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, according to lawmakers' estimates presented at the hearing.

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 the Department of Revenue's projection of roughly $700 million in annual taxes was based on an older $46.2 billion project-cost estimate, and that as the value of the pipeline rises, the estimate of forgone property taxes is closer to $1 billion per year. He characterized the governor's proposal as roughly a 90 percent tax cut.

The committee substitute bill proposes a phased volumetric tax structure that varies by project component and development stage. 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 when the project goes into full production. Gas producers selling to the pipeline could achieve an 83 percent internal rate of return, selling gas for $1.50 that costs 45 cents to produce, according to department estimates.

The tax reduction would lower the ultimate cost of gas by 43 cents per thousand cubic feet. But 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. Wielechowski's best-case figure assumed no inflation and $1.50 gas; the year he cited at the hearing appeared to be a misstatement given the project's expected future startup.

The bill includes provisions intended to protect ratepayers and communities. The committee discussed a $15 billion figure as the maximum amount of construction costs that could be worked into consumer rates, though members noted uncertainty about the basis for that number and the project's actual cost. The bill would also require construction of a spur line to Fairbanks. It creates two impact funds: 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, let alone the rest of the impacted areas of the state.