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 287. 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.