Legislature(2011 - 2012)BUTROVICH 205
03/05/2012 03:30 PM RESOURCES
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SB 153-NATURAL GAS STORAGE TAX CREDIT/REGULATION 4:17:36 PM CO-CHAIR PASKVAN announced SB 153 to be up for consideration. [CSSB 153( ), version 27-LS1187\I, was before the committee]. He said Senator Thomas presented the merits of the bill at the February 9 meeting and testimony was taken. He noted the new committee substitute (CS). 4:18:35 PM CO-CHAIR WAGONER moved to adopt CSSB 153( ), version 27- LS1187\D. CO-CHAIR PASKVAN objected for discussion purposes. 4:19:24 PM SENATOR JOE THOMAS, sponsor of SB 153, recapped that the cost of fuel oil, particularly in the Interior and through much of the northwest and western part of the state, is crippling the economy. In Fairbanks, heating fuel is $4 a gallon and people are spending $667 million annually on energy costs or about $6,667 for every man, woman and child; and much of this money is leaving the community. He explained that Fairbanks currently pays $23.35 for 1 bcf/gas and $.23 per kilowatt hour for electricity. Heating bills run $1,000 to $1,500 a month for September through April. He said that many Alaskans take advantage of the weatherization and energy efficiency programs, but these increased costs have eaten up much of the savings and while the increasing price of oil is great for the state it's crippling for individuals. He said that natural gas is the lowest cost fuel, but it's three times the price in Southcentral and it is only available to 1,100 customers in Fairbanks because Fairbanks Natural Gas (FNG), the distributor, is limited by what it can get. If the winter is cold in Southcentral as well, FNG is the first one to be limited on the amount of gas they can purchase and resell. The ones that have auxiliary power are cut off first. SENATOR THOMAS said Fairbanks has distribution lines, but they aren't connected up because of the natural gas limitation. If they could access more gas, things would be different. This is why the trucking project has come to light. SB 153 begins to address that problem by incentivizing the private sector to deliver additional trucks of natural gas to Fairbanks over the next couple of years. It would extend $15 million of tax credits to a liquid natural gas trucking project such as the one proposed by Golden Valley Electric and Flint Hills with some involvement from FNG. This is basically equivalent to $15 million in tax credits that currently is applicable to the Cook Inlet Gas Storage Alaska project (CINGSA). SENATOR THOMAS said he was looking to drive the price of gas down in the Interior through the use of the credits, because it is a regulated utility, so savings have to be passed through to the consumers. 4:23:42 PM GRIER HOPKINS, staff to Senator Joe Thomas, explained that version D has one substantive change from version I; the rest is formatting and organization within statute. Version D mirrors HB 289, which is the House companion bill that just passed out of the House Resources Committee. The one substantive change that came out of the committee was the lowering of the floor for the size of LNG storage facility that can apply for a tax credit from 1 million gallons to 25,000 gallons, because Representative Feige wanted the smaller utilities along the Railbelt to have access to this credit. It is a substantial drop, but it will open up the opportunity for small utilities, such as Alaska Power and Telephone or the Copper Valley Electric Association, that are not connected to the grids to get backup power or lower their own costs. The new floor to qualify for the tax credit brings storage size to about 2.1 mmcf/gas, but it's mostly for the optional 50 percent of the construction costs. MR. HOPKINS explained that the other change is that version I addressed storage credits within existing statute and that was modeled after HB 280 from the 2010 legislature, sponsored by Representative Hawker and the Legislative Budget and Audit Committee. Senator Thomas met with a number of members from both bodies who were interested in changing the volume because of the differences in storing LNG methods and wanted to see it in an entirely different section in statute. MR. HOPKINS said Section 1 of version D addresses the lease exemption specifically, which was taken identically from version I, Section 2. He referred any questions on the lease exemption to Gene Therriault from Golden Valley Electric Association (GVEA). 4:27:34 PM He explained further that version D has a definition of "natural gas storage facility" and specifically adds "LNG or an above ground containment structure", because LNG is stored in a thermos, essentially, above ground. That is very similar to version I except for the addition of the above ground storage language. Section 3 creates the section in statute for the tax exemption, AS 43.20.047 (following directly from 43.20.046). Language matches previous language except for the changes in how the credits are applied: the $15 million cap or the 50 percent of construction costs where ever it says "storage of natural gas" to storage of "liquefied natural gas". From there on it mirrors the goal of what version I intended to do, but with slightly different formatting and continues on for some pages. It has a definition for "liquid natural gas storage facility." Language on page 4, lines 5-9, makes sure that any savings passed on to the utilities will be passed on to the customers through RCA regulation. CO-CHAIR PASKVAN removed his objection to version D and finding no further objection, announced that it was officially before the committee. He asked Mr. Therriault if he supported the CS. 4:30:24 PM GENE THERRIAULT, Vice President, Resource Development, Golden Valley Electric Association (GVEA), said he had worked closely with the sponsor and staff in both the Senate and the House and supported version D of SB 153. It addresses the concerns that the prime sponsors heard from some legislators in trying to insert "liquefied natural gas storage" language into the existing statute that was put into place in 2010 and specifically denied to application to gaseous methane or storage of natural gas in a gaseous form. They have duplicated sections of the statute and made them applicable to liquid storage. MR. THERRIAULT said they also understood Representative Feige's concern of making the product available to other smaller communities so they could get state assistance to receive the resource and actually put it to good use. He said they are trying very much to serve the largest volume possible under the concept of larger volumes bring better prices. So as the product is brought into Interior Alaska, if there are utilities or some industrial use up and down the highway system that could avail themselves of putting in smaller storage, they would be the industrial base in a smaller community, like Alaska Power and Telephone in Tok that produces the electric power. Perhaps others in the community could figure out how to avail themselves of the resource for space heat. He said that he did not have any problem dropping the volume threshold down to the 25,000 gallons. CO-CHAIR PASKVAN clarified that when one thinks of $4.00 a gallon for heating oil to get the same number of BTUs using gas under the current cost structure it would cost $1,400. So if Southcentral had to pay the equivalent of $4 a gallon for gas, their bill would increase from about $1,400 to $4,000 a year. Then people would understand why that is budget busting. If you add doubling the electric price per month as well, the crisis gets bigger. He said he would hold SB 153 in committee for further work.