Legislature(2013 - 2014)BARNES 124

02/13/2014 01:00 PM House TRANSPORTATION

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Heard & Held
Heard & Held
           HB 271-APPROP: RAILROAD FEASIBILITY STUDY                                                                        
CHAIR P. WILSON announced that  the final 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."                                                                                
1:52:20 PM                                                                                                                    
REPRESENTATIVE ISAACSON,  speaking as sponsor of  HB 271, offered                                                               
to  keep  his remarks  brief.    He  referred to  information  in                                                               
members' packets, including  a copy of a  PowerPoint and academic                                                               
paper by  Dr. Paul  Metz [entitled, "Economic  Impact of  a North                                                               
Slope   Rail   Extension   on   Northern   Energy   and   Mineral                                                               
Development."]   He  stated  this paper  highlights  a number  of                                                               
natural  resources that  could be  accessed if  the rail  between                                                               
Fairbanks  and Deadhorse  is  built.   He  predicted  that if  10                                                               
percent of  the available natural  resources were put  into place                                                               
it would  generate $18  billion in  revenue to  Alaska's treasury                                                               
without  changing any  tax  structures.   He  indicated that  DNR                                                               
confirmed  that  "we're   not  far  off  the  mark."     He  also                                                               
highlighted  an  e-mail [in  members'  packets]  from Great  Bear                                                               
Petroleum  LLC [Great  Bear] which  indicates  that the  proposed                                                               
rail  project  between  Fairbanks  and  Deadhorse  could  provide                                                               
significant transportation cost  savings for delivering materials                                                               
and another option  for North Slope product  delivery to in-state                                                               
locations or tidewaters.  He  asked members for their support for                                                               
HB 271.                                                                                                                         
1:54:09 PM                                                                                                                    
PAUL  METZ,  Professor,   Ph.D.,  P.G.,  Geological  Engineering,                                                               
University of Alaska Fairbanks, stated  that he provided a report                                                               
and  PowerPoint  presentation to  the  committee  to outline  the                                                               
benefits of  extending the  Alaska railroad  to the  North Slope,                                                               
which  is  in  members''  packets.   He  offered  to  answer  any                                                               
questions members may have.                                                                                                     
CHAIR P.  WILSON, after first  determining no one else  wished to                                                               
testify, closed public testimony on HB 271.                                                                                     
1:56:22 PM                                                                                                                    
REPRESENTATIVE  KREISS-TOMKINS  stated  that  the  proposed  rail                                                               
extension project  would be a  huge infrastructure  investment to                                                               
the  North  Slope.    While  he finds  the  idea  intriguing  and                                                               
compelling,  the   price  tag  for   the  feasibility   study  is                                                               
substantial.   He asked  why the private  sector hasn't  made any                                                               
initial investment  in the feasibility of  extending the railroad                                                               
to enhance North Slope mineral development.                                                                                     
CHAIR  P. WILSON  remarked  that  since Alaska  does  not have  a                                                               
transportation plan  it leaves  private industry  in limbo.   She                                                               
emphasized the focus of this  committee is to consider the policy                                                               
and  decide  what is  best  for  the state  and  to  pass on  any                                                               
financial  considerations to  the House  Finance Committee.   She                                                               
acknowledged   the  importance   of  verbalizing   the  financial                                                               
1:58:37 PM                                                                                                                    
REPRESENTATIVE   KREISS-TOMKINS   said    he   has   difficulties                                                               
subscribing to the philosophy that  this committee can't consider                                                               
the financial implications of investments  since that seems to be                                                               
the fundamental policy of transportation.   He commented that the                                                               
difficulty  is  that  if  the  state  spends  $2  million  for  a                                                               
feasibility of a  railroad to Deadhorse, it means  the state will                                                               
not have  $2 million to spend  on the Northern Rail  Extension or                                                               
the Port MacKenzie Rail Extension  since state funds are limited.                                                               
He   acknowledged  the   importance   of  considering   investing                                                               
substantial sums of money to ensure the best return.                                                                            
CHAIR  P. WILSON  agreed that  it  is important  to consider  the                                                               
financial realities.                                                                                                            
1:59:48 PM                                                                                                                    
REPRESENTATIVE FEIGE said he agreed  with the representative from                                                               
Sitka.  He pointed out $2 million  is a lot of money and thus far                                                               
there hasn't  been a lot of  interest in this project  other than                                                               
one e-mail  from Great Bear.   He  surmised that Great  Bear will                                                               
need   to  travel   a  significant   distance  before   providing                                                               
assurances  that  it will  develop  those  areas.   He  suggested                                                               
alternate shipping, such  as barging in any sand  and steel Great                                                               
Bear might  suffice.   He stated that  railroads are  designed to                                                               
carry lots  of heavy  material cheaply.   In order  to make  a $5                                                               
billion  investment to  build a  railroad without  capitalization                                                               
will require a significant economic  driver that results in heavy                                                               
loads  moving from  point A  to point  B.   He acknowledged  that                                                               
someday oil production might be  so low that transporting by rail                                                               
will  be more  economical; however,  he offered  his belief  that                                                               
transporting  oil by  rail  is a  long  way down  the  road.   He                                                               
commented  that  mines  in the  Ambler  and  Livengood  represent                                                               
potential customers,  but these  projects are  not at  that stage                                                               
either.  In concept, perhaps  the state should consider a shorter                                                               
line  since the  committee has  essentially only  heard from  one                                                               
potential  customer.   He acknowledged  the [1972]  vintage study                                                               
previously mentioned, but noted  that the mountains haven't moved                                                               
a  whole lot  since then.   While  that particular  route through                                                               
Atigun  Pass  -  including  a  tunnel -  certainly  could  be  an                                                               
adequate  route,  he  questioned   the  legislature  funding  the                                                               
university for  this study without a  reasonable expectation that                                                               
the project is going  to go forward.  He said  that it's also not                                                               
the legislature's job  to "come up with  welfare-type projects to                                                               
keep  university researchers  engaged."   He viewed  the decision                                                               
[on HB  271] from the perspective  of whether to fund  $2 million                                                               
to  the university  to  study [the  Fairbanks  to Deadhorse  rail                                                               
extension project]  when the university could  focus its research                                                               
and intellect  on other  efforts that would  provide a  much more                                                               
immediate return.                                                                                                               
2:03:04 PM                                                                                                                    
REPRESENTATIVE  GATTIS  echoed Representative  Feige's  comments.                                                               
She  related  her  constituents complain  that  the  state  funds                                                               
feasibility  studies  but does  not  further  it with  an  actual                                                               
project.  She emphasized  that given  declining  revenues she  is                                                               
reluctant to  fund yet another study  that may not result  in any                                                               
project.   Instead, she would  prefer to fund projects  that have                                                               
not yet been finished.  She said, "I won't be voting for this."                                                                 
The committee took an at-ease from 2:03 p.m. to 2:04 p.m.                                                                       
2:04:58 PM                                                                                                                    
REPRESENTATIVE  ISAACSON asked  to  first address  this bill  and                                                               
then hold  the bill over  to get  some of the  points fine-tuned.                                                               
He  acknowledged the  importance  of  frugality during  declining                                                               
revenues;  however, he  urged  the state  to  take the  necessary                                                               
steps  to diversify  its economy.   He  said, "Folks,  we are  so                                                               
addicted to oil  that is all we  can see and oil  is declining in                                                               
its revenue  stream so  we need  to diversify."   He  offered his                                                               
belief  that the  proposed  rail extension  could  help open  new                                                               
mines, oil  development, and expand other  economic opportunities                                                               
for the  state.   He characterized [the  feasibility study  in HB
271] as  being a  very good  use of  money.   He argued  that the                                                               
project doesn't  represent "university welfare."   He pointed out                                                               
that frequently  when the  state makes an  investment it  is also                                                               
sending a  signal to the  resource development industry  that the                                                               
state  is serious  about diversifying  its economy  and providing                                                               
access and  transportation.  He  lamented that he didn't  ask Dr.                                                               
Metz to  provide more  details and outline  the benefits  of this                                                               
project.   He referred to  a four-page  brief on this  [study] in                                                               
members' packets.   He  lauded Dr.  Metz's knowledge  and project                                                               
experience.   He  emphasized the  aforementioned study  indicates                                                               
that the  state could realize  a 30 percent return  on investment                                                               
from just one application this railroad would serve.                                                                            
2:08:52 PM                                                                                                                    
REPRESENTATIVE  ISAACSON   offered  his  belief  that   the  rail                                                               
investment  is worthwhile,  particularly since  the railroad  has                                                               
been  suffering  staggering revenue  losses  due  to Flint  Hills                                                               
Resources'  refinery and  Usibelli Coal  Mine, Inc.'s  decisions.                                                               
For example,  Flint Hills Resources  refinery has not  elected to                                                               
ship any fuel  in April.  He predicted that  the legislature will                                                               
be  asked  to "help  prop  up"  the Alaska  Railroad  Corporation                                                               
(ARRC)  with  far more  than  $2  million  based on  the  drastic                                                               
revenue reductions the ARRC is  experiencing.  He supports HB 271                                                               
as  an  investment  to  assist  the  ARRC,  to  provide  economic                                                               
diversity,  and to  take advantage  of a  great opportunity.   He                                                               
vowed to  "crank out"  a simplified bullet  sheet to  outline the                                                               
importance  of this  bill including  any benefits  to the  state.                                                               
Further,  he stressed  that ultimately  private funds  will build                                                               
the railroad  if it  proves viable  so it  won't be  necessary to                                                               
spend  general  fund  or  capital  fund monies  to  do  so.    He                                                               
emphasized that the  state must begin by proving  the concept and                                                               
send signals  to the parties and  the bond markets that  the rail                                                               
extension  project from  Fairbanks to  Deadhorse is  viable.   He                                                               
characterized this  project as an  important one for  the general                                                               
welfare of the state.                                                                                                           
2:10:32 PM                                                                                                                    
REPRESENTATIVE  LYNN echoed  Representative Isaacson's  comments.                                                               
He offered his belief that no  one will fund a railroad extension                                                               
project unless  a study  verifies that  the project  is feasible.                                                               
He  asked which  will come  first, the  chicken or  the egg.   He                                                               
recognized the  tremendous potential  of North  Slope development                                                               
and eventually a  rail link could spur a connection  to Lower 48.                                                               
He  hoped the  bill would  come back  before the  committee.   He                                                               
pointed  out that  the state  has studied  the gasline  countless                                                               
times,  yet the  state is  currently closer  than ever  before in                                                               
making the gasline  a reality.  He asked members  to evaluate the                                                               
bill and take action.                                                                                                           
2:12:24 PM                                                                                                                    
REPRESENTATIVE GATTIS  emphasized that she isn't  suggesting that                                                               
a  study isn't  important.   She understands  that sometimes  "we                                                               
have  to  spend money  to  make  money."   She  acknowledged  the                                                               
importance  of building  infrastructure.   She said  she did  not                                                               
hear  the compelling  reason to  move forward.   She  agreed with                                                               
Representative Lynn that it is important, but not at this time.                                                                 
[HB 271 was held over].                                                                                                         

Document Name Date/Time Subjects
Economic Impact of a North Slope Rail Extension 2014 power pt.ppt HTRA 2/13/2014 1:00:00 PM
HB 271
Economic Impact of a North Slope Rail Extension-Metz (2).pdf HTRA 2/13/2014 1:00:00 PM
HB 271
CS HB260 version R 2_13_14.pdf HTRA 2/13/2014 1:00:00 PM
HB 260