SB 203-COOK INLET GAS STORAGE FACILITIES  CO-CHAIR WIELECHOWSKI announced SB 203 to be up for consideration. 5:06:59 PM SENATOR FRENCH, sponsor of SB 203, said it is targeted at solving a specific problem in Cook Inlet by creating an emergency store house of natural gas for times of shortage during peak demand winter months when the current gas deliverability doesn't keep up with demand. Should there be a valve or compressor problem, brown outs might be seen in Anchorage and across the Anchorage Bowl. About a week ago the Regulatory Commission of Alaska (RCA) took up the question of whether such a facility would be regulated by itself, Senator French said. It was brought by a company known as Sing's Cook Inlet Natural Gas storage, a subsidiary of TransCanada. Sing's asked for a declaratory judgment that they not be regulated by the RCA, who came back saying that their statutes did not provide explicit authority to regulate natural gas nor did they definitively set natural gas storage outside of their jurisdiction. They were puzzled and said either the Supreme Court would have to decide or the Legislature would have to act. So, this bill has a provision that says, yes, those facilities will be covered by the RCA just like practically every other well or production facility is in the Southcentral Basin. He pointed out that on page 8 of the Order the commissioners wrote that all interested persons agreed that storage in the Cook Inlet area is a serious or even critical need even though they didn't agree, 50/50, on the RCA's jurisdiction. They also agreed that the time available to meet that need through construction of a storage facility is short. The bill essentially works with a tax credit much as the one they just looked at, but at 20 percent against capital expenditures which is smaller. SENATOR FRENCH said he thought it was important to do something although there wasn't any point in extending a 20-percent tax credit to a company that is ready to push on through to the goal line, but he is concerned that ideas like this get half way down the field and then suddenly the industry loses interest and wanders off. 5:10:39 PM SENATOR WAGONER commented why give someone a tax credit when they are already going forward with their project and they haven't asked for one, yet. He wanted to know how the 20 percent tax credit was different from the 20 mil levy on industrial capital improvements and how that would affect the city and borough's ability to get revenue. 5:12:35 PM JIM GREELEY, State Petroleum Property Assessor, Department of Revenue (DOR), explained that the bill has two incentive provisions, one for corporate income tax and one for property tax. The property tax incentive exempts state property tax by defining gas storage property as not taxable. Therefore, he suspects the local jurisdiction, in the case of the Kenai Peninsula Borough, would still be able to tax locally up to the 1.4 percent; and the difference between the 1.4 percent and the 2 percent state levy would be the incentive. 5:13:17 PM JOHANNA BALES, Deputy Director, Tax Division, Department of Revenue (DOR), explained that the provision exempts the gas storage facility from the oil and gas property tax, but the tax credit itself in this bill is against the corporate income tax. There is no effect on the state's property tax and no effect on the borough's tax either. SENATOR WAGONER asked to have that clarified in writing. 5:14:12 PM SENATOR STEDMAN said just in general, creating an incentive when it's not clear that one is needed in all cases needs to be looked at. 5:15:34 PM BRADLEY EVANS, CEO, Chugach Electric Association, said the association is heavily dependent on Cook Inlet natural gas to fuel its thermal power plants; about 90 percent of the kilowatt hours are produced from gas. They have approximately the same usage level as Enstar. Through their own analysis and contract negotiations they have concluded that storage is needed in Cook Inlet for security of deliverability and reservoir enhancement - where gas could be "parked" in the low usage months of the summer to keep the wells at or above their minimum producing level. He said they had been working with Enstar, Municipal Light and Power, and Sing's for the gas storage facility and they intend on executing a contract for that. MR. EVANS said however, they need to get timely approval of storage contracts. Delays in the regulatory process can discourage people from doing business. He explained that as a utility they need to ensure that they will be able to recover their costs; that also needs to be addressed in the regulatory environment. And if they do contract for volume of storage, they need certainty that it will be there for the long-term. He said the timeline for Sing's project is critical because they may have winter deliverability problems as soon as 2012. They are on record with the RCA saying that they think the gas storage facility should be regulated under AS 42.05. Chugach Electric doesn't like the disruption of the regulatory process, but they like the protection that it provides. CO-CHAIR WIELECHOWSKI asked if he thought this incentive package was needed or will they go ahead without it. MR. EVANS replied that putting this facility into service is relatively expensive, and maybe the subsidy should flow through to the consumer rather than into the corporate end of the arrangement. "It doesn't seem to make sense at this point." He also said he would like to revisit that if it becomes apparent that an incentive is the only way it will happen. 5:19:55 PM SENATOR WAGONER said when he talked about Enstar being the customer he meant for residential uses, but he also said "and other industrial users." He asked if it was true that three different places are being looked at for storage in Cook Inlet - one of them being Cannery Loop. MR. EVANS said he didn't know for sure, but very probably. The problem is with the size of the facility and the risk of going it alone. He has joined forces with Enstar and Municipal Light and Power to share the risks, but they are all on a parallel track to evaluate other places because it is a prudent thing to do. SENATOR WAGONER asked if one was Cannery Loop. MR. EVAN answered no. SENATOR WAGONER asked which storage facility he was talking about. MR. EVANS said he was bound by confidentiality agreements from discussing that. CO-CHAIR WIELECHOWSKI noted there were a lot of raised eyebrows in the room. Finding no further comments, he closed public testimony and adjourned at 5:21 p.m.