Alaska Senate panel hears gas line bill with $900M annual tax break

The Alaska Senate Finance Committee heard testimony May 20 on a gas pipeline bill that would cut annual taxes on the project while the developer could earn nearly $5 billion per year once the project reaches full production.

The committee examined HB 280, titled the Supporting a Gas Line for Alaskans Act. The bill would replace the standard 20-mill property tax with an alternative volumetric tax structure.

Senator Bill Wielechowski said the governor's proposal for a uniform 6-cent-per-thousand-cubic-feet tax would reduce annual taxes to approximately $74 million. He said current property tax projections approach $1 billion per year. He characterized the governor's proposal as roughly a 90 percent tax cut.

The committee substitute proposes a phased volumetric tax structure. During Phase 1, when only the pipeline and gas treatment plant operate, both would be taxed at 6 cents per thousand cubic feet. In Phase 2, when the LNG export facility comes online, the tax would increase to 10 cents for the gas treatment plant and 15 cents for both the pipeline and LNG facility.

The Department of Revenue projects the developer, Glenfarn, could earn approaching $5 billion annually at full production. Gas producers selling to the pipeline could achieve an 83 percent internal rate of return, according to department estimates.

Southcentral Alaska consumers could face gas prices of $22.96 per thousand cubic feet under the best-case scenario described by Wielechowski, more than double current rates of $10 to $13.

The bill would cap construction costs that could be worked into consumer rates at $15 billion. It would require construction of a spur line to Fairbanks. It creates a one-time $50 million construction impact fund and a $30 million annual statewide impact account for five years.

Senator Lyman Hoffman questioned whether the impact funds would adequately address community needs. Hoffman said that if he were Fairbanks and the line was going to be built over 5 to 10 years, $50 million would not even address the concerns that Fairbanks might have.

The bill would distribute tax revenue among the state and affected municipalities. The gas treatment plant tax would be split 50-50 between the North Slope Borough and the state. Pipeline tax revenue would be split 50-50 between corridor municipalities and the state. The LNG plant tax would be divided 50-50 between the Kenai Peninsula Borough and the state.

The tax structure would revert to standard property tax after 10 years of LNG exports. The bill includes contingency provisions that would restore prior property tax law if construction does not begin by January 1, 2028.