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Draft proposes gas tax rate, subsidiary change

Posted: March 10, 2014 - 11:06pm

JUNEAU — A draft version of the bill aimed at advancing a major liquefied natural gas project in Alaska would raise the gas tax rate over what Gov. Sean Parnell proposed and change the role of the Alaska Gasline Development Corp., or AGDC.

A copy of the draft was provided at the Senate Finance Committee meeting Monday morning. Details were not discussed in committee, and the draft was not adopted. Committee co-chair Pete Kelly, R-Fairbanks, said he hoped to have a committee version adopted Tuesday or Wednesday.

While Kelly last week said he didn’t expect much change from what was sent to his committee by Senate Resources, the draft proposes some big revisions. Kelly said when he made that comment, he was probably thinking about what the committee wanted and the draft is not a major departure from that.

The draft would set the tax rate at 13 percent of the gross value at the point of production beginning in 2022. When combined with royalty, Kelly said that would give the state a 25 percent share in the proposed mega-project. An agreement signed by the state, oil and gas companies, pipeline company TransCanada Corp., and AGDC — setting out broad terms for moving forward with a project — anticipated a tax range of 7 percent to 13 percent.

Parnell proposed a 10.5 percent rate in his version of SB138, with a deputy Revenue commissioner has referred to as a starting point for conversations.

The draft also removed language proposing creation of a subsidiary of AGDC to carry Alaska’s interest in liquefaction and marine terminal facilities. Instead, AGDC, which has been pursuing a smaller gas line project for in-state gas use, would have that duty as well. The commissioners of Natural Resources and Revenue would not be allowed to serve on AGDC’s board. The draft also proposes separate funds for money for the smaller project and for the liquefied natural gas project.

The draft included language requesting that the governor create a board to advise him on municipal involvement in the project. Several mayors testified before the committee last week, asking to have a say on terms that will affect local communities and be negotiated by the state in pursuit of the project. Parnell, in a letter to mayors last week, said he planned to establish through administrative order a “more formal mechanism” to assure local government input and participation in gas line talks. He did not elaborate.

Parnell spokeswoman Sharon Leighow said by email Monday that Parnell was considering creating a municipal advisory gas project review board.

The draft also called for the Alaska Energy Authority, in consultation with others, to devise a plan for developing infrastructure to provide more affordable energy to parts of Alaska that are not expected to have direct access to the gas line.

A section of the draft with legislative intent language referred to provisions for labor agreements, rather than project labor agreements.

SB138 is intended to move the liquefied natural gas project through a phase of preliminary engineering and design and refinement of project costs, which now range from about $45 billion to more than $65 billion. If the bill passes, it is expected the administration would bring negotiated project-enabling contracts back to lawmakers sometime next year for approval.

Larry Persily, federal coordinator of Alaska gas pipeline projects, told the committee Monday he didn’t know of a liquefied natural gas project that had lost money but he said the payback on investment can take a long time. When asked, he said he would recommend the state move into the next phase, but he also encouraged lawmakers to look at the worst case scenario — “not the $3-$4 billion number,” noting that while he didn’t know of a project that lost money long-term, there are projects that didn’t make as much as expected.

The committee has heard that total revenues to the state could be about $3 billion and more than $4 billion a year, depending on the equity stake and other assumptions, such as the volume of gas and prices.

The Legislature’s consultants, in looking at a scenario that included 25 percent higher capital costs than a modeled base case, a lower sales price for gas of $7 and 80 percent average utilization showed possible annual revenues of about $700 million, with the state taking a 25 percent stake and exercising an equity buyback option with TransCanada.

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