SB 31-RAILROAD UTILITY CORRIDOR TO & IN CANADA  MR. RICHARD SCHMITZ, staff to Senator Cowdery, gave the following explanation of SB 31. SB 31 allows the Alaska Railroad Corporation (ARRC) to extend its tracks from Eielsen Air Force Base to the Canadian border. It also allows ARRC to explore the possibility of extending its tracks as far as the North American rail system to connect at Fort Nelson, British Columbia. The bill does not provide any funding for this project but it allows ARRC to pursue financing wherever possible. The state land for the railroad corridor would be granted to ARRC, fee simple title, after a specific process is underway. Former Representative Jeanette James introduced SB 31 last year. It was not enacted because of concerns about the corridor and the natural gas pipeline. Senator Cowdery reintroduced the identical bill this year and, during a Senate Transportation Committee hearing, a discussion took place with Administration officials and ARRC officials about the work Governor Murkowski did on the Rails to Resources Act when he was a member of the U.S. Senate. The goal [of the discussion] was to find language that everyone could agree to that addressed the circumstances under which ARRC would get land. Some of that language was incorporated into a Senate Transportation Committee substitute (CS) beginning on page 2, line 4. That language contains a list of parameters. He deferred to ARRC staff to explain why those parameters were chosen. MR. SCHMITZ told members he provided background material for members that contains tourism and engineering reports, geological information, and maps showing the route from Eielson Air Force Base to the Canadian border and to British Columbia. The actual gap to be covered equals about 1,000 miles. Governor Murkowski and Senator Cowdery believe in order for Alaska's economy to grow, better transportation is necessary. Railroads can carry heavy, bulk items over long distances very cheaply. Senator Cowdery also believes it is important to build the rail connection because of the gas pipeline. Trucks will be unable to ship the steel pipe but rail could. In addition, it might be possible to build the railroad and pipeline simultaneously. MR. SCHMITZ told members the railroad corridor covers some of the richest mineral land in Alaska and the Yukon Territory. A geological formation, the Tintina Trench, is particularly rich in the platinum group of metals and gold. CHAIR OGAN informed members that Phyllis Johnson, Wendy Lindskoog, Pat Gamble and James Blasingame of the Alaska Railroad Corporation were available via teleconference to answer questions. He then announced that Senators Dyson, Lincoln and Stevens joined the committee a while ago. He asked Mr. Schmitz to review the changes made in the Senate Transportation Committee substitute for members. MR. SCHMITZ said the original bill would have given ARRC the state land via fee simple title. ARRC wanted a 500-foot corridor for safety reasons; DNR was concerned about locking up that much land unnecessarily. Also, some practical issues arose about a 500-foot corridor in communities such as Delta. The CS provides DNR with more flexibility when the corridor is delineated. ARRC will have to follow a process to obtain state land that requires it to be in a position to begin construction. Therefore, no land would be transferred unless project financing was obtained. CHAIR OGAN asked the width of the current right-of-way on the existing railroad corridor. MR. SCHMITZ said he believes it varies from 100 to 500 feet. MR. PAT GAMBLE, President of the Alaska Railroad Corporation, informed members that Phyllis Johnson, Bob Loeffler and Joe Joiner were also present to answer questions. He told Chair Ogan the current average right-of-way is 200 feet. CHAIR OGAN asked why ARRC wants so much land. MR. GAMBLE said that was the nature of the compromise when ARRC talked to DNR. The state wanted a corridor for transportation, communications and a possible pipeline. ARRC wanted an exclusive right-of-way for control of the rail line, as it has on its existing rail line. The compromise was to survey a 500-foot corridor for the state and within it embed a 200-foot right-of- way for the railroad. CHAIR OGAN commented that SB 31 will give ARRC a 500-foot right- of-way, the rights of eminent domain, and subsurface rights, which will have a big impact on private landowners. He asked if any private landowners have voiced an opinion on this change. MR. GAMBLE clarified that ARRC will not have subsurface rights. CHAIR OGAN referred to a provision in SB 31 on page 3, line 26, that says the state shall convey the state's entire interest in the land. He assumed that would include subsurface rights. 3:42 p.m.  MR. BOB LOEFFLER, Director of the Division of Mining, Land and Water, DNR, explained that DNR would convey the state's entire interest except "(a) the interest required by AS 38.05.125", which is the subsurface interest. So, in fact, DNR would reserve oil and gas rights and the other things associated with a mineral estate. SENATOR ELTON referred to the draft sectional analysis, which says that DNR will retain any revenues arising from use of the land. He assumed any revenues would also include revenues from fiber optic cable rights-of-way or other things that generate revenue for ARRC. MR. LOEFFLER explained that before the railroad is ready to construct, DNR will remain as the land manager and retain the revenues. Once the railroad is ready to construct a portion of the rail line, ARRC will get those revenues within its right-of- way on that portion. Therefore, DNR will retain the revenues while it manages the land and, when it transfers the management authority for each portion, the revenue for that portion will be transferred with it. SENATOR ELTON asked if that includes the subsurface rights. MR. LOEFFLER said DNR will retain the subsurface rights. SENATOR SEEKINS asked what safety issues might be involved in putting a 54-inch high-pressure gas pipeline within 300 feet of a railroad. MR. GAMBLE said he is not an expert on the safety radius from the pipeline but that is one reason a 500-foot corridor was attractive. He said more work needs to be done as the entire route is reviewed to maintain that safety buffer. That might require special engineering solutions depending on the topography. CHAIR OGAN pointed out that language on page 4 reads: If the [Alaska Railroad] corporation provides a survey alignment to the department, the department may not authorize construction of the natural gas pipeline within a 200-foot-wide corridor centered on the survey alignment unless the department does not find a feasible and prudent alternative for the route of the pipeline. He assumed that language refers to safety issues. He asked how much of an area a typical train wreck covers and whether it is more than 200 feet. MR. GAMBLE said the wreckage can cover more than 200 feet if the train is moving fast. He said it depends on several factors such as speed, topography, train length and others. CHAIR OGAN commented that on a visit to Florida two years ago, he was amazed to see how fast the trains travel through towns. SENATOR SEEKINS said he assumes the 200-foot railroad corridor would be on one side or the other of the 500-foot corridor rather than down the middle. He asked if that is addressed in the bill. MR. LOEFFLER said a 500-foot corridor was chosen for several reasons, one to allow ARRC to move the railroad base around a little bit when it is ready to begin construction and another to allow DNR to retain additional land as a transportation corridor for other complementary uses. After the construction is done, DNR could adjust the corridor. Any unusable remnants would probably be turned back to general domain state land. SENATOR SEEKINS said his concern is that a transportation corridor that includes a natural gas pipeline will need a safety buffer. MR. LOEFFLER said he believes the natural gas pipeline will have a separate right-of-way. The 500-foot corridor is not expected to be the only right-of-way for both, but it doesn't rule that possibility out. SENATOR LINCOLN referred to the provision about subsurface rights in the last paragraph of page 3, which says, "subject to the existing valid rights." She asked whether the state or the railroad will reserve the valid existing subsurface rights if private lands are bought. MR. LOEFFLER replied DNR cannot convey what it does not own so the state's conveyance to the railroad will not include any rights it does not own. DNR will reserve the subsurface rights. Where the subsurface is owned by the state and a corporation might have a surface right, one would assume they would buy the surface right. He cannot imagine [the railroad] having a reason to acquire the subsurface rights unless it is to buy out a placer miner to get that person out of the way. SENATOR LINCOLN said she is specifically thinking of the Native corporations that own surface and subsurface rights. She asked Mr. Loeffler if the state or railroad will have no need for the subsurface rights so would only purchase the surface rights and leave the subsurface rights with the private owner. MR. LOEFFLER said that is his expectation but he deferred to ARRC representatives to answer for the railroad. CHAIR OGAN suggested the legislature does not want ARRC to do any open pit mining underneath the railroad. He then clarified that the bill is silent on the issue of private property. SENATOR LINCOLN said that is because it applies to the valid existing rights. CHAIR OGAN pointed out the subsurface rights were conveyed with the Native lands. He asked Mr. Loeffler whether eminent domain could be used to claim only the surface rights. He commented that if he were a private landowner, he would favor a railroad crossing his land as it would provide access to that land. SENATOR ELTON said a couple of phrases, beginning on page 4, line 20, suggest to him the bill's first priority is a railroad and the second priority is a gas pipeline. That language reads: If the corporation provides a survey alignment to the department, the department may not authorize construction of the natural gas pipeline within the 200-foot wide corridor centered on the survey alignment.... The department shall consult with the corporation before authorizing construction of a natural gas pipeline in order to minimize effects on the potential rail route.... He said that language could be problematic if the pipeline is prioritized above a railroad extension, which he favors. MR. LOEFFLER said [DNR] has not prioritized a railroad above a gas pipeline and that was not the intent. He hopes that is not how this section operates. DNR tried to include language to ensure complementary action and avoid a conflict. The bill is not about the pipeline; it's about the railroad so all language modifies [activities of] the railroad. MR. LOEFFLER explained: Here's how we think it works. If there is an existing application or right-of-way, that is a valid existing right that gets dropped from - it doesn't get conveyed to the railroad. If we've already identified a 500- foot corridor and a pipeline says, gee, we're really ready to go through there, then what we say is, well the pipeline typically - railroads are more topographically limited. They have trouble going up hills and things like that than in fact a pipeline. So what we do is we say, look railroad, we're going to give you a chance to stake the centerline. You know where it's most important for you and then we'll make that decision. And we make that decision in the best interest of the state and if we can find a feasible and prudent alternative, and that is reasonably general language, which gives us the flexibility to take economics and the best interest of the state into account. Our expectation is not to give a priority to the railroad, but it does require consultation with the railroad. And, of course, the consultation would go the other way as well with any applicants but this language was really directed to the railroad. I hope that answers the question. SENATOR ELTON said it does. He is hearing that is not DNR's expectation. He asked if DNR attorneys have looked at that language. MR. LOEFFLER said they have, but not with that specific question in mind. He offered to do that and get back to Senator Elton with a specific answer. CHAIR OGAN said he shares that concern and plans to hold the bill in committee today. SENATOR WAGONER said a primary reason given for the need to build the railroad is that a gas pipeline will be built with 80- foot sections of pipe. He said he has talked to several of the major companies that would be involved in the construction of a pipeline who say they would use 40-foot sections. They asked whether a railroad will be built to the North Slope to handle 80-foot sections there. He would like to see a company that will build this pipeline verify what length of pipe it will use. He surmised if the pipe can be transported via truck, transporting the pipe should not be used as justification to build this railroad. MR. SCHMITZ replied there is no guarantee that 80-foot joints will be used but, when the pipeline is built, it will be competing with other natural gas around the world. Using 80-foot sections will require half the number of welds than 40-foot sections. That cost savings could make the difference in the project's feasibility. SENATOR WAGONER said he is not aware of any company that can roll an 80-foot length of pipe right now. SENATOR SEEKINS said he was in the Interior when the oil pipeline was built. At that time, 40-foot joints were brought into Fairbanks by truck in 80-foot lengths. A tremendous additional cost was associated with the double jointing process, which also caused safety concerns. He said he would imagine a company hired to build 2,000 miles of pipe could find the technology. He favors a railroad extension for a number of reasons, one being commerce. Alaska should do its best to try to connect to the Lower 48 states by railroad for commerce, national defense, and resource development. Building an instate railroad will help but it will not provide the flexibility the state needs. CHAIR OGAN commented that the state cannot wait until a railroad is built to build a gas line. SENATOR SEEKINS agreed but said the state needs to move forward with the right-of-way and work with the Canadians to do likewise. He said he supports SB 31 regardless of the rationalizations. SENATOR LINCOLN asked if the Canadian government has officially supported the railroad extension. MR. SCHMITZ said that some of the Yukon communities have passed resolutions in support. SENATOR DYSON said he visited the Yukon a week ago and found the Yukoners to be actively in favor. That is one reason language was added to the bill to make sure the Canadian and Alaskan routes come together. The huge mineral rich trench extends across the Yukon and British Columbia borders. If necessary, he could get resolutions from both governments. CHAIR OGAN referred to a sentence on page 6, lines 9 through 12: A corporation may acquire land or interests in land in Canada as the corporation considers appropriate for the development, construction and operation of an extension of the Alaska Railroad to connect with the North American railroad system. He questioned why ARRC would want to acquire interest in land in Canada. MR. SCHMITZ said when the bill was introduced last year, it would have allowed the extension of the railroad to the Canadian border and stopped there. After discussing the issue, Representative James decided to authorize the railroad to look into a further extension using bonds or an appropriation to purchase land to connect to an existing rail line. He pointed out the White Pass Railroad obtained a right-of-way into the United States. CHAIR OGAN asked if Canadian railways own rights-of-way in the United States and vice versa. MR. SCHMITZ said he would imagine so. He said the private corporations do. CHAIR OGAN asked Mr. Gamble if he supports that language and anticipates acquiring land and interests in Canada to expand the railroad. MR. GAMBLE said he understood that language to offer flexibility to address the eventuality of having to deal with the other side of the border in unforeseen ways. However, at this time, ARRC has no concrete plans to acquire land in Canada. Representative James talked to ARRC about the flexibility that language would provide and ARRC acknowledges the purpose of that language. SENATOR SEEKINS said he could envision many reasons the railroad might want to acquire land or interest in land in Canada simply in terms of support. ARRC may need to have office space for the administration of the railroad between Alaska and the Lower 48 states or for housing and warehouse space. He thinks it is wise to include that language in the bill even though the legislature may have to address how ARRC will get funds to acquire that land later. CHAIR OGAN asked Mr. Loeffler if he wished to testify. MR. LOEFFLER said DNR supports the bill. MR. GAMBLE said, from a strategic point of view, ARRC's perspective on the extension from Fairbanks to the Delta area differs from its perspective on the extension from Delta to the border. The first leg of that extension could provide an opportunity to look at how to fund the operations and maintenance of the railroad by hooking up to the requirement to move goods and services back and forth from Fairbanks to Delta. Beyond that, this bill offers the potential to get at the kind of plan the current administration wants to pursue, in terms of development. Development is within ARRC's mission so it stands ready, when the time and conditions are right, to make this project work. CHAIR OGAN asked Senator Lincoln if she is aware of the position of the Native corporations. SENATOR LINCOLN said she spoke with several individuals who felt it was a little premature to comment on this bill until the project has progressed further - maybe when the actual corridor route is discussed. SENATOR ELTON asked if ARRC pays property taxes to the organized boroughs through which it passes. CHAIR OGAN said ARRC is on government property. SENATOR ELTON said he asked because it has been suggested that a portion of that area join an organized borough. MR. SCHMITZ commented the Army surveyed a right-of-way in the 1940s for a rail route and a rail corridor from the border to Fairbanks is in statute. Therefore, regarding questions of eminent domain and private property, an undefined railroad right-of-way does exist. CHAIR OGAN assumed an environmental impact statement (EIS) would have to be done. He then announced he would await an answer from DNR to Senator Elton's question and planned to move the bill from committee on Wednesday. He announced a brief at-ease.