Legislature(2019 - 2020)BUTROVICH 205
02/28/2019 01:30 PM Senate TRANSPORTATION
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| Start | |
| Presentation(s): Alberta to Alaska Railway | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
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ALASKA STATE LEGISLATURE
SENATE TRANSPORTATION STANDING COMMITTEE
February 28, 2019
1:31 p.m.
MEMBERS PRESENT
Senator Shelley Hughes, Chair
Senator David Wilson
Senator Peter Micciche
Senator Jesse Kiehl
MEMBERS ABSENT
Senator Mike Shower, Vice Chair
COMMITTEE CALENDAR
PRESENTATION(S): ALBERTA TO ALASKA RAILWAY
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
SEAN MCCOSHEN, Chair, Cofounder, and CEO
Alberta to Alaska Railway (A2A)
Winnipeg, Canada
POSITION STATEMENT: Participated in the Alberta to Alaska
Railway presentation.
MEAD TREADWELL, consultant
Treadwell Development
Anchorage, Alaska
POSITION STATEMENT: Participated in the Alberta to Alaska
Railway presentation.
JON KATCHEN, Counsel
Holland and Hart
Anchorage, Alaska
POSITION STATEMENT: Participated in the Alberta to Alaska
Railway presentation.
ACTION NARRATIVE
1:31:21 PM
CHAIR SHELLEY HUGHES called the Senate Transportation Standing
Committee meeting to order at 1:31 p.m. Present at the call to
order were Senators Wilson, Kiehl, and Chair Hughes. Senator
Micciche arrived soon thereafter.
^PRESENTATION(S): Alberta to Alaska Railway
PRESENTATION(S): Alberta to Alaska Railway
1:31:53 PM
CHAIR HUGHES announced the business before the committee would
be a presentation by Sean McCoshen and Mead Treadwell on the
Alberta to Alaska Railway (A2A).
1:32:21 PM
SEAN MCCOSHEN, Chair, co-founder, and CEO, Alberta to Alaska
Railway, introduced himself.
1:32:31 PM
MEAD TREADWELL, Consultant, Treadwell Development, Anchorage,
introduced himself and related that he has worked with A2A for
the last five years to link Alaska to Canada by rail and he has
never seen a more economic project than this one.
1:32:59 PM
SENATOR MICCICHE joined the committee.
MR. TREADWELL described the presentation as an informational
session. He clarified that he and Mr. McCoshen were not
advancing any particular legislation and they were not
requesting money. "We just basically feel that if we can work
with the state, the Alaska Railroad, and get the federal
permitting done, we can bring a large new economic opportunity
to the state."
MR. TREADWELL said the idea of linking Alaska to the Lower 48 by
rail has been discussed many times. Colorado Governor Gilpin
looked at it in the 1860s; some thought that E. W. Harriman
would look at it in the 1890s when the Harriman Expedition came
to Alaska; the U.S. government studied the possibility before
World War II and it resulted in the Alaska Highway; the state's
North Commission looked at expanding the Alaska Railroad and
linking it to the Lower 48 in the 1960s; and right of way bills
were introduced for a rail link to Canada in the 1970s and 2002.
He related that Mr. McCoshen and a partner co-founded the
Alberta to Alaska Railway with the goal to build, own, and
operate in partnership with the Alaska Railroad a link to
interconnect with the Canadian Pacific and Canadian National
railroads to hook up with the oil fields at Fort McMurray and to
complete a spur line to Point MacKenzie.
1:36:18 PM
CHAIR HUGHES thanked him for clarifying that they were not
seeking funding from the state. She noted that her office
reached out to other entities to present on the subject and A2A
was the only one who accepted the offer.
MR. TREADWELL described the Alberta to Alaska Railway project
speaking to the following points:
• The A2A Rail Development Corp. is developing a new
rail corridor across the North connecting Alaska to
the North American Railroad system. Key components
of the general freight rail include:
? Intersecting with the North American railroad
system at Fort Nelson, BC, High Level, Alberta as
well as Fort McMurray, Alberta
? Transporting all forms of cargo both inbound
and outbound
? A design to handle a host of different
resources including Alberta-sourced bitumen
? An ability to add passenger service and local
freight service to communities along the corridor
? A connection with the existing Alaska
Railroad system to deliver cargo to purpose built
terminal facilities at ports located in Alaska,
including the existing container Port of Alaska
in Anchorage and Port MacKenzie, a bulk cargo
port in the Mat-Su Borough.
• Builds on the work conducted by the Van Horne
Institute in 2013
• Tremendous benefit to the people of the north.
MR. TREADWELL directed attention to the maps on slides 3 and 4
that look at the rail corridor. He said Alaska ports are 2-4
days shorter to Asia than ports farther south. For example, a
ship carrying cargo from the port of Shanghai to the U.S. can
land in Cook Inlet and interconnect with the rail system into
the heartland of the U.S. faster than from ports in the
continental U.S. The ports farther south are also much more
congested. The length of new rail that is envisioned is 1,516
miles with a little over 200 miles in Alaska. He listed the new
rail line in China and new projects to connect Arctic seaways
that are contemplated in Russia, Finland, and Norway and
highlighted that, by comparison, A2A is a very small addition to
the North American rail system.
1:39:43 PM
SENATOR MICCICHE asked if the research to analyze the A2A
project includes a study on distribution distances and deltas to
key manufacturing areas in the U.S., Tokyo, or other ports.
MR. TREADWELL explained that some of the work done by the Van
Horn study was used to help A2A develop cash flows for the
project and they made some assumptions based on general
transpacific cargo volumes. A2A did not do specific cargo
distribution studies, but they did make conservative assumptions
related to the possibility of inbound cargo.
1:41:04 PM
MR. MCCOSHEN added that they sent the business study to two
separate engineering firms to validate the assumptions and
numbers, which will be required when they seek private sector
financing. That has been paid for, he said.
1:41:51 PM
MR. TREADWELL directed attention to the Google Earth map showing
the proposed rail corridor from Alaska into Canada. He said the
corridor in Alaska follows the previously set aside right of way
that tracks the Alaska Highway to Tok then northeast through the
Ledoux River Valley to the Canadian border. The line will run
close to mineralization in the Yukon which will bring access to
mining potential in the area. It then travels through British
Columbia to northern Alberta. He highlighted that the Google Map
has the names of the First Nations along the route. In Alaska,
the route is through the Doyon region. Further along there is a
group of First Nations in the Yukon, one First Nation in British
Columbia, and another group of first Nations in Alberta. Up till
now the company has been working on building relationships with
the First Nation groups instead of holding/attending public
meetings such as this, he said.
CHAIR HUGHES asked if there is rail along any of the proposed
route.
MR. MCCOSHEN replied it's all new rail.
MR. TREADWELL clarified that the new rail intersects with rail
systems in British Columbia and northern Alberta.
CHAIR HUGHES asked how long it would take a railcar to travel
from Fort McMurray to Anchorage.
MR. MCCOSHEN estimated it would be less than two days.
MR. TREADWELL added that it would depend on speed, the grade,
and curvature.
He turned to slide 5, "A2A Rail Management Resources and
Financial Backing" and discussed the following bullet points:
• The management team has retained advisors in all
key aspects of project development
? Engineering HDR
? Environmental HDR
? Financial Bridging Finance Inc.
? Indigenous Engagement Fogler Rubinoff LLP
? Legal Holland & Hart
? Strategic advisors - Jack Ferguson, Mead Treadwell
• The Principals behind A2A Rail have funded all
development costs to date ($35 million), own 100%
of the equity and are prepared to fund
construction of the rail spur ($125 million)
CHAIR HUGHES offered her understanding that A2A is a three-phase
project. Phase one costs have been about $35 million and the
project is about to enter phase two.
MR. TREADWELL said that's the hope. They are currently working
on the Presidential Permit, the agreement with the Alaska
Railroad, certain agreements with First Nations along the route,
and some small land-leasing issues with the Department of
Natural Resources (DNR) and in Canada.
He highlighted Mr. McCoshen's background and business career
speaking to the following bullet points:
• Sean McCoshen is the co-founder of the Alberta
Alaska Railway Development Corporation. He is also the
Chairman and Chief Executive Officer of the McCoshen
Group, a family office, that owns 14 privately held
companies ranging from housing, manufacturing,
finance, retail, and rail.
• Established in 2012, The McCoshen Group has secured in
excess of 1 billion dollars in transactions in less
than 7 years. The McCoshen Group (MG) is a privately
held company which has assets of $740 million. Mr.
McCoshen is the sole-shareholder. Alberta Alaska
Railway Development Corporation is TRACE certified.
• Prior to founding the McCoshen Group, Sean worked in
private banking in conjunction with a number of large
American-based private equity firms until his
retirement in 2007.
• Sean grew up in Troy, New York and as a teenager moved
to Winnipeg, Manitoba. He earned a Bachelor of Arts
degree with a double major in Political Science and
Philosophy from McGill University in Montreal and a
Bachelor of Laws Degree from the University of Ontario
in London, Ontario.
• He currently lives in Winnipeg Manitoba, Vancouver
British Columbia and West Hollywood California with
his 7-year-old son.
1:48:05 PM
MR. TREADWELL turned to slide 7, "A2A Rail Financial Plan" and
discussed the following points:
• The project cost is estimated to be approximately $17
billion, $3 billion or more will be spent in Alaska
construction. Approximately $4 billion in steady-state
revenues annually are projected to cover costs of
operation and capital.
• Private financing, with some support from global
sovereign backed infrastructure funding institutions,
is expected. Canada is launching an infrastructure
bank. Throughput agreements between commodity buyers
and sellers will help back construction financing.
CHAIR HUGHES asked if the funding to help equip the existing
railroad would come from the project itself.
MR. TREADWELL said the negotiations with the Alaska Railroad
aren't finished but it's clear that the $3 billion financing in
Alaska would be driven by the same offtake commitments that
would allow the $17 billion financing for the rest of the line.
He said they would look for the optimal financing plan as the
costs are developed.
SENATOR MICCICHE referenced the statement about intersecting
with two existing rail systems to get to the Fort McMurray
terminus. He asked why there isn't a phased development using
the existing rail. He surmised that it was related to having an
anchor tenant.
1:50:31 PM
MR. MCCOSHEN responded that there is no other rail line. Phase
one to finish the spur line to Port MacKenzie would cost $125
million. Phase two would go to Fort Nelson and phase three would
go to Fort McMurry, Alberta.
MR. TREADWELL added that in order to get the major throughput,
it's necessary to get to Fort McMurry. There are
interconnections at the other two rail points to the North
American rail system for "regular freight" but there is not a
rail link into Fort McMurray that is as direct as A2A can offer.
SENATOR KIEHL questioned the reason for going through the Yukon
as opposed to the closer tidewater ice-free deep water ports.
MR. MCCOSHEN said Mr. Treadwell can discuss the valid reasons
not to do that.
MR. TREADWELL explained that to move petroleum products to the
British Columbia coast entails going over the Rockies, which is
expensive. The energy used to carry a good from Alberta to
tidewater saves shipping costs and time and uses less energy.
SENATOR KIEHL pointed out that Haines and Skagway sit at 59
degrees latitude.
MR. TREADWELL said we expect that this project will build
traffic from ports in Alaska such as Skagway, Haines, Valdez,
Seward, Anchorage, Port MacKenzie, and potentially the Arctic.
1:56:20 PM
MR. MCCOSHEN added that $20 million of the $35 million that has
been spent was on engineering the correct route for speedy
delivery to China and the North American continent. He stressed
that, "The white route on the map is the fastest route to
Alaska"
MR. TREADWELL read the second bullet on slide 7 to emphasize the
work that has already been done to secure financing for the
project. He said Yukon First Nations are expecting more
infrastructure development funds to open access to their mines.
The Alberta government anticipates a $3 billion expenditure to
improve market access for their oil. This is part of the market
opportunity A2A is responding to. He said the reason people
haven't heard a lot about the A2A project is because they've
been working on the Presidential Permit to cross the border and
with First Nations.
CHAIR HUGHES asked him to talk about the social license.
MR. TREADWELL deferred the question. He said a primary point he
and Mr. McCoshen want to leave with the committee is that for
Alaska, this is an opportune time in the transportation
industry. West Coast ports and rail lines have congestion
problems; it's easier to build on "frontier land" than to widen
rights-of-ways through cities; and West Coast ports want to get
rid of cargos that require too much space. The A2A project will
build a rail line that is speedy and closer to Asia, and it will
remove some of the inefficiencies associated with bringing goods
in and out of North America. He said an estimated $750 billion
in mineral resources are within 100 miles of the proposed rail
corridor. He emphasized that transportation alternatives will
change the economics of many Alaskan enterprises.
CHAIR HUGHES asked how much of the estimated $750 billion in
mineral resources is in Alaska.
MR. TREADWELL said the Alaska Department of Natural Resources
has estimated that Alaska's resources and mineral capabilities
are in the trillions of dollars.
CHAIR HUGHES asked how much is specifically within 100 miles of
the proposed corridor.
MR. TREADWELL responded that there are several large gold
prospects where the rail crosses the border into Canada, there's
one prospect near Tetlin, and there is capability along the
Alaska Railroad to serve the cement market. He acknowledged that
they would have a better answer as they look at ways to pay for
the Port MacKenzie spur.
2:03:31 PM
SENATOR MICCICHE highlighted that natural gas pipelines have a
given resource and a target market, and volume is a
consideration of pressure and diameter. He asked what the
volumetric consideration is on whether a railroad is a build or
no build. He said he assumes it is a very different kind of
science.
MR. MCCOSHEN replied that they have a supply agreement with the
producers in Alberta and an offtake agreement with the buyers in
Asia. He described the due diligence his family company went
through when he became interested in the project. The ultimate
decision was that this project is very doable and nicely
profitable. He said there is also massive room for expansion. He
reiterated that the company has spent $35 million and expects to
invest another $10-15 million to keep the project moving
forward. He will personally spend another $125 million if
certain conditions occur. He described the project as a "no
brainer." The business case has been validated twice by
engineering firms and various individuals and private equity
firms interested in the project. The question now, he said, is
whether there is the political will to get this done.
MR. TREADWELL referenced Senator Micciche's question about
economics. He related that they initially looked at the Van Horn
analysis which was $12 to $21 to get a barrel of bitumen to
tidewater. That analysis was to bring 1.5 million barrels/day of
bitumen to Glennallen or North Pole and put it in the Trans
Alaska Pipeline System (TAPS). A2A determined that was not
economic and changed the route. Doing so brought the per barrel
cost to get to tidewater down to $10-$15. He said we believe
that is more economic than a pipeline from Alberta to tidewater.
That is the economic advantage we're trying to exploit, he said.
Not going through the liquification process with the bitumen is
also a substantial cost savings.
2:13:01 PM
SENATOR MICCICHE asked if the project is economic one way and
the backhaul is the "cream."
MR. TREADWELL replied he didn't know of a specific commodity but
there are two-way flows on the railroad "where locomotion would
be available as backhaul."
MR. MCCOSHEN clarified that the financial modeling was done on a
one-way haul. That's how most shipping is budgeted, he said.
CHAIR HUGHES commented on the potential for Asian backhauls and
sending Palmer carrots to the Lower 48.
SENATOR KIEHL asked how 10-12 unit trains compares to 1 million
to 1.5 million barrels.
MR. TREADWELL replied they're the same; 6-12 unit trains carry 1
million to 1.5 million barrels.
CHAIR HUGHES asked if A2A would also develop the shipping.
2:15:06 PM
MR. MCCOSHEN said no; it is standard practice for the buyer to
arrange for and pay the cost of the boat.
CHAIR HUGHES asked, other than the Presidential Permit, if there
was "any other political will piece needed from Alaska."
MR. TREADWELL listed strong cooperation with the Alaska
Railroad, legislation similar to what passed in 2004 to set up a
relationship between the railroad and DNR on rail extension
rights of way, support for the federal Surface Transportation
Board permit, being a cooperating agency for the environmental
impact statement (EIS), help in determining the right of way,
making state land available for the right of way, and finishing
A2A's agreement with the Alaska Railroad to lease the right of
way. His understanding is that the governor has communicated
support.
MR. MCCOSHEN added that this is the first time there is an
economic argument for the private sector carrying through on
this long-discussed rail link.
CHAIR HUGHES asked if the Presidential Permit comes first and
the Surface Transportation Board permit comes later.
MR. TREADWELL answered yes.
CHAIR HUGHES asked if A2A is just starting to work on the Alaska
Railroad/DNR relationship.
MR. TREADWELL answered yes.
2:18:49 PM
MR. MCCOSHEN added that they are ready to start building as soon
as the negotiations are complete.
MR. TREADWELL referenced slide 9 that highlights the importance
of agreements with indigenous groups in both Alaska and Canada.
He said the large sovereign banks in Asia have asked about this
because they too realize how important it is.
MR. TREADWELL turned to slide 10, "Master Agreement - Alaska
Railroad" and discussed the following bullet points:
• A2A is developing a Master Agreement with the
Alaska Railroad, key terms include:
Defining cooperation to achieve permitting,
including the ROW and Presidential Permit
? Identifying material lease terms
? Establishing key economic principles that will
support financing
• Success will drive higher utilization of ARRC
facilities and greater revenues
• Will allow ARRC to better serve the Alaska's
resource industry while maintaining passenger
service
He asked Jon Katchen if he'd like to speak to the right of way
and Presidential Permit.
2:21:27 PM
JON KATCHEN, Counsel, Holland & Hart, LLC, Anchorage, said he'd
prefer not to go into detail since negotiations with the
railroad are ongoing, but it's a high-level agreement that will
help define the relationship between A2A and the Alaska Railroad
on permitting, cost sharing, and the lease agreement.
MR. TREADWELL turned to slide 11, "Complete the Port MacKenzie
Rail Extension" and discussed the following points:
• A2A will fund the unfunded portion of Mat-Su Borough's
Rail extension project
? Once the lease and operating agreement is finalized
construction will commence
• A2A will design and develop a multi-purpose rail yard
? The design will allow for rail shippers to move a
variety of types of cargo both inbound and outbound
2:24:39 PM
MR. MCCOSHEN said the existing rail line at Port MacKenzie is
stunningly beautiful but it was never finished. He said A2A will
incorporate it into the big picture if at all possible but the
negotiations have already gone on for a long time. If it doesn't
happen, the money will be spent on other ports. He noted that
the Alaska Railroad will need to be upgraded for this kind of
traffic.
CHAIR HUGHES asked if Port MacKenzie will make growth easier.
MR. MCCOSHEN said he didn't believe there would be 10-12 trains
per day through Port MacKenzie. The other ports have expansion
capability and they don't have the strong tides to contend with
that Port MacKenzie has.
2:29:49 PM
MR. TREADWELL skipped to slide 13, "Design for Efficiency and
Safety" to respond to Senator Kiehl's question about why and how
the route was selected. He discussed the following points:
• The project has been designed with an eye to reducing
fuel consumption and improving safety
? The grade will average less than 1%
? The degree of curvature will not exceed 5%
? This is considerably better than existing CP or CN
lines
? The project will focus on handling goods that are
not hazardous
He noted that some tunnels will be required in Canada.
MR. TREADWELL concluded the presentation with a discussion of
"Next Steps." He spoke to the following points:
• A2A is working with the Dunleavy Administration to:
? Finalize the Master Agreement with the ARRC
? Support in the negotiations with the Mat-Su Borough
and Assembly
? Support for the Presidential Permit
? Support for the right of way, establishing the rail
corridor
? Cooperation to identify opportunities for ANCs and
Village Corporations along the alignment
MR. TREADWELL noted that there is no specific criteria for
getting a Presidential Permit and there is no geopolitical
reason to deny a rail line from crossing the U.S. Canada border.
Nonetheless, A2A is pleased that Governor Dunleavy has signaled
his support for the permit to President Trump. They have also
asked state government to work together on the right of way and
establishing the rail corridor. His understanding is that the
460 right of way process can sometimes cause problems. The
current negotiations are to work with the railroad on that
process.
2:35:32 PM
CHAIR HUGHES asked if it would be helpful if the legislature
passed a resolution supporting a Presidential Permit, and if the
permit could be transferred to another company should A2A decide
against moving forward.
MR. TREADWELL confirmed that a resolution would be helpful.
MR. MCCOSHEN said a resolution would be a shot in the arm to
keep him going, but he believes the legislation and Presidential
Permit would need to be specific to one company.
MR. TREADWELL said A2A's draft agreement with the Alaska
Railroad contemplates what happens to the right of way. Under
existing Alaska law, the state would retain ownership of the
land and the railroad would lease to the corporation. If the
corporation didn't work for some reason, the railroad would
still own the right of way and presumably the improvements. He
offered to work with the committee on the language for the
resolution.
CHAIR HUGHES asked if there was a study on the economic impact
(jobs in particular) to Alaska if this project were to go
through.
MR. TREADWELL said he couldn't be specific but this project
entails hundreds of fulltime railroad jobs and thousands of jobs
overall. Better studies will be forthcoming, he said. Responding
to a further comment, he said the whole idea is that this
project will have a positive impact on the economy.
He concluded the presentation highlighting that Alaska is an air
crossroad of the world and this project offers similar
opportunity for the cargo market. "I see this as Alaska coming
into its destiny," he said.
2:44:37 PM
MR. MCCOSHEN added that both Alaska and Canada are all about
resources and transportation and this project is their destiny.
2:46:31 PM
SENATOR KIEHL asked about the spill risk if the plan is to load
and unload the bitumen hot and transport cold.
MR. MCCOSHEN said the product will be loaded warm with no
diluent and will be transported cold. Thus it would be
relatively easy to clean up if there was a spill.
MR. TREADWELL said discussions on the water-based aspect of this
venture have not begun, but they have looked at rail standards
and safety and included them in the cost estimates. He noted
that transporting the oil cold is safer and it improves the
economics. He said he expects this will be a major issue in the
EIS but it should not be a showstopper.
2:50:30 PM
SENATOR MICCICHE commented on the value of backhaul traffic and
asked if railroads look at that future growth as a means of
maximizing profitability.
MR. MCCOSHEN described backhaul container traffic as icing on
the cake. He reiterated that the project analysis conservatively
banked on [bitumen] going one way and backhauling empty, but
anyone in the rail business will ship everything possible.
MR. TREADWELL said railroads make estimates based on the current
market so the focus is on the bitumen market but there may be
some meaningful percentage of container flows from east to west.
CHAIR HUGHES asked the presenters to conclude with a discussion
of the ideal timeline for the project.
MR. MCCOSHEN said once the agreements, permits, and rights of
way are obtained A2A can go to the capital markets to finance
major engineering. The main construction down to Fort Nelson
could probably start in 18-24 months and the construction will
take about 2.5 years.
MR. TRADWELL added that the goal is to work through the basic
agreements this year, do solid engineering in 2020, and be
formally before the relevant agencies for approval in 2-3 years.
2:57:55 PM
CHAIR HUGHES observed that if everything "stays on track" cars
could be moving by 2024-2025
MR. MCCOSHEN clarified that if things go as planned, a small
number of cars could be moving within a year and a major number
of cars would be moving in 2022.
CHAIR HUGHES thanked the presenters for an informative
presentation and expressed hope that this would be part of
Alaska's destiny.
2:59:07 PM
There being no further business to come before the committee,
Chair Hughes adjourned the Senate Transportation Standing
Committee meeting at 2:59 pm.
| Document Name | Date/Time | Subjects |
|---|---|---|
| STRA Agenda 2.28.19.pdf |
STRA 2/28/2019 1:30:00 PM |
|
| A2A Railway Presentation.pdf |
STRA 2/28/2019 1:30:00 PM |