Senate panel advances gas pipeline bill with reduced community payments

The Alaska Senate Resources Committee on Thursday adopted a substitute for a major gas pipeline bill after cutting community impact payments by three-quarters and incorporating the governor's proposal to raise oil taxes.

The committee adopted the substitute for Senate Bill 280 as its working document. The new version reduces community impact payments from the original $800 million proposal to $200 million. It requires a $50 million upfront payment plus $30 million annually for five years, replacing the earlier plan of $1 million per mile of pipeline.

Chair Cathy Giessel said the committee substitute combines SB 280 tax provisions with SB 275 policy provisions, merging what had been separate tax and policy bills into a single piece of legislation.

The substitute incorporates the governor's proposal from Senate Bill 227 to raise the gross minimum oil tax floor from 4 percent to 6 percent. The increase would apply to all oil produced on the North Slope beginning Jan. 1, 2027. Dan Stickle, chief economist with the Department of Revenue, told the committee the change would generate an average of $137 million annually through fiscal year 2032.

"We're estimating under the spring revenue forecast, holding all else equal, no changes to company behavior, a $71 million increase for fiscal year 2027," Stickle said. "That represents a half year of impact, and then an average of $137 million of increase for fiscal years 28 through 2032."

The bill establishes a $15 billion threshold for pipeline cost overruns that cannot be passed to Alaska consumers. Committee members questioned how the provision would work in practice. Legal counsel acknowledged uncertainty about whether the threshold was set above or below expected project costs.

"At the time that we requested this figure to be set into the bill, I don't know that we really thought the cost would be over $15 billion, and we were trying to set a firm figure to it," said Sonya Kawasaki, Senate Majority legal counsel. She added that if the developer indicates the cost will be lower than $15 billion, "it would be in the interest of Alaskans to lower the dollar figure that we have in the bill right now."

The substitute caps consumer gas prices at $12 per thousand cubic feet after completion of the Phase 1 pipeline and $5 per thousand cubic feet after an LNG export facility begins operations. Stickle said the bill would result in a break-even price of $4.78 for in-state gas, compared to $4.86 under current law.

The alternative volumetric tax would be set at 6 cents on both the gas treatment plant and the pipeline during Phase 1. Once Phase 2 is reached, the tax would increase to 10 cents on the gas treatment plant and 15 cents on both the pipeline and LNG terminal. The tax would sunset 10 years after LNG exports begin.