
for offloading the coal and that number depends on which site is
chosen. The Port of Anchorage would use around $25 million, but
the engineering isn't far enough along to pin the number down.
5:13:11 PM
SENATOR GREEN asked what the remainder of the $2.6 billion buys.
MR. GAMBLE replied that Agrium has to build the entire
gasification plant, the power plant, purchase land and the coal
pile, pay for the coal pile management and the tipple or the
process of moving the coal to the barge. The financing and
payback and all the contingencies are involved in a bond
issuance and all the players have to be paid like the financial
advisors, the bond counsels and so on. This also includes
contingencies that large projects must have.
SENATOR GREEN asked what the key is for this project qualifying
for ARRC bonding.
MR. GAMBLE replied that it's their opinion that while the law
doesn't necessarily say this, they believe strongly the more the
railroad is attached to the project, the less risk that anyone,
like the IRS, would object. They have several legal opinions on
this.
SENATOR GREEN asked if rail would be used in transporting coal
from the barge to the Agrium plant.
MR. GAMBLE replied no; it would not be suitable for rail. There
are more efficient ways to move the coal at that point.
SENATOR GREEN asked if other projects could apply if they have a
connection to the railroad or is qualification for the tax free
bonding limited to Agrium and the Port of Anchorage.
MR. GAMBLE replied that ARRC's shingle is out for business and
he is anxious to investigate other opportunities for using the
tax free bonding tool. He said it was expressly put into the
Transfer Act for state economic development purposes and this is
really the first time it is being used.
5:15:46 PM
SENATOR GREEN said she is somewhat bothered that this
conversation was different a couple of weeks ago and asked what
happened in that time.
MR. GAMBLE asked if she was referring to some newspaper
articles.
SENATOR GREEN said she hadn't read the paper on this issue.
MR. GAMBLE went on to say that he had seen three articles on
this one and one article was absolutely wrong, one was half-
wrong and the other was okay. He said there is a confusion
factor about who is approving what, but Agrium is the one that
will approve the project and then pick the location.
SENATOR GREEN responded that maybe her question was better
suited for Lisa Parker at another time.
5:17:30 PM
MR. DUFFY wrapped up saying if $2.6 billion in public funds is
made available, they should look at maximizing statewide
benefits and the rail extension to Port MacKenzie does that.
"It's also about time that we build a new major transportation
link in this state. The last one that was built was the Parks
Highway over 30 years ago."
MR. GAMBLE wrapped up by reiterating they are in close
consultation with a customer who has a significant project -
Agrium and it will make the decision that will guide which way
the railroad will go. He supported economic development and Port
Mackenzie.
CHAIR HUGGINS thanked everyone for joining the committee. There
being no further business to come before the committee, he
adjourned the meeting at 5:18:43 PM.
| Document Name | Date/Time | Subjects |
|---|