02/27/2012 01:00 PM House RESOURCES

        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.