Legislature(2011 - 2012)BUTROVICH 205
02/09/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB153 | |
| Judge Gleason's Decision: an Alternative Perspective by Bradford Keithley, Perkins Coie, Llp, | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 153 | TELECONFERENCED | |
SB 153-NATURAL GAS STORAGE TAX CREDIT/REGULATION
3:33:34 PM
CO-CHAIR PASKVAN announced SB 153 to be up for consideration.
3:33:38 PM
SENATOR JOE THOMAS, sponsor of SB 153, said the cost of energy
in much of Alaska is crippling communities' economies. It's
still the middle of winter in Alaska, and more specifically
Fairbanks pays $4/gallon for heating oil; they are spending
approximately $666 million annually on energy costs. This
averages out to about $6,667 for every man, woman and child
annually. Much of this money leaves the community. Fairbanks is
currently paying $23.35 for 1000 cubic feet of natural gas and
$.23/kilowatt hour. Individual bills run $1,000 to $1,500 a
month during the heating season (September through April
generally). Natural gas is the lowest cost fuel, but it's three
times the price of gas in Southcentral and only available to
approximately 1,100 customers. No more gas is available for
Fairbanks Natural Gas, the local distributor, due to Cook Inlet
contracts that provide for Cook Inlet towns being taken care of
first.
He said that lines that have been built to various parts of the
town in Fairbanks, but have not been able to be distributed
because gas isn't contemplated being available. SB 153 addresses
this problem by incenting the private sector to deliver
additional trucked natural gas to Fairbanks in the next two to
three years. SB 153 would also extend up to $15 million of tax
credits to an LNG trucking project such as the one proposed by
partnerships between Golden Valley Electric Association (GVEA)
and Flint Hills Resources. This is the same $15 million tax
credit that is applicable to Cook Inlet's gas storage projects
(CINGSA), but in Fairbanks it would be above-ground storage
rather than filling depleted wells (because they don't have
any). He said GVEA and Flint Hills are the two largest Interior
tenants for gas and it makes sense for them to buy the gas to
make use of it, but they may also be willing to accept someone's
delivery.
3:38:22 PM
SENATOR THOMAS said the credits are limited to regulated
utilities, so the savings will be passed through to consumers as
the RCA looks at their business plans. GVEA and Flints are still
narrowing down their cost estimates and once they get to a plus
or minus 30 percent estimate, their board will make a decision
when to go forward and that is expected this spring or summer.
If that doesn't happen, it's possible that an entity such as
Fairbanks Natural Gas or Enstar and/or their Canadian parent
company, AltaGas, might move on the project. He said
negotiations between Foot Hills and GVEA are ongoing and are
positive, and that is another reason that the timing of SB 153
is important.
He said this will also ensure that the North Slope producers or
LNG export facilities that are not regulated utilities and do
not provide for consumption of gas in state will not be able to
access these credits. Further, with the gas line still years
away, it appears the only project that could bring gas into the
Interior in a quick manner is trucking projects such as this one
that would be an expansion of an existing trucking project.
CO-CHAIR WAGONER moved CSSB 153( ), 27-LS1187\I, for discussion
purposes.
CO-CHAIR PASKVAN objected for discussion purposes.
3:41:56 PM
GRIER HOPKINS, Legislative Aide to Senator Thomas, said there is
a fundamental difference between storing natural gas in its
gaseous form and storing it in its liquid form; the volumes
don't match. He explained that the credits in HB 280 had a floor
of 500 mmcf because Cook Inlet has underground reservoirs, but
Fairbanks is looking at storing approximately 240 mmcf/gas in
two separate tanks. The sponsor found a way to apply the same
$15 million in gas storage tax credits that Cook Inlet has to a
Fairbanks project or 50 percent of construction costs for a
storage facility, whichever is less. Storage facilities have
been estimated to cost about $30 million.
He said the changes between version M and version I are rather
simple. The project is still up in the air, but they want to
make sure that any project bringing gas to Fairbanks would
receive those credits. Therefore, language was included allowing
for the expansion of an existing facility that was in business
before 2011. It removes the date restrictions that a facility
must start commercial operations for the same reason.
A new subsection in AS 42.05.990 says only regulated utilities
can take advantage of the tax credits so their benefits get
passed on to the customers, but it currently doesn't include
LNG, and that language is being worked on now.
CO-CHAIR PASKVAN asked him to go through the bill by section.
MR. HOPKINS said section 1 establishes that the AOGCC must
certify the 1 million gallon threshold for a project to be
eligible to receive the credits. Section 2 addresses the lease
exemption and makes it the same as Cook Inlet provisions. It
might be applied differently for the North Slope, but GVEA has
been in contact with the administration and they understand how
it is moving forward.
3:46:55 PM
Section 3 amends the definition of "natural gas storage
facility" and "facility" in AS 42.05.990(3) to assure that tank
storage or storage in a depleted or nearly depleted well can
apply for this tax credit (as opposed to Cook Inlet Natural Gas
Storage Association's project).
3:47:27 PM
Section 4 amends the existing gas storage facility tax credit by
bifurcating it into two separate credits: a nontank storage
facility and a tank storage facility. The nontank storage uses a
volumetric equation that is necessary for the underground
storage, but the tank storage uses $15 million or 50 percent of
the cost of building an LNG storage facility of at least 1
million gallons, whichever is less.
Section 5 amends the terms of what storage qualifies as a tax
credit by adding the 1 million gallon threshold similar to
section 1. Sections 6 and 7 added "or payment" to the language
as opposed to just a tax refund in order to make it easier and
clearer within statute that GVEA, a non-profit that does not pay
any taxes to the state, could have access to that credit.
3:48:29 PM
Section 8 sets forth how a company not subject to tax under this
chapter would still be liable to pay back any erroneous payments
made by the state. So the state receives some of its money back
if the organization stops commercial operation of the storage
facility or if an error was made in calculating the construction
cost for the facility as determined by the Alaska Oil and Gas
Conservation Commission (AOGCC).
Section 9 amends AS 43.20.046(i) to clarify that a person that
receives the payment under this title must also repay interest
to the state as the determined under AS 43.05.225 (under
calculation of erroneous payment). Sections 10-13 make a number
of conforming language changes, especially including the word
"payment" going back to the non-profit status of GVEA. Section
14 establishes an effective date.
CO-CHAIR PASKVAN opened public testimony.
3:50:00 PM
LUKE HOPKINS, Mayor, Fairbanks North Star Borough, said SB 153
is very important for Fairbanks. Increasing storage capacity for
the community would allow more people to take advantage of a
resulting increased gas supply. He said cars are lined up at the
lowest-priced gas pump for home heating oil and people are
buying it 5 gallon cans, because they may not have enough money
to make to the next delivery. He said this is one of the fastest
short term improvements in space heating fixes that can be seen
and that GVEA and Flint Hills are already considering expanding
an existing trucking project with Fairbanks Natural Gas.
3:53:20 PM
JIM DODSON, Fairbanks Economic Development Council, Fairbanks,
said he supported SB 153. It's a crucial component to Fairbanks'
infrastructure in moving from staggering home heating fuel costs
($4 gallon) to a natural gas system. He said the high costs are
devastating families, homes and businesses and making Fairbanks
an economically unsuccessful community.
3:54:45 PM
BRIAN NEWTON, President and CEO, Golden Valley Electric
Association (GVEA), said it the largest producer of electric
power in Interior Alaska and serves roughly 44,000 residential
and industrial customers. Their service territory covers greater
Fairbanks and the North Pole area, extending down the Richardson
Highway to Delta Junction, and down to the Parks Highway to
Cantwell.
He said the cost of electricity is extremely high in Fairbanks
and now it is being exacerbated by the high cost of oil. It
produces only 36 percent of their power needs, but in 2011, oil
accounted for 60 percent of their fuel bill. Although they
secure as much gas fire generation out of the Cook Inlet as
possible, and purchase and spin as much power from coal as they
can, they still rely on oil for 35-40 percent of their yearly
fuel needs.
He said that GVEA is aggressively pursuing ways to replace its
oil-fired generation with alternative sources of power. In
anticipation that affordable natural gas would someday be
available in the Interior they installed an "LM6000," basically
a 737 jet engine at their North Pole expansion plant. This 60
megawatt unit is currently run on naphtha (Jet A), but it can
easily be converted to natural gas and SB 153 may help determine
whether such a conversion is economically feasible.
MR. NEWTON said GVEA watched as the Cook Inlet Recovery Act was
debated and passed in 2010; it established an incentive for
creation of natural gas storage around the state to satisfy
regional energy needs. At the time of its passage, GVEA was
investigating trucking LNG to Fairbanks from the North Slope,
but the trucking concept for a large volume of gas was not fully
developed at the time. Despite this fact, the Interior relied on
statewide provisions in the legislation and hoped that would
accommodate future Interior energy needs. As GVEA established a
partnership with Flint Hills to advance the development of an
LNG project, they reviewed the provisions of the gas storage
incentive statutes and determined some slight modifications were
needed to be applicable to their proposed project.
He explained that at the time HB 280 was passed in 2010, the
primary focus was on creating an incentive that would trigger
the development of geologic storage in the Cook Inlet to handle
seasonal peaks of natural gas demand. The legislation referenced
both geologic below ground storage and tank above ground
storage. SB 153 clarifies the same level of support for above
ground tank storage facilities.
3:58:51 PM
MR. NEWTON said GVEA didn't consider the establishment of an LNG
trucking project from the North Slope as being in competition
with a future pipeline. In fact, they believe that bringing a
large volume of natural gas to the community via truck will
allow a local distribution and customer base to develop thereby
underpinning the economics of the future pipeline. He concluded
that GVEA is prepared to work with the committee to make sure
that natural gas incentives are available to the Interior as
well as to other areas of the state.
3:59:50 PM
DOUG ISAACSON, Mayor, City of North Pole, Alaska, said he
supported SB 153 for all the reasons already mentioned, but he
wanted to add that natural gas do something else for their
communities that no one had mentioned. He said that there is a
need for clean air; North Pole has been rated the dirtiest air
this winter - largely because they have two refineries and
GVEA's 180 megawatts of diesel powered generation along with
many wood stoves. He said people are paying on average of $1,500
each month for fuel, space heating and electricity during the
winter. This is not sustainable; there is pain and they are
asking for solutions both immediate and long term. This would
show people that something credible was going to happen.
MR. ISAACSON said they have been told that the handshake from
the municipalities to the legislature looks like a hand out, but
this project will mitigate that by allowing them to attract
larger stores that presently won't come to North Pole because of
the high cost of space heating. Then they would have more of an
economy and be able to do more for themselves.
4:04:16 PM
DAN BRITTON, President and CEO, Fairbanks Natural Gas, said he
supported SB 153 for the reasons already stated.
SENATOR STEDMAN said he wasn't sure this wasn't a regular
capital appropriation request being coined in a piece of
legislation. It sounds similar to conversations with hydros that
want help with 50 percent of their costs. He said he would be
concerned if they started legislating appropriations and
reimbursements on capital projects in legislation in general and
that energy issues should be addressed through other processes.
CO-CHAIR PASKVAN thanked him for the comments and indicated that
SB 153 would be held in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 153 - Application to Fairbanks of HB 280.pdf |
SRES 2/9/2012 3:30:00 PM |
HB 280 SB 153 |
| SB 153 - Sectional - Version I.pdf |
SRES 2/9/2012 3:30:00 PM |
SB 153 |
| SB 153 - Project Overview.pdf |
SRES 2/9/2012 3:30:00 PM |
SB 153 |
| SB 153 - Sponsor Statement.pdf |
SRES 2/9/2012 3:30:00 PM |
SB 153 |
| SB 153 - Legislation - Version I.pdf |
SRES 2/9/2012 3:30:00 PM |
SB 153 |
| SB 153_Backup_Deadhorse rendering with description.pdf |
SRES 2/9/2012 3:30:00 PM |
SB 153 |
| SB 153_Backup_NorthPole rendering with description.pdf |
SRES 2/9/2012 3:30:00 PM |
SB 153 |
| SB153-Fiscal Note-DCCED-RCA-02-03-12.pdf |
SRES 2/9/2012 3:30:00 PM |
SB 153 |
| Bradford Keithley Bio.pdf |
SRES 2/9/2012 3:30:00 PM |
Gleason Decision Alternate Perspective |
| NEW_SB153-Fiscal Note-DOA-AOGCC-01-14-12.pdf |
SRES 2/9/2012 3:30:00 PM |
SB 153 |
| SB153-Fiscal Note-DOR-TAX-02-07-12.pdf |
SRES 2/9/2012 3:30:00 PM |
SB 153 |
| SB153-Fiscal Note-DNR-DOG-02-06-2012.pdf |
SRES 2/9/2012 3:30:00 PM |
SB 153 |
| SB153-Fiscal Note-DNR-MLW-02-07-2012.pdf |
SRES 2/9/2012 3:30:00 PM |
SB 153 |
| B Keithley Alternate Perspective.pdf |
SRES 2/9/2012 3:30:00 PM |
Gleason Decision Alternate Perspective |