Legislature(2011 - 2012)BARNES 124
02/24/2012 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB289 | |
| HB9 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 289 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | HB 9 | TELECONFERENCED | |
HB 289-NATURAL GAS STORAGE TAX CREDIT/REGULATION
1:09:23 PM
CO-CHAIR SEATON announced that the first order of business would
be HOUSE BILL NO. 289, "An Act relating to a gas storage
facility; relating to the tax credit for a gas storage facility;
relating to the powers and duties of the Alaska Oil and Gas
Conservation Commission; relating to the regulation of natural
gas storage as a utility; relating to the powers and duties of
the director of the division of lands and to lease fees for a
gas storage facility on state land; and providing for an
effective date."
1:10:12 PM
JANE PIERSON, Staff, Representative Steve Thompson, Alaska State
Legislature, introduced HB 289 on behalf of the prime sponsor,
Representative Thompson. She said the cost of energy is
crippling a good portion of Alaska's residents. The ever
increasing expense of heating homes and operating businesses
during the long cold winter is hurting the ability of Alaskans
to put food on the table and plan for the future. The Fairbanks
community alone spends over $600 million per year on space
heating and is unable to expand its business district due to a
lack of affordable natural gas. An infusion of gas in Fairbanks
would reduce the cost to end users and would restore the ability
of Fairbanks to grow its economic base.
MS. PIERSON said HB 289 would incent the private sector's
delivery of lower cost natural gas to Interior Alaska by
extending the tax credits for a liquefied natural gas storage
facility, which is necessary for a natural gas trucking project
and something that Fairbanks is considering. A new credit for
construction of above-ground liquefied gas storage tanks would
make this program flexible to fit the varying needs of gas
delivery in Fairbanks and possibly throughout the state. The
bill would apply to a liquefied natural gas storage tank
facility with a minimum volume of 1 million gallons and the
amount of the credit would be limited to 50 percent of the
construction costs up to $15 million. Additionally, HB 289
would allow eligible above-ground liquefied natural gas storage
facilities sited on state lands to request an exemption from
rental payments. The exemption could extend for up to 10 years
following the commencement of commercial operations. The bill
defines how credits should be distributed, both as a tax credit
and as payments to non-taxable entities.
MS. PIERSON pointed out that HB 289 also has safeguards. The
liquefied natural gas storage facility would be regulated by the
Regulatory Commission of Alaska (RCA) to ensure incentives are
passed on to customers. The bill would also set forth how a
person receiving a credit or a payment shall repay the credits
or payment if the facility ceases commercial operations within
the nine calendar years immediately following the calendar year
in which the facility commenced commercial operations. Further,
HB 289 would define "liquefied natural gas storage facility,"
"ceases commercial operations," and "commences commercial
operations" for a liquefied natural gas facility.
1:12:48 PM
CO-CHAIR SEATON noted for the record that before the committee
was Version I, the proposed committee substitute (CS) for HB 289
[labeled 27-LS1216\I, Bullock, 2/20/12]. He said this is the
first hearing on HB 289 and therefore Version I is the bill
before the committee.
REPRESENTATIVE HERRON, in regard to the $15 million and 50
percent credit, inquired what the estimated total construction
cost would be for a 1 million gallon facility.
MS. PIERSON replied that the sponsor has been hearing it would
be around $40 million.
CO-CHAIR SEATON asked what percentage of daily use, or how many
days of use, would 1 million gallons of liquefied natural gas
(LNG) represent.
MS. PIERSON responded that according to Golden Valley Electric
Association (GVEA), 1 million gallons would be approximately one
week of use. For the amount of usage by Fairbanks Natural Gas,
another company that would like to use this, she deferred to the
company's representative online [Dan Britton].
1:14:18 PM
CO-CHAIR SEATON inquired whether 1 million gallons would
constrain communities [that are smaller than Fairbanks] from
being able to use this proposed credit. He further asked
whether Representative Thompson would have a problem if the
amount was half a million gallons rather than a million gallons.
MS. PIERSON did not believe that that would be a problem, but
said she would research what other communities think they might
need so that there would be a basis for the number.
CO-CHAIR SEATON related that in Norway, small inner-port tankers
go from coastal village to coastal village delivering LNG into
tanks. He said it seems that this could also be applicable to
coastal communities in Alaska provided the quantity is not so
large that only the largest communities could use it.
[CO-CHAIR SEATON opened public testimony.]
1:16:33 PM
GENE THERRIAULT, Vice President, Resource Development, Golden
Valley Electric Association (GVEA), noted that GVEA is working
on projects that will move the utility away from oil-fired
electric generation. He offered appreciation to Representative
Thompson for introducing HB 289 on GVEA's behalf. He pointed
out that the 2010 [Cook Inlet Recovery Act, House Bill 280,] was
related to the need of putting a storage mechanism into the
natural gas supply stream in Cook Inlet. In that bill the
legislature decided to assist with lowering or controlling the
cost of that storage component as it was added to that supply
stream. A policy call was made that the state would offer
assistance up to $15 million with the construction of that
infrastructure.
1:18:11 PM
MR. THERRIAULT explained that, at the time, the language talked
about storage of gas in a depleted reservoir or pool as well as
a tank, a tank denoting a mechanical storage facility on top of
the ground. Because the focus at that time was on the needs of
Cook Inlet, the threshold for what size tank would qualify was
geared toward geologic storage and storage in a gaseous state
rather than a liquid state. Because gas needs to come to
Interior communities in a liquid state, that section of [House
Bill 280] was looked at for applicability to the Interior and,
if so, determining any needed modifications. One potential
problem is that threshold for how big the tank needs to be for
storing liquid methane; therefore, primary for HB 289, is
defining how big the liquid tank needs to be. He explained that
concern has been expressed by the backers of [House Bill 280]
about modifying that section of statute. They have requested
that the problem be addressed by creating a separate, almost
identical, section of statute that is geared towards natural gas
in a liquefied state. The difference between the two is that
when LNG is turned into gas its volume multiplies by 600-620
times, so the difference in quantity that is being dealt with is
tremendous. Expressing GVEA's thanks for the policy call to
provide some state assistance for putting a storage component
into the supply stream, he said GVEA is now trying to ensure
that it is workable for the anticipated project in the Interior.
1:20:26 PM
MR. THERRIAULT outlined the four major components of HB 289
[Version I]. One component would provide a 10-year waiver of
lease payments for qualifying storage facilities on state land,
as was done in the Cook Inlet Recovery Act and which would help
reduce the cost to consumers. A second component would create a
separate mechanism for providing a tax credit for the storage of
methane in a liquefied form. In response to Co-Chair Seaton, he
elaborated that Section 3 of HB 289 deals with an above-ground
natural gas storage facility tax credit patterned after the
storage tax credit that was granted in the Cook Inlet for
gaseous methane. This part of the bill would create a new
section [in statute] that mirrors the Cook Inlet mechanism, but
is for methane in a liquid form.
1:22:24 PM
MR. THERRIAULT said a third component would add the word
payment. Testimony at the time [of House Bill 280] said the
credit would be available for utilities, but it may not have
been anticipated that the utility constructing the storage
facility would be a not-for-profit, and a not-for-profit utility
does not pay tax. In regard to the use of tax credit or refund
in the existing language, legislative drafters pointed out that
use of the word refund does not fit for an entity that does not
pay tax and said that also including the word payment would
solve that problem. This way, a non-taxpaying entity building a
storage facility would qualify for repayment of a portion of the
expense rather than a tax refund. The fourth component would
establish mechanisms for the state to get back a portion of the
refund or payment if the storage facility ceases to operate
within 10 years. It would also provide for a cessation of the
waiver of the lease payments for utilization of the state land.
He specified that, primarily, Version I would create a separate
section of statute that mimics the structure put in place for
geologic storage in the Cook Inlet, but that is workable for
above-ground storage as is anticipated in Interior Alaska.
1:24:20 PM
MR. THERRIAULT stated that GVEA is partnering with Flint Hills
Resources for the project that it is currently working on. The
preliminary design anticipates a one million gallon tank located
on the North Slope and a two million gallon tank in the North
Pole area. A two million gallon tank would supply about 10 days
of need for both the Flint Hills refinery and GVEA's 60 megawatt
generation plant in North Pole. While it does not supply a huge
amount, it takes into account any possible disruptions in
trucking operations. In working with the design consultants, it
may be possible to decrease the size of the North Pole tank
because both the Flint Hills and GVEA industrial operations will
have the capability of switching back to a liquid, oil-fired
generation; it must be determined how quickly and efficiently
that could be done should there be a disruption in the trucking
operation.
1:25:31 PM
MR. THERRIAULT said GVEA believes that the most immediate way of
giving some energy assistance to the largest number of Interior
residents is to reduce the cost of the fuel that fires that
particular generator. The association serves residents all the
way down the Richardson Highway to Delta Junction and residents
all the way down the Parks Highways to Cantwell, and GVEA has
notified other potential users in this service area that it
would like to sign them up as customers once the liquid product
is flowing. Product would be delivered to them at cost or as
near to cost as possible so that it could be put to use as seen
fit to help with energy costs. For example, the LNG could be
used for a power generator that is connected on the road system
but not part of the GVEA system, or it could be used for
industrial use or industrial space heat. If the overall
capacity is increased, everybody's per unit cost will go down,
but getting the storage in place will be an integral part of
that.
1:27:12 PM
REPRESENTATIVE P. WILSON asked whether the North Slope tank will
be located on state land.
MR. THERRIAULT replied that GVEA has not yet decided where to
site the tank, but said it would likely be state land because
most of the land in that area that would provide access to the
gas is state land. In further response, he said GVEA owns
outright the property in North Pole that is located next to the
Flint Hills refinery and GVEA's generator. The North Pole tank
could also be sited on some of the land owned by Flint Hills,
but the choice has yet to be made as to which piece of land is
the most optimum location. He said GVEA is keeping in mind that
both its generation plant and the refinery have a waste heat
stream that can be used for re-gasification and GVEA wants to
use that as efficiently as possible.
REPRESENTATIVE P. WILSON inquired whether the Cook Inlet project
is located on state land.
MR. THERRIAULT offered his belief that the project is a
combination of oil and gas leases that are on state land and
possibly some private land.
1:28:43 PM
REPRESENTATIVE P. WILSON observed that the proposed fiscal note
is zero, but asked how much lease revenue the state would be
foregoing if an exemption in lease payments was granted.
MR. THERRIAULT answered that the leases are let on a fair market
value and it is a fairly modest amount, but deferred to the
Department of Natural Resources (DNR) to provide an average
rental amount for the North Slope. He noted that GVEA leases
land for its Eva Creek wind turbines and pays about $33,000-
$40,000 per year for about 40 acres. In further response, he
said the Eva Creek turbines are in the Healy area, not the North
Slope.
1:30:31 PM
REPRESENTATIVE P. WILSON asked what the differences are between
the Cook Inlet statute and the provisions being asked for under
HB 289 [Version I].
MR. THERRIAULT replied that, primarily, the total volume of gas
is different. To contain the threshold of gas that is workable
for geologic storage in Cook Inlet, GVEA would have to build a
tank that holds in excess of six million gallons of LNG. That
would be far bigger than what makes sense for GVEA's economic
activity, so any benefit to the consumer would be lost through
very inefficient operation. Also, the credit for the Cook Inlet
area is calculated on 25 percent of the construction cost or $15
million, whichever is less. [Version I] would provide for 50
percent of the construction cost or $15 million, whichever is
less. This takes into consideration that reservoirs in the Cook
Inlet can be used as the tankage, but in the Interior a vessel
must be built and therefore the construction costs are higher.
1:32:06 PM
CO-CHAIR FEIGE observed that Version I, page 3, line 28, states
that the liquefied natural gas storage volume must be "not less
than 1,000,000 gallons". He surmised that LNG trucked from the
North Slope to the Interior could be delivered far cheaper than
diesel and therefore communities on their own separate
electrical grids, such as Tok, Northway, Valdez, and Glennallen,
would benefit from this cheaper energy in the form of LNG. He
asked why [a minimum tank size of] 1 million gallons was chosen
as the limitation under HB 289.
MR. THERRIAULT responded that debate [during House Bill 280] was
that the storage be of a certain size to qualify so as to incent
big enough storage. He explained that for possible uses down
the highway system, a part of the actual North Slope resource
production requires some tankage. If GVEA signed up a customer
that was down the highway so that the trucks never stopped at
GVEA's North Pole plant, those users would get the benefit of
the million gallon storage tank constructed on the North Slope.
He said he is unsure, however, whether those communities would
think that a million gallon tank would be warranted for
receiving and utilizing the resource in their own situation.
Therefore, GVEA would be open to the committee's consideration
of less storage. He said GVEA designed something that would
work for it, keeping in mind that when the debate took place two
or three years ago a certain threshold was required before the
state credit was available.
1:34:36 PM
CO-CHAIR FEIGE inquired how many thousand cubic feet (MCF) of
gas are in one million gallons of LNG.
MR. THERRIAULT answered that it takes 12.1 gallons of LNG to
make 1 MCF of gas.
REPRESENTATIVE HERRON asked what the life expectancy of the
infrastructure would be under the business model being used.
MR. THERRIAULT replied that GVEA is going after a life of 20-30
years for the infrastructure and is hoping that an alternative
access to natural gas will come along before then. The trucking
component, which would not qualify for this, would have to be
swapped out because the life of the trucks would be shorter than
that.
REPRESENTATIVE HERRON inquired how many trucks would be needed
for the 10-day supply at the Flint Hills location.
MR. THERRIAULT responded that for serving Flint Hills' needs and
GVEA's needs in North Pole, the expectation is 40 trucks on the
road every day: 20 going north and 20 coming south in a
continuous cycle.
1:37:02 PM
DAN BRITTON, President/CEO, Fairbanks Natural Gas (FNG), noted
that FNG has been serving the Fairbanks market with liquefied
natural gas (LNG) since 1998 and currently operates a
liquefaction facility in the Cook Inlet and two storage
facilities in Fairbanks, with a total capacity of 350,000
gallons of storage. He said FNG supports HB 289 and would look
to install additional storage at one of its existing facilities,
which could be used as quickly as the tank is built. Fairbanks
Natural Gas has excess liquefaction capacity in the summer
months that could be used to fill the larger storage volume and
this volume could be used for peaking in the winter when higher
gas volumes are being sold. This would allow FNG to begin to
expand its distribution system as quickly as the tank could be
in service.
MR. BRITTON added that the tankage would provide for backup in
the event a pipeline is built. A pipeline would be a single-
source energy supply, so if a large earthquake stopped the flow
of supply that tankage could provide a backup source. Based on
FNG's current sales in Fairbanks, a million gallons of storage
would provide 15 days of LNG. Regarding the limitation that the
storage be at least 1 million gallons, he said FNG would favor
making that a smaller number for any of the other communities
that might benefit.
1:39:05 PM
CO-CHAIR SEATON requested Mr. Britton to get back to the
committee in regard to the size of tankage that would be needed
for smaller communities.
CO-CHAIR SEATON held over HB 289 and noted that the public will
be able to add further comment when the bill is next brought up.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 9 Version U.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 9 |
| HB 9 Sectional, version U.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 9 |
| HB 9 Sponsor Statement- version U.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM |
HB 9 |
| HB 9.pdf |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM |
HB 9 |
| HB 9 Fact Sheet.docx |
HRES 2/6/2012 1:00:00 PM HRES 2/8/2012 1:00:00 PM HRES 2/10/2012 1:00:00 PM HRES 2/24/2012 1:00:00 PM |
HB 9 |
| CSHB289 version I 2 21.pdf |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| HB289 version A.pdf |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| Explanation of Changes version A to Version I 2.22.12.docx |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| HB 289 Sponsor Statement.docx |
HRES 2/24/2012 1:00:00 PM HRES 2/27/2012 1:00:00 PM |
HB 289 |
| Sectional Analysis for HB 289.I 2.21.12.docx |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| HB289-DOA-AOGCC-2-3-12.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| HB289-DOR-TAX-02-20-12.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| HB289-DCCED-RCA-02-03-12.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| SB 154 - Fuel Price Comparison.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| U.12.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.15.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.16.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.19.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.20.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.21.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.24.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.25.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| Shipper vs. Pipeline Builder Conflicts material from ANGDA.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| Additional ANGDA - AGDC conflict material.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| Southwest Alaska Pilots Assn Navigational Comparison LNG Cook Inlet Valdez.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| AGDC response to request for analysis from Pedro van Meurs.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| Gov Letter to ANGDA.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| HB 9 Adopted Amendments.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| ANGTL comment.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| HB 9 public comment.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| U.27.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| HB289-DNR-MLW-02-18-2012.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| HB289-DNR-DOG-02-18-2012.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 289 |
| U.28.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |
| HB009CS-DOR-AHFC-02-08-12.pdf |
HRES 2/24/2012 1:00:00 PM |
HB 9 |