Dunleavy warns of 45-cent power without gas-line tax deal

Governor Mike Dunleavy told reporters Friday that Alaska has three weeks left in the legislative session to pass a tax bill he says is critical to financing the North Slope gas pipeline. Without it, he warned, the state could face electricity costs of 35 to 45 cents per kilowatt hour within five to 10 years.

On February 28, 2024, Dunleavy announced SB 280 and HB 381 to replace the existing oil and gas property tax on the Alaska LNG Project with a payment-in-lieu-of-taxes structure based on gas throughput rather than pipeline assessed value. The bill would exempt the project from property taxes during construction through first gas, then hold property tax in abeyance during a ramp-up period until the project reaches an average of 1 billion cubic feet per day of throughput over 30 consecutive days, or 10 years after first gas, whichever occurs first. Once the project reaches that threshold, the state would impose a volumetric tax starting at six cents per thousand cubic feet of gas, with the rate increasing 1 percent annually.

The governor said the property tax conversion is essential to make the roughly $40 billion project financeable for investors. Without it, he said, Alaska will be forced to import gas at prices that could quickly climb from $10 per unit to $18 or higher.

"You might go from $10 a unit gas in the Lower 48 or Canada quickly to 12, 14, 15, 16, $18 gas," Dunleavy said. "And what does that mean? You're looking at 35 to 45 cents a kilowatt hour five to 10 years from now on the rail belt, especially in places like Fairbanks, Alaska."

The current Power Cost Equalization base amount for rural communities is 20.38 cents per kilowatt hour.

Dunleavy also argued that higher urban power costs would drive up rural electricity subsidies. "You drive rates down in urban Alaska, you will drive rates down in rural Alaska," he said. The Power Cost Equalization program, managed by the Alaska Energy Authority, provides economic assistance to eligible rural communities with extremely high electricity costs by paying part of residential and community facility power bills. The Regulatory Commission of Alaska adjusts the PCE base amount through a formal docket process using the weighted average cost of residential energy sales in Anchorage, Fairbanks, and Juneau.

Andrew Jensen, policy advisor for the administration, joined Dunleavy at Friday's press conference to discuss a recent PCE adjustment. Jensen explained that the PCE formula is weighted, with about 80 percent of the rate driven by costs in Anchorage and Fairbanks. On May 1, the RCA raised the PCE rate by nearly 10 percent, from 20.38 cents to 22.11 cents per kilowatt hour. Jensen said every one-penny change in the urban rate translates to a $1.5 million impact in PCE communities, meaning the approximately two-cent increase would reduce support for rural power rates by $3 million.