Alaska Legislature: Senate Finance - June 15, 2026 1:30pm

We call Senate Finance Committee to order. Today is June 15th. It is 1:30 in the afternoon.

Present today, Chairman Olson, Chairman Steadman, Senator Keehl, Senator Merrick, Senator Kaufman, Senator Cronk, and myself, Senator Hoffman. Today we have two items on the agenda today. Senate Bill 2001, the Gas Pipeline Volumetric Tax, and HB 381, Oil and Gas Property Tax. So we'll start off this afternoon with HB 381 and invite the Department of Revenue, Mr. Dan Stickel, to the table to introduce himself and tell us exactly what HB 381 accomplishes.

Mr. Chairman, members of the committee, Dan Stickel, Chief Economist with Department of Revenue, for the record. So I have a pretty expansive slide deck. A lot of it is similar material to what I presented last week and the week before for Senate Bill 2001. So there's a little bit of repeat, and I'm happy to go through the content as quickly or as deliberately as the committee Committee would like. You look very fresh this morning.

Got a good weekend's rest? Mr. Chairman, I did take one day off this weekend. It was excellent. You deserve more. Please continue.

Slide 2 is our list of acronyms that we use throughout the presentation, similar to what we've been presenting. Slide 3 is the overview. So for folks that have seen my presentations before on the gas line bills, this is going to look very familiar. We'll start with a little bit of property tax background, walk through the proposed legislation and the revenue impacts for the fiscal note. We'll talk about implementation costs for our fiscal note.

We'll walk through detailed project modeling. And then at the end of this presentation, we have some supplemental slides that were requested by committee that walk through in detail some of the complexities and nuances of the alternative volumetric tax calculation, both in House Bill 381 as well as a comparison to Senate Bill 2001. Before we continue, we are joined by 3 distinguished senators: Senator Kawasaki, Senator Bjorgman, Senator Myers, and Senator Diesel. I forgot to acknowledge them before we started the meeting.

Welcome, Mr. Stickel. All right, so slide 5 is just a little bit of background on the property tax for the folks watching at home or anyone who hasn't been living and breathing this for the last several months. So the, the state levies an oil and gas property tax on the value of taxable exploration, production, and pipeline transportation property in the state, and this tax is really the essence of what's being addressed through through all of these various iterations of the AK LNG bills. So it's a 20 mils tax or 2% of assessed value, and that assessment is done centralized by the State Department of Revenue. We manage the appraisal and assessment process for all oil and gas property in the state, and then any municipal oil and gas property taxes are allowed as a credit against that state tax.

And different municipalities in the state have different tax rates. But at the end of the day, it's a 20 mills or 2% tax is what's paid regardless of location in the state for all oil and gas property currently. One item to note is the definition of oil and gas property for our tax does not include an LNG export plant. So under current law, the gas treatment facility and the pipeline of the AK LNG project would be subject to state property tax and local property tax. Under current law, for the LNG plant in Nikiski, that would only be subject to local property tax, not state property tax.

And so the current law property tax on that piece of the project would be less than the 20 mils.

So what does the bill before the committee do? Disclaimer on slide 7: our analysis and interpretations are preliminary, don't represent binding interpretation or tax guidance for on down the road. We are analyzing the committee substitute, the House Committee substitute for 381 with the amendment as it passed out of the House last week. And the baseline analysis is based on our baseline AKLNG modeling and our spring 2026 revenue forecast. And later on in the presentation, I have some detailed slides that walk through the, the assumptions that underline that baseline modeling.

So what would this bill do? This bill would create a policy framework for replacing certain state and local property taxes with a temporary tax abatement period followed by an alternative volumetric tax. And there are several DOR-specific impacts under this legislation. So the legislation lays out eligibility conditions for receiving that tax framework. The change— the reduction and changes to the current law property tax lays out the new alternative volumetric tax and then lays out detailed specifications for how that revenue is collected and allocated between the state and various municipalities.

We do note on slide 9, for our official fiscal note, we show an indeterminate revenue impact, and that's because there is a, a significant degree of uncertainty around whether the AK LNG project proceeds either with or without the tax relief. This bill would provide a tax decrease, which would make the project relatively more attractive for investment, but we show an indeterminate fiscal note given that there's the level of uncertainty under either scenario. In addition to those direct impacts, the project would have indirect impacts on upstream oil and gas revenues, production tax, corporate income tax, oil production royalty revenue, and that would be both for oil and gas production directly associated with the AK LNG project as well as potential associated new exploration and development on the North Slope and potential impacts on Cook Inlet exploration and development as well. Municipalities would be impacted through the reduced property tax, the addition of the alternative volumetric tax revenue, potentially increased property taxes from associated new developments that are not directly subject to this bill. And then I always want to note that there are economic benefits impacts to both the state and municipalities that go far beyond the direct revenue.

So slide 10 lays out the eligibility conditions. So under House Bill 381, the property tax abatement and the, the replacement with the alternative volumetric tax are subject to the developer meeting a series of eligibility conditions. And the way this would work is the Commissioner of the Department of Revenue would issue a determination that the developer has made these commitments, and then that would in turn make the project subject for the alternative volumetric tax. So the developer has to commit to a $40 million deposit into a municipal impact grant fund With provisions for additional deposits up to a total of $80 million to support impacts of the project and development on municipalities. The developer has to commit to negotiate a project labor agreement for the gas pipeline portion of the project.

And the developer has to commit to construct a Fairbanks spur line with several specific provisions around exactly what that spur line commitment is. And those are outlined on slide 11. So the spur line must— the plans for the spur line must be sized to meet projected demand, must plan to begin operation within 2 years of commercial operation of a component of the AK LNG project, needs to connect into local infrastructure in the Fairbanks market. So there's been some talk of the potential— some speculation that a spur line could potentially bypass the local market and go to an industrial customer or military base. Under these conditions, the plans have to connect into the local Fairbanks infrastructure.

And costs must be allocated system-wide. And so what this means is the amortization of those capital costs for developing the Fairbanks Spur Line, those can't be— those won't be paid just by Fairbanks residents, and they won't be paid just by Alaska residents as in a previous version of the bill. In the current version of the bill, they're allocated across all customers, including export customers.

And then the owner is responsible for permitting, going through the permitting and regulatory process before completion of 730 miles of the pipeline, which basically means before the completion of Phase 1 of the project. And then within a year of receiving the required permits and approvals, they have to actually make the commitment that they'll actually begin construction on that project. Mr. Stickel, um, the second to the last bullet point allocates related costs system-wide. We've heard testimony at this table that the RCA will not set up a structure to levy those statewide costs. How would they be collected?

Who would set those rates? Mr. Chairman, I can't comment on what the RCA would and would not approve. I would defer that question to RCA. The way the bill works is that the cost of the Fairbanks spur line would essentially be counted as a capital cost across the entire project. And what that would do is it would increase the, the levelized cost of gas in our baseline modeling by about 1 to 2 cents per thousand cubic feet.

For all customers. And that would be Fairbanks, Southcentral, that would be export customers. Senator Steadman. Thank you, Mr. Chairman. Could you— if we only end up with Phase 1, is there an estimate for what this gas would cost Fairbanks at the burner tip?

Sure. Co-chair Steadman, so we have done analysis and we have detailed analysis coming up later in the presentation. That looks at gas break-even prices. I don't know if we've done a Phase 1 specific analysis in this project. We assume that Fairbanks and Southcentral would pay a similar amount of gas price, so we are modeling in that if it's Phase 1 only, the Fairbanks Spur Line would still be allocated across statewide.

And I might be getting ahead of myself, Mr. Stickell, but what is the timeline for start of construction completion? Is that outlined in the piece of legislation before us?

Mr. Chairman, so the legislation before us outlines some deadlines for Some deadlines on slide 12, which is actually the next slide. The alternative volumetric tax would terminate if construction has not begun by 2032, and it would terminate if, if at least one component of the project has not come into operation by 2037. So those are the— that's kind of the timeline framework that's required under the bill to be eligible for the tax. Our baseline modeling assumes assumes that construction would start either late this year or early next year, and gas would be flowing in 2029 for in-state and then 2031 for export gas, and would defer to AGDC and the developer as to whether those are still the current timelines that, that they're working off of. Questions from the committee?

Please proceed, Mr. Stickell. All right.

So slide 12 walks through some of the property tax changes. So as I mentioned, what this bill would do is it would replace some of the state and municipal property taxes with a temporary abatement period followed by imposition of a new alternative volumetric tax.

And that alternative volumetric tax would apply to all three components of the AK LNG project: the gas treatment plant on the, on the North Slope, the gas pipeline from the North Slope to South Central and then on to Nikiski, and then the LNG export plant in Nikiski. And there have been different versions of this bill that— there were some versions on the House side that would only apply the tax to the pipeline component. The final version as passed the House does apply the tax to all three of the major components. And then, as I mentioned, to be eligible for the alternative volumetric tax, in addition to the eligibility criteria that the Revenue Commissioner would sign off on that I mentioned earlier, the construction of the first phase of the gas pipeline has to begin by 2032, and at least one component of the project has to to be completed and commence commercial operations by 2037. This would most likely be the gas pipeline, at least for in-state use, by 2037.

Questions on slide 12? Senators? Senator Keehl. Thank you, Mr. Chairman. Mr. Stickel, can you then give us a sense of the outer bounds of what property is subject to the AVT and not to local property taxes?

How far can that stretch? Sure. Senator Keele, through the chair, so this is fairly narrowly limited to the AK LNG project. And in fact, there's intent language in the bill that this doesn't set a precedent for future taxation beyond the project. So it really is the gas treatment plant, the pipeline, and the export facility.

Senator Kiel. Thank you, Mr. Chairman. So it— does the bill say it must handle gas? Senator Kiel, through the Chair, I'm not sure I understand the question. Senator Kiel.

Thank you, Mr. Chairman. How about— Business personal property or real property that does not handle gas, like office buildings? If not office buildings, what about warehouses? What are the outer bounds of the exemption? Sure.

Senator Kilther through the chair, and that really gets beyond my expertise. I don't know if we have someone from Department of Law here. I know we've had them previously to speak to some of those hypotheticals on exactly where that line is drawn. I'd be happy to provide some information back to the committee as well. We will have that forwarded to the Department of Law.

Thank you, Mr. Chairman. I'll just note that through some of my history, both here in the Capitol and in municipal government, it's pretty good we know what it means is never good enough on tax law. You have to have the words on the paper. Thank you, Senator Keehl. Further questions?

Please proceed. Sure, and again, to that comment, I would note there is a definitions section in the bill that does lay out a statutory definition for the project as well as the treatment plant pipeline and gas plant. But again, as to where where exactly that very fine technical line would get drawn. I am an economist, not an auditor or lawyer, so would defer those very technical determinations.

So slide 13 starts to talk about the fiscal note estimates for the property tax changes. So the gas commercial— major gas commercial commercialization and the AK LNG project conservatively are not part of our official revenue forecast. That's been a longstanding protocol of the Department of Revenue. And so under the official revenue forecast, there's not a revenue impact from the property tax change itself. We do provide for the, for the committee's benefit what the estimated property tax revenues from the midstream, which is the AK LNG project, would be to the state under our baseline modeling assumptions.

And so these are based on the $46.2 billion real capital cost, which is our baseline capital cost assumption for the project. There has been some recent material new information released by the developer that that is basically the low end of their range of potential capital costs. But if the project were to proceed without tax modifications under current law, Property tax revenue to the state would be estimated at $24 million initially in 2029, ramping up to $239 million by 2033, which is when the full export operations begin and the project construction is completed. And then the municipal revenues, in addition to those state revenues, would start at $50 million initially in 2029, ramping up to $497 million in 2033. So all told, you have a little over $700 million per year of property tax revenue that would come just from the AK LNG project to the state and municipalities if the project were to proceed under current law.

And that represents the significant revenue source that we are reducing under this bill also represents the significant economic burden that the developer is facing without this bill. Senator Steadman. Thank you, Mr. Chairman. I just need some clarity on the bottom 4 bullets. So if we just look at the pipeline, and it's— this is referencing, Mr. Chairman, this is referencing 2 municipalities municipalities.

So what you said under the— what value are you using? Because for the pipeline, because it's taxed at 20 mills under current law after construction, is that correct? And then what value are you using?

Uh, Co-Chair Steadman, that's correct. We're assuming that 20 mills Property tax and trying to see if I have the pipeline value at my fingertips. Well, they showed us— Mr. Chairman, if I could— they showed us a low— this is slide 9 on the CAPEX— low value of $13.2 billion and a high value of $16.9 billion for capital costs, but, and that's without contingencies or anything. So I'm just wondering what you're basing $20 mils on. Sure, Co-Chair Steadman.

So the numbers on slide 13 are all based on our quote unquote baseline capital cost assumptions, which is the $46.2 billion real capital cost. I believe the pipeline component of that is in the range of about $16 billion. I know we have broken that out in various documents. I don't happen to have that specific breakout document in front of me. Comparing the estimates that we are using in our baseline modeling to the estimates that were provided by the project developer either last week or the week before, They don't exactly line up in exactly how we're approaching those.

So, you know, I understand they're looking at the costs in terms of phase, where the first phase would include a portion of the pipeline and then potentially a portion of gas treatment costs, whereas we are looking at the costs strictly by component. So I would caution against a direct comparison between what Glen Farn presented and what we presented, except for the total project cost should be comparable. Senator Steadman. Just to try to uncomplicate things so I can follow it. Yeah, I agree with you looking at the 3 component parts, the treatment plant, the pipe, in the LNG facility.

But as stated earlier, the LNG facility is taxed at the local level. They're not at 20 mills, they're down around 7, something like that. And then the pipeline and the treatment plant at 20 mills. But it'd be nice if we could actually see the value you're using or estimating that, like, because we're concerned about the pipe what's the estimated tax assessed value of that pipeline when it's built?

And, you know, because that's gonna be taxed at 20 mills, and then we can look at the comparison of the volumetric tax to see the marginal impact. Sure, and Kudjer Steadman, I know we've provided that. Throughout the process several times. We'll be happy to provide those exact numbers to the committee. I believe the, the estimated capital cost and therefore assessed value of the pipeline that we're using in our baseline modeling is in the range of $16 billion.

We do have some slides at the end of the committee, or at the end of the presentation, that walk through an example of the alternative volumetric tax calculation based on a different CapEx number. We were asked to model a higher $54.5 billion real capital cost assumption by the committee. In that scenario, the allocated portion to the pipeline was $19.76 billion. Right. Senator Steadman.

Yeah, well, I guess I'm more focused on just the gas line itself. To get a handle on that. I understand that there's two other component parts coming potentially in phase two.

So the— I think 2 mils of our 2% of $16 billion is somewhere around $320 million. So I just need to, I guess, get some of these numbers adjusted. And I'd rather, Mr. Chairman, have us look at the aggregate dollars and going to the state, and then if there's a split to the municipalities like we do with our oil tax, we look at the whole, you know, the portion that goes to each borough and then a portion that goes to the state. But if we don't use the aggregate dollar amount, we get our tax modeling off. I'm just trying to keep things synchronized because it just appears 20 mils or some— there's quite a bit of spread here and I need to get that clarified because I'd like to get a good handle on the marginal difference with the current tax structure versus whatever volumetric numerics we're going to use in dollars.

Mr. Stickle, can that be provided to the committee? Yes, Mr. Chairman, we will follow up with some detailed numbers. Senator Steadman? No, that's—. Thank you, Senator Steadman.

Further questions of the Finance Committee? Mr. Stickle? All right, moving on to slide 14. So this is the alternative volumetric tax that this bill would put in place in replacement of those property taxes that we just talked about for both the state and municipal level, assuming the project meets the various criteria outlined in the bill. So there would be a temporary tax abatement period.

So there would be zero tax paid for either the first 5 years of commercial operation operations or until project throughput reaches 500 million cubic feet per day. Property tax is not due during construction under current law as long as AGDC is involved in the project. And so this bill would extend that exemption from property tax to effectively apply during Phase 1 of the project. And that throughput number— so there's been various iterations of the bill that use different throughput numbers. Under the bill before the committee, the alternative volumetric tax for the— for all components of the project, there's a single definition of throughput, and it is throughput of natural gas through the gas pipeline.

And that is specifically defined in the bill as the volume of gas leaving the gas pipeline. And what that means is any fuel gas used on— in the gas treatment plant or the pipeline itself ends up not subject to tax because that's used before the measurement point of the tax, which is leaving the gas pipeline. But then all gas delivered into the in-state market or into the LNG plant, all of that gas including LNG plant fuel gas would be subject to the tax. The tax rate has a, a formula that has a few moving pieces and parts to it, and I'll attempt to explain this in a simplified fashion here, and then we also have several slides at the end of the presentation that walk through this. So there's a headline tax rate rate for each component of the project.

And that headline tax rate is 6 cents per thousand cubic feet for the gas pipeline, 13 cents per thousand cubic feet for the gas treatment plant, and 13 cents per thousand cubic feet for the LNG export plant. Now that does not mean that all gas going through the gas treatment plant or the LNG plant pays a 13-cent tariff. What we actually do is we take those headline rates times the capital expenditures spent to date on that portion of the project, and we do that calculation for the pipeline treatment plant and LNG plant, and then we divide that sum by the total capital expenditures to get effectively a weighted average tax rate. And so that, that total tax rate paid by the project would be somewhere between 6 cents and 13 cents per 1,000 cubic feet. Effectively, what this approach will do is during Phase 1, it's going to be a lower tax rate, presumably heavily weighted towards the 6 cents on the gas pipeline, potentially with some initial treatment costs in there.

But then once the full export project comes online, that weighted average The tax rate is going to be a little bit higher. We calculate based on our, our assumptions that the effective rate would be somewhere between 10 and 11 cents per 1,000 cubic feet. And again, have some examples later on in the presentation to go through those. Those tax rates would all be inflation adjusted based on CPI inflation, except that they must increase by at least 1% per year. And can't increase by more than 2% per year.

So under our modeling, effectively, we assume the 2% annual escalation to those headline AVT rates. So, Mr. Stickle, what would the benefits be on a weighted average methodology versus a flat rate, the pros and cons? Sure. Mr. Chairman, I would defer some of that discussion to AGDC and the developer. Okay.

Yeah, I'll leave it at that. Senator Steadman, did you have a question? Yes, Mr. Chairman. And Senator Keele. I was wondering if we can get a rough percentage of the shrinkage.

Trying to get a grasp of some of these numbers and then struggling with why inflation would be limited at 2% when historic inflation is 2.5%, maybe a little bit more with the last uptick the last few years. But it seems to me like that won't even keep up with inflation.

Mr. Stickle, do you have a response, or— Senator Steadman, is that a statement? Co-chair Steadman, so under our baseline projections, you're, you're correct. Um, the, the 2% would limit the exposure to tax increase to the developer. We do assume a 2.5% inflation rate in our modeling, and so the assumption that we use in our modeling is that, that in real terms, that the tax rate would actually be declining over time, even though it's increasing in nominal terms. Senator Steadman.

That is a concern. And then the shrinkage, the amount of gas going in the top of the pipe and the amount of gas we're actually measuring for our tax, property tax, Replacement. Do we have any shrinkage numbers roughly or ballpark? Sure, Co-Chair Steadman. I don't have those exact numbers with me for the fuel, gas, and shrinkage.

We will be happy to provide those to the committee. Senator Steadman? No, I'm fine. Thank you, Senator Steadman. Senator Keele?

Thank you, Mr. Chairman. So, Mr. Stickley, you said throughput is defined as the amount out the bottom end of whatever element we're working with. Does that mean the gas that gets delivered down the Fairbanks Spur is not part of this calculation? Or it is taxed, counted exactly the same as gas burned in Homer? How does that work?

Senator Keel, through the chair, the latter. So it would be taxed the same regardless of where the gas is burned. So the measuring— the bill defines throughput based on outlet, gas that leaves an outlet of the gas pipeline. It specifically clarifies that gas into a compressor station is not part of that definition, but essentially gas to the Fairbanks Spur Line, gas into Southcentral, gas into the LNG export plant, If there were to be any other additional spur lines or off-take plants, you would sum up all of those, all of that gas leaving the gas pipeline component, and that would be the definition of throughput. Senator Kiel.

Thank you, that's helpful. In—. This is such a complicated way to do this. So I'm interested in, I think Senator Steadman called it shrinkage, I'll call it fuel gas or gas that's not subject to this and the proportions of how much gets used where. And what the reason I'm asking is what that means in economic terms for who's benefiting from this particular tax treatment.

I'll give you an example of what I mean.

Every unit of gas except what powers the gas treatment plant itself comes out of the gas treatment plant. So functionally all of it is subject to the proportional piece of 13 cents on the slope. But less gas than that comes out of the pipeline because you power a bunch of compression stations.

Even less gas than that comes out of the liquefaction plant for export. So, I mean, should I look at that— this structure as being built in a way that grossly benefits the North Slope disproportionately? Should I look at this as disadvantaging the Kenai Peninsula Borough? Because even though they have the entire liquefaction plant there, this alternative to property tax has them paying for, in essence, everything that goes through gas treatment but not everything that goes through liquefaction. Help me think that through just in conceptual terms.

Sure. Thank you, Senator Kiel. So the way I would look at it, there's a lot of complexity. As you mentioned, there's a lot of moving pieces. I would look at the bottom line, the bottom line numbers at the end of the day, cash, cash on the table.

How much is going to the various municipalities? How much is going to the state? How much is going to the developer? And what are the economics of that? And what we'll actually see when I get to the appendix slides is you can have We have two different bills that have taken a slightly different way of splitting up the pie, and some of the— even though they have that same definition of throughput, some of the impacts at the end of the day to the municipalities can actually be counterintuitive.

So I would look at that— I would look at that bottom line, bottom line number at the end of the day. Senator Keogh. Mr. Chairman, I will take Mr. Stickle's advice to also look at the bottom line and where the cash goes. But I have found over time that Alaskans are interested in who is helping support what. And whether that is ever out of proportion to their benefit.

Sometimes we do that and sometimes we say it goes too far. So I'm interested in in that notion with this novel approach as opposed to there's this much property here and they get a piece of the value, there's that much property there and they get a piece of the value, which is pretty straightforward. Yeah, and certainly, Senator Kieltor, the Chair, so I'm hearing that it would be helpful to the committee to provide our assumptions which were developed in collaboration with AGDC around the volume of gas at each stage in the project. And so we're assuming something in the range of 3.5 billion cubic feet per day of gas going into the gas treatment plant and around 3 billion cubic feet per day coming out of— into the gas exports and in-state use. And certainly you could, for purposes of levying an alternative volumetric tax, you could levy that tax based on gas going into the treatment plant, gas coming out of the treatment plant, going into the pipeline, coming out of the pipeline.

You could measure it anywhere along the pipeline. You could measure it based on gas going into the export facility or coming out of the export facility. Or you could do some combination of thereof. And we've seen many different combinations in the various permutations of this legislation. And you could achieve a similar level of revenue to the state and municipalities by— if you charge a slightly lower AVT on gas at the beginning of the project versus a slightly higher AVT at gas at the end of the project.

And we will provide the detailed throughput assumptions to the committee so you You guys can play around with that as you please. Further questions on slide 14? Slide 15, Mr. Stickle.

All right. And so we talked about how the alternative volumetric tax is calculated under this version of the bill with that kind of weighted average approach. And then slide 15 shows how that revenue would be distributed. And so under this version of the bill, the state would levy and collect the alternative volumetric tax. The municipalities would have the option to elect to have the state collect and share that as a shared tax back with the municipalities, but that would not be done automatically.

So if I could see a situation where a significant municipality would choose to collect the tax themselves, and a municipality that has a smaller portion of the tax may elect to just have the state collect it and share it. That revenue would be allocated under component-specific rules. So this would be a series of calculations that would be performed by the Department of Revenue, and then we would use those to either allocate and share revenue back to the municipalities, or we would tell the municipalities on a regular basis what their share of the alternative volumetric tax is so that they can go forth and levy that tax themselves.

For alternative volumetric tax for the gas treatment plant, 93% of the tax attributable to the treatment plant, and this is based on capital expenditures. So we, we first do this calculation where we come up with the total tax revenue, and then we use the total amount of capital expenditures that have been expended to date on each portion of the project, being the treatment plant, pipeline, and LNG export facility, to share out that total revenue from the alternative volumetric tax into the three components. For the gas treatment facility component, for that allocated share of the AVT, 93% of that goes to the North Slope Borough, 7% is retained by the state. The same 93 and 7 share for the AVT allocated to the LNG plant. For that AVT allocated to the pipeline, that is allocated 50% by mileage and 50% So the first 50%, which is allocated by mileage, that simply goes to the various municipalities that the pipe runs through, with the state retaining the unorganized borough share of that.

With the remaining 50% of that pipeline share of the alternative volumetric tax, that is distributed by Department of Commerce statewide in a community revenue sharing sort of formula.

So the amount that goes to the state from the unorganized areas of— unorganized areas boroughs, where do those dollars end up? In the general fund?

Co-chair Hoffman, yes, those would be unrestricted general fund revenues similar to how pipeline property— similar to how property tax is handled on oil and gas property in the unorganized borough presently. Senator Steadman. And I mention this because we're trying to control costs in the rail belt and other areas of the state. But the unorganized areas of the state, as Senator Cronkite and Senator Olson well know, energy costs in rural Alaska are potentially 10 times higher than the rail belt. Please proceed.

Another question. Senator Steadman. Thank you, Mr. Chairman. Can you explain to us how the oil tax property tax structure works when we're dealing with that.

And then why this would— why we'd want to structure this different than that. Co-chair Steadman, so the oil and gas property tax is the standard 20 mils or 2% property tax on all oil and gas property in the state. State that we mentioned earlier in the presentation. That is the property tax that applies to the oil pipeline that we have in place.

The change to the approach, I mean, that is a policy decision. The key thing that that does is it reduces the tax to the developer.

I'm asking for clarity. So if I'm, you know, an oil company and I have that tax, who do I send the check to? And how does it end up in the general fund or end up in the North Slope Borough or wherever? The end person, help me with that process. Sure, Co-Chair Steadman.

So the state assesses the value and appraises the value of all the oil and gas property, we levy a 20 mills property tax on that property. The way it works in practice is we allow a tax credit for municipal taxes paid. And so if, for instance, in the North Slope Borough, about 90% of the assessed tax goes to the borough, and so an oil and gas taxpayer would file a tax return with us the Department of Revenue, they would take a tax credit for the 90% that they paid to the North Slope Borough, and then they would send a check to us at the state, well, typically an ACH or a wire transfer for the remaining 10%, and then that would go to our Treasury Division and our general fund. And then, Mr. Chairman, if I could, so then when you report to us with the revenue source book, Do you show the aggregate amount but a breakdown between the borough and the state? So in the revenue numbers that we present as state revenue, we're including only the state's, the net unrestricted general fund portion of the revenue to the state.

We are not including the value to the municipalities that's allowed as a tax credit. We do have a supplemental table in our oil and gas chapter break that shows those for informational purposes, but they don't roll up into any of the revenue numbers that we report because those municipal revenues do not ever actually touch the state treasury. Senator Stegman. Right. Thank you, Mr. Chairman.

And that's the point I'm trying to make, is that we've got a system in place that we're all familiar with on collection and distribution of the property tax and the, and any deviation from that is, is, you know, needs to be well understood. Sure. Coach Osterman, so the default for the alternative volumetric tax to the first bullet point here would be that it would work.

So there's two options, and it's basically a municipal option. So we do have The current property tax approach, which is where the municipalities would collect their tax and the state would collect its tax. There's also an option for a shared tax, and we do that through several taxes. So we have, we have shared taxes that we administer for fisheries taxes in particular, our big one where half of our fisheries business tax and landing tax is shared out to communities. There's several other taxes that are handled like that.

We are certainly prepared to handle that either way at the municipal election. Senator Steadman. Again, just for clarity, why I think this is important is many, many times at the table over the years, we will be talking about our oil tax revenue and we are only talking about the portion that the state receives. It is one of our components in our in our government share, where in all our economic modeling and the industry looks at the total dollars paid, they don't care if it ends up in our general fund or the general fund of the North Slope Borough. It's just money they don't have.

So I think that clarity needs to be maintained because we've spent many meetings over the years members change in the legislature, getting that understanding across the table because there's two sets of numbers. One's with the municipal share and one's without.

Thank you, Senator Steadman. Chairman Senator Keehl. Thank you, Mr. Chairman. I apologize for coming in, but Mr. Stickell repeated a phrase on this slide that he used on the prior slide, and it triggered something in my thinking. Mr. Stickley, you talked about figuring out this— the split on this alternate tax based on capital expenditure.

I think you said to date or so far or at that point. And it got me thinking and I looked in the bill and a capital expenditure has to be actual, but it could be anything to acquire, construct, or improve a property. Project. So can you talk to us about the threshold for that? I mean, I imagine that the easiest example would be we're wildly successful, it's time to add more LNG to the pipe, or more gas to the pipe, and we, you know, the pipe owners come in and they add compression and looping and that has a cost.

But same question, right? What are the other bounds on an Improvement. Improvement?

Sure. Senator Kiel, through the Chair, so we would have to, under the current version of the bill, we would have to provide explicit definitions around capital expenditure, probably through regulations. So we do have— we have some existing capital expenditure definitions that we could look at. We may look at definitions for production tax purposes or corporate income tax purposes, but that is a definition that we would have to come up with as we administer the bill. For purposes of modeling, it is more of a, you know it when you see it, so we have established here is the construction cost for Here is the operating cost.

We developed those assumptions in collaboration with AGDC. That is what we plugged into our modeling. And then—. Senator Keogh, just to follow up, it is Moxonix to the developer, right? Because they are— this is just a proportion of how much goes to which muni.

They are in the end not going to pay any more or could they? Senator Kiel, through the chair, so the capital expenditures do matter for how much the actual tax will be, given that we have differing tax— differing headline tax rates for each of the 3 components of the project. And then those are— the total tax is Essentially a weighted average tax rate of those 3 different headline tax rates based on the weighted average value of capital expenditures. And those weighted averages would change each year until the final construction is complete. And so the capital expenditures on each piece of the project would have a modest impact on the tax paid by the developer as well as impacting the tax allocated to each municipality.

Senator Keele. It is confusing. I apologize, Mr. Chairman. Until the construction is complete, I thought under this bill there is no AVT until 5 years after construction and gas starts flowing. Senator Keele, through the chair, so the AVT doesn't kick in until 500 million cubic feet per day or 5 years.

What we assume is that when the pipeline starts flowing 500 million cubic feet per day, there's still money being spent. So we're modeling that there's actually 3 trains of LNG production, with the first train coming online in 2029, are 2031, the second in 2032, and the third in 2033, there could potentially be some additional costs that extend beyond that. And then, you know, an outstanding question is how we would handle something like a further expansion of the project. And so we would, when the first component of the project comes into production, we would calculate the tax rate at that time, and then we would continue to calculate that tax rate each year, and it would be a recalculation as different amounts of money are spent on the different components. And so from the point in time that the project starts paying the tax when they exceed either that— 5-year or 500 million cubic feet threshold to the point in time when they have completed all capital expenditures on the project, as defined in the bill and our regulations, we would expect that effective tax rate to change.

Further questions on slide 15? We will move on to slide 16.

All right. So slide 16 is more information about the alternative volumetric tax. So this outlines our estimated revenues from the AVT during the fiscal note time horizon under our baseline modeling assumptions that I have been describing.

We look at, under our baseline modeling, 2031 is the first year of exports when the first train comes online, and that would be the first year of tax liability for the alternative volumetric tax with a total of $39 million paid in, and that would increase to $131 million by 2033, which would be the first year of the full export operations, and that $131 million which then would increase by the, the 2% annual inflation adjustment thereafter. Under this version of the bill, the state would receive about 9% of the total AVT revenue, with the remainder allocated to the various municipalities and communities as outlined in this bill. And so the net unrestricted revenue to the state would be $4 million in 2031, increasing to $12 million in 2037. $131 Million by 2033. Senator Steadman.

Again, I'll need some help on this. So on the first bullet, the $131 million, and that's the aggregate alternative volumetric tax, correct? There's no— that's the aggregate number coming in to be split between whoever gets it. Municipalities or the state? Co-chair Steadman, correct.

That's the total ABT whether it goes to the municipalities or state. It's $131 million. And then what millage equivalency would that be relative to what dollar value would someone be looking at there to get in that $131 million ballpark range? Co-chair Steadman, so through the chair. So the equivalent millage rate would be— we have an example.

It doesn't exactly line out to this, but it would be about— in our example, it would be about 2.1 mils, and that's on slide 44 of the presentation.

And that's okay. So I can get my calculator, but what the— and we could wait for that, but it's What is the total dollars assessed value then that to get to that 2.1 mils? Hi, Co-Chair Steadman. So we, we would assume that for the 2.1, we assumed a $54.5 billion capital cost. That was the, that was the specific scenario that we were requested to run.

By the committee.

That's fine, Mr. Chairman. It just— because sometimes these numbers just get meaningless. I've got to benchmark them against something. Sure. And under our baseline capital cost assumptions, since you'd have a very similar AVT revenue compared to a lower assessed value, that effective mill rate would actually be a little bit higher under our baseline assumptions.

Thank you. Further questions on slide 16? Slide 17.

All right. So fund and revenue provisions. So this bill creates a municipal impact grant fund administered by the Department of Commerce, Community and Economic Development. That would consist of up to $80 million paid in by the developer. So they would make an initial $40 million payment into the fund that DCCED would use to administer grants to impacted communities.

And then upon request, DCCED can request additional funds in $10 million increments up to a total of $80 million for additional verified or anticipated impacts on municipalities. And we list out the municipalities that would be eligible for this would be the North Slope Borough, the Fairbanks Borough, Denali Borough, Municipality of Anchorage, Matsu Borough, and Kenai Peninsula Borough.

Slide 18.

Slide 18 is some additional provisions of the bill. So the regulatory Railroad Commission of Alaska, RCA. They would be— approval would be required for certain utility contracts reserving capacity in the pipeline project. They may not approve the utility contracts that require customers to assume construction cost overruns for the project. That was a concern in in previous committees.

Gas sold to Alaska Utilities is subject to a $16 per million BTU price cap, roughly similar to the $16 per thousand cubic feet. And then there's an annual inflation adjustment for that. And so that $16 price cap lines out with the commitment that the developer has made on the record. That they would be willing to cap prices at that level. There is semiannual reports on the project that would be delivered to the legislature by AGDC, and then there is additional governance and transparency provisions relating to— relating to AGDC that they can speak to in more detail if desired.

Thank you. Senator Keogh. Just briefly, Mr. Chairman, the $16 price cap adjusted annually for inflation, is that actual inflation or is that the same 1 to 2% range? Senator Keogh, through the Chair, so that's based on CPI. So it would be $16 in real terms would be the cap on prices for gas sold into Alaska utilities.

Senator Kiehl. Thank you, Mr. Chairman. I suggest that we should probably treat the price Alaskans are going to have to pay and the tax rate a developer is going to have to pay with the same inflation adjusters. Thank you, Senator Kiehl. With that, we've been going for about an hour.

We're going to take a 5-minute break for the next 7 minutes. Ready?

College Senate Finance Committee back to order. We are reviewing the, um, HB HB 381, oil and gas property tax, that was passed over to us by the House of Representatives. We are having a presentation by the Department of Revenue. Mr. Dan Stickel, please proceed. Sure.

Back on the record, Dan Stickel, Chief Economist with the Department of Revenue. The next part of the presentation talks about our implementation costs. These should be familiar to the committee because these are very similar to our implementation costs for House Bill 2001. So on slide 20, we are requesting 4 positions to fully implement the bill. An appraiser to carry out the alternative volumetric tax calculation and then the various weightings and different administration there.

An oil and gas revenue specialist to support increased valuation and audit work associated with major gas sales as well as regulations and expertise for taxation of North Slope gas. And then two folks to bolster our commercial section to assist with the product— project certification requirements on the Department of Revenue, various reports from Department of Revenue, assisting with equity investment decisions by the legislature and generally increasing our commercial analysis capabilities. Slide 21 outlines the capital request. So it's a $500,000 one-time expenditure to upgrade our tax revenue management system to incorporate the new, the new alternative volumetric tax. And then an additional $250,000 for outside expertise to assist us with our equity purchase analysis requirements under this bill.

Slide 22 lays this out in dollar terms, so a little over $1 million a year for the personnel costs, and then the $750,000 $1.2 billion for the capital costs.

And this comes straight from the fiscal note. And that is the implementation cost section.

So now we walk into the detailed project modeling, beginning on Slide 24. So we have had some discussion around how to approach these. So we have been using a consistent set of baseline assumptions for our AK LNG modeling since we started talking about this bill back in March. There has been some material new information that's come out around the project, in particular around project costs and potentially timing that's been released by the project developer and AGDC. And then some material new information has come out around oil losses and the potential for less incremental production from Point Thompson and potential for oil losses at Prudhoe Bay.

And that was some information that I presented last time— last week when I was before the committee. What we've done for now is given the time and resource constraints with a special session that ends in 4 days, we have maintained our baseline model assumptions at this point. That allows a consistency when you're comparing one version of the analysis analysis to another version of the analysis, and then we continue to run sensitivity analysis as needed. So, to reiterate, we're modeling 32 years of LNG sales, which is 30 years of full operations. We're assuming a 10% pre-tax rate of return to the developer.

Our baseline assumption is the $46.2 billion real construction cost, which is on the low end of the range of what was provided by the developer in recent weeks. We are assuming $1.50 per thousand cubic feet gas purchase price from the producers. We are assuming that the project itself is anchored by gas production from Prudhoe Bay and Point Thompson with Phase 1 production from an unidentified field. We have heard from the producers some of the potential options around where that Phase 1 production could come from. And then importantly, we're assuming no impact on Prudhoe Bay oil production, and we're assuming Point Thompson Liquids production increased by 270 million barrels over the life of the project.

And those are the two assumptions— two of the assumptions that I mentioned. There has been some material new information, as I presented last week, last Monday when I was before this committee, some scenario analysis looking at how different assumptions around those oil losses could impact the modeling. And we are happy to provide that sort of scenario analysis for any of the assumptions the committee would like to see.

Slide 25 just outlines the scenarios that we have in the preliminary presentation here today. So we are modeling the impacts if the full AKLNG project proceeds under each scenario using those baseline assumptions that I just laid out. And so we are modeling current law, House Bill 381 as introduced by the Governor, which was the regular session version of the bill, and then the version before the committee as passed the House during the special session.

So slide 26 is our summary of cash flows by stakeholder and then the breakeven cost of supply under current law. And again, I, I focus folks on the bottom right number in particular for the breakeven cost of LNG into the global market. And this represents what— under our baseline assumptions, what price would the gas have to sell for in the global market in order for the developer to achieve that 10% pretax rate of return that we are assuming. And under current law, that number is $9.07 per 1,000 cubic feet for 2033. Slide 27 is the similar, similar set of charts looking at the version of the bill originally introduced by the Governor.

And so this version, the original version of the bill from back in March, would have reduced that breakeven cost of supply from the $9.07 down to the $8.48 per 1,000 cubic feet in 2033. And slide 28 shows the similar modeling under under the bill before the committee, and that breakeven cost of supply is $8.57 per 1,000 cubic feet. So still a significant tax decrease from current law. Under our baseline modeling, reduces the breakeven price into the global market by 50 cents per 1,000 cubic feet, and that is a material, material change. Not quite as much of a decrease as the original version of the bill introduced by the Governor, but still a very significant tax relief that would impact the project economics.

Then we have our annual revenue charts starting on Slide 29, which show if the project were to proceed under each of these scenarios, what would the total revenue be to— to to the state broken out by the various components: property tax, corporate tax, royalties, production tax. Important to note on the property tax in particular, this is just the state's portion of that property tax. If we were to include the municipal on this particular slide, that would be an additional $500 million or so per year. But under current law, we do see a couple years, again, couple years of net reductions to state revenue during the years that we anticipate the upstream owners will be making investments in additional oil and gas production on the slope. Those investments offset production tax payments to the state.

But then once the full project is online, looking at about $1 billion per year in annual state revenue. Under the current law scenario if the project were to proceed.

Slide 30 and 31 look fairly similar. This is the annual state revenues under the bill as introduced by the Governor with about $800 million per year once full exports begin on slide 30, and then slide 31, the bill before for the committee, again, about the $800 million per year. One difference here is in those last 3 bars in the chart, the version that's passed out of the House does have a 2060 repealer on the alternative volumetric tax. So in those very last 3 years of the chart, we show the current law property tax does come back into play.

Slide 32 and 33 are our sensitivity matrices for breakeven prices. I'm going to focus— so slide 32 represents the weighted average price for in-state gas. This would be— well, the price for in-state gas if the full project proceeds including the full export project. This would be the breakeven gas price. Prices to Alaska utilities.

And then the price ultimately paid by consumers is a little over $4 above the numbers shown here. But we can see that comparing our baseline assumptions of baseline CAPEX and $1.50 gas purchase price, comparing the top and bottom charts here, the, the breakeven price for gas sold into Alaska Utilities industrial customers would be reduced from $4.86 down to $4.48 per thousand cubic feet. And we include these capital cost sensitivities, and this becomes really important now that we have revised capital cost information from the developer. So the range of costs that they provided essentially lines out to somewhere in the range of our baseline to our 20% scenario. There's been some talk of potentially a contingency on top of that.

If you added a contingency, that would get to the 40% scenario. So I think looking in this baseline to 40% range is kind of a reasonable range for the capital costs to understand how the cost of— the cost of gas could vary with different project construction costs. Senator Steadman.

I think this is interesting, but not that much. The issue at the table is the gas line. And what would be nice if we could see an analysis on the gas line itself and also the marginal impact of the change in property tax from the 20 mills to, you know, the— to the 2 mills, which is basically what's on the table. And the delta dealing with financing, if it's 80% leverage, 70% leverage, different interest costs, looking at the cash flows just like we do when we get into the oil stuff. When we get into the oil analysis, we don't look at the total dollars coming to the state.

We look at the whole matrix. And the model, I'm sure, has all that. I'm kind of curious when the corporate income tax kick in on the gas line. You know, I think it's somewhere around 20, 21 years out, which means it's time you deal with your depreciation and your interest costs and your carry-forwards. It's not making any money for decades.

So, and then what's going in on the gas, if it's $16 for 250 and the other 250 to get up to 500, 6 cents, what's that delta? Because what we're being asked for is concessions, and I want to know what we actually gain, whatever concession we give, not looking at hypotheticals 30 years out. We're trying to get a financing package across the line, is my understanding. Otherwise, why would we give a concession? So It would be nice if we could grab some of those component parts out of the model.

You know, are you using the ACRS modified cost recovery for 7 years? There is so much carry forward that goes on, you might as well run straight line for 20. I think we need to have some of those details. Frankly, when I look at this bill and I see 2 mills, I find that alarmingly low. If I could pay 2 meals for my house, I'd run down to City Hall with a Christmas card to the mayor.

You know, it's— and I'm not saying it's not warranted with the economics, but I want to see the economics of the gas line showing me the net benefit, because I know when you start jacking up the interest rate carrying out the amortization schedule, you know, and your leverage, you're straining your cash flow. So, because I've seen it here at the table when we've looked at some of our oil modeling, when we get so focused on what's going to come in over a particular time and it doesn't come in, we get all riled up and change it. And I think what we need to do here is keep our eye on the ball. We want stability and predictability. Coming out of here, we got another governor coming in, another legislature coming in.

Anyway, so, um, I'd like to know the operating expense of the pipeline. I'd like to know the operating expense of the liquefaction plant, um, and some of these other component parts, um, that you have to plug in your model. Leakage issues. All that type of detailed stuff. If we could get that.

So Senator Steadman, you're asking that if we only end up with Phase 1, you want to see the economics? Yes, kind of, because we got two component parts. We've got Phase 1, the pipeline, so I think we need to look at the cash flow and the mechanics of that. Then we got Phase 2, and then this is blended together. When we got the whole enchilada, which we— this is where we want to go because that's where it's very attractive financially for everybody.

But there's a possibility that we may never get to Phase 2. Exactly. You want to see what happens under that scenario. Right, because some of us are going to be here in the state if it collapses or not.

Anyway, I think the model has all that. It's got to have all that data in there to just print it out. It doesn't have to be fancy looking.

Mr. Steeple? Sure. Nkosi Steadman. So the approach we took for the presentation for the 46 slides we brought to the committee today is we kind of used the same template that we have been presenting throughout the session. So that is why you are seeing a lot of the similar slides to what we presented previously.

We certainly have produced the Phase 1 analysis and will be happy to provide that for the version of the bill that passed out of the House. And we do have extremely detailed model assumptions document. Provide that to the committee, and then I think we can go from there on providing any additional information that would be helpful and any additional sensitivities the committee would like to see. We'll go ahead and get that information. We'll see where we can slide that into our hearing schedule.

Senator Steadman. Yes, so just, if nothing else for us to, you know, nice to have a hearing on it, but to take a look at it, I think it's critical that we know if we give a concession with our left hand, it's not taken away with some mechanism on the right hand. And how much of a concession is needed to get it to the economic hurdle? And maybe it's zero tax, for all I know. But I think we need to see that on Phase 1, because that's what they're trying to get the FID on, is my understanding.

Thank you, Senator Steadman. Mr. Stickel, please proceed.

Slide 33. Again, this assumes the full project proceeds, including Phase 2. This represents our sensitivity analysis on the LNG breakeven prices into the global market. Under our baseline purchase price of $1.50 and our baseline capital cost assumption, this bill would reduce that breakeven price into the global market from $9.07 down to $8.57 per thousand cubic feet. And then we show what that change would be at a range of different different gas purchase prices and capital costs.

Slide 34 and 35 are very similar. I'm going to focus on slide 35, which is the LNG export version of this so-called tornado chart. And here, we just picked a handful of the assumptions to kind of demonstrate like the order of magnitude sensitivity to that cost of supply by varying some of these assumptions. So we looked at the first two rows, look at the property tax replaced by the alternative volumetric tax as originally introduced by the governor and then as passed the House. So both of those would have about a 50 cents per 1,000 cubic feet impact on reducing reducing the cost of supply.

And then some— we have 4 other items below that that would have kind of a similar impact on cost of supply as those tax reductions. First being if there was a 10% reduction to the capital cost of the project, and I think we've heard that the bias is likely in the other direction. And so what we did here is we modeled up to a 50% increase in capital cost, and can see that a higher capital cost than is being projected under modeling has a very material impact on those project economics. Next, we look at what the return to the investors would be. We assume a 10% pretax rate of return.

If investors were to accept a lower rate of return, that would reduce the cost that they would have to sell the gas for and vice versa. And then we look at the cost of the gas to producers. We assume the $1.50 per 1,000 cubic feet. Obviously, if the project could produce— could negotiate a lower price from the North Slope producers, that would make the midstream project more economic and vice versa. And then we look at cost of debt.

So we are assuming a 5% cost of debt with a 70/30 debt-to-equity ratio in our in our baseline modeling and a lower— obviously a lower cost of debt would improve those economics and vice versa. Mr.

Chairman. Senator Keogh. Thank you, Mr. Chairman. Mr. Stickle, I wonder if we might get you to take a look. We had the consultant from Gaffney, Klein, who suggested that limiting the duration of the alternative tax would have pretty minimal impact, and that by providing it in the early years, you get the bang— you get the benefit.

Are you able to model across project life something like a 10-year AVT rather than a 30-some-odd-year AVT? Yes, Senator Keele, we certainly have the— through the chair, we certainly have the ability to do that. When I presented last week, we gave some examples of looking at a 10-year just complete exemption from the property tax. And so we could certainly— the bill before the committee has a repeal of the AVT in 2060, so we could certainly look at how the economics would be impacted if that were to repeal after 10 or 20 years instead of effectively after 30 years. Thank you.

Thank you, Senator Kehoe. Please proceed. All right. Slide 36 is some conclusions for the main part of the presentation, but don't get too excited because there is an appendix. LNG project has potential to provide tens of billions of dollars to the state of Alaska, the federal government, local governments, as well as creating thousands of jobs and enhancing energy supply and energy security.

This, the bill before the committee, is a large tax decrease. As I mentioned earlier, it's not quite as significant a tax decrease as the bill introduced by the Governor, which had the straight 6 cents per 1,000 cubic feet AVT on the whole project, but this is still a significant tax decrease that would materially impact the economics of the project. And I think you will hear similar commentary from AGDC and Glen Farn as well. This version of the bill does add some additional details and complexity to to what was in the original bill as introduced by the governor. It—.

Some additional provisions around the Fairbank spur line and additional criteria for being eligible to the bill as well as some additional steps to the calculations.

And so with that, I can move on to the appendix, which starts on slide 39. So we were asked to provide a little bit more information about how the alternative volumetric tax calculation works in the bill before the committee. There is— it is— it's got some nuance to it. And so Both— and we were asked to do a comparison to Senate Bill 2001, which was the special session bill that the committee has been hearing up until this point. So both of those bills use the same definition for throughput, which is the gas leaving the pipeline— the molecules of gas leaving the pipeline portion of the project, as we discussed earlier in the presentation.

And that throughput definition is regardless of which component and regardless of whether the gas is for in-state use or export gas. And again, a different definition than several of the regular session bill versions and concepts that were floating around. So fuel gas used in the treatment plant and pipeline are exempt from the alternative volumetric tax, but fuel gas used in the LNG export facility would be taxable because that would— fuel would be used after the gas leaves the pipeline component. And gas delivered to— gas delivered to both in-state and export customers would be subject to the ABT. So slide 40, there's a lot going on here, but it's a bit of a nuanced calculation.

So we've laid out kind of an order of operations, if you would, of how the alternative volumetric tax would be calculated under the bill before the committee. We were asked for this analysis by the committee to use a capital cost assumption of $54.5 billion in real 2026 terms. That's a little— just shy of a 20% increase on our baseline capital cost assumption, and works out to $58.6 billion in nominal terms. And so the first thing we would do here is we would calculate the, the component weights, and so we would look at how much capital expenditures were spent on each component, the treatment plant, the pipeline plant, or the pipeline, the LNG plant, and What share of total project capital expenditures do each of those components represent? And we would come up with a component weight.

And we could see that the gas treatment plant is about 24% of total project capital cost, pipeline is about 34%, and LNG plant is about 43%. Those component weights would get multiplied times the headline tax rate for each component. And again, there's different headline tax rates for each of the three components, which would arrive at an effective component tax rate. So the effective tax rate on the gas treatment plant would be 3.1 cents per 1,000 cubic feet, not the 13 cents headline rate. The effective tax rate on the pipeline would be 2 cents per 1,000 cubic feet, and the effective tax rate on the LNG plant would be 5.5 cents per 1,000 cubic feet.

We would add those up to get an effective project-wide tax rate of about 10.6 cents per 1,000 cubic feet. That would be the amount that would be multiplied times the throughput of the the project. Here in fiscal year 2031, we have a total project throughput estimate of 181 billion cubic feet of gas to drive a component revenue and then a project-wide revenue. And so at the end of the day, about $19.3 billion of alternative volumetric tax would be due in fiscal year 2031 in this example, and that would break out to $5.6 million attributable to the treatment plant, $3.7 million attributable to the pipeline, and $10 million attributable to the LNG plant.

Slide 41 is the same slide similar analysis looking at Senate Bill 2001 as introduced. The difference, the key difference here is that the bill is— Senate Bill 2001 had a headline tax rate of 12 cents per 1,000 cubic feet for the treatment plant and the LNG plant, whereas 381 has a a 13-cent headline rate for those two components. And that is really the only difference between slides 40 and 41. But going from that 12 to 13-cent headline rate for the GTP and LNG plant takes the total AVT revenue in 2031 from $18.1 up to $19.3 million. And again, we picked— 2031 would be the first year of AVT revenue in our modeling, and we could do a similar calculation for any of the years in the model, but this just walks through one year's example.

Once the project is at full throughput in fiscal year 2034, the numbers themselves in terms of revenue would be higher. But this just illustrates the order of operations. Senator Steadman. Yeah, and then so we— if we collect $18.1 million and we got an asset worth $58 billion, what is the millage rate equivalent on that?

Sure. Co-chair Steadman, so we actually walk through on slide 44 and 45, I'm going to walk through some examples of millage rates. Okay, I will wait. So we will get to that.

Please continue. All right, moving on to slide 42. So slide 42 shows a— how the revenue is allocated. So this revenue calculation is done in two steps. So the first step is the calculation that we just walkthrough where we figure out how much AVT revenue is there.

And then completely separately, we take that number and determine how we break that out between the state and municipalities. And so slide 42 shows this allocation under the bill before the committee. It works out in total to about 9% to the state, 91% to the municipalities. Cities. In the top here, we have shown an illustration of the capital expenditures by municipality and by year.

The timing and location of those capital expenditures are key to determining the municipal revenue allocations. So under 381, we first, as we did in the previous analysis, we figure out based on the share of capital expenditures to each component, what was the total AVT allocated to that component. And then here on slide 42, for the gas treatment plant and the LNG plant, uh, for the 93% of that component allocated, AVT revenue goes to the municipality, which would be North Slope Borough and Kenai Peninsula Borough, with the remaining 7% of the component allocated AVT revenue going to the state. For the pipeline allocated AVT revenue, that revenue has a 50/50 split. For the first 50%, uh, it is distributed between municipalities based on mileage of the pipeline in those municipalities, with the state retaining the unorganized borough component.

For the second 50% of that pipeline allocated AVT revenue, that is distributed statewide to all communities in the state on a per capita basis. And so the bottom table here shows the revenue summary by year under our baseline assumptions for the bill before the committee, um, after going through all of these calculations. And you'll see we break out the 5 key boroughs that the project runs through, and then we have another line here for other communities. And what we've done here is for that second 50% of the pipeline AVT that spreads statewide, for the portion of the per capita sharing within the 5 boroughs—North Slope, Fairbanks, Denali, Matsu, Kenai—we've included their share of that per capita distribution in their municipality-specific numbers. And the other communities represents the per capita distribution to all other communities in the state.

Slide 43, as requested, is a similar analysis looking at Senate Bill 2001 as introduced. This bill would end up allocating 12% of the total AVT to the state and about 88% to the municipalities. It is a different sharing methodology. So we do the same— we have the same allocation where we take the total AVT revenue and divvy it up between the 3 components based on their share of capital expenditures.

For the— under Senate Bill 2001 as introduced, for the treatment plant and LNG export plant, the capital expenditures for those— or the share of ABT for those capital expenditure components goes straight to the borough, the North Slope Borough, the Kenai Peninsula Borough.

And it's a similar allocation for the pipeline where it just simply allocates based on capital expenditures, again, with the state retaining the unorganized borough share of that. So under 2001 as introduced, you basically take— you run through your AVT calculation to come up with how much AVT revenue you have, and then you look at how much capital expenditures has been spent in each of the municipalities, and that is the weighting for how much of the total AVT revenue belongs to each of those municipalities. And again, we would calculate that on an annual basis. And as you can see, the timing— so the timing of the spend for the various components change. The pipeline is going to be more front-loaded followed by the treatment plant, and then the export facility is gonna be more backloaded.

And so that effective tax rate, and then therefore the share of the AVT revenue that's allocated to the various municipalities, that is going to evolve over time until the final dollars are spent on project construction.

So slide 44, we call this a simplified comparison of the alternative volumetric tax to mill rate. And so what we have done here is we have picked some round numbers that are very close to the numbers in the modeling but make the math a little bit easier to follow. So slide 44. Compares the AVT to an effective mill rate under both a Phase 1 and a full project scenario. So under— before the project reaches the 500 million cubic feet per day threshold, the effective mill rate would be zero because there would be a tax abatement for those first 5 years.

Once the project reaches that 500 million cubic feet per day. We're assuming a $16.9 billion real pipeline cost for this example. That was what was requested by the committee. The AVT revenue at 6 cents per thousand cubic feet just for the pipeline would work out to $11 million, and comparing that to the $16.9 billion pipeline would work out to an equivalent mill rate of about zero $1.65 mils during Phase 1 under the bill before the committee. And then we run through a similar calculation once full export has begun.

So we looked at a 3 billion cubic feet per day throughput on the pipeline with the $54.5 billion real project capital cost. That works out to $116 million of AVT revenue for an equivalent mill rate of a little over 2%, or a little over 2 mills, 2.13 mills, so 0.2%. So Senator Steadman, this was your question. You have comments upon these amazing mill rates. Yeah, so, so if you take the— do your, you know, we've several pages back, we're varying capital costs and looking at returns.

So I'd like to know the marginal impact of a 1 millage rate change. You got 2.13 mills here. If you change that assumption in your model to make that 3.13 mills, what's the effect of the economics of the project?

That's what we're really looking at from what I can see. We can't control capital cost or operating costs. Or much other variables. We have very few levers we can move. But we can make that 1 mil equivalent, 2 mil equivalent, 3 mil, 4 mil, 5 mil, whatever we want.

But it would be nice to know the sensitivity of that. And I would suggest that on the interest rate you use, not something below 5, but use the government bond rate.— as a base. I think the Department of Energy was talking about 20-year bond rate plus 3/8 and then step it up. I don't care if you step it up a half percent at a time or something like that, so it's easy to do just because it's linear in the relationship. So we can get an idea if the interest costs advance on us.

Right. Anyway, I think it would be beneficial so we can see the sensitivity of what we're actually looking at in project economics. And I don't think there's an issue, Mr. Chairman, when we build an in-state line. And when I reference the in-state line Phase 1, that includes the smaller gas treatment plant project too. Combine them on your cost, because my understanding, one without the other one won't work.

So anyway, I think that would be helpful, Mr. Chairman, so we can see the economic impacts of that. I don't want to get personally lost into big dollars if the whole project is built and it's full of gas and everything's wonderful. I think we should be concentrating on the economic of the project and trying to see how close we are to the hurdle rate to get it to FID or not. So, Mr. Stickle, maybe you and Senator Steadman and Mr. Eklund can get together and see how much work is entailed in this request. And if it's not too detailed, we can get those processed and disseminated to the committee.

Further questions on slide 44?

Seeing none, 45, Mr. Stickle. All right, slide 45 is a similar slide. This just walks through the comparison under Senate Bill 2001 as introduced, which again had the headline tax rates of 12 cents for the GTP and export facility versus the 13 cents under the bill before the committee. And so this worked out to, under Phase 1, it is the same 0.65 mils effective equivalent millage rate because the pipeline tax rate is the same under both bills. Under the full project, it is right about 2 mils is the effective tax rate.

About 2 mils effective tax rate for about a 10 cents effective alternative volumetric tax rate. So quick mental math, each additional mil of equivalent mil rate on the full project would be equivalent to about 5 cents of AVT revenue.

Senator Steadman? No, I think that's helpful, the linear relationship for—. Further questions by Senate Finance members on slide 45?

Slide 46? All right, and then slide 46 is my last slide of the appendix. This just has some takeaways to kind of try and wrap our heads around what we just walked through. So the two bills, Senate Bill 2001 in House Bill 381, they use that same definition of throughput, which is the gas leaving the pipe. The AVT calculation does add a layer of complexity to the tax.

It's something that we can work through in Department of Revenue if that's the, if that's the will of the legislature to go that direction. The way that the AVT calculation is set out now, it provides for a higher headline tax rate for each component, but then a lower effective rate. And that's actually similar in concept to some of the complexities of our production tax, where we have a 35% headline tax rate, but then various provisions of the tax law that actually reduce that so that the effective tax rate is lower than the headline tax rate. So that's not unprecedented to have a scheme such as that in the tax law. The bill before the committee, 381, generates slightly more alternative volumetric tax revenue overall than Senate Bill 2001, and that's due to the higher headline tax rates on the treatment plant and the LNG plant.

The impact on municipalities varies, and this was to my comment earlier of looking at the bottom line revenue to the various municipalities. Communities. So the bill before the— the 381 generates more revenue for Fairbanks, Kenai, and other communities statewide. The ones that are not directly on the project route. Whereas Senate Bill 2001, as introduced, actually generates more revenue for the North Slope Borough, the Denali Borough, the Matsu Borough, and the state.

And so even with the slightly higher tax rates under 381, the split of those between the different stakeholders is different.

Questions on the last slide?

Seeing none, any closing comments, Mr. Stickel?

Thank you for the opportunity to come before the committee once again, Mr. Chairman. Thank you for the committee's information. We will take— we will take an adieu till 3:35, and we'll take up the second agenda item and go until 4 o'clock. All right, recess adieu.

Call Senate Finance Committee back to order.

Second item on today's agenda is a sectional analysis of HB 381. We're going to hear a presentation from the Alaska Gas Line Development Corporation for the overview and invite Matthew Kissinger to the finance table. Introduce yourself, put yourself on the record, and begin with your presentation.

Kocher Hoffman, Kocher Steadman, Kocher Olson, and members of the committee, thanks for having me back here. Excited to walk you through what came out of the House last week. I understand we have about 25 minutes today, so we will have to obviously carry on further tomorrow. Yes, don't rush yourself. Just— We'll not.

Oh, normal. We'll pick up what we don't cover tomorrow. Yep. Wait, Senator Steadman, you have a question before we get started? Well, if we could, I think it would be beneficial to have him lay out his working relationship with Alaska Gas Line Development Agency, who he works for, and so there's clarity, there's no confusion.

Sure. Yep. Mr. Kissinger. So again, Matt Kissinger. I'm the commercial director for AGDC.

I am what's called agency staff or contract staff. So actually, I come into AGDC through a company called HOK Consultants out of Anchorage. Sort of, that's just where the paycheck comes from, but I, for all intents and purposes, work directly for AGDC. I also am seconded into the 8-star structure for the purposes of LNG and gas sales. So I do a lot of the negotiations with the Asian counterparties and with the local gas supply customers as well.

Thank you. Please proceed. I'd also like to just start with a quick mea culpa. I was here before this committee about a week and a half ago, and I made the comment that Northstar had its AOGCC offtake authorization. And since then, I think we've all become aware that that's not the case, so I was misinformed, and I apologize for putting that on the record.

All right. So just to kick off the sectional analysis, you know, I'd like to say that there was a lot of really good bipartisan discussion done within the Finance Committee of the House over the last 2 weeks. I think that was evidenced by this bill getting a unanimous approval through that committee and then having a limited number of amendments on the floor. In fact, I think just one amendment that was passed. There is a lot of balance structured into this balance between the lower ABT impact payments, some of the transparency initiatives for AGDC.

And all this really, we hope, starts to hang together in something that is beneficial to all the parties involved, including the legislature, in getting the right amount of information. So with that, I will move forward. These are the sections of HB 381, and with your indulgence, Chair Hoffman, instead of going through this in order of the sections. What I have done, and you can see this on slide 3, is I've grouped this into functionally what the sections do. And so there's a section on tax and municipal impact provisions that I'll touch on first.

There's a section on the utility buyer protections that I think is very interesting, uh, I'll hit on second. Then we'll go through the AGDC provisions, of which there are a lot of them. And then we'll talk about the sunset, the rationale for that sunset. And then finally, there are technical pieces that really just change the language within statute, but I can lay those out as well. So moving on, before I start with the tax provisions, Chair Hoffman, with your indulgence, I'd like to invite the president of 8 Star Alaska and Glenfarr and Alaska LNG Adam Prestidge up to the table to sort of walk through some of the rationale behind the tax provisions with me.

Please come forward, Mr. Prestidge.

Adam Prestidge, President, Glenfarm Alaska LNG.

All right. Within the tax provisions, there are 4 sections that really address it. Section 25 in the bill is really where most of the meat is. This is the section that does a couple of things. The first thing it does is it sets a tax abatement period.

And by tax abatement, meaning there is no property tax tax paid during this period. It is until volumes hit 500 million cubic feet per day, uh, or 5 years from commercial operations, whichever is first. And just for reference, right now we consume about 200 million standard cubic feet a day in utility demand along the rail belt.

The second part of it is, after that abatement period, an alternative volumetric tax is established. Mr. Stickel with the Department of Revenue just went through that, but we will touch up, uh, further on it. And then finally, there's what is the eligibility criteria, and the Fairbanks Spur line plays a major role in that eligibility criteria, but there's more to it than that. But I will go through more detail around that, uh, Fairbanks Spur. And then it establishes a collection and allocation methodology that Mr. Stickel just really spoke through, so I won't go into too much detail around that.

And it sets out appeals and distraint in case of nonpayment, which is standard for any property tax as far as I am understood. It creates termination timelines, which are we have to commence construction by 2032 and need to commence commercial operations of at least one major subproject by 2037, or they expire. Then there are reporting requirements, and then of course the definitions of that section. Section 28, I'll also give more detail on, and that addresses municipal impact grants. So this is something missing out of the current tax structure.

Under the current tax structure, as long as AGDC is a partner to the project, then there is no property tax paid during construction. That does leave the communities holding the the bag somewhat. As you know, there will be impacts during construction. These will be actual costs to the municipalities, and we believe that they should be offset. In the conversations with House Finance, we discussed a sort of two-tiered process that I'll go through with respect to that.

And then finally, Section 31 is conditions to be met. That's the further to the spur line, walk through that. And then 33 is more of a technical section that just enforces the abatement or puts the abatement and the AVT effective dates into statute. Any questions on that? Please proceed.

All right. So to start first with the alternative volumetric tax, again, Mr. Stickel just went through this, but I'm going to invite Mr. Prestidge to walk through this one more time from the developer's point of view. This is Adam Prestidge from Glenfarm Alaska. What I will comment, not to reiterate too much of what the Department of Revenue, Dan Stickle, went through. What I want to comment on, I guess, is again a structure that's meant to be predictable and consistent for all parties involved.

And so one of the benefits, one of several benefits that we see with the alternative volumetric tax is that it is calculated based on a reportable throughput on the pipeline that is then calculated by multipliers, and there's no value— there's no question of valuation applied to that. And so what that means is that we avoid, for all parties involved, the potential for litigation over what is the value of this property over the decades to come. The result of that litigation could be a higher valuation, could be a lower valuation. At the end of the day, what it means is that nobody in this room, no investor, no State Treasurer, is able to truly predict what would be the revenue from a property tax that was based purely on valuation. The alternative volumetric tax is something that can be calculated on a very straightforward mathematical basis.

The other thing that I want to highlight is that this tax structure, the alternative volumetric tax, has the benefit of creating alignment. And so the more, the more gas that flows on the pipeline, the greater the revenue to, to the state. The more gas that flows on the pipeline, the lower the cost of gas to the ratepayers. And structuring this way incentivizes essentially a greater use of of the facility, of the pipeline itself. The last point that I'll make, a bit of a response to one of the points that was raised in the Department of Revenue's presentation, the financial structure of House Bill 381 is very carefully constructed.

It's a somewhat complicated piece of legislation with numerous different economic points One of those key economic points that we'll talk about shortly in this presentation is that Glenfarm has made the commitment to cap the price of gas at $16, which inflates over, over time, as is customary. But that price cap, that commitment that we can get this project done with a cap on the price at $16, is an extraordinary commitment. It is a commitment that we're able to make on the basis of how 381 was put together. If there were a significant change to the tax structure, for example, going from 2 mils to 3 mils would be a 50% increase on the tax burden as set out in HB 381. That would really put in— that would really challenge our ability to maintain that $16 price cap.

As I said, the bill is carefully constructed to all have all the pieces work together. If you change a major— if you change one of the pieces changes in a major way, it's going to require us to try to make all the other change— make the other pieces accommodate that change. So those are a couple thoughts on the structure and the benefit of the alternative volumetric tax. So we understand that the AVT grows with inflation. Does that growth in inflation apply to the 6 cents for the pipeline and the 13 cents for the two plants?

Mr. Chair, the— that's correct. The inflation applies across the entire AVT. Further questions on slide 6? Senator Steadman.

Just on the comment about the— about changing the matrix from roughly a 2 mils, but isn't there a timing difference between when the $0.16 was agreed to and when the concept of the volumetric tax numerics were put in play, like a couple of months difference in time?

Senator Sedman, through the Chair, I actually don't think there is much of a difference of time. We've carried an assumption of around 2 mils into this discussion for quite some time. Obviously there's an ongoing negotiation with Enstar, and we're trying to bring all these pieces together at the same time.

Senator Steadman. I think there's a couple months difference in when the 16 cents was in play and when the concept of the effective 2 mil tax rate was put on the table or put in play.

And it seems low.

And then I was just wondering what other jurisdictions use these volumetric taxes on their pipelines around the country so we can have some comparisons.

Senator Steadman, through the Chair, just for my perspective, the 2 mills 2 mils is a concept that was first introduced by Wood Mackenzie and other— and Gas Strategies and other consultants to AGDC quite some time ago, and it was an assumption that went into our ability to commit to a $16 price cap. And so I don't see that there was a commitment to $16 at any time before we had an assumption that was based on 2 mils. I think is this— As has been discussed in this committee, the alternative volumetric tax as a means of property tax has not been used for pipeline property tax, to my knowledge, in North America. It's been used on some other projects internationally, and I'd be happy to follow up with some more information about that. What I will say is that calculating economics and payments Based on throughput of a pipeline is an extremely standard way to calculate the economics around a pipeline.

Understood, ma'am. No, that's fine. Please proceed. If there are no more questions on this slide, move on to further discussion of the eligibility. So the primary criteria, one primary criteria for eligibility is that there must be a spur line.

The project must include a spur line to serve Fairbanks and the Fairbanks North Star Borough. This needs to be sized to meet reasonable projected demand. So we're looking at the growth, potential growth of Fairbanks, which is considerable but will take time. Scheduled to commence operations within 2 years of the main pipeline commercial operation. So this gives us some buffer to complete complete the permitting of that project, to make sure that the mainline is on track before committing to the capital of that project, but to still finish that project within a reasonable period after the mainline.

It needs to be designed to connect with the local distribution infrastructure, so that's basically the IGU infrastructure and feeding into GVEA's system. It needs to be designed and operated to deliver gas at the lowest reasonable cost. This is something that we're looking for as AGDC across everything that the project is doing. And finally, it needs to allocate across, across all system-wide consumers. And this is where probably there are going to be a lot more questions about how that's going to work.

And I understand that tomorrow after we finish the rest of the sectional analysis, we're going to do more of a deep dive on the Fairbanks Spur Line. Happy to address any questions now, but I suppose it might be better to leave some of them for tomorrow. We'll leave them for tomorrow. Great. Just as a note, Department of Revenue will determine if eligibility is met.

Section 28, again, deals with the municipal impact grant. So this is payment to the communities while we're building the project. And again, I would like to defer to Adam Prestidge to walk us through this from the view of the developer. Thank you. This is Adam Prestidge for the record.

The concept of a Municipal Impact Grant or a Community Impact Fund was something that was the outcome of our working— of a municipal working group. And so from an early— from an early start to our work with the mayors of the different impacted municipalities, there was a recognition that under the existing tax law, there's no compensation to municipalities to offset the impacts, the negative impacts to communities for construction. That was something that was made— that was highlighted to us as very important to the municipalities, and for that reason, we agreed to create this this community impact fund, I think it's worth highlighting that it was basically something that Glenfarm proposed to be added to the legislation initially during the legislative process because we had heard from, as I said, the mayors that they wanted to see this in there, wanted to have this compensation, and we thought it was a reasonable thing to do. Initially, we agreed that the project Act would fund a $30 million community impact fund that was based on the request of the mayors. That was subsequently increased to $40 million during the committee process.

In the most recent House Finance Committee process, we especially considered the impacts on the municipality of Anchorage and agreed to— that the community impact fund would be doubled from $40 million to $80 million. And so by our— that's more than adequate to compensate for the direct actual impacts from the construction of this project on municipalities. Is there timelines for the first $40 million and the second $40 million to be deposited into the fund? Chair Hoffman, the timeline for the first $40 million is meant to be basically at the time of FID. And the remaining $40 million would be funded in, as it says, $10 million increments based on actual costs that are incurred by the municipalities.

Matt Kissinger for the record. The way the bill actually reads is the Department of the Commissioner of Revenue will make the determination that that $40 million has been committed and only then will they certify that the tax abatement period can begin. So tax abatement can't begin until that's done. And the conditions on the second $40 million, how does, how does that proper process work? Chair Hoffman, the way it works is in $10 million increments.

And so the municipalities will submit their actual or realistically— Reasonably. Reasonably predicted costs. And once the total of those achieves $10 million, then DCCED will do essentially a cash call to the developer, and the developer will pay that $10 million in. And who is to determine what's reasonable and what is not?— the process for the project, the developer denying those impact claims? Yes.

Chair Hoffman, the DCCED will be the determiner of that. So the Commissioner would be the ultimate determiner of that is my understanding. I understand this is modeled after post-crisis or crisis response funding. Where people have had, you know, an incident and are going to DCCED for funds based on that. As far as the— as far as conflict around those, Adam, do you remember how that works?

PRESSLER] This is Adam Pressler for the record. I believe what House Bill 381 says is that the developer can't unreasonably reject any request. Further questions on slide number 8? Please proceed.

Next, Section 31 is the conditional effect. So this is where the Commissioner of Revenue makes these determinations. The Commissioner of Revenue needs to determine that the $40 million has been paid in that the property owner has committed to negotiate a project labor agreement, and that the property owner has committed to construct the Fairbanks Spur Line. So it is more than just the spur line, as I mentioned. Then on the— specifically on the spur line, the property owner shall, on or before completing 730 miles of the gas pipeline, begin all the permit applications, take action on any other regulatory requirements such as the RCA, They need to initiate a tariff proceeding for the system-wide tariff treatment that we discussed, and that we'll discuss in more detail tomorrow, uh, for the spur line with an economically viable gas sales contract.

And so that means contract with the local utilities. And then finally, they do need to begin construction on spur line within one year of receiving all those permits and meeting the necessary regulatory requirements.

So that really encapsulates what the tax provisions are. And next I'm gonna talk about the utility buyer protections because this is, I think, one of the more interesting results of the discussion from the last 2 weeks in the other house.

These are all rolled into just one section, Section 19. And again, I think it's better if we hear this directly from the developer, because these are commitments that the developer is making to Alaska. This is Adam Preston from Glenfarm, Alaska.

What I'd like to comment on here, again, is that our commitment to cap the cost, the price of gas at $16 is an extraordinary commitment. It locks in the economics of the project at a top end, pairing that with our support, uh, for language that protects utility customers from cost overruns, has the ultimate result of putting the risk of this project entirely on the developer. That is a risk that we are willing to wear. That's a risk that we're willing to wear to protect the consumers of Alaska. That's a risk that we're willing to wear because we believe in the project and the project that we've put together and the economics behind I think it is, as I said, something you would not find very many developers being willing to do.

That's one of the reasons we're unique as a partner to the state of Alaska. I think it's something you wouldn't find in the legislation of very many states that would price the cost of a commodity like this associated with a development project. But nevertheless, as a result of many, many hours with many different stakeholders throughout this process, those are commitments that we're willing to make. And the $16 number, is that a fixed number or is that inflation-proofed as well? That is a number that is, that is tied to inflation, uh, and that is correlated with the price of gas that would be sold to NSTAR and other regulated customers that would also, uh, fluctuate with inflation.

Please proceed.

If there are no other questions on that, that wraps up the tax elements and the utility buyer protections. I can start on the AGDC provisions. This is quite lengthy. If you would wish, Chair Hoffman, we can start that tomorrow, or I can begin now. This is a very good place to take a break and we will pick it up here tomorrow.

We'll find out when we could fit it into the slide deck for our work tomorrow. Is there anything else to come before the committee at this time? Seeing none, we are adjourned. Before I adjourn, let's see, we have that item, continuation, and we also have— The tomorrow's meeting on June 16th at 9 AM, and the topic will be the Fairbanks Spur Line. We are adjourned.