Senate panel examines regulatory questions on gas pipeline tax plan

The Alaska Senate Resources Committee on Friday examined complex questions about regulatory jurisdiction and tax structure for a proposed natural gas pipeline project. Members probed whether federal or state authorities would oversee different phases of construction.

The committee heard testimony from Nils Andreesen, executive director of the Alaska Municipal League. He said local governments want the ability to negotiate directly with project developers. Andreesen said the original version of Senate Bill 280 went too far in restricting municipal revenue authority. The current committee substitute may have overcorrected in the opposite direction.

"There is probably a sweet spot in the middle that gets to a project that is economic and ensures some benefit to Alaskans," Andreesen said.

Bill creates alternative tax structure

The bill would create an alternative tax structure for what it defines as qualified property. That means an Alaska liquefied natural gas project and related infrastructure owned or financed by a state instrumentality. Under the proposal, the property would be exempt from state and municipal taxes during construction. It would remain exempt during a ramp-up period after commercial operations begin.

Once the pipeline reaches throughput of 1 billion cubic feet per day or after 10 years, whichever comes first, an alternative volumetric tax of 6 cents per 1,000 cubic feet would replace traditional property taxes. That rate would increase by 1 percent annually.

Questions arise over regulatory jurisdiction

Committee members questioned whether the Federal Energy Regulatory Commission or state regulators would have jurisdiction over a pipeline that initially operates only within Alaska. The project envisions a two-phase approach. First, builders would construct an 807-mile pipeline from the North Slope to Southcentral Alaska. Later, they would add a liquefaction facility in Nikiski for exports.

Frank Richards, representing a project participant, said FERC approved the project in 2020 as an integrated system including the pipeline, gas treatment plant, and export facility. He said FERC recognized the construction would occur in phases and is now considering an implementation plan for phase one.

"FERC knew that the construction execution was going to be done in various phases based on the components," Richards said.

But Senate Majority Legal Counsel Sonja Kawasaki said it remains unclear whether FERC has jurisdiction over a pipeline that would operate for years as an intrastate facility before any export capability exists. She said the Regulatory Commission of Alaska indicated in written responses that FERC has not considered the scenario of only phase one being built.