02/06/2014 01:00 PM House TRANSPORTATION

           HB 271-APPROP: RAILROAD FEASIBILITY STUDY                                                                        
                                                                                                                                
1:09:24 PM                                                                                                                    
                                                                                                                                
CHAIR P. WILSON announced that  the first order of business would                                                               
be HOUSE BILL NO. 271, "An  Act making a special appropriation to                                                               
the  University   of  Alaska  Fairbanks   for  a  study   of  the                                                               
feasibility  of constructing  a  railroad  between Fairbanks  and                                                               
Deadhorse; and providing for an effective date."                                                                                
                                                                                                                                
1:09:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ISAACSON, speaking as  sponsor, stated that HB 271                                                               
is timely  given the catastrophic  news of Flint  Hills Resources                                                               
(FHR)   refinery   shutting   down.     Historically,   FHR   has                                                               
significantly  contributed to  the Alaska  Railroad Corporation's                                                               
(ARRC)  revenue.   In  the  early  2000s,  FHR provided  over  55                                                               
percent of the  railroad's revenues, but it is now  down to 15-20                                                               
percent and soon it will be  less.  He reminded members that this                                                               
committee assists  Alaskans to  make connections  to communities,                                                               
resources, opportunities,  and markets.   He recalled  during his                                                               
time serving  as mayor  of North Pole  asking ARRC's  president &                                                               
CEO  Pat Gamble  and later  Roald Aadnesen  whether the  railroad                                                               
should  be expanded  north, west,  or south.   He  reported their                                                               
responses were that the railroad  should have gone north from the                                                               
beginning.   He  said  that  an expanded  railroad  could be  the                                                               
engine  of  prosperity  for  Alaska,   especially  with  so  much                                                               
resource activity in northern Alaska.   He referred to a study in                                                               
members' packets entitled "Economic Impact  of a North Slope Rail                                                               
Extension  on Northern  Energy and  Mineral Development"  by Paul                                                               
Metz, Colin  Brooks, and Mike  Billmire that reviews  the impacts                                                               
of a  North Slope rail  extension on northern energy  and mineral                                                               
development.                                                                                                                    
                                                                                                                                
1:13:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ISAACSON   remarked  on   construction  activity,                                                               
including that  Alaska Industrial Development &  Export Authority                                                               
(AIDEA) is  currently working to  construct a road to  the Ambler                                                               
Mining District.   Further, North  Slope oil and gas  and mineral                                                               
activity  between  Deadhorse  and  Fairbanks could  be  put  into                                                               
production.   He  stated that  Ted  Leonard, Executive  Director,                                                               
AIDEA,  said  that  the  role  of  the  state  is  to  prove  the                                                               
feasibility  and conduct  Environmental  Impact Statements  (EIS)                                                               
prior  to   the  private  sector  investing   and  developing  in                                                               
projects.  For  example, Red Dog is currently buying  back a road                                                               
that AIDEA initially financed, he said.                                                                                         
                                                                                                                                
REPRESENTATIVE   ISAACSON    offered   his   belief    that   the                                                               
transportation of  the heavy sand, steel,  cement, equipment, and                                                               
fuel necessary  to bring  shale oil  development to  Alaska's oil                                                               
fields  and  is estimated  to  be  over  2  million tons.    That                                                               
potential  rail transportation  equals approximately  five 10,000                                                               
ton-freight  trains per  week, which  translates  to one  hundred                                                               
cars  per train  or  336 eighteen-wheel  commercial vehicles  per                                                               
day.   Currently,  the haul  road  can't withstand  that type  of                                                               
activity.   Further, it  is estimated  that an  expanded railroad                                                               
could  bring a  30  percent  return on  investment  based on  one                                                               
activity alone.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  ISAACSON  stated that  HB  271  would provide  $2                                                               
million  to the  University  of Alaska  Fairbanks  to perform  an                                                               
economic feasibility study to  substantiate these findings before                                                               
proceeding with  a more  costly EIS.   This study  would identify                                                               
whether  it is  feasible to  extend  the railroad  north.   Other                                                               
substantial  benefits   would  include   connecting  communities,                                                               
improved delivery  of goods, providing a  stronger financial base                                                               
for  our railroad,  and providing  access  to additional  mineral                                                               
deposits.  Rail  would increase the viability  of development and                                                               
lower  operational  costs  while   providing  greater  safety  in                                                               
transporting materials.   The UAF  is best suited to  conduct the                                                               
study due to  its world class researchers, who excel  in a number                                                               
of pertinent disciplines.  Additionally,  the UAF has the ability                                                               
to  build on  current and  previous research  and to  provide the                                                               
commissioned  information economically  and  quickly.   He  asked                                                               
members for their support.                                                                                                      
                                                                                                                                
1:16:28 PM                                                                                                                    
                                                                                                                                
DANIEL M.  WHITE, Ph.D., Associate Vice-Chancellor  for Research,                                                               
University of  Alaska Fairbanks; Director, Institute  of Northern                                                               
Engineering, stated  that he  has served  as an  administrator at                                                               
the UAF since  1995.  He asked  to testify in support  of HB 271.                                                               
He  said that  compared to  other  states in  the U.S.,  Alaska's                                                               
infrastructure is  very underdeveloped.  Infrastructure  leads to                                                               
access, which  leads to  economic development.   Oil and  gas and                                                               
mining  development represent  a global  market.   Companies base                                                               
their decisions on  costs in Alaska and costs often  hinge on the                                                               
ability to  move goods to market.   He emphasized that  the North                                                               
Slope, in particular, faces high  transportation costs and higher                                                               
capital and  operating costs than  other areas in Alaska  and the                                                               
U.S.   Additionally,  moving oil,  natural gas  and minerals  and                                                               
other materials  to Alaska, including concrete,  steel, food, and                                                               
people  make North  Slope  development  expensive.   Construction                                                               
costs and  operating costs factor  for the North Slope  are three                                                               
to five times higher than the national average, he stated.                                                                      
                                                                                                                                
DR.  WHITE said  that according  to the  aforementioned study  by                                                               
Paul Metz,  Professor, Geological Engineering, UAF,  developing a                                                               
railroad system between  the North Slope and  major access points                                                               
would  allow  for  new  project  development  and  lower  project                                                               
development costs,  which would  make a  variety of  new projects                                                               
more viable.   The cost of rail freight in  shale oil development                                                               
alone  would   be  roughly  one-tenth   the  cost   of  trucking.                                                               
Additionally,  northern mineral  development  would also  benefit                                                               
since trucking  costs are estimated  to be 36 percent  of mineral                                                               
concentrate  values  when  considering moving  freight  from  the                                                               
Ambler Mining District  to Port MacKenzie.  However,  by rail the                                                               
cost  would  be  reduced  to  approximately  12  percent  of  the                                                               
concentrate value  at the mine,  which is three times  less cost.                                                               
Dr. Metz  provided the economics  for a  number of projects.   He                                                               
emphasized that  the railroad would  carry large amounts  of bulk                                                               
freight and lowering the cost  of production could make the state                                                               
and North  Slope development competitive with  other producers in                                                               
the  industry.    This  will   allow  the  state  to  achieve  an                                                               
appreciable return on investment from  shale royalties alone.  He                                                               
offered his  belief that  UAF is  the best  place to  conduct the                                                               
research  for  the feasibility  of  building  a railroad  between                                                               
Fairbanks  and   Deadhorse  since   researchers  at   the  Alaska                                                               
University Transportation  Center have a long  history of working                                                               
with  DOT&PF,  the   oil  and  gas  industry,   and  the  broader                                                               
transportation industry across the nation.                                                                                      
                                                                                                                                
1:20:14 PM                                                                                                                    
                                                                                                                                
DR.  WHITE  said  that  the studies  the  Institute  of  Northern                                                               
Engineering has  been involved in include  the Alaska/Canada Rail                                                               
Link  Project, the  Port  MacKenzie Rail  Link  Project, and  the                                                               
proposed rail connection through  Alaska, Yukon, and Northern BC.                                                               
The  Water  and  Environmental   Research  Center  has  conducted                                                               
transportation research  for a variety  of roads in the  Roads to                                                               
Resources programs (R2R), including  the Ambler road project, the                                                               
road to Umiat,  the North Slope Foothills road,  the Bullen road,                                                               
and  ice roads  across  the  oil field  exploration  areas.   The                                                               
Institute of  Northern Engineering's  Water Center  has developed                                                               
logistics planning  tools for North Slope  ice road construction,                                                               
operations and  maintenance.   The Alaska  Center for  Energy and                                                               
Power  (ACEP)  has  conducted  economic  feasibility  studies  on                                                               
energy for  nearly all  communities in  the state.   The  UAF can                                                               
draw  on  a  wide  range   of  technical  specialists,  including                                                               
researchers  in  geology,   economics,  engineering,  and  social                                                               
science.   Anthony  Scott, one  of the  state's leading  resource                                                               
economists, was  recently hired  by the  university to  work with                                                               
ACEP.   Mr. Scott  previously worked  for the  Division of  Oil &                                                               
Gas.    He  lauded  Dr.  Paul  Metz  as  the  leading  geological                                                               
engineering  researcher   in  mineral  development   and  freight                                                               
logistics.  He  noted that all of the previous  rail studies have                                                               
taken  advantage  of Dr.  Metz's  expertise.    The UAF  has  the                                                               
knowledge  and the  resources to  undertake  a feasibility  study                                                               
such as this  under the timelines anticipated  to further develop                                                               
the  economic  prosperity  of  Alaska   and  lower  the  cost  of                                                               
production  on the  North  Slope.   He  said  that improving  the                                                               
ability to  move bulk materials  across Alaska will  increase the                                                               
viability of  new projects, particularly  in mining and  those of                                                               
the small oil producers.  He concluded  that HB 271 is not just a                                                               
feasibility study,  but represents an investment  in the economic                                                               
development of Alaska.                                                                                                          
                                                                                                                                
1:22:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LYNN asked how much  difficulty it would to be for                                                               
the railroad  to traverse the  Brooks Range  at Atigun Pass.   He                                                               
understood this  is part of  the feasibility study but  asked for                                                               
general comments.                                                                                                               
                                                                                                                                
DR. WHITE responded that the goal  of the feasibility study is to                                                               
look  at  the  economics, land  ownership,  right-of-way  issues,                                                               
grade,  and  access  points.   Certainly,  railroads  across  the                                                               
western  U.S. cross  similar boundaries,  thus, he  believed that                                                               
the railroads have experience in this area.                                                                                     
                                                                                                                                
1:23:49 PM                                                                                                                    
                                                                                                                                
CHAIR P.  WILSON asked for  the timeline and  proposed completion                                                               
date of the proposed rail extension.                                                                                            
                                                                                                                                
DR. WHITE  answered that he  didn't know, but the  timeline would                                                               
be addressed  in the  feasibility study.   He remarked  that some                                                               
delayed  projects in  Alaska have  been  due to  permit and  land                                                               
access issues rather than construction issues.                                                                                  
                                                                                                                                
1:24:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ISAACSON,  in   response  to  earlier  questions,                                                               
responded that some of the information  in in the data banks.  He                                                               
referred  to  a  study  in  members'  packets  entitled,  "Alaska                                                               
Transportation  Corridor Study,  March 1972."   He  indicated the                                                               
transportation corridor hasn't changed  much since this study was                                                               
conducted and  much of the  source information is available.   He                                                               
explained the requested  funding in HB 271 will  be for compiling                                                               
information, examining  it from  modern standpoint,  and ensuring                                                               
the ability to make a  business case by taking into consideration                                                               
studies and facts.                                                                                                              
                                                                                                                                
1:25:47 PM                                                                                                                    
                                                                                                                                
CLARK   HOPP,   Vice-President,  Engineering,   Alaska   Railroad                                                               
Corporation (ARRC), in  response to Chair P. Wilson,  said he was                                                               
unsure  of the  timeline.   He indicated  the ARRC  has had  some                                                               
experience with the Northern Rail  Extension project and the Port                                                               
MacKenzie  project.   The  permitting  and environmental  process                                                               
ranged from two  to four years for  permitting and environmental.                                                               
Since this project  is an even larger project,  he estimated that                                                               
it would probably be "north" of that timeline.                                                                                  
                                                                                                                                
1:27:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE ISAACSON  pointed out  that AIDEA has  built other                                                               
roads and that it is not likely  that the road will be built with                                                               
general funds.   The project would likely be  built using revenue                                                               
bonds or  private investment, although the  funding sources would                                                               
be identified in the feasibility report.                                                                                        
[HB 271 was held over].