Legislature(2015 - 2016)BUTROVICH 205

02/03/2015 01:00 PM TRANSPORTATION

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01:09:20 PM Start
01:10:36 PM Overview of the Alaska Railroad
02:16:14 PM Port Mackenzie Railroad Extension Update
02:51:55 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ -- Joint with House Transportation Committee -- TELECONFERENCED
Overview of the Alaska Railroad
Bill O'Leary, President and CEO
Port MacKenzie Railroad Extension update
Joe Perkins, Project Director
John Moosey, Mat-Su Borough Manager
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
            SENATE TRANSPORTATION STANDING COMMITTEE                                                                          
            HOUSE TRANSPORTATION STANDING COMMITTEE                                                                           
                        February 3, 2015                                                                                        
                           1:09 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
SENATE TRANSPORTATION                                                                                                           
 Senator Peter Micciche, Chair                                                                                                  
 Senator Click Bishop, Vice Chair                                                                                               
 Senator Mike Dunleavy                                                                                                          
 Senator Dennis Egan                                                                                                            
 Senator Bert Stedman                                                                                                           
HOUSE TRANSPORTATION                                                                                                            
 Representative Neal Foster, Co-Chair                                                                                           
 Representative Shelley Hughes, Co-Chair                                                                                        
 Representative Charisse Millett                                                                                                
 Representative Benjamin Nageak                                                                                                 
 Representative Louise Stutes                                                                                                   
 Representative Matt Claman                                                                                                     
 Representative Dan Ortiz                                                                                                       
MEMBERS ABSENT                                                                                                                
SENATE TRANSPORTATION                                                                                                           
 All members present                                                                                                            
HOUSE TRANSPORTATION                                                                                                            
 All members present                                                                                                            
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Sam Kito                                                                                                         
Representative Jim Colver                                                                                                       
COMMITTEE CALENDAR                                                                                                            
OVERVIEW OF THE ALASKA RAILROAD                                                                                                 
     - HEARD                                                                                                                    
PORT MACKENZIE RAILROAD EXTENSION UPDATE                                                                                        
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
BILL O'LEARY, President and CEO                                                                                                 
Alaska Railroad Corporation (ARRC)                                                                                              
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided Alaska Railroad  Corporation (ARRC)                                                             
JOHN MOOSEY, Manager                                                                                                            
Mat-Su Borough                                                                                                                  
Palmer, Alaska                                                                                                                  
POSITION  STATEMENT:  Provided  overview of  the  Port  MacKenzie                                                             
JOE PERKINS, Project Director                                                                                                   
Mat-Su Borough                                                                                                                  
Palmer, Alaska                                                                                                                  
POSITION  STATEMENT:  Provided  detailed  overview  of  the  Port                                                             
MacKenzie project.                                                                                                              
ACTION NARRATIVE                                                                                                              
1:09:20 PM                                                                                                                    
CHAIR PETER MICCICHE  called the joint meeting of  the Senate and                                                             
House Transportation  Standing Committees  to order at  1:09 p.m.                                                               
Present at  the call to  order were Senators Egan,  Dunleavy, and                                                               
Chair  Micciche; Representatives  Stutes, Claman,  Nageak, Oritz,                                                               
Millett, Co-chair Hughes, and Co-Chair Foster.                                                                                  
^Overview of the Alaska Railroad                                                                                                
                Overview of the Alaska Railroad                                                                             
1:10:36 PM                                                                                                                    
CHAIR MICCICHE  announced that  the first  order of  business was                                                               
the Alaska Railroad Corporation overview.                                                                                       
1:10:51 PM                                                                                                                    
BILL  O'LEARY, President  and  CEO,  Alaska Railroad  Corporation                                                               
(ARRC),   Anchorage,  Alaska,   said  ARRC   is  an   independent                                                               
corporation owned  by the state;  it's managed by  a seven-member                                                               
board of  directors appointed by  the governor; it's  mandated to                                                               
be self-sustaining and its employees are not state employees.                                                                   
1:11:28 PM                                                                                                                    
SENATOR BISHOP joined the committee.                                                                                            
1:11:35 PM                                                                                                                    
MR. O'LEARY said  the Railroad has 656 miles of  track going from                                                               
Seward to Fairbanks.  Last year it carried nearly  a half million                                                               
passengers and  just shy  of 5  million tons  of freight.  It has                                                               
$1.1 billion  worth of  assets and brings  in $140-145  million a                                                               
year  in  revenues.  It  has  575-600  year-round  employees  and                                                               
another 100-125  during the  summer season;  about three-quarters                                                               
of them are members of one of five unions.                                                                                      
1:13:41 PM                                                                                                                    
The Railroad has  three legs to its  financial underpinnings. The                                                               
first and largest is freight.  However, freight started declining                                                               
significantly in 2005.  He explained that their  primary lines of                                                               
business include  transporting gravel,  coal, and  bulk petroleum                                                               
and the significant drop in  petroleum tonnage is a direct result                                                               
of  the  stepping  down  and  conversion from  a  refinery  to  a                                                               
terminal facility at the North Pole refinery.                                                                                   
REPRESENTATIVE  HUGHES  asked  how  physical  weight  equates  to                                                               
revenue volume on his chart.                                                                                                    
MR. O'LEARY  answered that not  all lines of revenue  are created                                                               
equal and  historically their largest freight  revenue source has                                                               
been  moving bulk  petroleum products,  followed by  their inter-                                                               
line  rail-barge services,  coal  hauls out  of  Healy, and  then                                                               
gravel. Gravel is  a very heavy but a short  haul coming from the                                                               
Mat-Su Valley  into Anchorage, whereas  coal goes from  Healy all                                                               
the way to Seward.                                                                                                              
1:16:11 PM                                                                                                                    
The  second financial  leg  of ARRC's  financial  trinity is  its                                                               
passenger  service that  is somewhere  in  the 500,000  passenger                                                               
range.  The  2008  recession  had  a  significant  impact  but  a                                                               
recovery started in 2012.                                                                                                       
He  explained that  ARRC has  two different  segments of  riders:                                                               
those that  book directly  with the  Alaska Railroad  through its                                                               
tour operators and  those who work with the  cruise companies, as                                                               
the  Railroad  pulls  passenger   coaches  owned  by  the  cruise                                                               
CHAIR  MICCICHE asked  to  see  a pie  chart  of freight  revenue                                                               
versus passenger revenue.                                                                                                       
MR. O'LEARY  responded that of $140  million annually, passengers                                                               
bring in about  $26-27 million and freight brings  in around $95-                                                               
100 million.                                                                                                                    
1:18:55 PM                                                                                                                    
Third,  he said  the ARRC  has real  estate holdings.  He related                                                               
that  the  Railroad  was  built by  the  federal  government  and                                                               
purchased by the state in 1985;  with the rolling stock and track                                                               
bed 36,000 acres  were transferred from federal  ownership to the                                                               
corporation  in  1985.  Roughly  half  of that  is  used  in  the                                                               
operation of  the Railroad  itself. The  other half  is available                                                               
for  lease  or   permit  use  by  different   private  sector  or                                                               
governmental  entities, primarily  of  economic development  type                                                               
He  said the  Railroad makes  significant returns  off of  leased                                                               
properties and  owns docks  in Seward  and Whittier.  He couldn't                                                               
say enough  about the  importance of real  estate for  the Alaska                                                               
Railroad as  the vagaries  of the business  cycle hit  on freight                                                               
and  passenger service.  It provides  a  very consistent  revenue                                                               
stream for  the Railroad and  feeds a significant portion  of its                                                               
capital program.                                                                                                                
MR.   O'LEARY  related   that  all   the  Railroad's   income  is                                                               
transferred  back  into  the infrastructure.  He  explained  that                                                               
year-round  scheduled  passenger  service made  it  eligible  for                                                               
significant Federal Transit  Administration (FTA) formula monies,                                                               
at one  point reaching nearly $36  million per year. In  the last                                                               
FTA  re-authorization it  was reduced  by 20  percent, because  a                                                               
member of  Congress thought ARRC  didn't meet  the qualifications                                                               
for  receiving the  money  (a  Ted Stevens  issue).  That is  the                                                               
compromise  that  was  struck along  with  doubling  the  state's                                                               
matching requirement.  He said another reauthorization  is coming                                                               
up in 2015.                                                                                                                     
1:22:07 PM                                                                                                                    
He said the Alaska Railroad has  been in a near constant state of                                                               
financial flux. With the step-down  of production at the refinery                                                               
which began in  2006, the Railroad went  through significant belt                                                               
tightening  three  times resulting  in  300  position cuts,  wage                                                               
freezes, and  a modified retirement  program, as well  as changes                                                               
in operations  to still provide  the needed customer  service but                                                               
in a  less costly manner.  The goal  was that the  Railroad would                                                               
look and  feel the same  on the outside  but be different  on the                                                               
1:23:48 PM                                                                                                                    
REPRESENTATIVE  NAGEAK  asked if  the  downturns  were mostly  in                                                               
MR. O'LEARY replied that they  primarily related to the petroleum                                                               
haul to the refinery outside  of Fairbanks and a significant drop                                                               
in the coal export line of business.                                                                                            
REPRESENTATIVE  MILLETT said  the FTA  cut was  only made  to the                                                               
ARRC and asked where the rest of our money went.                                                                                
MR.  O'LEARY   replied  that  it   wasn't  cutting  the   pie  up                                                               
differently  to   other  transit   operator  entities.   It  went                                                               
somewhere else.                                                                                                                 
CHAIR MICCICHE recognized Representative Kito in the audience.                                                                  
1:26:22 PM                                                                                                                    
MR. O'LEARY said the Alaska Railroad  is set up to look very much                                                               
like   private   enterprise    from   the   financial   reporting                                                               
perspective,  so  they have  a  measure  of net  income.  Twenty-                                                               
fourteen was much stronger than  anticipated especially given the                                                               
news of  the closure  of the  North Pole refinery,  but a  lot of                                                               
slack  was  picked  up  by the  inter-line  business,  which  was                                                               
directly a  result of the  increased exploration  and development                                                               
activity  on  the  North  Slope.  They also  had  a  very  strong                                                               
passenger season and an easy winter  on both sides, plus the cost                                                               
structure changes  they made  really took  effect. So,  when that                                                               
revenue does come in they are well-prepared to capitalize on it.                                                                
CHAIR MICCICHE  asked what percentage  fuel cost is  today versus                                                               
one year ago.                                                                                                                   
MR. O'LEARY  answered that now  it's in  the 12 percent  range of                                                               
total  operating expenses  and has  no doubt  benefited from  the                                                               
drop in cost of fuel, but there  is also a decrease in their fuel                                                               
surcharge revenue.                                                                                                              
CHAIR MICCICHE recognized Representative Colver in the audience.                                                                
1:28:57 PM                                                                                                                    
REPRESENTATIVE  STUTES asked  what percentage  the fuel  cost was                                                               
one year ago.                                                                                                                   
MR. O'LEARY answered around 14-15 percent.                                                                                      
REPRESENTATIVE  CLAMAN   asked  how  much  of   the  $.8  million                                                               
difference in  the net income  can be  attributed to the  drop in                                                               
fuel cost.                                                                                                                      
MR.  O'LEARY answered  not a  significant portion;  up to  half a                                                               
million dollars in fuel savings  between 2013 and 2014, but there                                                               
are big swings in key revenue items.                                                                                            
In the last  couple of years the ARRC has  been involved in large                                                               
projects involving rail; one is  the Northern Rail Extension. The                                                               
first  phase of  that project  is a  3,300 foot  bridge over  the                                                               
Tanana River outside of Salcha, which currently provides year-                                                                  
round  access  to  the  military  into  some  of  their  training                                                               
grounds. This  $188-million project  was funded primarily  by the                                                               
Department  of  Defense (DOF),  but  with  $84 million  from  the                                                               
state. The  project was  completed on time  and under  budget and                                                               
has the  ability to  return about $1.2  million (in  state funds)                                                               
back  to the  general  fund.  The first  phase  extends from  the                                                               
current  terminus  in  the  Eielson  Air  Force  Base  area  down                                                               
eventually to the Delta Junction  area. At this point, no funding                                                               
has been identified for phases 2-4.                                                                                             
CO-CHAIR HUGHES asked  if the $1.2 million return  to the general                                                               
fund was project money that was left over or an annual return.                                                                  
MR. O'LEARY replied that it is left over capital money.                                                                         
He  said  the  Mat-Su  Borough's Port  MacKenzie  Rail  Extension                                                               
Project  is a  project that  the ARRC  is acting  as sort  of the                                                               
project  manager for.  It  is progressing  nicely,  but he  would                                                               
leave further comments on it to the next presenter.                                                                             
1:33:41 PM                                                                                                                    
SENATOR STEDMAN joined the committee.                                                                                           
1:33:54 PM                                                                                                                    
MR. O'LEARY  said this brings them  to one of the  hottest topics                                                               
that the ARRC is facing  currently: positive train control (PTC).                                                               
It is  "the mother  of all unfunded  federal mandates"  that came                                                               
about in 2008  as a result of some horrific  train accidents. PTC                                                               
is  a safety  overlay that  is designed  to eliminate  or greatly                                                               
reduce  human-error  accidents for  train  operations.  It has  a                                                               
deadline of December 31, 2015  that absolutely no railroad in the                                                               
country  is going  to  meet.  No extension  has  been granted  by                                                               
Congress so far, but one is expected to occur.                                                                                  
He explained that PTC is  roughly a $160-million project, greater                                                               
than  one year's  worth of  ARRC revenues.  He reported  that the                                                               
Railroad got  an earlier  start than  most with  an appropriation                                                               
from  Ted  Stevens   and  other  funds  to  use  as   sort  of  a                                                               
demonstration project before it was mandated.                                                                                   
MR. O'LEARY  said because of  revenue shortfalls it is  clear the                                                               
Alaska Railroad  will not be able  to finish this project  on its                                                               
own. Over  the past two years  the legislature gave them  a total                                                               
of $34 million  to keep this project moving and  the Railroad has                                                               
roughly  $70 million  of its  own  funds into  this project,  but                                                               
another $55 million is needed to complete the project.                                                                          
1:36:09 PM                                                                                                                    
At ease                                                                                                                         
1:36:54 PM                                                                                                                    
Back to order.                                                                                                                  
1:37:25 PM                                                                                                                    
MR. O'LEARLY  stated that they  have searched and found  there is                                                               
no way out of this mandate for the Alaska Railroad.                                                                             
1:38:19 PM                                                                                                                    
CHAIR  MICCICHE asked  if  he  had $160  million  to  spend on  a                                                               
railroad would he spend it on PTC.                                                                                              
MR. O'LEARY answered no.                                                                                                        
CHAIR MICCICHE asked  him for examples of what would  be a better                                                               
investment for the ARRC to ensure the safety of the public.                                                                     
MR. O'LEARY said  this project takes away from  the basics needed                                                               
to  maintain a  safe railroad  system  in general  - rail,  ties,                                                               
ballast, and bridges  in particular for the  Alaska Railroad that                                                               
require continual upkeep and significant amounts of money.                                                                      
CHAIR  MICCICHE  asked  how  many   times  he  had  been  to  the                                                               
legislature in the  last five years requesting  funding for those                                                               
MR. O'LEARY  replied the only  other time the  Railroad requested                                                               
funding was  for the  Northern Rail  Extension Bridge  to support                                                               
the military.                                                                                                                   
CHAIR MICCICHE asked  if PTC looks like a capital  project but in                                                               
reality   is   an   operating  item   considering   the   federal                                                               
MR.  O'LEARY  answered  that  developing  and  implementing  this                                                               
system is  really a capital  project, but another $5-6  million a                                                               
year will be  needed to maintain it. They would  not come back to                                                               
the legislature for that.                                                                                                       
CHAIR  MICCICHE  said in  his  mind  it translates  to  operating                                                               
because there is no choice.                                                                                                     
REPRESENTATIVE NAGEAK  remarked that  there was  a need  for more                                                               
transportation especially  in rural  Alaskan to get  resources to                                                               
the market,  which would enhance  revenues for the state  and the                                                               
1:41:27 PM                                                                                                                    
MR.  O'LEARY  responded that  the  Railroad  is  a key  piece  of                                                               
infrastructure  for this  state and  expansion of  it would  be a                                                               
good thing. They  like to talk about the concept  of corridors to                                                               
resources more  than roads  to resources. Roads  can be  added to                                                               
the geometry of a railroad.  Island railroads in small areas that                                                               
don't  necessarily immediately  connect  to the  main line  could                                                               
make good business sense.                                                                                                       
1:42:50 PM                                                                                                                    
CO-CHAIR HUGHES asked if PTC  is really designed for high traffic                                                               
areas  like New  York  City, Washington,  D.C.  and doesn't  make                                                               
sense  for  Alaska. In  addition,  she  wanted  to know  how  the                                                               
Railroad  plans  to  absorb  the  additional  annual  maintenance                                                               
MR. O'LEARY responded that PTC  will make the Railroad safer, but                                                               
he would  not direct  $160 million to  it. The  maintenance costs                                                               
still need to be determined.                                                                                                    
SENATOR EGAN asked how many times  the Railroad had applied for a                                                               
waiver of the PTC requirement and been denied.                                                                                  
MR. O'LEARY answered more than once.                                                                                            
1:45:04 PM                                                                                                                    
REPRESENTATIVE  STUTES  asked  what  the other  benefits  to  the                                                               
Railroad would be.                                                                                                              
MR.  O'LEARY answered  getting a  more efficient  dispatch system                                                               
and  the  signal  work  will  be  slightly  more  efficient.  The                                                               
regulators all understand that the  cost to benefit ratio on this                                                               
particular  initiative  doesn't  provide   a  classic  return  on                                                               
If  the  Railroad  doesn't  comply  with  the  mandate,  he  said                                                               
different fines and civil and  criminal penalties can be assessed                                                               
on  the  corporation  and   on  individuals  for  non-compliance,                                                               
especially   if    it's   considered    willful   non-compliance.                                                               
Eventually,  regulators  would  prohibit passenger  service,  and                                                               
passenger  service  provides a  significant  amount  of jobs  and                                                               
spending.  A  2012  McDowell  Group  study  on  how  discontinued                                                               
passenger service would impact the  whole state indicated that it                                                               
would affect 2,000  jobs and put 3,700 additional  motor trips on                                                               
already  crowded  highways,  especially   the  Parks  and  Seward                                                               
REPRESENTATIVE  STUTES asked  how  many Railroads  will have  PTC                                                               
completed by 2015.                                                                                                              
MR. O'LEARY said it won't happen.                                                                                               
REPRESENTATIVE STUTES asked by 2018.                                                                                            
MR.  O'LEARY answered  more; most  are pushing  for a  three-year                                                               
extension and  planning on 2018.  He added that a  limited number                                                               
of contractors do this work, which makes it even more difficult.                                                                
REPRESENTATIVE CLAMAN asked  if the extension requires  an act of                                                               
MR. O'LEARY answered that it does require an act of Congress.                                                                   
1:50:37 PM                                                                                                                    
He said  that PTC  is not  the end  of the  world for  the Alaska                                                               
Railroad. Good  opportunities are out  there; they have  just put                                                               
the finishing touches  on their strategic plan  going forward and                                                               
the first one  is how to grow  their way out of  this situation -                                                               
how the revenue base can be  increased and also support the state                                                               
in economic  development. A rail/barge service  could support oil                                                               
field activities; the  concept of a pipeline on  rails moving LNG                                                               
or refined  oil products  is another  idea as  is the  concept of                                                               
additional ports in  Port MacKenzie and Seward,  and corridors to                                                               
MR.  O'LEARY  said the  Railroad  partners  with Lynden  and  the                                                               
Canadian National  Railroad to provide weekly  barge service from                                                               
Seattle  and  Prince  Rupert   using  rail  barges.  Effectively,                                                               
somebody can  order a  load of  pipe from Houston  and it  can be                                                               
railed up  on other  railroad systems to  Seattle where  it rolls                                                               
onto a  rail barge  that can  take 50  rail cars.  It goes  up to                                                               
Whittier and rolls  off onto the ARRC system and  can be taken to                                                               
Fairbanks or Anchorage or loaded  onto trucks to the North Slope.                                                               
The Alaska  Railroad has the  longest rail haul in  North America                                                               
pushing almost 5,000 miles.                                                                                                     
1:53:13 PM                                                                                                                    
SENATOR STEDMAN asked  if there had been any  discussion with the                                                               
Canadians  on  their  interest   in  railroading  oil  north  and                                                               
delivering it into TAPS.                                                                                                        
MR. O'LEARY  said they  had some discussions  on that  last year,                                                               
but haven't heard anything recently.                                                                                            
SENATOR STEDMAN asked him to explain how that would work.                                                                       
MR. O'LEARY answered  that there are no plans for  that, but they                                                               
have   been   transporting   refined   oil   to   the   Anchorage                                                               
International Airport from the North  Pole refinery for years and                                                               
hope  that could  come  back.  At this  point  they are  bringing                                                               
refined product from south to north.                                                                                            
SENATOR STEDMAN  said he wanted  an update  on the status  of the                                                               
Railroad with their  clients at the airport  and refineries along                                                               
with their cash flow positions.                                                                                                 
MR. O'LEARY said he would give him an update on that.                                                                           
CO-CHAIR HUGHES  remarked that some  folks are floating  the idea                                                               
of barging propane  up from Prince Rupert to Valdez  and by train                                                               
on up to Fairbanks and asked if he had conversations with them.                                                                 
1:56:22 PM                                                                                                                    
MR. O'LEARY replied that Valdez  has very little rail and nothing                                                               
that connects. It  could probably happen if it was  brought up to                                                               
Whittier  or Seward.  They  had been  in contact  with  a lot  of                                                               
different  people   about  moving   energy,  primarily,   to  the                                                               
CHAIR  MICCICHE said  he thought  the primary  objective of  this                                                               
slide was  to show there  are a  lot of other  opportunities that                                                               
the Railroad continues to investigate.                                                                                          
MR. O'LEARY answered yes and they are open for business.                                                                        
CHAIR MICCICHE asked  if a pre-existing railway  reduces the cost                                                               
of developing a corridor to resources.                                                                                          
1:58:13 PM                                                                                                                    
MR.  O'LEARY   answered  that   that  should   be  part   of  the                                                               
conversation  about   what  makes   most  sense  for   access  to                                                               
resources. The  concept of  moving LNG to  the Interior  has been                                                               
getting  more attention  lately. They  have always  offered their                                                               
services to potential shippers as  an interim energy solution for                                                               
the Interior until  the larger gasline is built.  Five-day a week                                                               
service  is already  provided  year-round  between Anchorage  and                                                               
A couple of  conditions would need to  be met to move  LNG to the                                                               
Interior  on the  Railroad: first  is approval  from the  federal                                                               
regulators.  In December  they  met  with them  and  got a  clear                                                               
picture of what  it takes to gain that approval  and they will be                                                               
submitting an  application (for moving  LNG on ISO tanks  on rail                                                               
on flat cars)  later this week. He explained  that ISO cryo-tanks                                                               
are about 40  feet long and hold 11,000 gallons;  they can be put                                                               
on a rail car and moved to different locations.                                                                                 
SENATOR BISHOP emphasized  that the Railroad will  move goods for                                                               
a price.                                                                                                                        
MR. O'LEARY said yes.                                                                                                           
CHAIR MICCICHE said they are very supportive of their mission.                                                                  
2:02:35 PM                                                                                                                    
MR.  O'LEARY said  the Department  of  Transportation and  Public                                                               
Facilities (DOTPF) is  responsible for a State Rail  Plan that is                                                               
a  prerequisite  to continue  receiving  federal  monies. It  had                                                               
fallen  off the  radar in  past years  and was  resurrected about                                                               
three years ago.  It is a planning and vision  document about the                                                               
different operating railroads in  Alaska: the Alaska Railroad and                                                               
the White Pass and Yukon Railroad.                                                                                              
MR.  O'LEARY  concluded that  the  Railroad  is  a key  piece  of                                                               
infrastructure in a state that has little of it.                                                                                
2:05:02 PM                                                                                                                    
CHAIR MICCICHE asked if the  refinery being back in business will                                                               
positively affect the Railroad's bottom line.                                                                                   
MR. O'LEARY answered  that energy cost is a key  piece of why the                                                               
refinery is in the position it is in and the answer is yes.                                                                     
CO-CHAIR HUGHES  asked where the  additional $55 million  for PTC                                                               
will come from.                                                                                                                 
MR.  O'LEARY   answered  originally   ARRC  wanted  to   ask  the                                                               
legislature for $55 million over  three years, but realizing that                                                               
would be very  difficult now, they came up  with another creative                                                               
solution.   He explained that  ARRC has the ability  to refinance                                                               
existing debt that  was issued in 2006/07, take  that savings and                                                               
extend the  maturity of the bonds  from 2021 to 2025.  This would                                                               
allow them  to max out their  borrowing power, which would  be an                                                               
additional $37  million and  therefore they  would need  only one                                                               
$18 million infusion.  They could take this  financial package to                                                               
the  debt markets,  sell the  bonds and  fund PTC.  However, this                                                               
would impact the Railroad by  taking away its ability to continue                                                               
investing in basic infrastructure.                                                                                              
CO-CHAIR HUGHES  asked if  the $18 million  could be  phased over                                                               
three years.                                                                                                                    
MR. O'LEARY answered  their goal is to have it  all this year, so                                                               
the package  could be taken  intact to the financial  markets and                                                               
the grantor agency.                                                                                                             
CHAIR  MICCICHE thanked  him  for presentation  and  said he  was                                                               
worried  about  how  the  PTC  mandate  would  affectively  delay                                                               
maintenance and increase risks that weren't there before.                                                                       
2:10:36 PM                                                                                                                    
CHAIR MICCICHE introduced the Port MacKenzie update.                                                                            
2:11:05 PM                                                                                                                    
At ease                                                                                                                         
^Port MacKenzie Railroad Extension Update                                                                                       
            Port MacKenzie Railroad Extension Update                                                                        
2:16:14 PM                                                                                                                    
CHAIR MICCICHE called  the meeting back to order  and invited Mr.                                                               
Moosey to present the Port MacKenzie Railroad Extension update.                                                                 
2:16:27 PM                                                                                                                    
JOHN  MOOSEY, Mat-Su  Borough Manager,  Palmer,  Alaska, said  he                                                               
would relate  the activity happening  at Port MacKenzie  over the                                                               
past year and that their project  is now two-thirds done. He said                                                               
shipping  time was  reduced by  10 days  when their  first direct                                                               
scrap metal  ship went  directly from Alaska  to Asia  instead of                                                               
going first  to Seattle  and then  to Asia. The  port is  able to                                                               
operate during the winter months.                                                                                               
CO-CHAIR HUGHES  asked if  their ability to  go straight  to Asia                                                               
was because of the type of ship that could come into the port.                                                                  
MR. MOOSEY  replied it wasn't the  ship type; it's just  that now                                                               
the infrastructure is  in place to be able to  start doing it. He                                                               
said  Port  MacKenzie  has  14  square  miles,  9,000  acres,  of                                                               
industrial business space that is  unencumbered by anything else.                                                               
It is  controlled almost  entirely by the  Mat-Su Borough  with a                                                               
small piece owned  by the University (that is  cooperating on the                                                               
MR. MOOSEY  said the port has  plenty of deep water  for any type                                                               
of ship.  At dock  there are  14 acres  for temporary  storage of                                                               
materials and  there are  ample opportunities  to lease  lots for                                                               
large projects  or for assembling  any type of gasline.  A recent                                                               
Northern  Economic  study  estimated   the  Port  MacKenzie  Rail                                                               
location  could save  over $100  million in  transportation costs                                                               
for a large  in-state gasline project, just  because of proximity                                                               
to the project site.                                                                                                            
He said this  summer 16 lineal miles of concrete  coated pipe was                                                               
unloaded at Port MacKenzie. It  will be loaded on support vessels                                                               
on the work barge, be  welded together for underwater pipeline to                                                               
connect Furies' new gas/oil platform in Nikiski.                                                                                
2:22:13 PM                                                                                                                    
He has  two full-time people working  real hard to make  sure the                                                               
port operation has very little  overhead; they partner with local                                                               
business to  provide infrastructure  and logistic  services. They                                                               
are  a  bulk  resource  and project  commodities  port  exporting                                                               
gravel  and timber  and  importing cement  and  fuel modules  for                                                               
construction.  They don't  compete  with anyone,  but rather  are                                                               
complimentary  to getting  goods  and services  to  and from  the                                                               
For  the  past  nine  months  he had  been  working  with  WesPac                                                               
Midstream,  an  LNG company  looking  at  two-phase project:  the                                                               
first is  going to  be a  $160 million  LNG facility;  the second                                                               
phase will  be another $460 million.  Their goal is to  bring LNG                                                               
to the Fairbanks  area. He noted that the ISO  containers used to                                                               
transport  the LNG  will  also  serve as  storage  when they  are                                                               
dropped off.                                                                                                                    
2:24:07 PM                                                                                                                    
CO-CHAIR  HUGHES asked  where WesPac  is  now in  deciding to  go                                                               
MR.  MOOSEY answered  they are  in lease  negotiations with  them                                                               
now;  if things  fall  as they  would like  they  would be  under                                                               
construction this summer for the first phase ($160 million).                                                                    
SENATOR EGAN asked where WesPac is headquartered.                                                                               
MR. MOOSEY  replied Texas;  they are  a $90  billion conglomerate                                                               
with  nine on-going  projects throughout  the United  States. So,                                                               
this is a small project for them.                                                                                               
CO-CHAIR HUGHES asked when LNG  delivery to Fairbanks is expected                                                               
to occur.                                                                                                                       
MR.  MOOSEY replied  delivery to  the  city gate  would take  two                                                               
years, but  Fairbanks would have  to build the  infrastructure to                                                               
accept the LNG.                                                                                                                 
CHAIR MICCICHE clarified that Fairbanks  LNG is currently meeting                                                               
100  percent of  Fairbanks  current needs,  so  they are  talking                                                               
about a potential build-out in the future.                                                                                      
2:27:18 PM                                                                                                                    
MR. MOOSEY  added that  the current  needs are  for less  than 20                                                               
percent of  the population.  He  said that WesPac is  just one of                                                               
LNG  projects Port  MacKenzie is  working  on. If  it works  out,                                                               
WesPac will be a great tenant but not the only one.                                                                             
Hilcorp and  Alaska Industrial  Development and  Export Authority                                                               
(AIDEA) are interested in buying  a gas processing plant owned by                                                               
Tita (Pentex is the parent company) near Port MacKenzie.                                                                        
CHAIR MICCICHE commented  that Blue Crest could be  added to that                                                               
slide in terms of a competing interest in the LNG facility.                                                                     
2:29:54 PM                                                                                                                    
MR. MOOSEY  added that Blue Crest  announced a month ago  that it                                                               
has an  agreement with WesPac  to sell  them the natural  gas. It                                                               
bought some  assets from Buccaneer  about one  year ago and  is a                                                               
new investor in Cook Inlet.                                                                                                     
The Central  Alaska Energy project  is a 6.9  million-gallon fuel                                                               
tank farm and  could be used to bring in  lower cost fuel, mostly                                                               
low sulfur diesel  fuel. They hope to break ground  in 2015; this                                                               
is also an  AIDEA project that was approved for  financing a year                                                               
and a half ago.                                                                                                                 
MR. MOOSEY showed pictures of a  110-car rail loop over a mile in                                                               
length that  provides great staging  for bulk resources,  such as                                                               
gravel, coal  and timber.  He said they  expect exports  to Asia.                                                               
Last month  the governor and  Resource Energy, Inc.  (REI) signed                                                               
an MOU  for natural  gas. They  believe the  REI project  and the                                                               
WesPac  project can  all  co-exist.  The first  phase  of REI  is                                                               
getting  Cook Inlet  gas  to  Japan. When  the  state gasline  is                                                               
available, the  project can be  scaled up  to its full  size with                                                               
the market still being in Japan.                                                                                                
CHAIR MICCICHE asked if REI has any facilities on the planet.                                                                   
MR. MOOSEY  answered no and that  WesPac is looking for  a market                                                               
in  Interior  Alaska and  using  the  ISO container  concept  for                                                               
delivering  LNG to  coastal communities  via water.  He said  the                                                               
port  can  also  be  used for  importing  construction  materials                                                               
easier and less expensively.                                                                                                    
2:35:08 PM                                                                                                                    
JOE PERKINS,  Project Director,  Mat-Su Borough,  Palmer, Alaska,                                                               
explained that they  broke this project up  into six construction                                                               
segments of  embankment comprise  of leveled D1  - and  a seventh                                                               
segment  which  includes  placing  material  on  the  embankment.                                                               
Segment eight is  basically finishing the job by  putting in ties                                                               
and rail.                                                                                                                       
The following is  a status of the six segments  that start at the                                                               
loop and run all the way up to the highway:                                                                                     
Segment 1: Completed embankments.                                                                                               
Segment 2:  Runs through the  farm district, so the  Railroad has                                                               
purchased  all the  land  they need  and the  Borough  is in  the                                                               
process  of  condemning the  covenants  (against  the state).  He                                                               
hoped to  have all of the  segment two land available  in four or                                                               
five months.                                                                                                                    
Segment 3:  Starts outside of the  farm district and heads  up to                                                               
the Papoose Twins road. All the embankment is finished.                                                                         
Segment  4:   Embankment  is  under  construction   and  will  be                                                               
completed next year.                                                                                                            
Segment 5:  Have funding and  are negotiating with  Knik-Ahtnu to                                                               
purchase the right-of-way that is owned  by them. If they are not                                                               
successful, they intend to condemn that portion of segment five.                                                                
Segment 6: Two  new sitings in a Y formation  along the main line                                                               
to  tie  into the  main  line  so trains  can  be  turned in  any                                                               
direction; it  includes a  new bridge  across the  Little Susitna                                                               
River.  That is  100 percent  complete  and includes  all of  the                                                               
ballast,  ties and  track. A  communications  tower was  required                                                               
there and that is up and completed.                                                                                             
MR. PERKINS  said the whole thing  is about 30 miles  long and is                                                               
about 65  percent complete. He  said a railroad is  not difficult                                                               
to build;  the only problem  is that they  maintain at least  a 1                                                               
percent grade. This  means that a road can dip  down in a valley,                                                               
but the  railroad has to  fill them. So, in  the long run,  it is                                                               
tougher  to build  than  a road  if you're  in  country that  has                                                               
In 2013/14, he reported having  200 direct jobs. All five bridges                                                               
are  currently under  contract. Segments  2 and  5 (the  two that                                                               
don't have  embankments) have no  bridges. Starting in  2008 they                                                               
had been appropriated  a total of $184 million  in seven separate                                                               
appropriations and  one statewide  general obligation  (GO) bond.                                                               
In 2010,  they didn't  get any  money but got  it in  every other                                                               
year. In  2016 it will  take $120  million to complete  this job;                                                               
completion of  it is  totally dependent  on money.  He summarized                                                               
that segments 1,3,4,6, and 5 are  funded; segments 1,3, and 6 are                                                               
REPRESENTATIVE  CLAMAN asked  if he  is asking  for $120  million                                                               
this year.                                                                                                                      
MR.  PERKINS answered  that $35  million is  needed this  year to                                                               
keep  the  project  going  (and   complete  segment  2)  and  the                                                               
remainder of the money is  basically to purchase things like ties                                                               
and track. Segment 8 is the  one that ties the track ballast. The                                                               
ballast  is being  made at  Curry and  about one-third  of it  is                                                               
already made.                                                                                                                   
2:43:21 PM                                                                                                                    
He  explained that  segment  7 includes  fiber  optics along  the                                                               
whole line and another communications tower at the port.                                                                        
CO-CHAIR HUGHES asked  if the communication towers  are tied into                                                               
infrastructure needed for PTC.                                                                                                  
MR.  PERKINS answered  that the  communication towers  are needed                                                               
for  operation  of  the  spur  and may  later  serve  some  other                                                               
function  for PTC,  but  not now.  He said  they  join the  total                                                               
communications system of  the Alaska Railroad. He  said Segment 6                                                               
is done and the Alaska Railroad  is backing trains all the way up                                                               
to Miller's Road  at the end of  it. If they get  all the funding                                                               
they need it  will be complete and operating by  the end of 2018.                                                               
If it is piecemealed, then the  timeline will stretch out and the                                                               
cost of the project will go up.                                                                                                 
MR. MOOSEY said they understand  the state's budget concerns, but                                                               
completing this  project will create  jobs and  lessen dependence                                                               
on oil.                                                                                                                         
REPRESENTATIVE STUTES  asked how much money  his municipality had                                                               
put into this project.                                                                                                          
MR. MOOSEY  answered less  than 10 percent,  plus staff  time and                                                               
most of the gravel; no bonding.                                                                                                 
CO-CHAIR HUGHES  pointed out  that this project  can add  jobs in                                                               
the Mat-Su area,  but it is a state project  that will connect to                                                               
the rail system  to take things into the  Interior, and hopefully                                                               
to  someday  be  a  route  to   get  things  out  to  very  rural                                                               
communities. She asked who will  maintain the railroad once it is                                                               
2:48:56 PM                                                                                                                    
MR.  PERKINS answered  that  they are  working  closely with  the                                                               
Railroad  that has  a project  manager, also,  who he  meets with                                                               
every  two  weeks on  this  project.  When  all  of the  land  is                                                               
"squared away,"  the land required  to operate the  railroad will                                                               
be  transferred  to the  Railroad  including  land needed  for  a                                                               
terminal reserve where trains can  be parked and fueled and crews                                                               
can be changed  (600-700 ft. wide in the farm  district). In some                                                               
cases, they  have had to  buy uneconomic land remnants  and those                                                               
will remain with the Mat-Su Borough.                                                                                            
2:50:18 PM                                                                                                                    
CHAIR MICCICHE  thanked them  both for being  at the  meeting and                                                               
passed the gavel to Co-chair Hughes.                                                                                            
2:51:55 PM                                                                                                                    
CO-CHAIR  HUGHES  adjourned  the  Joint  Meeting  of  the  Senate                                                               
Transportation  Standing Committee  and the  House Transportation                                                               
Standing Committee at 2:51 p.m.                                                                                                 

Document Name Date/Time Subjects
Alaska Railroad update to H & S Transportation.pdf STRA 2/3/2015 1:00:00 PM
Port MacKenzie Rail presentation.pdf STRA 2/3/2015 1:00:00 PM
ARR fuel expenses response.pdf STRA 2/3/2015 1:00:00 PM
ARR 2014 Revenue Pie Chart.pdf STRA 2/3/2015 1:00:00 PM
ARR Condensed financial info 2005 thru 2014.pdf STRA 2/3/2015 1:00:00 PM