Senate Finance held 22 hearings this special session on SB2001 & HB 381, the bills creating a new tax structure for the AKLNG project. They're all linked below.
Friends & Neighbors in District L --
In a frustrating series of events for everyone, we're in special session again. The question isn't whether to build a gasline - I haven't talked to a single legislator opposed to a gasline - the question is who gives up what to get one.
Last year, the developer (Glenfarne) stated they didn't want the Legislature involved, because they don't need anything from us. This year, they're looking for a different tax structure. The devil is in these details.
I've been a supporter of the gasline from the start, but don't think we should be using our limited State funds to finance the project, when that option becomes available. My priority is ensuring that the deal results in dependable, cheaper energy for south central ratepayers, and that we're not left paying for cost overruns.
AVT - Alternative Volumetric Tax
The bill before the Legislature is about implementing a new tax concept for the AK LNG project, an alternative volumetric tax, instead of the property tax already in statute. This taxes the volume of gas that flows through the pipeline. The AVT goes into effect either 5 years after commercial operations start or when 500 million cubic feet per day flow through the pipeline, as long as Glenfarne has met certain criteria and timelines. This revenue is shared by municipalities and the State.
Glenfarne made it's commitment to sell gas to ENSTAR at $16 on the basis of an AVT rate equivalent to ~2 mills.
Money Numbers
Glenfarne is expecting construction costs of $44.5-54.5B, without contingency or overruns, for both phases.
The sale price to ENSTAR is $16 + $2-4 delivery for customers. By comparison, import is expected to be roughly $17, without the delivery charge.
Costs $1.84m for DOR to implement the bill.
12,000 construction jobs
Glenfarne still needs to find anticipated buyers for 16 MTPA of gas before contracts solidify and FID can proceed. The legislature's work is not slowing that process.
🛢️ AKLNG
Major takeaways from hearings:
Projects like this get the most benefit out of a 10-year tax holiday. Glenfarne prefers 20-30 years to match the timeline of their debt.
Huge megaprojects (AKA gigaprojects of $10+B) like this have 40% overrun average for pipeline and 70% cost overrun average for LNG projects. AKLNG is made up of 3 gigaprojects. 92% of megaprojects are overbudget, overtime, or both - TAPS cost twice as much as anticipated!
The AVT proposed isn't used anywhere in the U.S. and is a significant tax reduction, but may align all stakeholder goals of more volume.
The phased approach is expected to be 2-3 years faster than full project approach, though also has additional challenges.
This is larger than Glenfarne's other projects, they specialize in financing, not construction.
Production of LNG may lower oil production on the North Slope, as LNG is currently used to pressurize wells.
Currently, the railbelt uses 200 million cubic feet of natural gas per day. At 500 million cubic feet per day of in-state gas, the price for ratepayers will drop.
The benefits of this project are not to the State as an entity; Alaskans and municipalities win most.
📜 SPECIFICS IN HOUSE BILL 381
Right now, HB 381 is the bill everyone's talking about. The Governor introduced it, and as with any bill, both the House and the Senate changed it. The House spent several months working on HB 381, but once it was sent to the Senate, we only had about a week to pass the bill before the 30-day special session ended. Since the chambers have passed different versions, a conference committee was appointed:
The bill is the same in a lot of ways: it creates an AVT rather than using property taxes, establishes a municipal impact fund to mitigate impacts during construction, establishes a 5-year timeline to turn gas on with abatement ending within 5 years of commercial operations OR 500mcf/day, Fairbanks spur line provisions, allows Alaska to own 25% of the project, and more.
But they have their differences:
House Version
Differing tax rates for project components with a weighted average based on capital costs (~2 mills 'til 2060)
Payments to SOA and to Munis based on capital costs
AVT grows with inflation, capped at 2%
Fairbanks Spur to be paid for by all in-state and international buyers
All AVT property is exempt from local contribution calculation
Senate Version
Used the average tax rate to create a single project tax rate that increases over time (~2 mills, rising to ~9.6mills in 2060)
Defined revenue split to Munis & SOA
AVT grows with inflation, capped at 3%
Fairbanks Spur to be paid for by in-state and international customers, as long as federal law allows
Subjects S corporations to state corporate income tax (I opposed this amendment!)
✒️VETOS & OVERRIDES
Bills from the regular session are being sent to the Governor as the paperwork is completed. June 18th was a big deadline for a lot of those bills and the Governor vetoed nine:
HB23 - includes nonprofit oversight by the Alaska State Commission on Human Rights HB52 - additional oversight for youth in psychiatric treatment HB195 - expands pharmacist authority to provide simple medical tests and prescriptions HB280 - adds online sales into corporate income tax HB314 - extends the board of Architects, Engineers, Land Surveyors, and incorporates Interior Designers SB21 - state-run retirement accounts for employees whose employers don't offer a plan SB24 - e-cigarette taxes & increasing the smoking age SB41 - mental health education in schools SB258 - fair software licensing agreements to government entities
The Legislature met in joint session and overrode the vetoes of HB195 and HB314.
💭 THOUGHTS FROM YOU
I heard from a number of you on support or opposition for various vetoes. I appreciate you all staying involved in the process through to the very end!
On the gasline, many folks from Chugiak/Eagle-River reached out to share their thoughts. Some of our neighbors are willing to give anything to make the project happen and others feel we're being cheated and need a better deal. Even some supporters are skeptics. Alaskans are illustrating the contention in the Legislature between finding a deal that works for all parties.
📜 MY LEGISLATION
SB164 - Became law without the Governor's signature on June 18th. This recaptures $467k in indirect State expenditures, from the analysis the State already does on every program.
If I can be of service, please do not hesitate to contact me.
Senator Kelly Merrick
Senate District L - Chugiak/Eagle River
The Permanent Fund Corporation has been publishing a series on Myths & Facts about the Fund in their newsletter. You can read them here.
907-465-3777
Alaska State Capitol, Room 504
Juneau, Alaska 99801
907-269-3630 ANC LIO, 1500 W. Benson Blvd., Ste. 216 Anchorage, AK 99503
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