Gas line tax break requires Fairbanks spur line under HB 381

The Alaska Legislature's conference committee has written a spur line commitment for Fairbanks into the conditional-effect clause of HB 381, meaning the alternative tax structure for the Alaska LNG project takes effect only if the commissioner of revenue determines the developer has committed to construct a lateral line serving the City of Fairbanks and the Fairbanks North Star Borough, among other conditions.

Fairbanks residents currently pay between $24 and $26 per thousand cubic feet for natural gas, trucked down from the North Slope. The spur line requirement is one of several conditions the developer must satisfy before the tax structure takes effect. Others include a $40 million payment to the state within 60 days of a final investment decision on Phase 1, a binding commitment to require project labor agreements for both phases, and a requirement that the state and municipalities receive at least 180 days to decide whether to exercise an equity option after a Phase 1 final investment decision.

The spur line must be sized to meet projected residential, commercial, and industrial demand in the Interior. It must begin operations within two years of a major project component reaching commercial operations and must connect to local distribution infrastructure already serving Fairbanks. Department of Revenue Chief Economist Dan Stickel told the Senate Finance Committee that the plans "have to connect into the local Fairbanks infrastructure" and cannot bypass the local market to serve only an industrial customer or military base. The bill also requires the spur line to be designed and operated to deliver gas at the lowest reasonable cost consistent with safe and reliable service.

Cost Allocation

Construction costs cannot be allocated solely to Interior customers. The bill spreads those costs systemwide. Matt Kissinger, testifying before the Senate Finance Committee, said Southcentral Alaska would pay rates to underpin the spur line but noted that growing Fairbanks demand "will lead to lower prices sooner even for the South Central customers."

Permitting Requirements

The bill requires the developer to commit to beginning all necessary permit applications in good faith on or before completion of Phase 1 of the main pipeline, and to take action on any other regulatory requirements necessary for construction of the spur line. If the Regulatory Commission of Alaska has tariff jurisdiction over the spur line, the developer must also initiate a tariff proceeding and file for systemwide tariff treatment backed by an economically viable gas sales contract.

Governor Mike Dunleavy said the bill "would also make the tax relief conditional on a number of things, notably the construction of a spur pipeline to Fairbanks."