Legislature(2007 - 2008)BUTROVICH 205
04/30/2007 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB229 | |
| SJR6 | |
| HB152 | |
| HB220 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 220 | TELECONFERENCED | |
| *+ | SJR 6 | TELECONFERENCED | |
| += | HB 152 | TELECONFERENCED | |
| + | HB 229 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 229am-KENAI GASIFICATION PROJECT; RAILROAD BOND
3:53:36 PM
CHAIR HUGGINS announced HB 229 am to be up for consideration.
LALANYA SNYDER, staff to Representative Chenault, sponsor of HB
229, explained that Agrium owns and operates an ammonia and urea
complex in the Kenai area that has been at risk for a number of
years of being shut down permanently because of the lack of feed
stock. So, the Agrium Kenai gasification project has been in
development. This project would bring coal from Healy to Kenai
where low-emission coal gasification and electricity generation
plants would be built.
HB 229 authorizes the Alaska Railroad Corporation (ARRC) to
issue up to $2.9 billion in tax exempt bonds to finance a
portion of the project. The project will also help generate
electricity for Southcentral Alaska and generate excess carbon
dioxide that could be used to improve oil recovery from the
wells in Cook Inlet and as well as continue to supply fertilizer
to Alaska.
3:54:44 PM
MS. SNYDER explained that payment of the debt service for
facilities and equipment that would not be owned by ARRC would
be provided through a long-term contract or other agreement
between ARRC and the project's owner or operator. There would be
no fiscal impact to the state.
CHAIR HUGGINS asked if they had heard of any resistance to the
project or the bonding implications thus far.
MS. SNYDER replied that she hadn't heard of any.
CHAIR HUGGINS asked Ms. Parker of Agrium to further explain the
concept.
3:55:42 PM
LISA PARKER, Manager, Government Relations, Agrium U.S., said
she supported HB 229 am. The concept that is imbedded from
Agrium's standpoint with coal gasification is that coal would be
transported from Healy to a port facility and barged to Agrium's
facility where the coal would be gasified. Part of the 3 million
tons of coal per year would be used for creating the hydrogen
Agrium needs to make anhydrous ammonia and the rest would be
used for generating power. The complex they are envisioning
would generate 190 megawatts of power - 120 megawatts would be
used at their facility for the gasifier air separation unit
(ASU) and 70 megawatts would be put into the grid without having
to upgrade the existing transmission lines. Homer Electric
Association is taking the lead on the power generation-side.
3:56:17 PM
SENATORS GREEN AND MCGUIRE joined the committee.
MS. PARKER explained that Agrium's plant has been operating at
50 percent capacity for half of the year and they want to bring
it back to full operation.
3:58:30 PM
SENATOR WAGONER asked if Agrium could get its funding somewhere
else if this bill doesn't pass.
MS. PARKER replied they would be able to look for other avenues.
SENATOR WAGONER said that this wasn't a bail out, but rather one
method of financing.
MS. PARKER replied that this mechanism was established 20 years
ago as a funding mechanism by the federal government to allow
the ARRC to issue tax free bonds for economic development
projects in Alaska. From the state's standpoint, there is no
state involvement. It is not a bail out.
3:59:59 PM
SENATOR WIELECHOWSKI asked who pays if there is a default.
MS. PARKER replied if the legislature gives the ARRC authority
to seek tax-free bonds, it then has to get permission from its
board of directors to seek those bonds. In seeking those bonds,
they go to the bond market which will thoroughly investigate the
Railroad, Agrium and its equity partners in this process. If the
market does not feel that they have the resources to pay for
those bonds, they would not issue them.
4:00:47 PM
SENATOR WIELECHOWSKI asked if the ARRC could lose many of its
assets if there was a default.
4:01:01 PM
PAT GAMBELL, President and CEO, Alaska Railroad Corporation
(ARRC), said the Railroad would be responsible for any portion
of the bonding that would be used to purchase assets on its own
- in terms of locomotives and coal cars. But for the vast
majority of the dollars they are talking about in this
particular project, there is no recourse to the state or to the
ARRC.
MR. GAMBELL said the ARRC's participation is in two parts. One
is the operational part, which would be the movement of the coal
to an offload point. Two points are being looked at right now
and they are looking at moving in the neighborhood of 3 million
tons a year, which is significantly more than it has moved in
the past. So, therefore, part of the tax-free issuance would go
to purchase around 200 railcars and probably 9 or 10 locomotives
that would go into service full-time to move the product to the
chosen port.
He said the second interest in this project is to use this tool
for the economic development that Ms. Parker described. He also
wanted to reinforce the idea that this is absolutely not a
bailout and it is simply a tool and one that simply has not been
used up to this point in time.
4:04:12 PM
SENATOR WIELECHOWSKI wanted to clarify that there is absolutely
no state liability if there is a default.
MR. GAMBELL replied that that was true as well as unique in
terms of the U.S. tax code. The Alaska Railroad properties were
left untouched in the tax rewrite of 1986.
4:05:00 PM
SENATOR WIELECHOWSKI said he wanted to hear more about how it's
possible for the state or the Railroad to have zero liability if
there's a default. And he wanted to hear it from a tax expert.
MS. PARKER explained that the $2.9 billion bond has three
components or partners. Agrium's portion would be $2 billion;
$600 million is designated for the Railroad; and $300 million is
designated for a spur line through the Mat-Su Borough. She
deferred the tax question to ARRC tax expert, Bill Leary.
4:05:51 PM
BILL LEARY, Chief Financial Officer, ARRC, explained this is a
very big deal to the ARRC - in that it is moving 3 million
incremental tons of coal. With regard to the specific question
about recourse to the state or to the Railroad, he said this
bill is only an authorization to issue up to $2.9 billion worth
of bonds. The actual mechanics of who would be responsible for
repayment of the debt would be: first it would need to be
approved by Railroad management, then by the Railroad Board of
Directors, but the ultimate control would come from the
marketplace.
He assured them that the ARRC's balance sheet would not support
the issuance of anything with even a $1 billion sign on it. As a
result, the market would dictate how much could be issued and
what the repayment source would be. So, in this case, a small
amount in the grand scheme of things would have the Railroad as
its backstop - for things like the railcars, locomotives and
infrastructure improvements that would be needed to support this
project, but the vast majority would be supported by Agrium or a
combination of Agrium and its partners. That's who would be
responsible for repaying that debt and those terms would be
drawn up in the bond documents themselves.
SENATOR WIELECHOWSKI asked if the bond could be used to build a
spur line from the North Slope down to Southcentral.
4:08:30 PM
MR. LEARY replied that this unique authority that the Railroad
has, based on language in the Transfer Act, needs to be tied
directly to the Railroad and to rail service. That is why this
is such a good project as it's proposed with the Agrium
initiative.
4:09:24 PM
SENATOR WIELECHOWSKI asked if the bond could be used to bring a
line to Southcentral.
MR. LEARY recalled how in 2004 the Legislature approved $17
billion worth of railroad bond authorizations related to
financing the natural gas pipeline.
CHAIR HUGGINS said that Senator Wielechowski was referring to
the authorization in the event that the spur line existed that
pipe and other logistical support requirements for a pipeline
construction could be reverse-hauled north on it.
MR. GAMBELL responded absolutely - the reverse haul potential
would be excellent from Port MacKenzie into the Interior. He
hoped the state would consider that in the engineering of the
pipeline.
CHAIR HUGGINS said that is one of the underpinnings that makes
this attractive to him.
4:11:03 PM
DAVE HANSEN, Director, Economic Development, Mat-Su Borough,
strongly supported HB 229 am. They feel that an extension from
the main line down to Port Mackenzie would not only greatly
enhance the Agrium gasification project for a coal
transportation port, but also would provide extensive statewide
benefits - such as making the development of numerous strategic
mineral deposits in the Interior more cost effective and
feasible. One study says Port Mackenzie would be the best port
for this purpose. It would also reduce the need to invest up to
$150 million in rail crossing improvements in the Wasilla to
Anchorage rail corridor and should save Agrium rail transport
money in its rail freight costs.
4:13:30 PM
SENATOR STEVENS asked if this project would have the ability to
provide electricity beyond the needs of the Agrium plant.
MR. HANSEN replied that answer would have two parts. Lisa Parker
would have to answer the one about the actual electric
generation at the Agrium plant that is part of the gasification.
But he could answer that by putting a rail line to Port
Mackenzie you make the possibility of electric generation
through the use of coal as a fuel very feasible and that could
be put on the main line system, the grid.
4:14:41 PM
MS. PARKER added that Agrium's current design for the power
plant is for 190 megawatts of power. Agrium would purchase 120
percent of that and the remaining 70 megawatts would be
available for distribution on the grid.
4:15:14 PM
SCOTT HAMANN, Kenai resident, said this is a great bill and it
is good for the whole state. This is just a win/win situation.
CHAIR HUGGINS asked Ms. Snyder to give them an overview of the
issues that were raised in the other body on the bonding concept
and Agrium's viability.
4:17:15 PM
MS. SNYDER responded that Representative Hawker had some
concerns with the size of the bonding, but those were cleared up
by the Department of Revenue. Representative Gara brought up the
issue of emissions and he offered an amendment on the floor that
did not pass.
CHAIR HUGGINS asked Ms. Parker to review the decision points
Agrium has.
MS. PARKER replied on July 1 Agrium will have to decide whether
to go forward on this project or not. It was started in October
2004. That decision will be based on the financials from an
engineering standpoint, for one thing, and the engineering has
been done. They are continuing to work on the engineering, but
it has been found to be feasible. The initial work on permitting
did not identify any show-stoppers and they will be announcing
the selection of the environmental firm later this week. After
July, if the decision is made by management and equity partners
to continue the project, the next gate would be in the fall of
2008. That would be as to whether or not Agrium goes into
detailed engineering and start procurement on things that would
need a long lead-time. She said if all gates open, this project
would be on line by 2011/2012.
SENATOR WAGONER reminded them that some people have said using
CO2 in a field such as Swanson River and Cook Inlet that an
additional 300 million barrels of oil could be recovered. When
you start calculating what the state gets out of that at the
current price of oil per barrel, that's a big prize.
4:20:06 PM
SENATOR WIELECHOWSKI asked if Agrium preferred to fuel its plant
with natural gas.
MS. PARKER replied yes, but the supply of natural gas is
declining. The plant was closed for six months because it was
unable to get feed stock and is operating at 25 percent capacity
on average.
MS. PARKER said that two other facilities were impacted by the
same lack in Southcentral as was a company that delivers natural
gas to Fairbanks - but the company Fairbanks was able to work
out an arrangement to get the natural gas from Enstar.
She said they are looking at a five-year time frame of trying to
keep their plant operating while this gasification project comes
online. Senior management doesn't see North Slope natural gas
coming on line in the next 10 years and doesn't foresee being
able to keep the facility operating for that time at 50 percent
capacity.
SENATOR WIELECHOWSKI asked how soon they expected to be
gasifying coal under this proposal.
MS. PARKER replied by 2011/12. And management hopes to be able
to get gas to operate at least half of their plant for half of
the year during the construction time.
4:22:17 PM
SENATOR WIELECHOWSKI again voiced his concern that he raised
when the legislature received this presentation earlier along
with one by Enstar that proposed a bullet gasline from the North
Slope down to Southcentral, which would cost almost the same as
this project.
His concern was if you want $2.9 billion worth of to get a
bullet gasline to Southcentral, you would need a big anchor
tenant to pay for it and Agrium is the ideal anchor tenant. So,
if they go ahead with this project, it hurts the state's ability
to bring a natural gas pipeline from the North Slope, because
they loose Agrium as an anchor tenant - and if the state has
this opportunity to bond, he would like to see it go towards
building a bullet gasline from the North Slope and incorporating
the Railroad into the building of a spur line. "That way we get
you your gas, but we also get gas for the hundreds of thousands,
the 71 percent of Southcentral in Fairbanks and Kenai residents
who use natural gas, whose rates have doubled in the last five
years...."
SENATOR WAGONER responded that he didn't think that concept
would fit the Railroad bonding capabilities.
4:23:55 PM
MR. GAMBELL said that was an interesting concept, but the issue
is timing and Agrium's timing is urgent. The Railroad's bonding
capacity is not capped and it could look at another project like
a bullet line in the future. In fact, it has discussed projects
with numerous other companies and he said:
It's certainly feasible. The devil is in the details
in terms of making arrangements much as we have with
Agrium to satisfy the requirement that the project is
for railroad purposes. So therefore, property or
right-of-way, or some sort of support, or a
combination of all the above may very well prove to be
the right formula at some point in the future. That
point, however, is certainly farther down the road
than the current concern that Agrium has for its
inability to put capacity out of its plant.
We'd be very happy to talk with the state or look at
that initiative as well, and we can, because as a
conduit financer and with this capability we have we
would not be capped and in fact could look at
something like that.
4:25:27 PM
PAUL KENDALL, Anchorage resident, said he was not endorsing this
project, but he wanted to suggest that the future lies in
hydrogen.
SENATOR STEVENS moved to pass HB 229 am from committee with
individual recommendations and attached fiscal note.
SENATOR WIELECHOWSKI objected saying he wanted HB 229 to get a
Finance Committee referral for his previously mentioned reasons.
It is not a bad project, but it is only one project and he
preferred to see the bonding go towards a gas pipeline from the
North Slope to Southcentral that would provide natural gas
energy for Agrium along with energy for the many residents all
up and down the Railbelt.
CHAIR HUGGINS said they could not discount the value of being
able to reverse hauling to the North in logistical support of
any pipeline and secondly that the LNG plant can be viewed as a
potential anchor for a large natural gas supply. And he didn't
think they were mutually exclusive.
A roll call vote was taken: Senators Stevens, Wagoner, Green and
Huggins voted yea; Senator Wielechowski voted nay; and HB 229 am
moved from committee.
4:29:03 PM at ease 4:31:07 PM
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