03/12/2012 03:30 PM Senate RESOURCES

        SB 153-NATURAL GAS STORAGE TAX CREDIT/REGULATION                                                                    
                                                                                                                                
3:37:21 PM                                                                                                                    
CO-CHAIR  PASKVAN announced  the consideration  of SB  153, [CSSB
, version 27-LS1187\D, was before the committee].                                                                            
                                                                                                                                
SENATOR STEVENS joined the committee.                                                                                           
                                                                                                                                
3:37:26 PM                                                                                                                    
SENATOR JOE THOMAS, Alaska State  Legislature, sponsor of SB 153,                                                               
said the cost of fuel in  Alaska is crippling much of the state's                                                               
economy,  and the  dramatic delivery  of  fuel oil  to Nome  this                                                               
winter helped  focus attention on  it. In the Interior  today, he                                                               
said  heating  fuel  costs  are  $4.68 a  gallon;  when  he  last                                                               
reported they were  under $4, but it is natural  for the price to                                                               
go up in winter.                                                                                                                
                                                                                                                                
He said that when he last  reported, about $660 million was being                                                               
spent in the  Interior on just energy. At the  new rate, it would                                                               
be over  $800 million for  the same  amount of fuel.  It averages                                                               
out to about $8,100 per person  as compared to $6,600 that it was                                                               
last  time he  testified. He  said  39 percent  of Golden  Valley                                                               
Electric  Association's  (GVEA)   electricity  is  produced  from                                                               
diesel  fuel,  which  accounts  for   about  60  percent  of  the                                                               
electrical  generation  budget.  With the  fuel  dollar  increase                                                               
since he left Fairbanks, they  now pay over $40/mmbtu compared to                                                               
$8.67 in  Southcentral. Fairbanks is currently  paying $23.35 for                                                               
1 cf/gas and  $.23 per kilowatt hour. He  said individual heating                                                               
bills  of $1,000  to  $1,500  a month  are  not  unusual for  the                                                               
heating season which is September through April.                                                                                
                                                                                                                                
SENATOR   THOMAS  said   SB  153   addresses   this  problem   by                                                               
incentivizing the  private sector  to deliver  additional trucked                                                               
gas  to  Fairbanks  over  the next  three  years.  Fairbanks  has                                                               
trucked gas now,  but the amount is  limited because Southcentral                                                               
suppliers are  obligated to take  care of their  customers first.                                                               
So they cut  back sometimes and Fairbanks Natural  Gas (FNG), the                                                               
distributor,  can't get  what  they need.  This  means that  some                                                               
places have  to shut down  their natural gas generation  and turn                                                               
their fuel  oil generation back on.  The fuel oil and  gas prices                                                               
are  not   dramatically  different  now,  because   there  is  no                                                               
competition for it.                                                                                                             
                                                                                                                                
He  said SB  153 would  result in  savings of  $15 million  or 50                                                               
percent of the construction cost,  whichever is less. This credit                                                               
is  currently  available to  Cook  Inlet's  gas storage  project,                                                               
CINGSA. He wants  Fairbanks to receive the  same benefit although                                                               
the storage  would be  above ground since  there are  no depleted                                                               
wells  to  use as  underground  storage.  He said  anyone  taking                                                               
advantage  of these  tax  credits must  be  a regulated  utility,                                                               
because then whatever savings is  received will be passed through                                                               
to the consumer through RCA  regulation. It will also ensure that                                                               
neither North Slope producers nor  an LNG export facility that do                                                               
not provide  for consumption of  gas at savings to  Alaskans that                                                               
and are  not regulated utilities,  will not have access  to these                                                               
credits.                                                                                                                        
                                                                                                                                
SENATOR THOMAS  said storage  will be needed  in any  event, even                                                               
with a  gasline from the  North Slope. He  noted that SB  153 has                                                               
had no  negative attention  since it  was introduced.  He thanked                                                               
the additional sponsors.                                                                                                        
                                                                                                                                
3:41:22 PM                                                                                                                    
SENATOR MCGUIRE joined the committee.                                                                                           
                                                                                                                                
3:43:44 PM                                                                                                                    
CHAIR FRENCH said he thought it  was fair to do in Fairbanks what                                                               
has been  done in Kenai  at the  Cook Inlet Natural  Gas Storage,                                                               
Alaska facility (CINGSA).  He asked how much the  state spent for                                                               
the CINGSA facility and how much storage it bought.                                                                             
                                                                                                                                
3:44:11 PM                                                                                                                    
GRIER   HOPKINS,   staff   to  Senator   Thomas,   Alaska   State                                                               
Legislature, Juneau, AK,  answered that $15 million  was given to                                                               
CINGSA in  tax credits on  a volumetric calculation  of $1.50/mcf                                                               
of storage; 11 bcf/gas was stored  in that reservoir along with 7                                                               
bcf of cushion gas for a total of 18 bcf.                                                                                       
                                                                                                                                
CHAIR FRENCH asked what sort of volumes this bill envisions.                                                                    
                                                                                                                                
MR. HOPKINS  replied about  360 mmcf/gas  stored in  two separate                                                               
tanks, two-thirds  of that  on the North  Slope and  one-third in                                                               
North Pole.                                                                                                                     
                                                                                                                                
3:45:24 PM                                                                                                                    
SENATOR STEDMAN said  this looks more like  an appropriation bill                                                               
and asked  him to review who  could take advantage of  it and why                                                               
this  wouldn't be  done through  a regular  capital appropriation                                                               
process for a regular utility.                                                                                                  
                                                                                                                                
SENATOR THOMAS explained that there  has been interest in various                                                               
areas;  propane storage  has interest  as  well. Fish  processing                                                               
plants, Valdez and  Cordova all show interest,  because they have                                                               
huge issues with their electrical  generation and are looking for                                                               
relief.  He initially  wanted to  make sure  that if  the credits                                                               
were given in one place that  they would at least be allowable in                                                               
other places. So, it looks like an appropriation bill.                                                                          
                                                                                                                                
SENATOR STEDMAN  asked if there  are restrictions on it  or could                                                               
every town in the state make a similar request.                                                                                 
                                                                                                                                
SENATOR THOMAS replied  that the only limiting factor  is being a                                                               
regulated utility.                                                                                                              
                                                                                                                                
MR. HOPKINS  added that language on  page 3, line 31,  lowers the                                                               
size  of the  tank to  25,000 gallons  so that  smaller utilities                                                               
(especially along the Railbelt) could apply for the tax credits.                                                                
                                                                                                                                
3:49:29 PM                                                                                                                    
SENATOR STEDMAN  observed that  the term  used is  "credits," but                                                               
it's really more like an equity infusion.                                                                                       
                                                                                                                                
MR.   HOPKINS  said   HB   280  (the   CINGSA   tax  credit)   by                                                               
Representative Hawker was also perceived  to be a tax credit, but                                                               
the project has moved forward,  it has become a limited liability                                                               
corporation with a number of  different entities working together                                                               
in partnership  to build the  storage facility. It is  not paying                                                               
any taxes to the state, the  same situation GVEA would be in with                                                               
this bill.                                                                                                                      
                                                                                                                                
3:51:24 PM                                                                                                                    
SENATOR WIELECHOWSKI  moved to report  CSSB 153( ),  [version D,]                                                               
from  committee  with  individual  recommendations  and  attached                                                               
fiscal  note(s).  There were  no  objections,  and CSSB  153(RES)                                                               
moved from the Senate Resources Standing Committee.