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." 1:39:35 PM REPRESENTATIVE STEVE THOMPSON, SPONSOR, relayed that the legislation would incentivize private sector delivery of lower-cost natural gas in the state by extending credits for above-ground liquefied natural gas storage facilities. He elaborated that the bill created a new credit for construction of above-ground liquefied natural gas storage tanks with a volume of 25 thousand gallons or more. He furthered that the amount of the credit was would be limited to 50 percent of the construction costs, or up to $15 million, whichever was less. He said that the bill also allowed for an eligible above-ground liquefied storage facility cited on state lands to request an exemption from rental payments; the exemption would extend up to 10 years following commencement of commercial operations. He pointed to letters of support from multiple agencies and organizations (copy on file.) 1:41:46 PM JANE PIERSON, STAFF, REPRESENTATIVE STEVE THOMPSON, highlighted the changes in version X of the legislation: Section 1. AS 38.05 is amended by adding a new section  to read:    Sec. 38.05.096. Exemption from rental payments on land  leased for certain liquefied natural gas storage  facilities. (a) A person leasing state land for a  liquefied natural gas storage facility other than a  gas storage facility subject to AS 38.05.180(u) may  request an exemption from lease payments as provided  in this section. The exemption is applicable for the  periods described in (b) of this section.   (b) The exemption is available for the calendar year  in which the liquefied natural gas storage facility  commences commercial operation and for each of the  nine calendar years immediately following the first  year of commercial operation. However, an exemption is  not applicable for the calendar year after the  facility ceases commercial operation or for any  subsequent calendar year. (c) The lessee shall  provide the director with any information the director  requests to determine whether the lessee qualifies for  the exemption.   (d) Information related to state land leased for a  liquefied natural gas storage facility qualifying for  the exemption in this section is public information  and may be furnished to the Regulatory Commission of  Alaska. On request, the director shall provide the  name of each person using state land leased for a  liquefied natural gas storage facility, the years for  which an exemption was granted, and the amount of the  exemption.   (e) A person receiving an exemption for a payment  under this section that contracts to store liquefied  natural gas for a utility regulated under AS 42.05  shall reduce the storage price to reflect the value of  the exemption.   (f) In this section,   (1) "ceases commercial operation" and  "commences commercial operation" have the meanings  given in AS 31.05.032;   (2) "liquefied natural gas storage facility"  has the meaning given in AS 42.05.990.    Sec. 2. AS 42.05.381(k) is amended to read:  (k) The cost to the utility of storing gas in a gas  storage facility or storing liquefied natural gas in a  liquefied natural gas storage facility that is allowed  in determining a just and reasonable rate shall  reflect the reduction in cost attributable to any  exemption from a payment due under AS 38.05.096 or  38.05.180(u), as applicable, [AS 38.05.180(u)] and the  value of a tax credit that the owner of the gas  storage facility received under AS 43.20.046 or  43.20.047, as applicable. The commission may request  the (1) commissioner of natural resources to report  the value of the exemption from a payment due under AS  38.05.096 or 38.05.180(u), as applicable, [AS  38.05.180(u)] that the gas storage facility received;  and (2) commissioner of revenue to report information  on the amount of tax credits claimed under AS  43.20.046 and 43.20.047, as applicable, for the gas  storage facility or liquefied natural gas storage  facility. In this subsection,   (1) "gas storage facility" has the meaning given in  AS 31.05.032;   (2) "liquefied natural gas storage facility" has the  meaning given  in AS 42.05.990    Sec. 3. AS 42.05.990(5) is amended to read:   (5) "public utility" or "utility" includes every  corporation whether public, cooperative, or otherwise,  company, individual, or association of individuals,  their lessees, trustees, or receivers appointed by a  court, that owns, operates, manages, or controls any  plant, pipeline, or system for   (A) furnishing, by generation, transmission,  or distribution, electrical service to the public for  compensation;   (B) furnishing telecommunications service to  the public for compensation;   (C) furnishing water, steam, or sewer service  to the public for compensation;   (D) furnishing by transmission or distribution  of natural or manufactured gas to the public for  compensation;   (E) furnishing for distribution or by  distribution petroleum or petroleum products to the  public for compensation when the consumer has no  alternative in the choice of supplier of a comparable  product and service at an equal or lesser price;  (F) furnishing collection and disposal service  of garbage, refuse, trash, or other waste material to  the public for compensation;   (G) furnishing the service of natural gas  storage to the public for compensation;   (H) furnishing the service of liquefied  natural gas storage to the public for compensation;    Sec. 4. AS 42.05.990 is amended by adding new  paragraphs to read:   (11) "liquefied natural gas storage facility" means  a facility that receives natural gas volumes in a  liquid or gaseous state from customers, holds the gas  volumes in a liquid state in a reservoir, and delivers  the gas volumes in a liquid or gaseous state to the  customer; in this paragraph, "facility" includes   (A) all parts of the facility from the point  at which the natural gas volumes are received by the  facility from the customer to the point at which the  natural gas volumes are delivered by the facility to  the customer;   (B) a facility consisting of a reservoir,  either underground or aboveground, and one or more of  the following components of the facility:   (i) pipe;   (ii) compressor stations;   (iii) station equipment;  (iv) liquefaction plant or facility;  (v) gasification plant or facility;   (vi) on-site or remote monitoring,  supervision, and control facilities;   (vii) gas processing plants and gas  treatment plants, but not including a manufacturing  plant or facility;   (viii) other equipment necessary to  receive, place into the reservoir, monitor, remove  from the reservoir, process, and deliver natural gas;   (12) "reservoir" means a receptacle or chamber,  either natural or man-made, holding a gas or liquid,  and includes a tank or a depleted or nearly depleted  pool; (13) "service of liquefied natural gas  storage" means the operation of a liquefied natural  gas storage facility; "service of liquefied natural  gas storage" does not include the storage of liquefied  natural gas  (A) owned by or contractually obligated to the  owner, operator, or manager of the liquefied natural  gas storage facility;   (B) that is incidental to the production or  sale of natural gas to one or more third-party  customers; or   (C) for which the price of storage is not  separately itemized.    Sec. 5. AS 43.20 is amended by adding a new section to  article 1 to read:  Sec. 43.20.047. Liquefied natural gas storage facility  tax credit. (a) A person that is an owner of a  liquefied natural gas storage facility described in  (b) of this section that commences commercial  operation before January 1, 2020, may apply a  refundable credit against a tax liability that may be  imposed on the person under this chapter or receive  the amount of the credit in the form of a payment for  the taxable year in which the liquefied natural gas  storage facility commences commercial operation. The  tax credit or payment under this section may not  exceed the lesser of $15,000,000 or 50 percent of the  costs incurred to establish or expand the liquefied  natural gas storage facility. The tax credit in this  section is in addition to any other credit under this  chapter for which the person is eligible.   (b) To qualify for the credit in this section, a  liquefied natural gas storage facility   (1) must have a liquefied natural gas storage  volume of not less than 25,000 gallons of liquefied  natural gas, or, if the credit is claimed for an  expansion, the expansion must have increased the  capacity of an existing liquefied natural gas storage  facility by more than 25,000 gallons;   (2) may not have been in operation as a  liquefied natural gas storage facility before January  1, 2011, unless the tax credit in this section is  based on the expansion of the liquefied natural gas  storage facility after December 31, 2011;   (3) must be regulated under AS 42.05 as a  utility and be available to furnish the service of  liquefied natural gas storage to customers, utilities,  or industrial facilities; in this paragraph, "service  of liquefied natural gas storage" has the meaning  given in AS 42.05.990;  (4) if located on state land and leased or  subject to a lease under AS 38.05, must be in  compliance with the terms of the lease; and   (5) must have commenced commercial operation  on or before the date the person takes a credit under  (a) of this section or applies for a payment under (a)  of this section.   (c) To claim the credit or request a payment, a  person shall submit to the department a certification  of the capacity of the liquefied natural gas storage  facility measured in gallons or the capacity of an  expansion to an existing liquefied natural gas storage  facility measured in gallons, the date that the  liquefied natural gas storage facility commenced  commercial operation, the date that any expansion to  the liquefied natural gas storage facility commenced  commercial operation, and other information required  by the department.   (d) A person applying the credit under this section  against a liability under this chapter shall claim the  credit on the person's return. A person entitled to a  tax credit under this section that is greater than the  person's tax liability under this chapter may request  a refund or payment in the amount of the unused  portion of the tax credit.   (e) The department may use money available in the  oil and gas tax credit fund established in AS  43.55.028 to make a refund or payment under (d) of  this section in whole or in part if the department  finds that (1) the claimant does not have an  outstanding liability to the state for unpaid  delinquent taxes under this title; and (2) after  application of all available tax credits, the  claimant's total tax liability under this chapter for  the calendar year in which the claim is made is zero.  In this subsection, "unpaid delinquent tax" means an  amount of tax for which the department has issued an  assessment that has not been paid and, if contested,  has not been finally resolved in the taxpayer's favor.   (f) For the purpose of determining the amount of the  credit under this section, the costs incurred to  establish a liquefied natural gas storage facility or  to expand a liquefied natural gas storage facility  shall be submitted to the department with verification  by an independent certified public accountant,  licensed in the state. The volume of working liquefied  natural gas storage or volume of the expansion to an existing liquefied natural gas storage facility shall  be verified by a professional engineer licensed in the  state with relevant experience. (g) 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 under this  section.   (h) If the liquefied natural gas storage facility  for which a credit was received under this section  ceases commercial operation during the nine calendar  years immediately following the calendar year in which  the liquefied natural gas storage facility commences  commercial operation, the tax liability under this  chapter of the person who claimed the credit shall be  increased, and a person not subject to the tax under  this chapter that received a payment under (d) and (e)  of this section shall be liable to the state in the  amount determined in this subsection. The amount of  the increase in tax liability or liability to the  state   (1) for a person subject to the tax under this  chapter, shall be determined and assessed for the  taxable year in which the liquefied natural gas  storage facility ceases commercial operation,  regardless of whether the liquefied natural gas  storage facility subsequently resumes commercial  operation;   (2) for a person not subject to the tax due  under this chapter, shall be determined and assessed  as of December 31 of the calendar year in which the  liquefied natural gas storage facility ceases  commercial operation, regardless of whether the  liquefied natural gas storage facility subsequently  resumes commercial operation; and   (3) is equal to the total amount of the credit  taken or received as a payment under (d) of this  section, as applicable, multiplied by a fraction, the  numerator of which is the difference between 10 and  the number of calendar years for which the liquefied  natural gas storage facility was eligible for a tax  credit under this section and the denominator of which  is 10.   (i) The issuance of a refund under this section does  not limit the department's ability to later audit or  adjust the claim if the department determines, as a  result of the audit, that the person that claimed the  credit was not entitled to the amount of the credit. The tax liability of the person receiving the credit  under this chapter is increased by the amount of the  credit that exceeds that to which the person was  entitled. If the tax liability is increased under this  subsection, the increase bears interest at the rate  set by AS 43.05.225 from the date the refund was  issued.   (j) A person claiming a tax credit under this  section for a liquefied natural gas storage facility  that ceases commercial operation within nine calendar  years immediately following the calendar year in which  the liquefied natural gas storage facility commences  commercial operation shall notify the department in  writing of the date the liquefied natural gas storage  facility ceased commercial operation. The notice must  be filed with the return for the taxable year in which  the liquefied natural gas storage facility ceases  commercial operation.   (k) A refund under this section does not bear  interest.   (l) In this section,   (1) "ceases commercial operation" means that  the liquefied natural gas storage facility fails to  add or withdraw 20 percent or more of its working  capacity of liquefied natural gas during a calendar  year after the calendar year in which the liquefied  natural gas storage facility commences commercial  operation;   (2) "commences commercial operation" means the  first input of liquefied natural gas into a liquefied  natural gas storage facility for purposes other than  testing;   (3) "liquefied natural gas storage facility"  has the meaning given in AS 42.05.990.    Sec. 6. AS 43.55.028(a) is amended to read:   (a) The oil and gas tax credit fund is established  as a separate fund of the state.  The purpose of the fund is to purchase transferable  tax credit certificates issued under AS 43.55.023 and  production tax credit certificates issued under AS  43.55.025 and to pay refunds and payments claimed  under AS 43.20.046 or 43.20.047.    Sec. 7. AS 43.55.028(g) is amended to read:   (g) The department may adopt regulations to carry  out the purposes of this section, including standards and procedures to allocate available money among  applications for purchases under this chapter and  claims for refunds and payments under AS 43.20.046 or  43.20.047 when the total amount of the applications  for purchase and claims for refund exceed the amount  of available money in the fund. The regulations  adopted by the department may not, when allocating  available money in the fund under this section,  distinguish an application for the purchase of a  credit certificate issued under AS 43.55.023(m) or a  claim for refund under AS 43.20.046 or AS 43.20.047.    Sec. 8. This Act takes effect immediately under AS  01.10.070(c).    1:46:42 PM Representative Neuman pointed to page 7. He asked whether the fund to purchase transferrable tax credits had already been established, or would a new fund be created. Ms. Pierson responded that the fund had already been established and had been set in statute. Representative Neuman asked if propane was considered a natural gas under the legislation. Ms. Pierson responded in the negative. She furthered that the storage of propane differed from that of liquefied natural gas. Representative Neuman asserted that propane was a natural gas liquid and wondered why it was not covered under the bill. Ms. Pierson replied that adding propane to the language had been considered and ultimately disregarded. She furthered that it was cheaper to store propane than to store liquefied natural gas. Representative Neuman queried the end goal of the legislation. Representative Thompson responded that the bill would create storage tanks that could be used by multiple businesses and in various locations. Co-Chair Stoltze passed the gavel to Co-Chair Thomas. 1:49:23 PM Representative Gara asked whether the bill would apply statewide. Ms. Pierson responded in the affirmative. Representative Gara understood that the legislation pertained to above-ground storage only, and would not duplicate the credit already available for below ground storage. Ms. Pierson said that was correct. Representative Gara asked whether the credit could be duplicated above another credit. Ms. Pierson responded that she did not believe it could be added to another credit. She noted that the credit would be the only one available for liquefied natural gas storage. Representative Gara understood that if a credit did already exist, the bill was not meant to create an additional credit. Representative Thompson replied in the affirmative. Ms. Pierson clarified that there was a leasing provision in the bill which created two types of available credits. Representative Costello referred to language in the sectional analysis that stated that any cost savings would be passed on to the storage customer. She wondered where the language was located in the bill. Ms. Pierson responded that it was located in Section 2. 1:51:51 PM Representative Costello requested the exact location. Ms. Pierson read from Section 2:   Sec. 2. AS 42.05.381(k) is amended to read: (k) The cost to the utility of storing gas in a gas storage facility or storing liquefied natural gas  in a liquefied natural gas storage facility that is allowed in determining a just and reasonable rate shall reflect the reduction in cost attributable to any exemption from a payment due under AS 38.05.096 or  38.05.180(u), as applicable, [AS 38.05.180(u)] and the value of a tax credit that the owner of the gas storage facility received under AS 43.20.046 or  43.20.047, as applicable. Ms. Pierson explained that any savings that occurred under the legislation must be passed onto the consumer. Representative Doogan surmised that the bill created a subsidy to build the storage containers. Ms. Pierson responded in the affirmative. Representative Doogan pointed out that the bill was the 29th piece of legislation that the committee had heard that included a tax credit. Co-Chair Thomas reminded the committee that the bill would apply statewide. Representative Thompson suggested that liquefied gas from Cook Inlet could be barged to Bethel and up and down the Yukon River. Co-Chair Thomas wondered whether the tax credit would be needed if a gas pipeline was built. Representative Thompson thought that the gasline would not be running for at least 15 years. He said that the bill was an attempt to create a "bridge" project until a gasline was established. Representative Wilson hypothesized that the bill would help in Fairbanks with utilities that were using diesel. Representative Thompson responded in the affirmative. He expounded that using natural gas for electrical production, and at the refinery, would improve air quality. Representative Wilson asked who would benefit from the savings if Flint Hills shared the storage unit with the major utility in Fairbanks. Ms. Pierson replied that under the proposed legislation Flint Hills would not receive the benefit. Co-Chair Thomas asked how the gas would be delivered from the storage facility to homes. Representative Thompson explained that there were already 1100 different locations in Fairbanks hooked up for the distribution of natural gas, and more were planned once the gas became available. He stated that electrical users would immediately see lower electric rates, and lower home heating rates would follow. 1:56:54 PM Co-Chair Thomas referenced a circulating supplemental bill that would allow communities to receive low-interest loans for natural gas. He wondered if Fairbanks would be included in the loan program. He believed the loans could help expedite the process of bringing homes online for natural gas heating. Representative Thompson stated that he was not familiar with the legislation. Representative Gara surmised that the bill could help subsidize programs such as bringing natural gas from the North Slope to Fairbanks by truck. Representative Thompson answered in the affirmative. He said that he paid $23.35 per 1000 cubic feet of natural gas for his rental home in Fairbanks, compared with $8 to $9 in Anchorage. He asserted that whatever could be done to lower heating costs would be beneficial. Representative Doogan wondered if there would be more than one 25,000 gallon unit of liquefied natural gas stored at a time. Ms. Pierson believed that there would be high demand for the units and that gas would be flowing throughout the state. She said that currently in Fairbanks there was discussion of putting in an approximately 3 million gallon tank. She added that the main utility company in Fairbanks believed that the component would be necessary to make sure there was enough gas to fulfill customer's needs. Representative Doogan understood that the subsidies could total $30 million. Ms. Pierson replied yes. 2:00:35 PM Vice-chair Fairclough discussed the fiscal notes: FN6 (DOA), FN7 (DCCED), FN10 (DNR), FN9 (DOR). 2:02:53 PM AT EASE 2:07:20 PM RECONVENED Vice-chair Fairclough clarified that there was a fifth fiscal note: FN8 (DOR). Representative Doogan voiced a complaint related to indeterminate fiscal notes. He opined that it seemed to have become policy for the departments to attach indeterminate fiscal notes to legislation. He communicated that the finance committee could not do the most important part of its job without accurate information related to costs. Co-Chair Thomas agreed. He hoped that the administration understood the difficulty the committee faced; attempting to craft policy with indeterminate fiscal notes. Representative Gara echoed the complaint and believed the problem was more extensive. He surmised that Department of Revenue (DOR) was waiting for bills to report out of committee before determining what their fiscal impact would be. Representative Wilson MOVED to report CSHB 289(FIN) out of committee with individual recommendations and the accompanying fiscal notes. CSHB 289(FIN) was REPORTED out of committee with a "do pass" recommendation and with one new fiscal impact note and one new indeterminate note from Department of Natural Resources, one new indeterminate note Department of Revenue, one new zero impact note from Department of Administration, and one new zero impact note from Department of Commerce, Community and Economic Development. 2:10:56 PM AT EASE 2:15:17 PM RECONVENED