Senate Resources, 5/16/26, 10am

I call Senate Resources Committee meeting to order. Today is Saturday, May 16th, 2026, and the time is 10:00 AM. Please turn off your cell phones. Committee members present today: Senator Rauscher, Senator Kawasaki, Senator Dunbar, Senator Myers, Vice Chair Senator Wilkowski, and I'm Senator Giesel. I believe Senator Clayman will be along.

We have— and there he is. Great. Welcome, Senator Clayman. We have a quorum to conduct business. Heather is keeping the minutes for us, which, by the way, is a legal document.

So folks that speak and testify today, their names will go into the record. And Chloe is helping us with the audio. We have new microphones today that don't squeak, so we're pretty excited about that. And people online who are listening won't be disturbed by the squeaking. This is our 33rd hearing.

SB 280, the Supporting a Gas Line for Alaskans Act. And the Resources Committee today is meeting for the 61st time this session. I appreciate the people that have sent in public comment. I just want to say a few things here before we get started. I will tell you that I am humbled to chair this committee.

The intellectual capacity and experience of of the members on this committee. They are far smarter than I am. I think it's the finest committee in the Senate, quite frankly. I know therefore that it is intimidating when we invite people to come and speak before us. We had an individual from a nonprofit speak to us the other day, and I know that the questions are very in-depth and can be intimidating, but That's what we need from particularly the professional nonprofits that speak to us.

We have received from the Alaska Municipal League yesterday a letter of comment about Version L, and I appreciate the letter because it has specific questions in it and suggestions about improvements that we could make in the bill. That's really what we were looking for the other day from one of the other folks that testified before us. So I have asked our legal counsel, Sonya Kawasaki, to take a look at these suggestions. They have to do with the community impact issues and how the community assistance program would work. I appreciate these suggestions and clarifying questions.

So we'll address those later. After we've had a chance to look at them and possibly respond. So today, our presentation is coming from our consultant, Nick Fulford, who is the gas and LNG energy transition specialist from Gaffney Cline. Welcome, Mr. Fulford. You have a presentation to give us.

Thank you, Chair Giesel. For the record, this is Nick Fulford from Gaffney Cline, and I'm just checking that you can hear me fine. Yes, very well, thank you. Excellent. Well, good morning, committee members.

Really, I wanted to start today's presentation with a follow-up to Senator Wielechowski's question from last Tuesday, which was around the relative mill rate that would result in other jurisdictions and how significant these were.

I gave a brief response and promised to follow up. And indeed, in following up, I decided to feature another kind of secondary effect around mill rates and really this broader question of why 10-year tax holidays are often very strongly sought after by LNG projects, whether it's property tax or income tax or indeed anything else. And that theme, which I want to develop a little bit today in the context of Chanel, is around discounted cash flow. So discounted cash flow is the mechanism whereby investors evaluate the economic attractiveness of these projects by looking at the costs and the revenues that transpire over a period of years. And because of the time value effect of the money, if you like, and because early returns are more valuable than the later ones, normally this discounted cash flow approach is used to evaluate.

So really, in answering Senator Wolkowski's question, there are two ways of looking at the average tax— or the average mill rate. That projects would encounter in these different jurisdictions. The first, which is much more straightforward, is simply to take the arithmetic average of the mill rate over a period of time, and, and for my example here I've used 30 years because that's broadly speaking what we're using to look at the Alaska project, and simply average that over, over 30 years and come up with a number. The other way of looking at it, which is how an LNG developer would look at it, is, is to look at the discounting effect as you go forward. So for example, if you discount cash flow at 10%, after 10 years the value of the money decreases to about a third of what it was on day one.

And after 20 years, it's just above 10%. So I think the big thing to take away from this discounted cash flow or DCF analysis is that the economics of these LNG projects in the first 10 years is typically what drives the economic value and whether it passes the kind of you know, passes muster. So looking back at the examples in Texas and Louisiana, by applying a discounted cash flow methodology to the mill rate as you go forwards, this brings down the average mill rate quite significantly. And particularly in Louisiana, for example, where there's a complete tax holiday for the first 10 years, it reduces it still further. So for this example, the arithmetic average over 30 years for Texas would be 16.7 mils, using the upper bound of 20 mils for the post-10-years resumption of property tax.

And for Louisiana, it's 6.7 mils, which is really zero for 10 years and then 10 for 20. So applying a DCF methodology to that, Texas comes down to 4.2 mils and Louisiana comes down to a 1 mil average. And I think part of Senator Wielechowski's question was, you know, where these averages would sit in the context of the property tax here in Alaska. So, so with that background, I'll pause for any questions on that slide, which is specific to Texas and Louisiana. But, but with that, I wanted to continue those themes and look at version L in a little bit more depth.

All right, I'll start with Senator Kawasaki. Thank you, Madam Chair. Thanks for being online again this morning. I did have a question because at a prior iteration of this entire gas line discussions we had, we talked about, you know, the reason why this tax holidays are important for producers is because they have a, a big amount of risk. And that risk means that, you know, somebody's got to take that risk.

But it means that the risk for project failure also will be on the state for those 10 years. Can you just talk a little bit more about the risk transference when it comes to cash flow?

Thank you, Senator Kawasaki, and through the chair. Obviously, people have written books about this sort of thing, but broadly speaking, from a project perspective, the project developers need to attract capital. And both the equity investors and indeed the lenders to the project will make an assessment of risk and they will put a price on the debt and their equity with that in mind.

And without going into too much detail, with this project, Since most of the capital is being deployed in, in, you know, midstream infrastructure, and potentially the source of tariff income for, for that infrastructure is from well-capitalized LNG buyers, for example, producers. So in that, in that sense, the risk would be perceived as a kind of a medium risk.

And that, that's roughly where the rates of return for the LNG project would be set. You know, we've talked about this 10% rate of return. For the state, the risks are different and so is the cost of capital. And one of the themes we'll return to perhaps in, in the latter slides is that the cost of capital for the state or indeed any government is typically considerably lower than that which would apply to an investor in the project. So the other factor, of course, which is hard to put a number on is that the risk of failure, if you like, for the state is not just a financial one, it's a— standard of living one.

It's to do with jobs. It's to do with cost of living. And that side of it is much more difficult to quantify. So I think I'll rest my comments there, but it's clearly a wide topic which I'm sure we'll come back to as the bill proceeds and and so forth. Thank you.

Thank you. Senator Myers. Thank you, Madam Chair. So, Mr. Fulford, yesterday Mr. Stickell was going over a bit of a difference in the out years between going back to current law for the property taxes versus staying with the AVT. And he was showing us that with the AVT, because we have the CPI escalator in it, that we actually end up making a little bit more money in the out years, as opposed to the property tax where he was going off the assumption that inflation and, and depreciation would approximately cancel each other out.

I don't know enough about the building industry to know how accurate an assumption that is, but, um, does your discounted cash model change if we go off of the AVT with an inflation adjuster in it compared to the property tax model?

Thank you, Senator Myers. Through the chair, one of the differences between the AVT and property tax is certainty. And I would say in general the AVT cash flow is more certain than the property tax cash flow. And I think even the other day we talked about the potential for litigation, for kind of reopening the determination of taxable value and so forth.

So technically, if if a cash flow is more uncertain, you would apply a higher discount rate to it. So there's two elements to the question. One is the actual cash flows which result, and the other is how an investor would treat them. And both are different. And as I say, I think— and bearing in mind that we're talking way down the line here, so the relative importance to any developer is going to be second or third order.

But anyhow, that being said, the, the discount that you would apply to a property tax cash flow stream might be higher than for an AVT because of the uncertainty. Okay, thank you. Senator Wilkowski. Is the 10-year provision that we have in this current version where it snaps back to allowing municipalities to apply their property taxes as they currently do. Is that an unreasonable provision in light of the fact that in the lower 48 that seems to be the standard?

Thank you, Senator Wielechowski. Through the chair, the reasonableness or otherwise of that provision I think has to be looked at in the context of what comes in the first 10 years. In Texas and Louisiana, and certainly Louisiana, there's an entire forgiveness of property tax in the first 10 years. And so you could argue then that returning to the status quo for the latter 10 years is a perfectly reasonable outcome. And, you know, as we discussed, from the, the impact on the developer is, is relatively modest.

The big difference here, of course, in Alaska is that that there is an AVT which applies in that first 10 years. So therefore, the reasonableness of putting it back to property tax after 10 would have to be looked at in that context in terms of its— we're not comparing apples to apples.

But again, as I've said, whether you continue with the AVT after 10 years or whether you reimpose property tax after 10 years, Again, it's, it's really what happens before that that's, that's going to be the pivotal question for the LNG developers, I think. Follow-up?

I think I'm more interested in, from the financial perspective, is 10 years a reasonable time in Alaska to give a property tax break and then have it snap back to an increased property tax? I think that was more where I was. Mm-hmm.

Thank you, Senator Wieleckiowski. Through the chair, based on numerous examples around the world, some kind of 10-year forgiveness or reduction followed by a return to the status quo, you could argue that's a pattern that many LNG projects follow.

Further questions? All right, seeing none. That, by the way, for the audience who are listening, was slide 3 of Mr. Fulford's presentation. Mr. Fulford, back to you.

Thank you, Chair Giesel. So moving on to slide 4, what I've, what I've done on slide 4 is On the left-hand side of the page is an undiscounted cash flow forecast. This should be exactly what you've seen from Department of Revenue.

And if you add the numbers up, I think they'll correspond to what you've been hearing from DOR. So that's an undiscounted property tax. Just over $23 billion, undiscounted volumetric tax over 30 years of $21 billion. And the— comparing the two, there's a saving of about $2 billion, which obviously is quite material in the context of any kind of calculation. And if you compare that with the discounted— the undiscounted property tax, that's a saving of 8.6%— 8.6%.

Roughly a 9% saving. What I've done on the right-hand side is that I've applied the discounted cash flow principle to both the property tax and the volumetric tax. And by applying these discounts, as I say, which they tend to, you know, ramp up fairly quickly, as I say, about a third after 10 years and just over 10% by '20. So applying that, you see you get a much lower discounted value for these cash flows. So the discounted property tax comes to just under $4 billion, and the discounted volumetric tax comes to $3.2, roughly, billion dollars.

The, the interesting takeaway, though, from this slide is that the saving in the eyes of the developer using this TCF approach, and obviously they may well use something different, but using this TCF approach, you move from a saving of 8.6% in the undiscounted version to a saving of 20% in the discounted version. And the, the reason for that is that the differences between conventional property tax and the AVT in that first 10 years, as you can see from the graph on the left, are quite material. So when you look at the benefits of the AVT inversion at L, you can see that the benefits of that saving in the first 10 years show through much strongly when you start to look at discounted cash flow. So the other two slides I have today, they kind of show different examples or scenarios using the same approach. But if there are any questions on this slide, I shall pause there.

Senator Wielekowski. Thank you, Madam Chair. It's been a while since I was in a finance class, but explain this to me like I'm back in high school.

Thank you, Senator Wielechowski, and I'm aware that for folks watching at home this might seem a little bit too much like magic. So for the graph on the left, I've simply taken the nominal dollar values as you move from really from the decision to move ahead with the project right through to 30 years hence, which is the modeling horizon that we've used.

And so in a sense, that's a fairly straightforward analysis, and it reflects probably the majority of the analysis that we've seen from, from DLR and elsewhere. So for the graph on the right, I've multiplied each year's property tax or volumetric tax, as the case may be, by a discount. So the discount increases every year. So in year 1, there's no discount. In year 2, it's roughly a 10% discount.

And in year 3, it's, you know, something like 18%, and so on and so forth. So each year, the discount is multiplied by 0.9. And so I'm using those discount factors to apply to the bars that you can see on the right, each one individually. And I'm putting a bar on the graph on the right corresponding to that discounted number. So, so the effect is, is a kind of an exponentially reducing amount of cash owing to this each year multiplying by 0.9.

That's probably not the clearest explanation, but I'm sure it's one that will develop.

Follow-up? So I think what you're saying is that when you factor in the discounted rate of money and the 10% discount, that we really should be looking at the graph on the right. And that there's a 20% discount, which is a fairly significant— I'm not trying to put words in your mouth, but is that what you're saying?

Thank you, Senator Warkowski. That was a very good summary. I think, and perhaps as a general comment, it's easy to look at some of the financial projections that are driven by the pure arithmetic But it is important to remember, which really is the subject of today's discussion, that for an investor, for a lender, for a commercial entity, really it's the graph on the right that will be more important to them than the graph on the left, which I think is effectively what you said.

And just maybe one last question. Further follow-up, Senator Wilkowski. So is— would you say that what we're doing in this version is, is a material discount that will beneficially impact the project?

Thank you, Senator Wilkowski. Through the chair, one of the ways I like to look at this project And, and has been evident in some of my slides and testimony is what does all this do to the cost of delivered LNG to Asia? Um, and when, when we're calculating that number, it's the graph on the right that's used to calculate that number. And so from my perspective, in terms of that overriding question about the competitiveness of the project and the ability to deliver LNG profitably and, and equally deliver value to the state, it's, it's that discounted value that I look at. And if you apply this example you have in front of you, effectively, in the context of the competitiveness of the project, what you have in version L is a 20% discount on the property tax that used to apply or would apply if it was applied today.

Further follow-up, Senator Wilkowski. It is, and we're all trying to get to what the discount needs to be. We, you know, and as Jay Hammond said, you don't want to give a penny more. And I mean, is this the number that you think gets us there?

Thank you, Senator Wielechowski. And to be quite frank, I think these AVT numbers continue to represent quite a significant challenge for the project.

Comparing the delivered cost of the gas to the U.S. Gulf Coast or competing projects, we know that it's in a very narrow range of profitability. So whether a 20% discounted cash flow number, as we show on the right, is enough to get the project to profitability, I think it remains to be seen. And as we discussed many times before, there continue to be quite significant uncertainties, certainly from a public perspective, surrounding the key economic parameters of the project, including the capital cost.

Senator Myers. Yeah, thank you, Madam Chair. Um, Mr. Fulford, just a question on labeling of the graph. You've got labeled blue existing property tax and orange the AVT. Um, are those backwards?

Because otherwise I'm seeing the AVT is more money than the property tax.

And yes, So I do apologize, Senator Myers. I do believe those labels are backwards. Okay, thank you. The orange is the property tax.

Thank you for pointing that out. Oops. Okay, thank you.

Further questions on this slide? Senator Clayman. Not a question, but just a comment. Mr. Fulford, I want to thank you for picking colors that are easy to distinguish.

I was listening.

Even if they may be labeled incorrectly.

Further questions for Mr. Fulford? Seeing none, we'll move on then to slide number 5.

Okay, thank you, Chair Giesel. And I think, you know, with slide number 5, we start to get on to some of the more interesting scenarios which perhaps create pause for thought. So what I've done on slide 5, it's the same analysis and I do believe the colors are actually the right way around on this slide.

Yes, the colors are the right way around on this slide. So what I've done with this analysis, I've said, well, let's keep the state and municipal revenue at $21 billion, but instead of ramping up during the first 10 years, let's spread that tax revenue over years 10 to 30. And so effectively this represents not really a tax holiday but a delay in tax collection. And not surprisingly, if you work this through and if you apply those discounted numbers that I had on there before, you move from a saving of 8.6% nominally or 20% from the discounted perspective, and it moves right up to a 65% saving over what would have applied under version— well, under the existing property tax, I should say, and certainly about another 40% saving over what's currently in version L. So, um, so in, in, in, in moving the tax from years 1 to 10 to years 20 to 30, from a DCF point of view, uh, you are starting to quite materially move the economics of the project. And equally, you're quite materially shifting that delivered cost of LNG to Asia.

So the, the question for the state, I think, and the municipalities is, well, what to do about that first 10 years. Because clearly, being without tax revenue for 10 years is a major structural challenge for the state. But putting that aside for a moment, what this does show— and what I like about this slide is that it illustrates so clearly why Texas, Louisiana, elsewhere, why these 10-year tax holidays of one sort or another are so key. Because from a discounted cash flow perspective, it moves such a lot of the value into the back end of the project and moves such a lot of value back into the front end, which is really what drives investors and lenders.

I think illustratively, I think this is a useful slide. It just shows the very material impact on the project of removing cost from the first 10 years. And, you know, it is a useful illustration to be able to work from.

So the final slide I have—. Please pause for a moment, Mr. Fulford. Of course. On slide 5, Senator Clayman a question. I just want to make sure that the mislabeling is also present on slide 5 so that the, the orange is existing property tax and the blue is AVT.

No, I, I think, Senator Clayman, through the chair, I think the, the incorrect labeling was just on that slide 4. So in, in this example, in order to recollect, if you like, the tax that would have applied in years 1 to 10. The orange bars there, the AVT, that would correspond to about $960 million of tax over that 20 years. And the reason it's higher is because effectively you're not only collecting the AVT for or property tax for those years, you're also collecting the tax that wasn't being paid in the first 10 years. So, so that's why that number goes up.

And as I say, it's just near enough, it's $960 million a year required to make sure that the nominal ABT collected is, is just over $21 billion as it was in, in the previous years.

But the labeling, I believe, is correct. Seeing no questions, we're ready for slide 6.

Thank you, Chair Giesel. So with slide 6, I've taken it a step further, and I've said, well, let's say we just leave property tax untouched, but we suspend it for 10 years. And then in suspending it for 10 years, you simply defer that tax revenue to the following 20 years and you add it on. So in this example, the post-10-year tax collection comes to $1.05 billion a year from years, essentially, 11 through to year 30.

And what you notice is that even though you're collecting another $2 billion of tax revenue for the state and the municipalities, the discounted saving only moves from 65% on the previous slide to 63%. So you're losing about 2% in discounted saving compared to the AVT, which was on the previous slide. So as I say, this all begs the question, um, how do you address the lack of tax income over that first 10 years? And the answer to that question is, well, the state could borrow that income and use the $1.05 billion a year from, from, uh, year 11 onwards to, to pay it off and fund it. But of course the state would have interest charges as a result of that, but certainly the state has the creditworthiness to enter into some kind of financial arrangement to cover that off.

So from— and again, I'm getting into an area that really isn't my specialty. It's the sort of thing that I'm sure Department of Revenue would have considerably more insight on, but The cost of debt for the state is typically, I think, about 3% depending on the type of debt. The discount rate that we're applying to the cash flows here is 10%. So right there you have this very different perspective of DCF from a project point of view and potential lending by the state from the other point of view. So I'll leave it there because, you know, to take this concept further I think would require, you know, some quite significant research around the policy avenues that the state would have available to it if it were to offer a tax holiday.

And clearly we're departing very significantly from the bill that's in front of us anyway. But simply as an intellectual exercise, if you like, I think running you through the implications of a 10-year tax holiday and the time value of money I think is perhaps helpful in the context of the current version and where to go with it. Happy to take questions. Thank you. Are there questions for Mr. Fulford?

I don't see any, Mr. Fulford. Thank you. Okay. Thank you. Thank you, Chair Giesel.

Yes, thank you for your presentation.

All right. I am going to invite our Senate Majority Counsel forward, Sonya Kawasaki. She has— as I mentioned earlier in the meeting, we have received a comment letter from the Municipal League, and I had asked Ms. Kawasaki to take a look at these sections and prepare a response to the suggestions that the Municipal League has made for consideration in version L. So we'll give her a moment to come up forward. Brief edis.

I call Senate Resources back to order. We're going to slightly adjust what we're doing here and set the comments from the Alaska Municipal League aside for a later discussion. Instead, we have before us an amendment from Senator Myers related to previous amendment that he— that we had set aside. So, Senator Myers. Thank you, Madam Chair.

So again, thank you for the time. We got this back from legal about 5 minutes after the meeting started this morning. Um, so I'm going to go ahead and officially move to withdraw G3 that I had previously, and then I will move, uh, Amendment L4. Thank you. And I'll object for purposes of a discussion to Amendment L4.

Senator Myers. Okay, thank you, Madam Chair. So after all of the discussion yesterday, um, Effectively, this amendment does 3 things. On the second page of the amendment in line 4, we are— legal moved it to a slightly different section of statute than what we had been discussing yesterday, but they did— we used the language that Senator Dunbar had suggested, saying that we are exempting a spur line that services a Fairbanks natural gas utility. That applies to the state petroleum property taxes.

The second thing it does at the top of the first page there from lines 3 to line 5, we are going into Title 29 for the municipal portion and giving the municipality the option to exempt all or part, up to them, of the tax for the Fairbanks Spur. So that's going to be up to the And then the third thing it does with all of these additions and subtractions of sections, all the way at the end, it subjects both of those provisions that I mentioned to the rest of the repealers in the bill. So as of right now, we've got the repealer that repeals the whole thing in 10 years, goes back to current law. These portions are subject to those repealers as well, as well as the conditional repealers of if they don't if they don't start construction certain timelines and things like that. So all of those, all of the reversionary clauses that we had in the bill already, these provisions are subject to.

So I believe that's what the will of the committee was moving towards yesterday. So that's what we, what we worked on with legal. As I said, went into a little bit different sections of law than originally, but that was their suggestion, not mine. So Very good. Thank you.

Are there comments from committee members related to the amendment?

We'll take a brief at ease while individuals review the amendment.

Back on the record. Are there comments on Amendment L4?

I will remove my objection. Is there further objection to the adoption of Amendment L4? Seeing none, Amendment L4 has been adopted to version L. Thank you, Senator Myers, for bringing that forward and for working so diligently on it. To get it perfected.

That concludes our agenda for today. Our next meeting will be this afternoon, and at that time I do want to review the suggestions made by the Alaska Municipal League. Their suggestions relate to the Community Assistance Program and how the distribution of funds would be made. It's kind of an important part of our bill. The Department of Revenue has been asked to do modeling, significant amount of modeling.

Their hope, their aspiration was to be ready by this afternoon. They will not be ready until Monday. So they will not be available this afternoon. So after we review the Municipal League's comments, I'm going to open public testimony this afternoon. That will be as we usually do.

It's a 2-minute— for folks, it will open— well, at 3:30 the meeting will convene. We are going to look at AML's comments, and however long that takes, it may take 15 minutes, it may take 30, I don't know, but after that we will open public testimony. So at this time, I will adjourn the 33rd hearing. Of Senate Bill 280, and we will reconvene again at 3:30 this afternoon. Let the record reflect the time is 10:45 AM.