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