Legislature(2011 - 2012)BUTROVICH 205

03/05/2012 03:30 PM RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Bills Previously Heard/Scheduled
Moved CSHB 185(RES) Out of Committee
Heard & Held
        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-                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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.                                                                                                                   

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