Legislature(2011 - 2012)HOUSE FINANCE 519
03/13/2012 08:30 AM FINANCE
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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." Vice-chair Fairclough MOVED to ADOPT proposed committee substitute for HB 289, Work Draft 27-LS1216\X (Bullock, 3/12/12). Co-Chair Stoltze OBJECTED for the purpose of discussion. There being NO further OBJECTION, Work Draft 27-LS1216\X was ADOPTED. JANE PEARSON, STAFF, REPRESENTATIVE STEVE JOHNSON, referred to the sponsor statement (copy on file): The cost of energy is crippling a good portion of Interior Alaska's economy. The ever increasing expense of heating homes and operating businesses during the long, cold, dark winter hurts the ability of Interior Alaskans to put food on the table today and plan for the future. The Fairbanks community spends over $600 million per year on space heating, pays the highest natural gas process in the country and does not receive the state energy incentives of subsidies available to residents and communities in other regions of our state. Ms. Pearson opined that she would spend all of her disposable cash for the year on energy bills. She suspected that buy end of the year she will have spent $8000 on home energy bills. She stated that and infusion of gas to Fairbanks would reduce energy costs to end users and restore Fairbank's ability to grow its economic base. She said that HB 289 would incent the private sector's delivery of lower cost natural gas to Interior Alaska by extending tax credits for liquid natural gas storage facilities that were necessary for natural gas projects. She stated that a new credit for construction of an above ground liquefied gas storage tanks, with a volume of 25,000 gallons, would make the program flexible enough to fit the varying needs of gas delivery throughout the state. She furthered that the legislation would allow eligible, above ground, liquefied gas natural storage facilities cited on state lands to request an exemption from rental payments. She said that the exemption could extend for up to ten years following the commencement of commercial operations. She stated that the bill defined how the credits would be distributed, both as tax credits and payments to non- taxable entities. She described the safeguards in the bill; the liquefied natural gas storage facility must be regulated by the Regulatory Commission of Alaska (RCA), and the incentives must be passed onto customers. She explained that the bill set forth how a person who received a credit or payment should repay the credit or payments if the facility ceased commercial operation within the 9 calendar years immediately following the calendar year in which the facility commenced commercial operations. She noted that the bill defined liquefied natural gas storage facilities under the RCA. 10:26:04 AM Ms. Pearson walked the committee through the sectional analysis (copy on file): Section 1. AS 38.05.096 Creates a new section under AS 38.05 that allows eligible above ground liquefied natural gas tank storage facilities, sited on state lands, to request an exemption from rental payments. The exemption could extend for up to ten years following the commencement of commercial operations as long as the facility continues to operate. Information regarding the rental exemption is deemed to be "public" and is available to the RCA upon request. A person receiving a rental exemption must adjust the storage charge downward to reflect this state benefit and pass it through to the storage customers. Section 2. AS 42.05.381(k) Amends the statute to state that payments or tax credits granted under this bill shall be reflected in the utility's rates. Section 3. AS 42.05.990(5) Amends the definitions "public utility" or "utility" to include furnishing liquefied natural gas to the public. Section 4. AS 42.05.990(11)-(13) Adds the definitions of "liquefied natural gas storage facility" and "reservoir" and "service of liquefied natural gas storage" to apply to liquefied natural gas. Section 5. Adds a new section to AS 43.20 AS 43.20.047. Creates a new credit for a liquefied natural gas storage facility of 25,000 gallons or more or an expansion of an existing facility of 25,000 gallons or more. The credit is capped at fifteen million dollars or 50 percent of the development cost whichever is less. This credit is in addition to any other credits for which the storage facility is eligible under this chapter. States that the liquefied natural gas storage facility must be regulated by the Regulatory Commission of Alaska and establishes how the credit or payment shall be disbursed. Sets forth how a person who has received a credit shall repay the credit if the facility ceases commercial operations within the nine calendar years immediately following the calendar year in which the facility commenced commercial operations. This section also defines "liquefied natural gas storage facility", "ceases commercial operation" and "commences commercial operation". Sections 6 & 7. Make conforming amendments to accommodate the new tax credits under AS 43.20.047. Section 8. Establishes an immediate effective date for the legislation. Co-Chair Stoltze OPENED public testimony. 10:32:35 AM BARBARA HUFF TUCKNESS, DIRECTOR, LEGISLATIVE AND GOVERNMENTAL AFFAIRS, TEAMSTERS LOCAL 959, spoke in favor of HB 289. She stated that the high cost of home heating was driving young people to the Lower 48. She said that those that have stayed, and who were attempting to build a life in Alaska, were paying high fuel costs that made it difficult to save money. She urged passage of the legislation. GENE THERRIAULT, VICE PRESIDENT, RESOURCE DEVELOPMENT, GOLDEN VALLEY ELECTRIC ASSOCIATION, testified in support of the HB 289. He stated that the legislation would help to achieve parity with the credit that was allowed for the addition of storage in the natural gas distribution supply chain, which had been established by the Cook Inlet Recovery Act. He relayed that methane expanded 600 times when going from a liquid to a gas, illustrating the dynamics of storing the same resource in different forms. He hoped that a threshold could be created in statute that applied for the storage of the methane in liquid state, under a sensible threshold. He stated that in a previous committee the threshold had been reduced to 25,000 with the idea that the resource would be available to communities on the highway system. He shared that the Golden Valley Board of Directors was focused on building an initial plant that would aggregate the largest possible demand and drive the per unit costs down as far as possible. Additionally, the association was requesting parity on the forgiveness of state land lease payments. He shared that when the act was passed there had been little thought given concerning the different routes that could be taken when leasing state lands. He said that the association was asking to be given the same terms as the recovery act concerning the wavier of state land lease payments. 10:38:53 AM Mr. Therriault relayed the importance that the legislation reflect that Golden Valley was a tax exempt entity. He stated that the legislation suggested a window opportunity that would be open until 2020 for the addition of the storage. He informed the committee that the association was moving forward with the trucking operation, working out the details, and working with the large industrial users in Fairbanks to make trucking gas an economic reality. He said that knowing this year whether the storage credit would be available for the project would be helpful. Co-Chair Stoltze hoped Mr. Therriault would return for further discussion of the legislation. Mr. Terriault informed the committee that a 2009 review of the trucking concept written by AIDEA was available upon request. He said that the report indicated that trucking would make economic sense as long as it served the needs of the two identified industrial users: Flint Hills and Golden Valley. JERRY CLEWORTH, MAYOR, FAIRBANKS (via teleconference), explained that energy problems were abundant in Fairbanks. He stressed that the amount of money residents paid for heat in the interior was at crisis level. He stated that it cost $8,000 to $10,000 per year to heat his small, energy efficient home; that cost was double in rural Alaska. He urged passage of the legislation. 10:44:17 AM Co-Chair Stoltze CLOSED public testimony. Vice-chair Fairclough pointed to Page 6, line 6. She understood that the term "person's corporate returns" in the bill referred businesses, corporations, and non- profits. Ms. Pearson responded in the affirmative. Vice-chair Fairclough requested further explanation of refund requests. She expressed concern that a refund could be requested that might exceed the requester tax liability. She noted that qualifying costs were not listed in the legislation. She directed attention to Line 25: "A person may not receive a credit under this section for the acquisition of a liquefied natural gas storage facility for which a credit has been taken already." Vice-chair Fairclough asked if the language meant that the person could receive a credit for purchasing a facility. She wondered whether Golden Valley had an asset available for purchase. She requested further explanation concerning the interest applied to refunds mentioned on Page 8. Co-Chair Stoltze handed the gavel to Vice-chair Fairclough. Ms. Pearson replied that interest would be accruing if a credit or payment were to be given in error. Vice-chair Fairclough stated that it was important that the state protect itself from lawsuits pertaining to incurring interest on refund payments. 10:48:11 AM Representative Wilson asked whether the bill would extend credits to enlarge the natural gas storage facility in her area. Ms. Pearson replied in the affirmative. Representative Wilson reiterated the need for a natural gas pipeline. Representative Neuman pointed to Page 5 of the bill. He understood that the credits were for tax liability owed to the state. He wondered if the credits would be applied against corporate taxes owed to the state. Ms. Pearson answered that the credits could be applied against corporate taxes if corporate taxes were not due. Representative Neuman discussed the taxable year in which the liquefied natural gas storage facility commenced commercial operations. He understood that the refunding of the costs incurred could be applied for only once. Ms. Pearson responded that an additional expansion, over 25,000 gallons, would also allow for an application. Vice-chair Fairclough thought that it was imperative that "qualified expenses" be clearly defined in the bill. Representative Costello requested further explanation about the money for the credits being under the oversight of the RCA. She queried weather the naturally occurring storage fell under the oversight of the RCA as well. 10:51:50 AM Ms. Pearson explained that any credits taken, or payments made, would be passed on to the consumer, and would be overseen by the RCA. Representative Costello asked if the bill achieved the parity voiced by Mr. Terriault, or were there areas that needed more work. Ms. Pearson replied that the bill worked to achieve equal parity. Representative Neuman wondered whether the facility was meant to be above ground. Ms. Pearson responded in the affirmative. Representative Neuman wondered about opportunities for subsurface storage. He said that there were various opportunities for subsurface storage facilities around the state that should be recognized. Ms. Pearson replied that she did not know enough about below ground storage to answer. Representative Neuman believed it was important because it could open up a variety of opportunities statewide. 10:55:01 AM Representative Doogan highlighted the indeterminate fiscal note. He suggested that the committee was receiving an increasing amount of indeterminate notes. He opined that the finance committee could not craft good policy without knowing what the cost would be to the state. He believed that DNR and DOR should be able to provide educated cost estimates to the committee. Vice-chair Fairclough agreed. She expressed concern that the committee passed legislation without knowing the actual fiscal implications to the state. Vice-chair Fairclough explained that, for reasons related to safety, Anchorage had done everything it could to get rid of above ground gas storage. She wondered if the same safety issues could be applied to Fairbanks. Ms. Pearson would get back to the committee with responses. Representative Neuman directed attention to Page 6, which spoke to refunds on the unused portion of the tax credit. He worried about credits being incurred that were beyond the corporation's tax liability to the state. Ms. Pearson replied that some of the corporations were non- profits, or had become LLC corporations, which were non- taxable entities. She believed that the savings to the state would be passed onto the consumers. Representative Neuman understood that the $15 million tax credit could be given to anyone who applied. Vice-chair Fairclough agreed that the bill could be made clearer. She clarified that the number was $15 million or less, up to 50 percent of qualified costs. She noted that the sponsor had been careful to assure that with RCA oversight and auditing, the savings would be reflected in a rate reduction to consumers in the Fairbanks area. HB 289 was HEARD and HELD in Committee for further consideration.