HB 289-NATURAL GAS STORAGE TAX CREDIT/REGULATION  1:07:29 PM CO-CHAIR SEATON announced that the first order of business would be 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." [Before the committee was the proposed committee substitute (CS), Version I, labeled 27-LS1216\I, Bullock, 2/20/12, adopted as the working document on 2/24/12.] 1:07:54 PM JANE PIERSON, Staff, Representative Steve Thompson, Alaska State Legislature, on behalf of Representative Thompson, prime sponsor, reviewed the provisions of Version I of HB 289. She explained that Section 1 would create a new section under AS 38.05 to provide that above-ground liquefied natural gas storage tank facilities sited on state lands can request an exemption from rental payments. Section 2 would amend the definition of a natural gas storage facility under AS 42.05.990(3). Section 3 would add a new section to AS 43.20 to create a credit for: a liquefied natural gas storage facility of 1 million gallons or more; expansion of an existing facility of 1 million gallons or more; and capping of the credit at $15 million or 50 percent of the development cost, whichever is less. This would be in addition to any other credits in this chapter. Section 3 would also provide that the storage facility must be regulated by the Regulatory Commission of Alaska (RCA) and would establish how credit payment shall be dispersed. It would set forth how a person who has received a credit shall repay the credit if the facility ceases commercial operations within nine calendars years immediately following the calendar year in which the facility commenced commercial operations. Additionally, the terms liquefied natural gas storage facility, ceases commercial operation, and commences commercial operation are defined in Section 3. 1:09:24 PM CO-CHAIR SEATON closed public testimony after ascertaining that no one from the public wished to speak. CO-CHAIR SEATON moved to adopt Conceptual Amendment 1 which on page 3, lines 29 and 31, would delete "1,000,000" and insert "50,000". CO-CHAIR FEIGE objected for discussion purposes. 1:10:24 PM CO-CHAIR SEATON drew attention to two photographs in the committee packet of small-scale liquefied natural gas (LNG) receiving terminals in Norway, where small coastal vessels deliver LNG to communities. He explained that one photo is of a site that has three small storage tanks, each holding 200 cubic meters, and the other photo is of an LNG tank that holds 2,000 cubic meters. For further reference, he noted that an e-mail [from Hans R. Tveitaskog] accompanies the two pictures. CO-CHAIR SEATON said he is offering Conceptual Amendment 1 because the legislature is trying to make competitive energy and lower-cost natural gas available to more communities, but while a one million gallon tank might work for the state's second largest community it does not work for the other communities. He explained that 200 cubic meters translates to just over 50,000 gallons, which would be more appropriate for serving small communities. Whether LNG is delivered by vessel to coastal towns or by truck, there needs to be enough capacity for the community, and the aforementioned amounts have been proven adequate for the situation in Norway. 1:13:09 PM CO-CHAIR FEIGE said his objection is related to why not more or why not less than 50,000 gallons. He recalled that Golden Valley Electric Association testified that 1 million gallons would be two weeks supply for that utility. The purpose of the tank is to provide a quantity that buffers any fluctuations in either demand or delivery of the supply to the community. While he allowed that 50,000 gallons may be adequate, he said the smaller the number that can legitimately be made, the more communities would be able to qualify for the tax credit and the more distribution there could be throughout interior and coastal Alaska. He recollected that Mr. Therriault of Golden Valley Electric Association said 12.1 gallons of LNG equaled 1 thousand cubic feet (MCF) of gas. He asked whether there is something more regarding why 50,000 gallons was chosen, other than it being the way Norway does it. 1:15:11 PM CO-CHAIR SEATON responded that if 50,000 gallons was not enough for a particular community that community could plan for an appropriate size. The bill would allow for both initial as well as expansion, so the communities themselves would have to do a cost-benefit analysis to determine the appropriate size. A consideration is that it must be a regulated utility that applies for this because it is supposed to be for distribution systems for communities, which ensures that a project is not done for an individual building or entity. For a comparison, he related that the Talkeetna Lodge has two 5,000 gallon tanks that are serviced by truck at regular intervals by Fairbanks Natural Gas. He said the 50,000 was the best number he could come up with, given there are small communities in Norway that have the flexibility for tanks of 200 cubic meters to 2,000 cubic meters. 1:17:16 PM CO-CHAIR FEIGE asked what size truck is used by Fairbanks Natural Gas. MS. PIERSON deferred to Mr. Therriault. REPRESENTATIVE P. WILSON stated she does not know if the amount is right, but it needs to be dealt with to ensure that smaller communities can be taken care of. MS. PIERSON replied that if the bill moves on, she will work with committee members to determine what that "magic number" is for communities. CO-CHAIR SEATON reiterated Co-Chair Feige's question about the capacity of LNG tankers currently being used by Fairbanks Natural Gas. GENE THERRIAULT, Vice President, Natural Resource Development, Golden Valley Electric Association (GVEA), said he believes the current tankers used by Fairbanks Natural Gas are either 10,000 or 11,000 gallons. He added that the tanker size GVEA anticipates using for running LNG from the North Slope is 13,500 gallons. 1:19:41 PM REPRESENTATIVE HERRON requested Mr. Therriault to comment on Conceptual Amendment 1. MR. THERRIAULT replied GVEA would not have a problem with [50,000 gallons, given it is a policy call on how to balance this. He explained that GVEA has reached out to potential users around the highway system that it would like to serve as customers under the premise that if the overall volume is raised then everybody's per unit cost comes down. Therefore, if that volume is the right size for those users on the highway then it would be fine with GVEA. 1:21:05 PM CO-CHAIR FEIGE suggested a tank size of 25,000 gallons, given that the planned truck size is roughly 13,000 gallons. This way, when half the volume in the storage tank is used there would be enough room to receive the next truck. CO-CHAIR SEATON responded that he has no basis for community utilities using less than 200 cubic meters. REPRESENTATIVE P. WILSON stated that [25,000 gallons] makes sense to her. REPRESENTATIVE GARDNER pointed out that if a smaller size is in statute a community needing a larger volume would still be covered, but not so with the reverse. She added that, in practice, the key is the standard tank size so that the statute is not for a volume that would require customized tanks, although she did not personally know what a standard size would be. 1:22:54 PM REPRESENTATIVE HERRON related that the standard size for LNG or propane tanks is rail cars of about 30,000 [gallons] and further noted that a larger tank size currently available for purchase is 18,000 [gallons]. He therefore maintained that 30,000 and 18,000 [gallons] are common sizes. CO-CHAIR SEATON said these would not be propane tanks, so they are not currently manufactured. He did not think that the committee's consideration should be for an off-the-shelf size. In response to Co-Chair Feige, he pointed out that propane tanks are low pressure tanks. REPRESENTATIVE HERRON asserted that those are common sizes because an odd size or very large size cannot be transported. He agreed that the storage tanks would be custom made, but said they would be built according to limitations of the road system. 1:24:48 PM CO-CHAIR SEATON stated he would be amenable to 25,000 gallons. CO-CHAIR FEIGE said he would like more information because some of these communities are relatively constrained and these tanks all have a blast radius. The smaller the tank, the smaller the blast radius, therefore the easier it would be to site these tanks in the limited land available to villages. For example, the coastlines limit where the tanks could be put and some villages might not have enough land available to them should the tank need to be sited well outside of town. 1:26:24 PM CO-CHAIR FEIGE moved to adopt Amendment 1 to Conceptual Amendment 1 which would delete "50,000" and insert "25,000". CO-CHAIR SEATON accepted the conceptual amendment as a friendly amendment. There being no objection, Amendment 1 to Conceptual Amendment 1 was adopted. Therefore, Conceptual Amendment 1, as amended, would on page 3, lines 29 and 31, delete "1,000,000" and insert "25,000". There being no objection, Conceptual Amendment 1, as amended, was adopted. 1:27:39 PM REPRESENTATIVE P. WILSON moved to report the proposed committee substitute (CS) for HB 289, labeled 27-LS1216\I, Bullock, 2/21/12, as amended, out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSHB 289(RES) was reported from the House Resources Standing Committee.