Legislature(2009 - 2010)BARNES 124

02/08/2010 03:15 PM LABOR & COMMERCE


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03:22:01 PM Start
03:22:16 PM HB280
04:51:25 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 280 NATURAL GAS TELECONFERENCED
Heard & Held
                       HB 280-NATURAL GAS                                                                                   
                                                                                                                              
3:22:01 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  announced that the  only order of business  would be                                                               
HOUSE BILL NO. 280, "An Act  relating to natural gas; relating to                                                               
a gas storage facility; relating  to the Regulatory Commission of                                                               
Alaska; relating to the participation  by the attorney general in                                                               
a  matter involving  the  approval  of a  rate  or  a gas  supply                                                               
contract;  relating to  an income  tax credit  for a  gas storage                                                               
facility;  relating  to  oil  and  gas  production  tax  credits;                                                               
relating  to the  powers and  duties of  the Alaska  Oil and  Gas                                                               
Conservation Commission;  relating to production tax  credits for                                                               
certain   losses   and    expenditures,   including   exploration                                                               
expenditures; relating to  the powers and duties  of the director                                                               
of the  division of lands  and to lease  fees for the  storage of                                                               
gas on state land; and providing for an effective date."                                                                        
                                                                                                                              
3:22:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LYNN  moved  to   adopt  the  proposed  committee                                                               
substitute  (CS)  for  HB   280,  Version  26-LS1185\S,  Bullock,                                                               
2/5/10, as the work draft.                                                                                                      
                                                                                                                                
REPRESENTATIVE BUCH objected for purpose of discussion.                                                                         
                                                                                                                                
3:22:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MIKE HAWKER, Alaska  State Legislature, as a joint                                                               
prime  sponsor   of  HB  280,   stated  that  due   to  declining                                                               
productivity and  the overall decline of  natural gas production,                                                               
not enough  natural gas will  be produced  in Cook Inlet  to meet                                                               
the demand  in Southcentral  Alaska.  This  bill would  allow for                                                               
gas storage,  and allow  utilities to  purchase gas  during lower                                                               
demand  periods for  use during  peak use  times.   Secondly, the                                                               
bill would address concerns about  the tax incentive programs and                                                               
may help facilitate  oil and gas production.  The  bill will help                                                               
to define specific  terms such as facility and types  of gas.  He                                                               
related that HB  280 was pre-filed this legislature  but a number                                                               
of  important,   technical  changes  were  incorporated   into  a                                                               
committee substitute.   He  noted that he  has been  working with                                                               
the stakeholders in developing this bill.                                                                                       
                                                                                                                                
3:25:00 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER asked  members  to  consider adopting  the                                                               
proposed  committee substitute,  which incorporates  a number  of                                                               
important technical changes.  As  a joint prime sponsor, he would                                                               
like to commence the discussion of the bill.                                                                                    
                                                                                                                                
REPRESENTATIVE BUCH asked to remove his objection.                                                                              
                                                                                                                                
There being no objection, Version S was before the committee.                                                                   
                                                                                                                                
3:26:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER stated  that this  bill would  address the                                                               
regional problem  for primary  source of heat  and light  for the                                                               
Southcentral  Region, which  is the  natural gas  production from                                                               
Cook Inlet.   This basin  was identified  50 years ago  and while                                                               
the rich fields are being  depleted, there arguably remains ample                                                               
natural gas.   However, gas has become more  difficult to extract                                                               
from the  five major gas  domes.   The remaining gas  will likely                                                               
occur  in small  stratigraphic  traps of  gas,  similar to  small                                                               
bubbles, instead of  the massive reserves extracted  in the first                                                               
50 years of  development.  As the community has  grown, the level                                                               
of  consumption  has   increased  at  the  same   time  that  the                                                               
productivity of  the basin has  declined.  The  increasing demand                                                               
curve crosses  the decreasing production curve  and the community                                                               
is then  in a life-safety risk  situation.  While he  offered his                                                               
belief that  this shortage is  not a crisis, the  legislature can                                                               
facilitate a security plan for  the region.  He characterized the                                                               
process as  "getting out of  the way  of enterprise that  has the                                                               
capability  to address  our needs  and solve  our problems."   He                                                               
offered that  an alternative viewpoint  would be  that government                                                               
needs to step in  and take control and try to fix  it.  He argued                                                               
for  the  legislature to  make  a  policy  call and  support  the                                                               
existing infrastructure,  industries, and  utilities and  let the                                                               
private sector address the problem.                                                                                             
                                                                                                                                
3:29:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER  identified  the   three  areas  the  bill                                                               
focuses  on  to help  facilitate  the  development of  additional                                                               
natural gas  sources to assure peak  deliverability requirements.                                                               
He noted  the difference between peak  deliverability and average                                                               
deliverability of  gas.  Gas  wells tend  to produce at  a fairly                                                               
level state, but  consumers have a lower demand in  the middle of                                                               
summer and a  higher demand in winter due  to lower temperatures.                                                               
Thus, gas  demand is very  high in  mid-February, he stated.   In                                                               
order to meet  the peak demand, the producers must  meet the peak                                                               
deliverability  requirement   year  round.     Previously  excess                                                               
natural  gas could  be  burned  off, but  that  is  no longer  an                                                               
acceptable method of  handling excesses.  In Alaska,  in order to                                                               
maximize the value  of the resource, in the summer  the state has                                                               
provided gas to  large anchor consumers such as  the Agrium plant                                                               
in the  Kenai Peninsula.   In the  winter, gas has  been diverted                                                               
from commercial  users to Alaskan  consumers, and the  demand has                                                               
regulated the  flow, with excesses  used by  non-residential non-                                                               
community  consumers.   The state  is  currently approaching  the                                                               
point in  which the ability to  produce from the Cook  Inlet will                                                               
not meet  the peak  winter demand.   Some energy  solutions exist                                                               
using  a combination  of  conservation  measures and  alternative                                                               
energy sources.   However, he  stated that  alternative solutions                                                               
take  time and  investment.   He  predicted that  in another  two                                                               
winters the supply may not meet demand in Southcentral Alaska.                                                                  
                                                                                                                                
3:32:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER described the  central element of this bill                                                               
as a universally accepted mechanism  by gas utilities, producers,                                                               
and local government to increase  amount of gas available on peak                                                               
demand days through  storage.  Natural gas storage  has been used                                                               
in the Lower 48 for a  hundred years, but significant gas storage                                                               
has not  been used in Alaska  since it has not  been needed until                                                               
now.  Realistically,  to hold volumes of gas to  meet peak demand                                                               
will require  underground gas storage,  he stated.   The industry                                                               
technology has advanced to allow natural  gas to be pumped from a                                                               
new well  into a  depleted reservoir for  storage.   When natural                                                               
gas is needed in the winter  to meet peak demand, the natural gas                                                               
can   be   pumped   from    storage,   basically   doubling   the                                                               
deliverability  capacity.     He  stated  that   gas  storage  is                                                               
universally  accepted across  the  stakeholders  involved.   This                                                               
bill provides  a tax-credit incentive  program for  third parties                                                               
to  build   and  operate  a   storage  facility  to   meet  these                                                               
deliverability requirements.                                                                                                    
                                                                                                                                
3:35:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  pointed out  that he is  providing details                                                               
in his  testimony primarily to  provide a foundation for  the new                                                               
legislative members.                                                                                                            
                                                                                                                                
CHAIR OLSON  agreed it was  important to provide any  new members                                                               
with an overview.                                                                                                               
                                                                                                                                
REPRESENTATIVE  HAWKER  explained  that this  bill  creates  cost                                                               
incentives  and cost  benefits to  those interested  in providing                                                               
storage.  One key point  is that providing government support for                                                               
the storage is important because  the cost of storing natural gas                                                               
is part of  the supply chain of  gas to the consumer.   Thus, any                                                               
benefit  provided  must  be reflected  in  the  rates  ultimately                                                               
charged  to  consumers purchasing  gas  moved  through a  storage                                                               
facility.   Therefore, any savings  created for industry  will be                                                               
passed  on as  savings  to  the consumer  due  to the  regulatory                                                               
oversight  on natural  gas and  pricing.   He  recapped that  the                                                               
state provides  an incentive  for industry to  store gas,  but it                                                               
results in savings to consumers.                                                                                                
                                                                                                                                
3:37:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER explained  the second  aspect of  the bill                                                               
relates  to increasing  access to  existing  tax incentives,  and                                                               
creating  tax credit  incentives for  the development  of gas  by                                                               
producers  in Cook  Inlet.    Thirdly, an  issue  arose with  the                                                               
Regulatory  Commission of  Alaska authority.   The  original bill                                                               
intentionally contained limited language  since a docket was open                                                               
at the Regulatory Commission of  Alaska (RCA) to consider whether                                                               
it  should  regulate a  proposed  gas  storage facility  in  Cook                                                               
Inlet.   He surmised  that a  potential project  could be  put on                                                               
hold  if  the  legislature  was  going to  decide  if  it  should                                                               
regulate the business.   The RCA recently came  to the conclusion                                                               
that its  authority to regulate gas  was unclear.  Thus,  the RCA                                                               
requested  the   legislature  provide   guidance  on   the  RCA's                                                               
authority over regulating gas storage.                                                                                          
                                                                                                                                
3:39:58 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER requested the  committee consider the RCA's                                                               
request for regulatory guidance.   He indicated he will provide a                                                               
recommendation  on  the  level  of  guidance,  and  the  specific                                                               
language.  He offered to discuss this conceptually.                                                                             
                                                                                                                                
REPRESENTATIVE HAWKER,  in response to Chair  Olson, suggested an                                                               
amendment to HB 280 to address the specific guidance.                                                                           
                                                                                                                                
3:41:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  recapped that  HB 280  provides incentives                                                               
for   gas   storage   facilities,   additional   incentives   for                                                               
exploration and  development, and  enlightened guidance  from the                                                               
legislature to the  RCA on regulating these facilities.   This is                                                               
an  urgent issue  for Southcentral  Alaska since  its communities                                                               
are at risk of not being  served during the coldest winter months                                                               
at some  time in  the next few  years.  Passing  HB 280  will not                                                               
solve  all the  problems but  will give  the stakeholders  in the                                                               
Cook  Inlet incentives  and represents  a  positive move  towards                                                               
energy security for consumers in Southcentral Alaska.                                                                           
                                                                                                                                
3:42:54 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON remarked  that the state is losing  its safety value,                                                               
which  has been  its ability  to reduce  the amount  of Liquefied                                                               
Natural  Gas  (LNG) on  tankers  destined  for Japan  to  provide                                                               
additional gas to Southcentral Alaska.                                                                                          
                                                                                                                                
REPRESENTATIVE HAWKER expanded on  the LNG, describing the safety                                                               
buffer  that  the state  has  enjoyed  is  the export  of  excess                                                               
natural gas  from Nikiski when it  was not needed.   He explained                                                               
that  what  has  kept  natural gas  inexpensive  in  Southcentral                                                               
Alaska  has been  the export  of excess  natural gas.   In  March                                                               
2011, the  export permit is  up for  renewal and industry  is not                                                               
expressing any interest in renewing  the permit, nor has he heard                                                               
any interest  by the administration  in promoting  the extension.                                                               
He characterized the deadline as a "critical deadline."                                                                         
                                                                                                                                
REPRESENTATIVE NEUMAN asked whether  two types of facilities were                                                               
under   consideration,  including   above   ground  storage   and                                                               
underground storage for gas..                                                                                                   
                                                                                                                                
3:45:30 PM                                                                                                                    
                                                                                                                                
LARRY PERSILY,  Staff, Representative  Mike Hawker,  Alaska State                                                               
Legislature, stated that the gas  storage could be an underground                                                               
storage facility,  a nearly depleted  reservoir, an  above ground                                                               
tank,  or a  pipeline.   He explained  that a  pipeline could  be                                                               
packed with a small amount of  storage and that the bill does not                                                               
provide any exclusion.   He said the storage  facility is defined                                                               
as a tank, an above ground  tank, a nearly depleted reservoir, or                                                               
any other structure in the state.                                                                                               
                                                                                                                                
3:45:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NEUMAN  recalled  losses   when  natural  gas  is                                                               
injected underground.   Thus, if a million cubic  feet of natural                                                               
gas  is injected  underground some  gas is  lost.   He asked  who                                                               
would absorb the losses.                                                                                                        
                                                                                                                                
REPRESENTATIVE  HAWKER  responded  that   HB  280  addresses  the                                                               
technical nature of storage with a  series of definitions.  It is                                                               
recognized  that when  natural  gas is  placed  into an  existing                                                               
reservoir,  some gas  has  not been  developed  or been  assessed                                                               
production taxes.   It's a pressure vessel underground  so gas is                                                               
pumped in, but  a base level of pressure is  provided by "cushion                                                               
gas," which acts as a spring at  the bottom of the well.  Cushion                                                               
gas is  comprised of native gas  and non-native gas.   Native gas                                                               
would  be comprised  of the  gas molecules  that have  never been                                                               
produced,  and depending  on the  specific facility,  may provide                                                               
enough gas to operate the facility.   However, if it is necessary                                                               
to   pump   gas   into  the   reservoir   to   provide   adequate                                                               
pressurization, non-native  gas is used.   This bill  operates on                                                               
the concept that the last molecule  pumped into a facility is the                                                               
first molecule  pumped out.   Thus, production taxes are  paid on                                                               
volumetrics.  Production  taxes are not paid on  native gas until                                                               
an equal  volume is removed from  the facility.  Thus,  if gas is                                                               
seeping out  underground, that loss  will be counted  against the                                                               
producer.                                                                                                                       
                                                                                                                                
3:49:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER explained that  storage facilities are big.                                                               
In order  to qualify for  incentives, the facility must  be large                                                               
and it must be  able to deliver gas at a  rate sufficient to help                                                               
alleviate  the peak  deliverability problems.   Those  parameters                                                               
are contained in  HB 280.  Additionally, limits  on the aggregate                                                               
amount of credit  are intended to reduce  overspending on capital                                                               
expenditures than is  necessary.  The arbiter will  be the Alaska                                                               
Oil   and  Gas   Conservation   Commission   (AOGCC),  which   he                                                               
characterized as the single  most respected independent operating                                                               
agency in existence in Alaska.                                                                                                  
                                                                                                                                
3:50:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER,  in  response to  Representative  Neuman,                                                               
explained how  the proposed tax  credit would  work.  This  is an                                                               
investment tax credit,  so when an owner or  investor is building                                                               
a storage facility, the company  can receive a credit against the                                                               
investment  as an  amount  against its  future  state income  tax                                                               
obligations  using a  traditional  investment  tax credit  model.                                                               
The  credit is  not given  on  the molecules  moving through  the                                                               
facility, but  rather is given  on the capacity of  the facility.                                                               
Thus,  the   goal  is  to   provide  an  income  tax   credit  of                                                               
approximately 10  percent of the cost  as a tax credit,  which is                                                               
based on  judgment.  One  way to consider creating  an investment                                                               
tax credit  is to spend money,  send copies of the  receipts, and                                                               
obtain a  ten percent of  the qualified  investment expenditures.                                                               
However,  the   state  has  discovered  that   trying  to  define                                                               
"qualified" has been  difficult.  The ACES  regulations were just                                                               
released,  and  the  Governor has  been  considering  asking  for                                                               
forgiveness regulations since  it took so long  to promulgate the                                                               
regulations.   Meanwhile,  the industry  has  been operating  for                                                               
three years without any rules.   The ACES law requires penalties,                                                               
but the  penalties are  due to the  state's inability  to provide                                                               
regulatory guidance, he said.                                                                                                   
                                                                                                                                
3:53:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  offered his  belief that  it is  urgent to                                                               
provide  rules  to any  potential  natural  gas storage  facility                                                               
owners.  He said he would  hate to see the legislature compromise                                                               
moving forward on storage capacity  because the government cannot                                                               
operate more  efficiently.   An easier way  to calculate  the tax                                                               
credit  exists.   By  using the  volumetric  approach, the  state                                                               
could  provide a  credit of  $1.50 per  thousand cubic  feet, the                                                               
facility could  get built,  the AOGCC could  certify the  rate of                                                               
the tax  credit, which is easy  to calculate and would  amount to                                                               
approximately a  10 percent tax  credit.  He stated  this process                                                               
would  avoid complications  and someone  investing more  into the                                                               
facility  than necessary  due to  the structure  of cash  on cash                                                               
investment tax credit.   He restated that the  tax credit concept                                                               
is volumetric.                                                                                                                  
                                                                                                                                
3:55:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE NEUMAN  asked whether  the source of  the injected                                                               
gas matters.                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER answered no.                                                                                              
                                                                                                                                
3:56:03 PM                                                                                                                    
                                                                                                                                
MR. PERSILY also  answered no.  He explained that  the bill makes                                                               
no distinction, so long as  the natural gas is produced somewhere                                                               
else and is then injected into the storage facility.                                                                            
                                                                                                                                
REPRESENTATIVE   HAWKER   added  that   it   must   be  gas   for                                                               
deliverability through the utility system.                                                                                      
                                                                                                                                
MR.  PERSILY, in  response  to  Representative Neuman,  explained                                                               
that the tax credit  has to do with the size of  the "hole in the                                                               
ground" or  the above ground  tank.   The AOGCC will  certify how                                                               
much  produced  gas from  elsewhere  can  be injected  into  that                                                               
storage facility.   Once  the AOGCC  certifies the  capacity, the                                                               
tax credit  would be  based on  the capacity  of the  facility to                                                               
hold "working  gas," gas  that is  produced somewhere  else, non-                                                               
native gas,  delivered to the  storage and owned by  the utility.                                                               
When the  utility wants its natural  gas back to meet  the winter                                                               
demand the  gas would  be delivered  to the  utility.   Thus, the                                                               
credit is  based on the capacity  of the "hole in  the ground" or                                                               
the reservoir storage tank to hold gas.                                                                                         
                                                                                                                                
3:57:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LYNN  stated that  the committee  certainly favors                                                               
economic development.   This  seems sensible,  but the  "devil is                                                               
probably in the details."  He asked for any concerns.                                                                           
                                                                                                                                
3:58:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  related that during the  development of HB                                                               
280,  the  conscious  focus  was   to  address  the  Southcentral                                                               
Alaska's needs  for natural gas,  while working to  provide least                                                               
amount of political  strife.  He sincerely hoped  this bill would                                                               
have minimal  "push back" from  any stakeholder.  He  offered his                                                               
belief  that  this  bill  will  have  significant  support.    He                                                               
expressed concern  that controversial elements could  be added to                                                               
the  bill.    He  related  that  the  committee  process  is  the                                                               
appropriate  process   to  determine  the  level   of  regulatory                                                               
oversight  for   gas  storage   facilities  and   ameliorate  any                                                               
conflicts.                                                                                                                      
                                                                                                                                
4:00:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   LYNN  applauded   the  sponsor's   presentation.                                                               
Besides the  stakeholders and the  legislature, he  asked whether                                                               
the general  public or  other interested  parties are  opposed to                                                               
this bill.                                                                                                                      
                                                                                                                                
REPRESENTATIVE HAWKER  stated that  he does not  believe so.   He                                                               
stated  that  he is  unaware  of  controversy.   He  stated  that                                                               
differing  views on  components may  be  present, but  he is  not                                                               
aware of  horrendous controversy.   He recalled that  the initial                                                               
response   by   the  MOA's   Mayor's   Energy   Task  Force   was                                                               
overwhelmingly positive for the conceptual view of the bill.                                                                    
                                                                                                                                
4:01:41 PM                                                                                                                    
                                                                                                                                
MR. PERSILY  added that the  public will need to  understand that                                                               
natural gas  storage is not free,  that a cost will  be assessed,                                                               
and the utilities  will roll those storage costs  into the rates.                                                               
Thus, the public will absorb the  costs of natural gas storage or                                                               
risk  not having  natural gas  in the  winter to  provide heating                                                               
fuel.   He stated  that TransCanada's  subsidiary and  the ENSTAR                                                               
Natural Gas  Company [ENSTAR] have  been discussing  gas storage,                                                               
but the  rates have not  been established yet.   The cost  may be                                                               
assessed  as a  winter surcharge  or rolled  into the  rates, but                                                               
costs will be assessed for guaranteed deliverability, he stated.                                                                
                                                                                                                                
4:02:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BUCH  referred to  page 3, line  6, and  asked for                                                               
clarification between native and non-native gas.                                                                                
                                                                                                                                
REPRESENTATIVE HAWKER  offered to present the  sectional analysis                                                               
for HB 280.                                                                                                                     
                                                                                                                                
MR. PERSILY  referred to the  definitions on  pages 2 and  3, and                                                               
stated that "native  gas" is natural gas that exists  but has not                                                               
yet been  produced.  "Cushion gas"  is the amount of  the natural                                                               
gas needed  to maintain pressure  to allow removal  of sufficient                                                               
volumes of natural gas.  The  "non-native gas" is the natural gas                                                               
that  is produced  somewhere  else and  a  utility purchases  it,                                                               
rents the  reservoir, and  injects the  non-native gas,  which is                                                               
the  working  gas.     He  described  a  scenario   in  which  an                                                               
underground reservoir  once held  10 billion  cubic feet  but has                                                               
been  produced down  to  5 billion  cubic  feet of  gas.   The  5                                                               
billion  cubic  feet  of  native   gas  still  remaining  in  the                                                               
reservoir is  injected with  5 billion  cubic feet  of non-native                                                               
gas, which becomes the working gas,  or the amount of natural gas                                                               
above the  level of base gas.   He offered to  explain the basics                                                               
of  the  royalty  gas charges  without  discussing  the  detailed                                                               
structure.   The  tax  and royalties  are paid  at  the time  the                                                               
natural  gas is  produced and  even  if the  gas is  subsequently                                                               
stored in the reservoir, the gas  would not be assessed taxes and                                                               
royalties a second time.                                                                                                        
                                                                                                                                
4:06:15 PM                                                                                                                    
                                                                                                                                
MR. PERSILY presented the section-by-section  analysis of HB 280.                                                               
He stated  that Section 2  describes the process in  developing a                                                               
gas storage facility (GSF),  including presenting the engineering                                                               
and  hydrology to  the AOGCC,  which would  certify it  meets the                                                               
minimum working  storage capacity  of 10  million cubic  feet per                                                               
day to be eligible for the tax credit incentives.                                                                               
                                                                                                                                
4:07:16 PM                                                                                                                    
                                                                                                                                
MR. PERSILY  stated that Section  3 requires the Director  of the                                                               
Division  of Mining,  Land  and  Water to  give  priority to  and                                                               
expedite  "when reasonably  possible" any  applications, permits,                                                               
right-of-way's and  lease assignments needed for  development and                                                               
operation of a GSF.                                                                                                             
                                                                                                                                
REPRESENTATIVE  HAWKER  added  that  Section 3  is  an  emergency                                                               
section.                                                                                                                        
                                                                                                                                
4:07:39 PM                                                                                                                    
                                                                                                                                
MR.  PERSILY related  that Section  4 directs  the Department  of                                                               
Natural Resources  (DNR) to  waive any state  land lease  fees or                                                               
rents for  the first 10 years  of a GSF's operation.   The waiver                                                               
of lease fees  or rents would be public record.   It requires any                                                               
financial benefits of the 10  year exemption flows through to the                                                               
utilities  for their  customers.   Finally,  Section 4  clarifies                                                               
that any gas withdrawn is considered  to be non-native gas and is                                                               
not  subject  to royalty  until  all  non-native working  gas  is                                                               
withdrawn, or "last in, first out."                                                                                             
                                                                                                                                
4:08:47 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   NEUMAN  recalled   that  Alaska's   constitution                                                               
provides a 12.5 percent royalty on resources that are developed.                                                                
                                                                                                                                
MR. PERSILY explained that this  provision does not waive it, but                                                               
merely postpones  it.  He related  a scenario in which  5 billion                                                               
cubic  feet  of  gas  has never  been  produced,  and  non-native                                                               
working gas  - which was produced  and taxed somewhere else  - is                                                               
injected into  the GSF,  that this  provision would  provide that                                                               
for production tax  and royalty purposes, the  last molecules are                                                               
the native  gas molecules.   Thus, this provision does  not waive                                                               
the  royalties,  but  requires the  non-native  molecules  to  be                                                               
removed  prior to  assessing taxes  and royalties  on the  native                                                               
gas.                                                                                                                            
                                                                                                                                
4:09:51 PM                                                                                                                    
                                                                                                                                
MR. PERSILY, in response to  Representative Neuman, answered that                                                               
once the  natural gas has  been produced and taxes  and royalties                                                               
have been  assessed, that even though  the gas may be  stored, no                                                               
additional taxes or royalties will be assessed.                                                                                 
                                                                                                                                
REPRESENTATIVE   HAWKER  characterized   this  provision   as  an                                                               
inventory management provision.                                                                                                 
                                                                                                                                
4:10:20 PM                                                                                                                    
                                                                                                                                
MR. PERSILY  continued.   Section 5  would direct  the Regulatory                                                               
Commission of  Alaska (RCA) to  consider the impact  on consumers                                                               
in the event  the commission would reject a  utility's gas supply                                                               
contract, which  is similar to the  EIS process in that  one must                                                               
consider all  of the alternatives.   Before the RCA denies  a gas                                                               
supply contract,  it must consider  the effect this will  have on                                                               
consumers.  Secondly, the RCA must  also recognize the value of a                                                               
utility holding  a diversified portfolio of  gas supply contracts                                                               
with different pricing mechanisms,  in order to protect consumers                                                               
from inadequate  gas supplies  and the risk  of a  single pricing                                                               
mechanism.  This means that not every contract must be the same.                                                                
                                                                                                                                
REPRESENTATIVE HAWKER  interjected that this bill  was originally                                                               
drafted  prior  to the  RCA's  request  for clarification.    The                                                               
purpose  of this  section was  to  address concerns  raised as  a                                                               
result of the RCA's denial  of procurement contracts by utilities                                                               
in Southcentral Alaska in recent  years.  Some people thought the                                                               
RCA's  denial  of  contracts was  unreasonable  and  resulted  in                                                               
compromising the  gas deliverability  capabilities.   However, at                                                               
the  time, the  RCA did  not  have any  legislative guidance,  he                                                               
stated.    This  bill  was   structured  to  provide  a  skeletal                                                               
framework to give the RCA  guidance, without too many strictures,                                                               
to evaluate the consequences of any contract denials.                                                                           
                                                                                                                                
4:12:55 PM                                                                                                                    
                                                                                                                                
MR. PERSILY  explained that Section  6 requires that  a utility's                                                               
cost of  gas storage  reflect the financial  benefits of  any tax                                                               
credits  or  state  lease  exemptions   provided  in  this  bill.                                                               
Section  7  specifies that  the  RCA  has jurisdiction  over  gas                                                               
storage services  provided for gas  that is owned by  a regulated                                                               
utility.   The  name  of the  taxpayers, the  amount  of the  tax                                                               
credits  issued for  storage facilities  will  be public  record.                                                               
Section  8 covers  the actual  credit, which  is $1.50  per 1,000                                                               
cubic feet of  working gas storage capacity, and  is only applied                                                               
to GSF  developed in Alaska  during the period  2011 - 2015.   He                                                               
stated  that since  an urgency  exists,  it is  important not  to                                                               
leave the credit  "on the books" for 20 years,  but to accomplish                                                               
this sooner rather than later.   The maximum credit is limited to                                                               
$30 million  per GSF and allows  the credit to be  transferred or                                                               
sold  to another  taxpayer,  similar  to how  other  oil and  gas                                                               
credits are currently handled.                                                                                                  
                                                                                                                                
4:13:55 PM                                                                                                                    
                                                                                                                                
MR. PERSILY explained  Section 9 sunsets a statute  on January 1,                                                               
2011, which  essentially means that the  Petroleum Production Tax                                                               
(PPT)  and  Alaska's Clear  and  Equitable  Share (ACES)  do  not                                                               
apply,  so the  rate  that will  be used  is  the Economic  Limit                                                               
Factor (ELF) rate, which is a  maximum of $.17 per thousand cubic                                                               
feet for the production tax.                                                                                                    
                                                                                                                                
4:14:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HOLMES asked whether  this section would allow tax                                                               
to go below zero.                                                                                                               
                                                                                                                                
MR. PERSILY answered no.   He explained that currently a producer                                                               
might have  $2 million  in tax  credits, but  because the  tax in                                                               
Cook Inlet is set so low,  the company could only use $250,000 in                                                               
tax credits in  Cook Inlet.  If  the Cook Inlet tax  had been set                                                               
at full  value the producer could  have used $ 1  million against                                                               
the  tax  liability.   The  difference  between $250,000  and  $1                                                               
million would be lost.   This section would repeal that provision                                                               
and  allow the  entire  $2  million in  tax  credits  to be  used                                                               
against  the  company's tax  liability  in  Alaska, but  the  tax                                                               
cannot drop  below zero.   In further response  to Representative                                                               
Holmes, he agreed the $2 million  in tax credits could be applied                                                               
to the company's tax liability outside of Cook Inlet.                                                                           
                                                                                                                                
REPRESENTATIVE  HAWKER affirmed  that  the provision  reevaluates                                                               
the PPT and ACES that would apply  to a producer who has a GSF in                                                               
Cook Inlet.  The goal is to put  the Cook Inlet on a par with the                                                               
rest of the state in terms of exploration incentives.                                                                           
                                                                                                                                
4:16:48 PM                                                                                                                    
                                                                                                                                
MR.  PERSILY, in  response  to  Representative Neuman,  clarified                                                               
that this  section does  not affect  the amount  of the  tax, but                                                               
eliminates the  limitation on the  use of  tax credits.   The tax                                                               
would remain at a  very low rate on gas that  is produced in Cook                                                               
Inlet or produced in Alaska and used in Alaska.                                                                                 
                                                                                                                                
4:17:35 PM                                                                                                                    
                                                                                                                                
MR. PERSILY  explained that Section  10 clarifies the "last  in -                                                               
first out"  accounting principle  for determining  the production                                                               
tax on native gas.  Gas withdrawn  from a GSF is considered to be                                                               
non-native  gas until  all the  non-native gas  is withdrawn,  at                                                               
which point  the gas withdrawn is  native gas.  He  explained the                                                               
effect of  Sections 11 -  13, such that currently  the production                                                               
tax  credit must  be spread  over two  years, but  this provision                                                               
allows producers to  receive their full production  tax credit in                                                               
the first  year.   Section 14  provides a  40 percent  credit for                                                               
exploration  expenses in  Cook  Inlet  against production  taxes,                                                               
rather  than  the  two-tiered 30  percent/40  percent  credit  in                                                               
existing  statute depending  on  how  far the  new  well is  from                                                               
existing wells.   Non-capital well-related lease  expenditures in                                                               
Cook Inlet also qualify for the credit.                                                                                         
                                                                                                                                
4:18:27 PM                                                                                                                    
                                                                                                                                
MR.  PERSILY  highlighted  that  Sections  15  -  16  allows  the                                                               
producer the option of selling the tax credit back to the state.                                                                
                                                                                                                                
4:18:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HOLMES  asked whether  these credits  function the                                                               
same way, for use in Cook Inlet or elsewhere in the state.                                                                      
                                                                                                                                
MR. PERSILY  answered yes, and  if the  producer does not  have a                                                               
tax liability,  it can sell  the tax  credits to someone  else or                                                               
back to the state.                                                                                                              
                                                                                                                                
REPRESENTATIVE HAWKER recalled that  in drafting this section, it                                                               
was  easier to  create  a parallel  structure  that mirrored  the                                                               
existing statute but was limited to Cook Inlet.                                                                                 
                                                                                                                                
MR. PERSILY  continued.  Currently  if a company  has exploration                                                               
credits that  it wants  to sell  back to  the state,  the company                                                               
must prove that  it has spent an amount equal  to that within two                                                               
years of the  work that obtained the credit.   Thus, if a company                                                               
has a  $10 million credit,  the company must demonstrate  that it                                                               
has  spent at  least $10  million in  Alaska.   Section 17  would                                                               
eliminate the requirement for Cook  Inlet.  He related a scenario                                                               
in which a company drills but hits  a dry hole and decides not to                                                               
continue.    The  goal  of  this provision  is  not  to  penalize                                                               
explorers who are  unsuccessful.  Thus, if a  producer spends the                                                               
money exploring,  but is unsuccessful,  the credit could  be sold                                                               
back to the state.                                                                                                              
                                                                                                                                
4:20:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HAWKER  clarified that  the motivation  behind the                                                               
salability  and transferability  of  the credits  is  due to  the                                                               
changing geology in Cook Inlet.   He offered his belief that none                                                               
of  the   major  producers  believe   Cook  Inlet   is  currently                                                               
attractive nationally  or internationally companies  that produce                                                               
or explore  for gas.   The large domes that  were internationally                                                               
competitive are now  depleted.  No one, including  the AOGCC, has                                                               
given any indication that Cook  Inlet gas is interesting to large                                                               
international  companies, he  restated.   He then  suggested that                                                               
the  future of  exploration and  development in  Cook Inlet  lies                                                               
with the state's ability to  attract well capitalized independent                                                               
exploration  and production  companies who  "make their  business                                                               
out of chasing those stratigraphic  traps" - the small bubbles of                                                               
gas  trapped in  the Cook  Inlet  basin.   Most of  the basin  is                                                               
underwater,  which makes  it difficult  and expensive  to access.                                                               
Again,  this  bill is  structured  to  create an  environment  to                                                               
attract  the well  capitalized independent  producer to  the Cook                                                               
Inlet basin.                                                                                                                    
                                                                                                                                
4:23:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BUCH  asked whether  it is a  common industry-wide                                                               
practice to reward a company even if it fails.                                                                                  
                                                                                                                                
REPRESENTATIVE  HAWKER  related that  is  the  foundation of  the                                                               
structure of the PPT and ACES.   He mentioned that capex [capital                                                               
expenditure]  credits do  not require  successful  efforts.   The                                                               
limitations were  put in  place to make  larger companies  take a                                                               
greater  share   of  the  risk  penalty   for  their  exploration                                                               
decisions on the  North Slope.  The state  standard also captures                                                               
the independent.  This bill  would not eliminate, but would relax                                                               
the standard for producers in the Cook Inlet.                                                                                   
                                                                                                                                
4:24:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LYNN remarked  that it  is not  exploring if  you                                                               
already know where something is located.                                                                                        
                                                                                                                                
REPRESENTATIVE HAWKER agreed.                                                                                                   
                                                                                                                                
4:25:20 PM                                                                                                                    
                                                                                                                                
MR. PERSILY  stated that  the last  section, Section  18, directs                                                               
the Office  of Public  Advocacy (OPA) in  the Department  of Law,                                                               
when considering  whether to participate  in a utility  rate case                                                               
regarding a gas  supply contract before the RCA,  to consider the                                                               
impact to  consumers if  the commission  rejects a  utility's gas                                                               
supply contract, and to recognize  the value of a utility holding                                                               
a diversified  portfolio of gas  supply contracts  with different                                                               
pricing mechanisms in order to  protect consumers from inadequate                                                               
gas supplies and the risk of a single pricing mechanism.                                                                        
                                                                                                                                
4:26:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER concluded  his  remarks.   He stated  that                                                               
numerous analysis  and background information was  available, but                                                               
the  bill packet  was limited  to several  outstanding but  brief                                                               
analyses  that  resulted in  the  bill.    He pointed  out  three                                                               
articles  that  provide   analysis  and  background  information,                                                               
including  an article  written by  Rena Delbridge  dated December                                                               
27,  2009,  which  appeared  in the  Alaska  Dispatch,  a  second                                                               
written by  Tim Bradner  dated June 12,  2009, which  appeared in                                                               
the Alaska Journal of Commerce,  and the third article, which was                                                               
prepared by  the University of  Alaska's Institute of  Social and                                                               
Economic Research  (ISER) 2006,  at a Southcentral  Energy Forum,                                                               
sponsored  by the  AOGCC.   He  related that  these articles  can                                                               
provide a foundation on these issues.                                                                                           
                                                                                                                                
4:28:58 PM                                                                                                                    
                                                                                                                                
ROBERT PICKETT, Commissioner;  Chairman, Regulatory Commission of                                                               
Alaska  (RCA),  Department  of Commerce,  Community,  &  Economic                                                               
Development (DCCED), prefaced  his comments.  He  offered that he                                                               
is  not  speaking for  state  government  outside the  Regulatory                                                               
Commission  of  Alaska  (RCA), which  is  an  independent  quasi-                                                               
judicial agency.   The RCA does not take an  official position on                                                               
a specific  matter until the commission  takes a vote.   Thus, he                                                               
cannot take  an official  position, but  can discuss  the issues.                                                               
He related  that Representative Hawker's remarks  set the context                                                               
for the  natural gas  situation in Cook  Inlet.   He acknowledged                                                               
that while  he previously had  a general awareness of  the issues                                                               
he  did not  know  the  extent of  the  problems  until he  began                                                               
working for the RCA.                                                                                                            
                                                                                                                                
4:30:34 PM                                                                                                                    
                                                                                                                                
MR. PICKETT characterized  the past five years of  the history of                                                               
Cook Inlet's natural  gas as a dysfunctional one, in  part due to                                                               
actions  by the  RCA, the  legislature, and  the utilities.   The                                                               
public has  not been brought  along very well with  the realities                                                               
of Cook Inlet gas issues.   The RCA strongly welcomes legislative                                                               
clarity and direction  on key issues.   He said that HB  280 is a                                                               
very good  step and while it  is not a "silver  bullet," the bill                                                               
represents a good start.  The  status quo is not acceptable.  The                                                               
RCA recognizes the critical nature  of deliverability when ENSTAR                                                               
experienced  a  deliverability  crunch,   that  even  though  the                                                               
temperatures  were   not  that  cold  their   systems  reached  a                                                               
threshold.  Since  then the utilities approached the  RCA on four                                                               
separate occasions  with contingency  planning.   Mayor Sullivan,                                                               
Anchorage,   has    focused   his   attention    on   Anchorage's                                                               
preparedness.   And although the  five largest Cook  Inlet fields                                                               
are declining, he said he thinks  the solution for Cook Inlet gas                                                               
problems will be Cook Inlet gas.   Currently, gas prices are low;                                                               
the contracts signed with the  utilities were full deliverability                                                               
contracts.   These contracts  will be  unlikely to  happen again.                                                               
The  bill  addresses the  portfolio  of  different contracts  and                                                               
future  contracts   will  probably   be  a  mix   of  provisions.                                                               
Obviously the utilities will need some stable, long-term base-                                                                  
load contracts.   But shorter-term contracts  and very short-term                                                               
contracts will also  be necessary to obtain price  signals on the                                                               
value  of  gas  to  encourage smaller  independent  producers  to                                                               
participate in Cook Inlet.                                                                                                      
                                                                                                                                
4:33:16 PM                                                                                                                    
                                                                                                                                
MR. PICKETT  related that storage  is acknowledged as one  of the                                                               
key legs by those familiar with  Cook Inlet natural gas.  ENSTAR,                                                               
after  working with  TransCanada's  wholly-owned subsidiary,  ANR                                                               
Pipeline Company  (ANR), requested assistance by  petitioning the                                                               
RCA on  December 21,  2009, to obtain  a declaratory  judgment to                                                               
clear  up  jurisdictional,  regulatory  issues.    The  RCA  held                                                               
several  proceedings and  a workshop  in mid-December  addressing                                                               
the  storage issue.    The  petition asked  whether  the RCA  was                                                               
regulating the project  or would provide a  Certificate of Public                                                               
Convenience and  Necessity (CPCN)  in the matter  or not.   Thus,                                                               
ENSTAR  and  ANR did  not  want  their  project to  commence  and                                                               
discover the rules  had changed midstream.  The  ENSTAR asked for                                                               
a ruling  by January  23rd, which  RCA did  not meet,  noting the                                                               
fairly aggressive schedule, including  issuing orders on December                                                               
24th and  December 31st.   He  related that  as the  filings were                                                               
returned,  a  clear division  ensued.    The statutes,  under  AS                                                               
42.05, relating to  utilities, or AS 42.06,  the pipeline statute                                                               
was unclear.  He said:                                                                                                          
                                                                                                                                
     We  could  not in  good  conscience  make a  definitive                                                                    
     judgment saying  - yes, this  is going to  be regulated                                                                    
     or not -  knowing full well when it comes  to issues of                                                                    
     interpretation  of  law,  it's  the  courts  that  will                                                                    
     ultimately  decide   it.    If   you  have   this  much                                                                    
     uncertainty and  lack of clarity, what  you're doing is                                                                    
     getting intervenors  down the road that  may be opposed                                                                    
     to storage, a  gigantic hammer to come in  and "muck up                                                                    
     the  works."   And trust  me.   Having  been through  a                                                                    
     couple of  gas supply  agreements, it's fairly  easy to                                                                    
     "muck up the  works."  And that absolutely  is not what                                                                    
     we need at this point.                                                                                                     
                                                                                                                                
4:35:17 PM                                                                                                                    
                                                                                                                                
MR. PICKETT  related that the RCA  has not taken an  "up or down"                                                               
vote  on  whether  third  party  independent  storage  should  be                                                               
regulated.   The RCA  believes that  decision is  appropriate for                                                               
the legislature to make.  The  general consensus has been that it                                                               
will be difficult for the RCA  to insure that the public benefits                                                               
from tax  credits that  flow through  to the  ratepayer if  it is                                                               
totally  unregulated.   Just to  decide the  baseline and  how to                                                               
apply credits,  and what  is a reasonable  level.   Initially, it                                                               
was  ENSTAR's clear  understanding  that it  would  make cost  to                                                               
service  showing  and  have  an  open  and  transparent  process.                                                               
Independent  storage will  require long-term  contracts, spanning                                                               
from  15 to  20  years,  with some  key  anchor  utilities.   The                                                               
utilities  will need  a baseline  commitment, with  the assurance                                                               
that they  can recover their storage  costs in their rates.   The                                                               
public  will need  to  realize  there is  no  "free  lunch."   In                                                               
essence what has  been happening is the natural  gas services are                                                               
being  unbundled and  storage is  one  element.   In closing,  he                                                               
offered  his  belief  that  it is  absolutely  critical  for  the                                                               
legislature to weigh in and provide  direction on AS 42.05 and AS                                                               
42.06, and clarity will be most helpful to the RCA.                                                                             
                                                                                                                                
4:37:10 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON stated  that during the first 30  years of production                                                               
in the  Cook Inlet fields, most  of the natural gas  was produced                                                               
by the  same company that  also purchased  the gas, so  the price                                                               
was somewhat meaningless.   He recalled that 80 to  85 percent of                                                               
the  gas  went  to  the fertilizer  plant,  Agrium,  Incorporated                                                               
[Agrium].  He  further recalled that most of the  gas was sold by                                                               
ENSTAR  at prices  similar to  the  Agrium prices.   Perhaps  the                                                               
Beluga Hills  field set a  more accurate  price but the  rest was                                                               
based on the  Agrium Inc. urea plant.   He did not  think the RCA                                                               
could be  blamed for  the pricing,  adding that  problems started                                                               
happening when  natural gas  services were  unbundled and  no one                                                               
could figure out how to value the gas.                                                                                          
                                                                                                                                
MR. PICKETT agreed.                                                                                                             
                                                                                                                                
4:38:18 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BUCH  stated that the price  for Liquefied Natural                                                               
Gas is known.                                                                                                                   
                                                                                                                                
MR. PICKETT explained that the RCA  is not privy to the contracts                                                               
between Conoco Phillips Alaska Inc.  and Marathon Oil Corporation                                                               
with the Tokyo  Utilities.  He commented that  the cost structure                                                               
when  the five  fields  were discovered  were entirely  different                                                               
than today's costs.   He reaffirmed his belief  that the solution                                                               
for  the Cook  Inlet gas  problem is  Cook Inlet  gas.   However,                                                               
producers also need the assurance of  a market for their gas.  If                                                               
the LNG  plant ceases to export  gas some people will  think that                                                               
more gas will  be available for ratepayers, but  what will likely                                                               
happen is that  producers have less incentive to  explore for gas                                                               
without the anchors.  He agreed with the values and pricing.                                                                    
                                                                                                                                
4:39:52 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BUCH  understood  the  value of  having  the  LNG                                                               
plant.   He related  that the RCA  showed interest  in protecting                                                               
ratepayers, in particular, the  residential ratepayers and viewed                                                               
this bill as a starting point at looking at overall costs.                                                                      
                                                                                                                                
MR.  PICKETT  asked  whether  he was  referring  to  gas  storage                                                               
facilities or gas prices in general.                                                                                            
                                                                                                                                
REPRESENTATIVE BUCH  clarified that his interest  is in providing                                                               
a reliable natural  gas source for the Cook Inlet  region.  Since                                                               
the producers  also live in  Anchorage, and are  Alaska residents                                                               
and communities  members, they also are  interested in reasonable                                                               
costs  to heat  their homes.   Additionally,  for over  20 years,                                                               
Southcentral Alaskans have  had the cheapest gas  in the country.                                                               
He  stated  that when  prices  were  dramatically adjusted,  that                                                               
consumers did not understand the increased costs.                                                                               
                                                                                                                                
MR. PICKETT  agreed that the  public does not  understand because                                                               
the  RCA and  others have  not  communicated well,  that the  RCA                                                               
routinely receives calls  from ratepayers who make  all manner of                                                               
accusations,  as  well  as  hearing  complaints  from  producers.                                                               
Thus,  openness and  transparency  is critically  important.   He                                                               
characterized the RCA's  relationship with the public  as a major                                                               
trust issue.   Any decisions  that are not  made in the  open, no                                                               
matter  what the  intention, will  be subject  to criticism.   He                                                               
prefers some  level of  regulation over gas  storage to  give the                                                               
public  some level  of  confidence since  one  component will  be                                                               
locked into their rates for the next twenty years.                                                                              
                                                                                                                                
4:42:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE NEUMAN  asked how  the RCA  would insure  that the                                                               
tax  credit is  passed  on  to consumers  and  whether any  limit                                                               
exists for the percentage rate of the utility's profit.                                                                         
                                                                                                                                
MR.  PICKETT stated  that the  utility's  rate is  set through  a                                                               
ratemaking  process,  which  is a  well-established  methodology.                                                               
The  rate   base  is  the   physical  investment   and  allowable                                                               
depreciation  schedules and  operating expenses.   The  RCA would                                                               
review  the  capital  structure of  the  company,  the  breakdown                                                               
between  the  debt  and  equity  ratio,  typically  the  debt  is                                                               
significantly cheaper  than the equity contribution.   The return                                                               
on equity  for pipeline companies  routinely ranges between  12 -                                                               
14  percent,  while the  return  on  equity for  utilities  would                                                               
typically be  less than that, depending  on the size and  type of                                                               
the utility, and  risk factors.  Storage  facilities would likely                                                               
fall in the range similar to pipelines.                                                                                         
                                                                                                                                
MR.  PICKETT related  his understanding  that the  intent of  the                                                               
proposed tax credit is to make  sure the benefit flows through to                                                               
the  ratepayers.    Thus,  a  baseline  rate  would  need  to  be                                                               
established for  the storage services,  keeping in mind  that the                                                               
utilities  own the  gas.   The  utility would  contract with  the                                                               
producer for  fixed amounts of gas  and would store a  portion of                                                               
the  gas  in  the  storage  facility.   Thus,  a  rate  would  be                                                               
established per volume per unit of  time.  The utility would need                                                               
to  commit  to  a  certain minimal  level,  since  the  project's                                                               
sponsor needs to have assurance  of sufficient business.  He said                                                               
he  hoped  that  the  storage  project  would  allow  for  common                                                               
carriage type  of storage for  smaller producers.   However, with                                                               
respect to  the regulated ratepayers, if  storage was unregulated                                                               
it would  be quite difficult, and  if it is regulated,  with some                                                               
baseline to draw  from the application of the credit  itself is a                                                               
mathematical calculation.   He  provided an  example.   He stated                                                               
that he  managed the  low-income housing  tax credit  program for                                                               
the  state  during  his  time   at  the  Alaska  Housing  Finance                                                               
Corporation  (AHFC).   Over a  15  year period,  as credits  were                                                               
sold, the program initially offered  a high discount, but once it                                                               
was  established, the  discounts  were reduced,  and it  received                                                               
$.95 to  $.96 on the dollar.   He offered his  belief that amount                                                               
has dropped back more recently.   Thus, clarity in the regulation                                                               
will help  define the  net credit or  provide guidelines  on what                                                               
should  flow  through  to  the  ratepayers.   It  should  not  be                                                               
difficult to figure out, he offered.                                                                                            
                                                                                                                                
4:47:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE NEUMAN  asked in an  instance in which  a producer                                                               
was selling  native gas to  a utility under these  contracts, and                                                               
non-native  gas was  being injected  into  the storage  facility,                                                               
whether the  RCA would need to  calculate the tax credits  to the                                                               
utility  company  or to  the  party  that  owns the  gas  storage                                                               
facility (GSF).                                                                                                                 
                                                                                                                                
MR.  PICKETT responded  that once  the facility  operates with  a                                                               
certain amount  of native  gas, depending  on the  reservoir, the                                                               
project sponsor  would need  to provide  an additional  amount of                                                               
gas to obtain the cushion gas  that stays in place.  This becomes                                                               
part of the cost  structure.  The working gas is  the gas that is                                                               
pumped  in and  out  of the  GSF  and is  gas  actually owned  by                                                               
utility.  He  related that the volume of the  working gas and the                                                               
length of  time the  working gas is  "parked" will  determine the                                                               
storage cost.                                                                                                                   
                                                                                                                                
REPRESENTATIVE NEUMAN related  that he was trying  to clarify the                                                               
cushion gas since  the company would not put in  100 and take out                                                               
100.  He said he was interested in how the tax credit works.                                                                    
                                                                                                                                
4:48:49 PM                                                                                                                    
                                                                                                                                
MR. PICKETT pointed out the  necessity to distinguish between the                                                               
project itself and what the utilities are "putting in and out."                                                                 
                                                                                                                                
REPRESENTATIVE  T. WILSON  remarked  that the  Interior does  not                                                               
currently have natural  gas.  She asked if  the Interior obtained                                                               
natural gas, whether additional legislation would be required.                                                                  
                                                                                                                                
MR. PICKETT  agreed that this bill  is focused on Cook  Inlet and                                                               
it would depend on companies like Doyon discovering natural gas.                                                                
                                                                                                                                
4:49:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE T.  WILSON related  that it does  look like  a GSF                                                               
will be built on the North Slope.                                                                                               
                                                                                                                                
MR. PICKETT asked for clarification  if she is referring to FNG's                                                               
project  on the  North  Slope,  explaining that  it  is a  little                                                               
different than the Cook Inlet issues.                                                                                           
                                                                                                                                
4:50:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HAWKER clarified  that  the incentives  available                                                               
for  GSF's would  apply  statewide  as the  bill  was crafted  to                                                               
facilitate  development   of  storage   as  appropriate   to  the                                                               
Fairbanks region.                                                                                                               
                                                                                                                                
4:51:25 PM                                                                                                                    
                                                                                                                                
[HB 280, Version S, was held over.]                                                                                             

Document Name Date/Time Subjects
HB280 Sectional Analysis.pdf HL&C 2/8/2010 3:15:00 PM
HB 280
HB280 Sponsor Statement.pdf HL&C 2/8/2010 3:15:00 PM
HB 280
HB280 ver E.pdf HL&C 2/8/2010 3:15:00 PM
HB 280
HB280 CS Work Draft ver S.pdf HL&C 2/8/2010 3:15:00 PM
HB 280
HB280 Background.pdf HL&C 2/8/2010 3:15:00 PM
HB 280
HB280 Fact Sheet.pdf HL&C 2/8/2010 3:15:00 PM
HB 280
HB280 Fiscal Note-DOA-AOGCC-02-08-10 (2).pdf HL&C 2/8/2010 3:15:00 PM
HB 280