Legislature(2009 - 2010)BUTROVICH 205
02/10/2010 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB242 | |
| SB243 | |
| Presentation: Point Mackenzie Rail Extension | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 243 | TELECONFERENCED | |
| *+ | SB 242 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
SB 243-GEOTHERMAL RESOURCE:ROYALTY/PERMIT/FEE
4:21:25 PM
CO-CHAIR MCGUIRE announced SB 243 to be up for discussion and
that it is the companion bill to SB 242 that deals with the
royalty relating to geothermal energy.
MIKE PAWLOWSKI, aide to Senator McGuire, sponsor of SB 243,
explained that currently under AS 38.05.181(g), the State of
Alaska charges a 10-15 percent royalty on gross revenues on
geothermal projects. This has a significant impact on the
economics of this geothermal project that has a fixed cost of
$.12 to $.14. Other states don't have royalties anywhere near
what Alaska has; these royalties are very similar to what the
state has for oil and gas development, not for geothermal
development. That is where the bill started off in concept;
procedurally SB 243 removes royalty from geothermal projects in
Alaska.
CO-CHAIR MCGUIRE explained that last Interim geothermal was
looked at and an old reference to a 10-15 percent geothermal
royalty credit was discovered. They think it was put in as a
place holder back when the oil and gas provisions were being
developed, but without any reflection on what an appropriate
geothermal regime would look like. This resource is hot water, a
renewable energy that is not extracted permanently in the way
that hydrocarbons are.
She explained that the thinking behind this bill is to
incentivize these projects, but also realizing that they really
don't see a rationale for the state to exact a royalty on a
resource that is not being removed permanently from the ground -
the whole point of royalty and severance. If Alaska has a
royalty, it would be the highest rate in the nation and would
make any geothermal development in this state impractical.
Further, Senator McGuire said, some states with federal lands
aligning them have a 1.7 percent royalty. The federal government
has said 3 percent is their threshold. Clearly the 10-15 percent
would be "outrageous," and she supported no royalty for the
reasons she just articulated. But, she said she wanted to hear
testimony from the companies about other royalty regimes.
4:25:55 PM
PAUL THOMSEN, Ormat Technologies, echoed earlier comments about
how geothermal power capital costs in other states are around
$4000/kW and how in Alaska the costs are 25-50 percent higher
than that. They think SB 243 recognizes that in other western
states geothermal power projects rarely are required to pay
state royalties.
4:27:05 PM
He clarified that when they were looking at this provision, they
found that a predominance of western states actually do have a
very high state royalty rate in statute; they just don't have
any geothermal power projects paying it. That is when they
started to question it. The state of California has somewhere in
the range of a 10-11 cent royalty for state lands; it is the
largest producer of geothermal power in the US. A fraction of
their projects sit on state lands. The geysers in Northern
California that produce 1000 mgW take up a couple acres of state
land and pay the 10 percent; but when you look at total
projects, it's less than 1 percent. Another example is in
Southern California.
MR. THOMSEN said they compared that to a state like Nevada that
is the largest geothermal producer per capita, but does not have
a state royalty rate at all. The state is 90 percent federally
owned, so Ormat pays a federal rate. He said the Geothermal
Energy Association, the National Association which Ormat is also
a board member of, explained that geothermal royalties vary
depending on land ownership, type and tend to range from .5
percent to 5.5 percent of revenues. The 10 percent is sometimes
applied to gross revenues versus net. The majority of geothermal
projects currently under development in the US are on federal
lands where BLM regulations call for revenue royalties of 1.75
percent for the first 10 years and 3.5 percent thereafter.
MR. THOMSEN said that despite the fact that geothermal
development faces greater financial challenges in Alaska, they
think that the current statute's royalty rate of 10-15 percent
is simply "cost prohibitive." Ormat's financial analysis shows
that removing the royalty obligation would reduce the kWh cost
by about 10 percent; and they think that removing the royalty
obligations from geothermal power plants in Alaska will serve to
acknowledge the unusually high costs of geothermal development
and address even the AEA's concerns that the direct economic
benefits of geothermal production are highly sensitive to O&M
costs. Unlike the previous bill, this one really looks at
reducing those costs once the project is up and operating -
combating the high prices of remoteness of projects, the
severity of weather and other difficult factors about developing
in Alaska. This would ultimately lower the cost of clean
reliable power to ratepayers.
4:29:29 PM
CO-CHAIR WIELECHOWSKI asked if he would support an amendment
that said any reduction in royalty is required to be passed on
to the customers.
MR. THOMSEN replied that he would examine that language, but in
principle they absolutely support that concept.
4:30:03 PM
At Ease
4:34:25 PM
CO-CHAIR MCGUIRE called the meeting back to order at 4:34 p.m.
SB 343 was set aside.
^Presentation: Point Mackenzie Rail Extension
Presentation: Point Mackenzie Rail Extension
4:34:34 PM
CO-CHAIR MCGUIRE announced an overview of the proposed Point
Mackenzie Rail Extension project.
4:34:44 PM
JOHN DUFFY, Manager, Matanuska Susitna Borough, said this
project offers tremendous opportunities for the State of Alaska
in terms of job creation and economic opportunities, especially
in the South central region. Studies done by the University of
Alaska and Northern Economics indicate the project will create
thousands of jobs and pay off hundreds of millions of dollars to
the state treasury over a hundred years. It begins the
diversification of Alaska's economy and provides the opportunity
to create major manufacturing opportunities; for instance,
Alaska could supply 5 percent of the nation's cement needs with
this project.
RICK MYSTROM, consultant, Matanuska Susitna Borough, said the
Valley has become their new second home, and he sees how the
economy of Anchorage and the Valley are very closely tied. His
other business is buying and operating apartments - mostly in
Anchorage and Eagle River, but his job is to understand and
predict the Alaskan economy. In the last 35 years the Alaskan
economy has slid three different times. One time was after
conclusion of the TAPS in 1979, but at that time Governor
Hammond who had just been reelected in 1978 and the legislature
focused on getting jobs out into the economy. They created a
capital budget that allowed for $1000/yr. for every person in
Alaska for three years to get jobs into the economy. Every
community got a chance to put forth its suggestions for capital
projects. Since he was on the Anchorage Assembly at that time,
he knows they built the $32-million Sullivan Arena, the $32-
million Egan Center, a $16-million museum expansion, $44-million
library, and what was going to be a $27-million performing arts
center, but turned out to be $72 million (because of the
dyslexic accountant).
More related to what they are now doing, Mr. Mystrom said, they
also built the extension of Minnesota that went south out to
O'Malley that allowed for development out there. That on a small
scale is what he wanted to talk to them about today.
He related that the second time the economy slid was in 1986
when the price of oil dropped from $30/barrel down to $8. At
that time Governor Cowper and the legislature decided to save
the state's money and allowed for very little capital
expenditure during the next two or three years - and the Alaskan
economy fell off the biggest cliff that it had ever seen.
Anchorage lost 13 percent of its population and 25 percent of
its assessed valuation. The same thing happened in the rest of
the state.
4:42:30 PM
The third slide to the economy is happening right now Mr.
Mystrom said, and he felt the next 3-5 years were going to be
tough. So, he encouraged the legislature to use capital spending
now because it's cheaper now and more workforce is available.
4:43:06 PM
MR. MYSTROM said to understand the impact of Port MacKenzie and
the Rail Extension they need to begin thinking of the Fairbanks
North Star Borough, the Denali Borough, the Mat-Su Borough and
Anchorage as a regional economy. He elaborated on his slides:
Slide 1: Uncertainty about energy availability and costs,
uncertainty about the gas line construction, uncertainty about
the future of the TransAlaska pipeline, uncertainty about small
business administration rules for contracting programs for
Native businesses, and ongoing Congressional discussions of
scenarios that would not be good for Alaska.
He said it's just a matter of how bad they will be for Alaska.
There is also uncertainty about the exploration permits for
Chukchi and Beaufort Sea. Uncertainty is very bothersome to
investors; two things are certain: one is lack of transportation
infrastructure and the other is lack of diversification of
Alaska's economy. One of the solutions is the project he would
talk about now and the effects could happen as soon as next
summer.
4:46:09 PM
He said the Port MacKenzie/Rail Extension has three route
options for getting the mainline of the Alaska Railroad (slide
3). One of the three will be recommended by the Surface
Transportation Board that is part of the ongoing EPA study. It
should come out in March and then there would be 60 days of
hearings before a final recommendation. He said the extension
would reduce the number of miles to tidewater by 147 miles and
it would have huge positive impacts on all four areas.
4:46:46 PM
CO-CHAIR WIELECHOWSKI asked what would happen to Anchorage if
things were shipped to Wasilla.
MR. MYSTROM answered "very positive" things, because the ports
are very different. He said he would elaborate on that more
later in his presentation.
4:47:33 PM
SENATOR WAGONER asked from where to where for the 147 miles.
4:47:37 PM
MR. MYSTROM answered "from anyplace north of Willow to
tidewater" or 147 miles closer than it would be to go to Seward.
He went on to slide 4 on what the rail extension means to the
regional economy:
· It opens up the Interior to resource development.
· It facilitates the development of a world-class limestone
deposit in Livengood just north of Fairbanks.
· It facilitates the development of a cement production
facility in or around Fairbanks.
· It opens up a 60-mile corridor along the Railbelt to
exploration and extraction of strategic minerals (lead,
zinc, copper, molybdenum and silver).
· It improves the transportation of lower cost and low
sulphur fuel to the Interior and Southwest Alaska.
· It dramatically improves the world competitiveness of
Alaska coal by about $3/ton. This savings can be applied to
any aggregate coming out of the Denali and North Star
Boroughs.
· It reduces transportation and staging costs for the gas
pipeline construction. The Denali Project believes it will
save about $100 million in transportation and staging costs
of pipe for the gas pipeline. Right now the pipe for the
Liberty field comes up from Japan to Houston, goes by rail
to Seattle, by barge to Whittier and by rail from Whittier
north.
· It increases employment in the four regions.
4:49:58 PM
SENATOR WAGONER asked why it goes that route instead of through
Seward and up the railroad from there.
MR. MYSTROM said he would have to ask the Liberty people who are
doing it. He continued his presentation saying that Port
MacKenzie is a bulk commodities port for minerals, cement, coal,
fuel and bulk fuel - very different from the Port of Anchorage
that is for consumer goods and containers.
4:50:43 PM
He said the Port of Anchorage will always be the most important
port in Anchorage because it focuses just on consumer goods and
containers. Port MacKenzie has 14 square miles of industrially
zoned area with nothing to prevent industrial development of
that area - like homes. Anchorage just doesn't have that.
4:52:20 PM
CO-CHAIR MCGUIRE said Cook Inlet Region Incorporation (CIRI) did
a presentation on its underground coal gasification project and
they mentioned multiple times that they were trying to stay this
side of the Mat-Su Borough line because of local tax issues. She
wanted to know if those issues had been addressed.
SENATOR HUGGINS added that it's really about power generation
and a delay factor with the permitting process. Some people,
including MEA, think it's not a friendly environment for
building power plants.
MR. MYSTROM remarked that CIRI, the Mat-Su Borough, and the
University of Alaska Trust own the land at Port MacKenzie and
are supportive of this legislation. It does not compete with
Anchorage; it has a 60 ft. mean low tide. The Port of Anchorage
has 35 ft. The kinds of ships that haul aggregate and minerals
can't come into the Port of Anchorage. He envisioned that
ultimately the two would become sister ports with a common port
commission supervising both - with the Railroad included. The
Railroad is very supportive of this concept.
To help understand the differences in the ports, he explained,
Port MacKenzie can handle Panamax vessels, the maximum size
vessel that can get through the Panama Canal, and Cape vessels
that are too big to go through the Panama Canal and must go
around Cape Horn or the Cape of Good Hope. Port MacKenzie can
handle the largest ships in the world; it also handles barges
carrying bulk commodities minerals, coals and aggregate.
4:58:25 PM
He described and explained the pictures on slides 13-18. Slide
18 showed plenty of storage and staging capacity for all the
pipe needed for both gas lines. Again he said Denali estimated
the rail extension would save $100 million in the cost of the
pipeline.
Port MacKenzie is a two-and-a-half hour drive from Anchorage,
but soon a new ferry, the MV Susitna, will start running between
the MatSu Borough, Anchorage, Kenai and Tyonek. It holds 20 cars
and will be christened in March in Ketchikan. The revolutionary
thing about the ferry is that the cars will be drive on at the
lower level and then the cars will be hydraulically lifted so
the middle part of the ship never touches the water. The
pontoons become the ice-breaker, making it the first high speed
ice breaking ferry that has ever been built - built by the Navy
and turned over to the MatSu Borough for years of testing and
record-keeping. Incidentally, he said the MatSu Borough, in its
negotiations with the Navy, required that it be built in Alaska.
SENATOR WAGONER asked where the ferry would dock in Kenai.
MR. DUFFY answered Nikiski.
5:02:06 PM
MR. MYSTROM said the ferry terminal is already built on the Port
MacKenzie side. He said a number of studies had been done by
Paul Metz, HDR, and Northern Economics that talk about how this
transportation is necessary to allow the development of
limestone deposits, zinc, molybdenum, copper, and silver in the
Interior. It will make a significant difference in the economy
of that area. The rail extension is estimated to create 3000
related construction jobs from 2010 to 2013. The Port MacKenzie
portion would create 500 jobs, Anchorage 720, and the balance
from the MatSu Borough for a total of 3500 jobs. Incidentally,
he had found out that half the employees at the Red Dog and Pogo
mines live in Anchorage and work a week on and a week off. In
addition to that, this project would facilitate private
development of jobs along the rail line that will become part of
Anchorage's northern industrial segment.
MR. MYSTROM said the EIS will be done in March for a cost of $10
million and the construction of the road and the rail bimodal
loop is under construction for a cost of $17 million, which they
have in hand. The permitting, design and beginning of
construction for the selected alternative is the next step, and
keeping that going with $57 million is what they are looking for
this year from the Legislature. The cost of constructing the
railroad bed and the final project, will depend on which of the
routes are selected. The laying of tracks could be completed by
2013.
CO-CHAIR MCGUIRE thanked him for his presentation.
CO-CHAIR WIELECHOWSKI asked if the Railroad is thinking about
bonding for this project.
5:07:34 PM
PAT GAMBLE, Executive Director, Alaska Railroad Corporation
(ARRC), responded that the legislature gave ARRC preapproval to
bond for this project in a previous piece of legislation, but
they haven't reached that financial decision point. Having the
preapproval "in our hip pocket" makes it a lot easier to find
out which vehicle will be the best one for the state to use.
SENATOR HUGGINS asked for a quick burst on ARRC's mission.
MR. GAMBLE responded that was a great question, because they are
"in the business of economic development." The Corporate Act has
four state policies that define the Railroad; three of them are
in the development area of resources, transportation
infrastructure, and economic long-term growth.
5:09:30 PM
MR. MYSTROM said he understands that the Railroad has authority
for revenue bonds that aren't practical or realistic for this
project.
MR. GAMBLE responded that at the time they were trying to do two
things at once, one was to pre-approve the Agrium project and
the other was to pre-approve bonding for this project. He didn't
remember the exact bonding language, but it was clearly intended
that the tool be used as appropriate - he remembered it being
"some sort of a conduit bonding."
SENATOR WAGONER asked the average cost of constructing each mile
of railroad right now.
MR. GAMBLE answered about $5-8 million/mile depending on the
geography, interest rates, and the cost of commodities.
SENATOR WAGONER asked how much more traffic the existing line
between Fairbanks and Anchorage can take before it will need
modifications.
MR. GAMBLE answered that the good news is that the modifications
are just about done on that line. It includes the bridges, the
sidings, upgrading signalization and technology. They began
building it in earnest about eight years ago in anticipation of
the pipeline and actually sped the whole project up by 10 years.
The legislature gave them permission to issue $165-million worth
of bonds to pay the debt service. They have three more years to
complete the whole line from Anchorage to Fairbanks. Traffic now
is at a fraction of what it will be able to move when and if the
time comes.
5:13:27 PM
CO-CHAIR MCGUIRE thanked him again and adjourned the meeting at
5:13 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Briefing on Southcentral Rail Extension.ppt |
SRES 2/10/2010 3:30:00 PM |
|
| Briefing on Rail Extension Econ. Benefits to Central AK.pptx |
SRES 2/10/2010 3:30:00 PM |