02/08/2010 03:30 PM Senate RESOURCES

                                                                                                                                
            SB 203-COOK INLET GAS STORAGE FACILITIES                                                                        
                                                                                                                                
CO-CHAIR   WIELECHOWSKI   announced  SB   203   to   be  up   for                                                               
consideration.                                                                                                                  
                                                                                                                                
5:06:59 PM                                                                                                                    
SENATOR  FRENCH,  sponsor of  SB  203,  said  it is  targeted  at                                                               
solving  a  specific  problem  in   Cook  Inlet  by  creating  an                                                               
emergency  store  house of  natural  gas  for times  of  shortage                                                               
during   peak  demand   winter  months   when  the   current  gas                                                               
deliverability doesn't  keep up  with demand.  Should there  be a                                                               
valve  or  compressor  problem,  brown  outs  might  be  seen  in                                                               
Anchorage and across the Anchorage Bowl.                                                                                        
                                                                                                                                
About a week  ago the Regulatory Commission of  Alaska (RCA) took                                                               
up the question of whether such  a facility would be regulated by                                                               
itself, Senator  French said. It  was brought by a  company known                                                               
as  Sing's  Cook  Inlet  Natural Gas  storage,  a  subsidiary  of                                                               
TransCanada. Sing's  asked for a  declaratory judgment  that they                                                               
not be  regulated by  the RCA,  who came  back saying  that their                                                               
statutes did  not provide explicit authority  to regulate natural                                                               
gas nor did they definitively  set natural gas storage outside of                                                               
their  jurisdiction.  They  were  puzzled  and  said  either  the                                                               
Supreme Court would have to  decide or the Legislature would have                                                               
to  act. So,  this bill  has a  provision that  says, yes,  those                                                               
facilities  will be  covered  by the  RCA  just like  practically                                                               
every other  well or production  facility is in  the Southcentral                                                               
Basin.                                                                                                                          
                                                                                                                                
He pointed  out that  on page  8 of  the Order  the commissioners                                                               
wrote  that all  interested persons  agreed that  storage in  the                                                               
Cook Inlet  area is a serious  or even critical need  even though                                                               
they didn't  agree, 50/50, on  the RCA's jurisdiction.  They also                                                               
agreed  that  the  time  available  to  meet  that  need  through                                                               
construction   of  a   storage  facility   is  short.   The  bill                                                               
essentially works  with a tax  credit much  as the one  they just                                                               
looked at, but  at 20 percent against  capital expenditures which                                                               
is smaller.                                                                                                                     
                                                                                                                                
SENATOR FRENCH said  he thought it was important  to do something                                                               
although there  wasn't any  point in  extending a  20-percent tax                                                               
credit to a company that is ready  to push on through to the goal                                                               
line, but he is concerned that  ideas like this get half way down                                                               
the  field and  then  suddenly the  industry  loses interest  and                                                               
wanders off.                                                                                                                    
                                                                                                                                
5:10:39 PM                                                                                                                    
SENATOR  WAGONER commented  why give  someone a  tax credit  when                                                               
they  are  already going  forward  with  their project  and  they                                                               
haven't asked for one, yet. He  wanted to know how the 20 percent                                                               
tax  credit was  different from  the  20 mil  levy on  industrial                                                               
capital  improvements and  how  that would  affect  the city  and                                                               
borough's ability to get revenue.                                                                                               
                                                                                                                                
5:12:35 PM                                                                                                                    
JIM  GREELEY, State  Petroleum Property  Assessor, Department  of                                                               
Revenue  (DOR),  explained  that   the  bill  has  two  incentive                                                               
provisions, one  for corporate  income tax  and one  for property                                                               
tax. The  property tax  incentive exempts  state property  tax by                                                               
defining  gas  storage property  as  not  taxable. Therefore,  he                                                               
suspects  the  local  jurisdiction,  in the  case  of  the  Kenai                                                               
Peninsula Borough, would  still be able to tax locally  up to the                                                               
1.4 percent; and  the difference between the 1.4  percent and the                                                               
2 percent state levy would be the incentive.                                                                                    
                                                                                                                                
5:13:17 PM                                                                                                                    
JOHANNA  BALES,  Deputy  Director, Tax  Division,  Department  of                                                               
Revenue  (DOR),  explained that  the  provision  exempts the  gas                                                               
storage facility from  the oil and gas property tax,  but the tax                                                               
credit itself in  this bill is against the  corporate income tax.                                                               
There is no  effect on the state's property tax  and no effect on                                                               
the borough's tax either.                                                                                                       
                                                                                                                                
SENATOR WAGONER asked to have that clarified in writing.                                                                        
                                                                                                                                
5:14:12 PM                                                                                                                    
SENATOR STEDMAN said just in  general, creating an incentive when                                                               
it's  not clear  that one  is  needed in  all cases  needs to  be                                                               
looked at.                                                                                                                      
                                                                                                                                
5:15:34 PM                                                                                                                    
BRADLEY  EVANS,  CEO,  Chugach  Electric  Association,  said  the                                                               
association is  heavily dependent  on Cook  Inlet natural  gas to                                                               
fuel its thermal  power plants; about 90 percent  of the kilowatt                                                               
hours are  produced from  gas. They  have approximately  the same                                                               
usage level  as Enstar. Through  their own analysis  and contract                                                               
negotiations they have  concluded that storage is  needed in Cook                                                               
Inlet for security of deliverability  and reservoir enhancement -                                                               
where  gas could  be  "parked" in  the low  usage  months of  the                                                               
summer  to keep  the wells  at or  above their  minimum producing                                                               
level.  He said  they  had been  working  with Enstar,  Municipal                                                               
Light  and Power,  and Sing's  for the  gas storage  facility and                                                               
they intend on executing a contract for that.                                                                                   
                                                                                                                                
MR.  EVANS said  however, they  need  to get  timely approval  of                                                               
storage  contracts.   Delays  in   the  regulatory   process  can                                                               
discourage people  from doing  business. He  explained that  as a                                                               
utility they  need to ensure  that they  will be able  to recover                                                               
their costs;  that also needs  to be addressed in  the regulatory                                                               
environment. And if they do  contract for volume of storage, they                                                               
need certainty that it will be there for the long-term.                                                                         
                                                                                                                                
He said the timeline for  Sing's project is critical because they                                                               
may have  winter deliverability  problems as  soon as  2012. They                                                               
are  on record  with  the  RCA saying  that  they  think the  gas                                                               
storage  facility should  be regulated  under  AS 42.05.  Chugach                                                               
Electric doesn't  like the  disruption of the regulatory process,                                                               
but they like the protection that it provides.                                                                                  
                                                                                                                                
CO-CHAIR WIELECHOWSKI asked if he  thought this incentive package                                                               
was needed or will they go ahead without it.                                                                                    
                                                                                                                                
MR.  EVANS replied  that putting  this facility  into service  is                                                               
relatively expensive,  and maybe the subsidy  should flow through                                                               
to  the  consumer rather  than  into  the  corporate end  of  the                                                               
arrangement. "It  doesn't seem to  make sense at this  point." He                                                               
also said  he would like to  revisit that if it  becomes apparent                                                               
that an incentive is the only way it will happen.                                                                               
                                                                                                                                
5:19:55 PM                                                                                                                    
SENATOR  WAGONER  said when  he  talked  about Enstar  being  the                                                               
customer he  meant for  residential uses, but  he also  said "and                                                               
other  industrial users."  He asked  if  it was  true that  three                                                               
different places are being looked at  for storage in Cook Inlet -                                                               
one of them being Cannery Loop.                                                                                                 
                                                                                                                                
MR. EVANS  said he didn't know  for sure, but very  probably. The                                                               
problem is  with the size of  the facility and the  risk of going                                                               
it alone.  He has joined  forces with Enstar and  Municipal Light                                                               
and Power  to share  the risks,  but they are  all on  a parallel                                                               
track to evaluate  other places because it is a  prudent thing to                                                               
do.                                                                                                                             
                                                                                                                                
SENATOR WAGONER asked if one was Cannery Loop.                                                                                  
                                                                                                                                
MR. EVAN answered no.                                                                                                           
                                                                                                                                
SENATOR  WAGONER  asked which  storage  facility  he was  talking                                                               
about.                                                                                                                          
                                                                                                                                
MR. EVANS said he was bound by confidentiality agreements from                                                                  
discussing that.                                                                                                                
                                                                                                                                
CO-CHAIR WIELECHOWSKI noted there were a lot of raised eyebrows                                                                 
in the room. Finding no further comments, he closed public                                                                      
testimony and adjourned at 5:21 p.m.