Gov. Mike Dunleavy is pressing lawmakers to act quickly on his proposal to cut taxes for the Alaska LNG project.
With liquefied natural gas prices high and supplies uncertain because of the U.S. and Israel’s war with Iran, now is the time for the project, Dunleavy told reporters at a news conference in Anchorage on Monday.
“Many of our Asian allies and others are looking, where are we going to get energy on a long term, secure basis?” he said. “Well, Alaska is secure, there's no doubt about it, but Alaska also costs more.”
Dunleavy called on lawmakers to pass a bill that makes the project “financeable” — that is, a bill with a tax rate low enough to convince investors and creditors to provide the estimated $46 billion the project will cost. The full project includes an 800-mile pipeline, a North Slope gas processing facility and an LNG export facility on the Kenai Peninsula.
In March, the governor proposed a six-cent tax on each 1,000 cubic feet of gas flowing through the pipeline from the North Slope to Southcentral Alaska. That would cut state revenue by about 90% when compared to the existing 20-mill property tax.
The current drafts of the House and Senate’s gas pipeline tax bills each contain a higher rate — 20 cents in the House and 55 cents in the Senate, plus additional expenses. Neither is low enough to coax investors to buy in or lend to a high-cost, risky project, Dunleavy said.
“You go above 10 cents — ideally, you're within the six-cent range — if you go much above that, you're probably not going to get a project that's financeable,” Dunleavy said. “Somebody comes in with a 20-cent throughput tax, it's not going to be financeable.”
House lawmakers are working with the governor’s office and pipeline developer Glenfarne in refining their version of the bill, House Bill 381. The House Resources Committee, co-chaired by Democrats from Utqiagvik and Fairbanks, held a hearing Tuesday to work through various tweaks to their bill alongside Dunleavy’s office and Glenfarne. They’re scheduled to consider Wednesday an amendment that would cut the per-unit tax to 15 cents and take public testimony.
The bipartisan Senate majority caucus, on the other hand, is taking a more adversarial approach.
Sen. Cathy Giessel, an Anchorage Republican who chairs the Senate Resources Committee, said at a news conference Tuesday that lawmakers aren’t working with all the information they need — like the full cost of the project.
“Really, if they want any kind of tax reduction, they need to help us with this bill, giving us actual numbers,” she said.
The $46 billion price tag is an inflation-adjusted version of an estimate that's more than a decade old. The committee's vice chair, Democratic Anchorage Sen. Bill Wielechowski, lawmakers needed to see precise figures to ensure they got Alaskans the best deal possible.
"We want the project to happen, and if cuts are needed to make the project happen, let's have that discussion," he said. "But let's all work from the same numbers."
Glenfarne has said repeatedly that publicly revealing their most updated cost estimates would compromise their ability to negotiate contracts with suppliers, contractors and buyers. Glenfarne’s Alaska head, Adam Prestidge, reiterated that to lawmakers Tuesday.
“It really is a market where cents, nickels can make a difference between a successful project or not, and so there's a very narrow and intensely negotiated competitive window,” Prestidge said. “Disclosing our cost estimates and disclosing what we have on our side of the model puts the project at a competitive disadvantage in each of those negotiations.”
The Department of Revenue’s $46 billion estimate is “a good representation of the construction cost of the project,” he said. Giessel rebuffed an offer to view confidential figures in a closed-door session, saying it would be difficult for lawmakers to explain to their decisions to the public without being able to share the underlying data.
Giessel and Wielechowski asserted that the project could go forward even if lawmakers do nothing and leave the existing property tax in place. It has all the permits it needs, and former U.S. Sen. Mark Begich — now working for Dunleavy to advance the gas line project — told Giessel’s committee that a higher tax rate would simply be passed through to consumers.
Wielechowski, working from figures from the Department of Revenue and Southcentral gas utility Enstar, estimated that Alaska consumers would save between $50 and $60 per year in energy costs while giving up $500 in state revenue. The governor's office has offered a more rosy estimate — $1,450 in annual energy savings.
The Department of Revenue estimates that once the pipeline is complete consumers would pay $23 per 1,000 cubic feet for natural gas, a little less than twice current Southcentral rates, if lawmakers pass the governor’s six-cent tax and costs come in as estimated. Once the LNG export facility is online and gas throughput increases, consumer costs would drop to about $9 per 1,000 cubic feet, according to the Department of Revenue, about a third less than current rates.
“If we don't get this right, we stand to lose hundreds of millions of dollars, and the people of Alaska stand to have locked into rates that are twice as much as they are now, and going up from there,” Wielechowski said.
Prestidge said a high tax rate risks the project not going forward at all.
He described the Senate proposal — a relatively modest tax cut when compared to the existing property tax — as “very burdensome, and potentially prohibitively so, in terms of having a (pipeline) project go forward on any of the timelines we’ve discussed.” Glenfarne hopes to start construction later this year.
Begich put it more bluntly.
“All the money you're talking about is irrelevant,” he told Wielechowski. “They will not collect it because you will not have the pipe in your jurisdiction.”
Glenfarne is, however, open to some concessions sought by lawmakers not included in the governor’s bill, Prestidge said.
The company has agreed to create so-called community impact funds to compensate municipalities for the costs they incur from pipeline construction, to include a spur line to Fairbanks, subject to permitting and regulatory approval, and offer municipalities the opportunity to buy equity in the project, Prestidge said.
“Those are elements that … we would be supportive of and that we think would still facilitate the project going forward successfully and quickly,” Prestidge said.
Given the many disagreements and unknowns surrounding the project, Senate President Gary Stevens, a Kodiak Republican, said Tuesday he was doubtful lawmakers could come up with an acceptable bill.
“Honestly, I don't see us coming to a conclusion in two weeks and a couple of days,” he said. “That's a lot to do, for the House and the Senate to come together and to conclude this entire issue of a gas line.”
If lawmakers don’t pass a tax break for the gas line by the end of the session in approximately two weeks, Dunleavy told reporters he was willing to call a special legislative session to get it done.
“Alaska's moment is a moment,” he said. “It's not an eternity.”
