The Alaska Senate approved in a 12-8 vote Friday a bill that would reduce taxes on the Alaska LNG project. It was the last day of a special session Gov. Mike Dunleavy called to consider the issue.
But Gov. Dunleavy, in a news conference minutes after the vote, said the Senate version “doesn’t work.”
Dunleavy called lawmakers into a new special session starting at 10 a.m. Saturday.
“We’ll introduce a bill very close to what the bills were that …the Senate put together, minus a lot of these amendments that went in there,” he said.
The Senate made significant changes in a committee draft, then more sweeping modifications during hours of floor debate and amendments Friday.
“Many of the amendments passed in the Senate bill tonight, if put into law, would have resulted in an unworkable, unfinanceable, and uncompetitive project, unable to deliver reliable and affordable energy to Alaskans,” project developer Glenfarne Alaska LNG said in a statement from spokesperson Tim Fitzpatrick.
Dunleavy encouraged leaders in the House and Senate to get together and come to consensus.
“We can do it tomorrow if people are seriously interested in getting something done,” Dunleavy said.
The House, appearing to lack the 21 votes necessary to concur with the Senate’s changes, canceled a floor session following Dunleavy’s press conference. Rep. Chuck Kopp, a member of the narrow 21-member bipartisan majority caucus, appeared alongside Dunleavy at the news conference.
“I think that the greatest mistake we can make is allowing the pursuit of maximum government revenue extraction become the reason we receive no revenue at all,” Kopp said.
Tensions were high late Friday in the Capitol, with Anchorage Democratic Sen. Bill Wielechowski loudly arguing with minority-caucus Rep. Jeremy Bynum immediately after Dunleavy’s news conference ended.
“We passed a bill. We sent you a bill. You don’t like it? Vote against it,” Wielechowski said.
Dunleavy and pipeline developer Glenfarne, which owns a 75% stake in the project, say a measure replacing a 2% annual property tax with a much smaller tax on gas throughput is essential to allowing the project to attract investors and court lenders. Dunleavy and Glenfarne applauded the more generous, less restrictive version of the bill that passed the House a week ago.
The Alaska LNG project, estimated by the developer to cost up to $54.5 billion, includes an 807-mile pipeline, a conditioning facility on the North Slope to remove gas impurities such as carbon dioxide, and a liquefaction plant on the shores of Cook Inlet to export the gas to Asia. The project would be split into two phases: first, a shorter in-state pipeline to provide gas to Alaskans, and then the much more expensive — and much more lucrative — export infrastructure.
Perhaps the most significant change was added on the Senate floor that would apply the state’s corporate income tax to pass-through entities in the oil and gas businesses, such as S corporations and LLCs. Those include oil and gas giant Hilcorp and gas pipeline developer Glenfarne.
Sen. Forrest Dunbar, an Anchorage Democrat, said the change was an attempt to make up for an expected loss in oil tax revenue as North Slope producers invest in gas production. Companies can deduct expenses against their oil taxes.
Without the change, “it’s a bill with a (Permanent Fund dividend)- and school-shaped hole that we are trying to repair,” Dunbar said. “We need to repair this bill, so that the people of Alaska don’t see a substantial loss in their income during the construction phase.”
Some members of the Senate’s governing bipartisan majority have pursued such a corporate tax expansion for years. The House rejected a Senate-passed measure that would have made a similar change just last month.
Minority caucus Republicans, including Sen. Robb Myers of Fairbanks, spoke against the tax change. He said senators hadn’t studied closely enough what the change would mean for oil companies’ plans.
“We’ve modeled the state revenue, that’s definitely true,” he said. “We haven’t modeled what this amendment would do to future investment in future production, not only with Cook Inlet, but also up on the North Slope.”
Lawmakers approved the change 11-9. It would take effect in 2028.
A coalition of business groups, including the Alaska Chamber, the Alaska Oil and Gas Association and the Alaska Support Industry Alliance, also said they opposed the change.
Another notable addition to the Senate’s committee draft of the gas pipeline tax bill is a tighter version of the project’s timeline. To be eligible for tax relief, the developer must commit to a final investment decision for the first phase by Jan. 1, 2028, and construction of the in-state pipeline would need to be complete by the end of 2032.
The House’s version required only that construction begin by Jan. 1, 2032.
The faster timeline is an effort to address Southcentral’s looming shortage of natural gas, said Sen. Bert Stedman, a Sitka Republican and a co-chair of the Senate Finance Committee. The Department of Natural Resources’ production forecast envisions demand outstripping Cook Inlet gas production by 2032.
“There’s been a lot of concern out of the Railbelt with the declining volume in Cook Inlet,” Stedman said.
But the more aggressive timeline sparked concerns from minority Republicans on the committee; it increases the risk on an already risky, marginal project, they said.
“That’s very damaging,” said Sen. Mike Cronk, a Tok Republican and the Senate minority leader. “There’s so many factors that we don’t control.”
Putting a “hard construction date” in the bill may be a “poison pill,” Cronk said.
Stedman suggested future legislatures could revise the date to account for “unforeseen black swan events.”
“We can change these and modify these going forward,” Stedman said. “This is not in the Constitution, so I think there’d be some consideration under good faith trying to get the project constructed.”
Senators unanimously approved an amendment that would allow the natural resources commissioner to “reasonably extend” the dates “in the event of force majeure” — those black swan events.
The tax rate at the heart of the bill, the so-called alternative volumetric tax on gas flowing through the pipeline from the North Slope to Southcentral Alaska, would be fixed, rather than a weighted average tied to the cost of each component of the project.
The Senate draft sets the tax initially at 6.2 cents per 1,000 cubic feet of gas throughput, starting five years after gas begins to flow through the pipeline. The tax would take effect sooner if throughput reaches 500 million cubic feet per day, which is more than double what Southcentral Alaska uses now.
The tax would rise to 10.6 cents per 1,000 cubic feet once Phase 2 of the project, which includes the liquefied natural gas export facility, is up and running. The tax revenue from that mirrors what the Department of Revenue estimates the weighted tax that passed the House would yield.
The rates would rise between 1% and 3% each year, depending on inflation.
The House backed 30-plus years of tax breaks. Some senators were skeptical of that, so their version doubles the tax rate ten years after exports begin, then doubles them again in 2060.
The new bill retains key conditions for the tax relief included in the House’s version: the developer must commit to building a spur line to Fairbanks and negotiate project labor agreements with unions. It also includes up to $80 million in community impact funding for municipalities: $40 million due shortly after the final investment decision for each project phase.
It also includes House-passed price controls on in-state gas. Utilities would pay no more than $16 per million British thermal units, adjusted for inflation. That’s roughly $16.60 per 1,000 cubic feet, substantially higher than current Southcentral gas rates — about $10 — but likely cheaper than imported gas, according to Southcentral’s gas utility.
An amendment on the Senate floor also prohibits Glenfarne from seeking reimbursement from the state if the project fails to move forward. Glenfarne said during committee hearings it would not seek compensation if the project failed.
Veto overrides
Also today, lawmakers attempted to override five of the nine vetoes Gov. Mike Dunleavy issued Thursday evening.
They were successful on two: a bill extending a state board of engineers, architects and land surveyors; and another bill allowing pharmacists to treat minor and chronic conditions.
They failed to override vetoes of three bills: one increasing oversight of youth in psychiatric hospitals, another creating a state-managed retirement program for small businesses, and a third requiring the state education department to develop guidelines for mental health instruction.
