Legislature(2009 - 2010)BUTROVICH 205

02/12/2009 11:00 AM Senate ENERGY

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Heard & Held
Heard & Held
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            SB  31-GEOTHERMAL ELEC. PROD. TAX CREDIT                                                                        
CHAIR MCGUIRE announced  the consideration of SB 31.  She said it                                                               
is  her  bill, and  she  has  a  committee substitute  (CS)  with                                                               
significant changes. It  provides for a production  tax credit to                                                               
incentivize  renewable  energy  in   Alaska.  The  original  bill                                                               
incentivized geothermal  energy investment by allowing  for a tax                                                               
credit  of $0.35  per kilowatt  hour. The  bill now  provides the                                                               
credit for other forms of  alternative energy. Many projects have                                                               
been  discussed. Funding  by  the Alaska  Energy  Authority is  a                                                               
direct  pay-out   of  money.  She  has   talked  with  companies,                                                               
municipal  utilities, and  co-ops that  may be  looking at  wind,                                                               
tidal,  and  geothermal projects.  The  idea  is to  attract  new                                                               
investment into  these sustainable energy projects  that may also                                                               
create new  jobs. She hopes  it will push existing  projects that                                                               
might not be economic yet.                                                                                                      
CHAIR MCGUIRE  said that the bill  gives a tax credit  to profit-                                                               
making companies,  and municipal  utilities would get  an earned-                                                               
tax credit  that can be traded  on the market. "You  might end up                                                               
with  a  very  unique  circumstance where  you  have  alternative                                                               
energy tax credits being traded  on the market, and, for example,                                                               
a fossil  fuel company  buying them." That  is good  for Alaskans                                                               
and the  environment. The  bill needs some  work. There  are some                                                               
creative financing  mechanisms in it,  but it is  patterned after                                                               
the film credit incentive bill that passed last year.                                                                           
11:16:24 AM                                                                                                                   
SENATOR WIELECHOWSKI moved to adopt the  CS to SB 31, labeled 26-                                                               
LS0217\C, as a working document.  Hearing no objection, Version C                                                               
was before the committee.                                                                                                       
TREVOR   FULTON,  Staff   to   Senator   McGuire,  Alaska   State                                                               
Legislature, said the CS has  four main changes from the original                                                               
bill. The  scope of SB 31  is expanded to include  other types of                                                               
alternative  energies besides  geothermal: solar,  biomass, wind,                                                               
tidal, river,  and wave.  The tax credit  is now  transferable so                                                               
that  public  utilities  can  benefit.   The  original  bill  was                                                               
misdrafted, so the third change  corrects the amount of credit to                                                               
$0.35 cents. It  also adds a January 1 effective  date to comport                                                               
with the start date of the tax year.                                                                                            
SENATOR WIELECHOWSKI asked about the fiscal note.                                                                               
MR. FULTON said  the Department of Revenue will  address that. He                                                               
has  seen  two fiscals  notes  so  far,  but neither  one  really                                                               
reflects the CS.                                                                                                                
11:19:42 AM                                                                                                                   
DAN  STICKEL, Economist,  Department  of  Revenue (DOR),  Juneau,                                                               
said the CS fiscal note will  be indeterminate because no one can                                                               
know what  projects will apply  for this credit.  The 14-megawatt                                                               
Lake Dorothy hydro project, for  example, would qualify for about                                                               
$260,000  per  year. It  has  a  $64  million capital  cost.  The                                                               
Department  of  Energy  reports   that  Alaska  has  1.3  billion                                                               
kilowatt hours  of alternative energy  generated annually.  If it                                                               
is  increased  by 10  percent,  revenue  to  the state  would  be                                                               
reduced  by  about $455,000  per  year  for  four years.  But  he                                                               
doesn't know  what projects will come  on line and if  the credit                                                               
will be used.                                                                                                                   
11:22:30 AM                                                                                                                   
MR.  STICKEL said  the DOR  will have  the expense  of reviewing,                                                               
approving,  and  tracking  these   credits.  "I  believe  we  are                                                               
requesting either  an additional corporate income  tax auditor or                                                               
a partial position for that work in the fiscal note."                                                                           
11:23:12 AM                                                                                                                   
SENATOR STEDMAN asked what expectations the department has.                                                                     
JOHANNA  BALES, Deputy  Director, Tax  Division, DOR,  Anchorage,                                                               
said there  is a federal  corporate income tax credit  that deals                                                               
with this type  of energy. Alaska adopts that  federal credit, so                                                               
Alaska  corporate income  taxpayers would  get some  benefit from                                                               
the federal credit, but only  corporations. The intent is to help                                                               
public  utilities  with  a transferable  credit.  It  may  entice                                                               
businesses who wouldn't normally get that income tax credit.                                                                    
MR. STICKEL  added that  they hadn't looked  at the  economics of                                                               
projects "and what this might  incent." The press has reported on                                                               
the Lake Dorothy hydro project, a  wind farm in Nome, a wind farm                                                               
on Fire  Island, and a geothermal  project at Mr. Spurr.  "But we                                                               
haven't looked at the economics of any of those."                                                                               
11:25:34 AM                                                                                                                   
NICK GOODMAN, CEO, TDX Power,  Anchorage, said TDX Power owns and                                                               
operates regulated  utilities and develops power  projects around                                                               
Alaska. It does a number  of renewable energy projects, including                                                               
wind and geothermal.  It is looking at hydro projects  - from 400                                                               
kilowatts to 330 megawatts. "We  are extremely supportive of this                                                               
legislation." It is  a wonderful way to  attract investments. His                                                               
company  has  experience with  the  federal  PTC [production  tax                                                               
credit] on  some geothermal projects  in the Lower 48.  It's safe                                                               
to  say that  the  federal  PTC is  the  single most  significant                                                               
component to  the development  of the majority  of wind  farms in                                                               
the  Lower  48. It  has  demonstrated  itself  as a  vehicle  for                                                               
attracting investment  and getting  projects in the  ground. This                                                               
bill would have great benefit to the state of Alaska.                                                                           
11:27:11 AM                                                                                                                   
SENATOR STEDMAN said  the credit will be available  for the first                                                               
of four  years after  the power  plant is  placed in  service. He                                                               
asked if there is enough of  a tax shield on the depreciating out                                                               
of a hydro  dam with its high capital costs.  Would it dilute the                                                               
tax credit?                                                                                                                     
MR.  GOODMAN said  hydro would  benefit probably  the least  from                                                               
this, but  it would  still be of  some benefit.  The depreciation                                                               
depends  a lot  on  the  size of  the  project. Smaller  projects                                                               
depreciate much more quickly.                                                                                                   
SENATOR STEDMAN asked if the depreciation life is 50 or 7 years.                                                                
MS. BALES said  someone could generate a credit for  the first of                                                               
four  years and  use that  credit during  the four  years. If  it                                                               
wasn't all  used it could be  sold to someone else  who could use                                                               
the  credit until  it was  exhausted.  She did  recommend to  the                                                               
sponsor to  allow the credit to  be generated for four  years and                                                               
then allow  its use by the  producer until it was  exhausted. But                                                               
expenses are more upfront than on the back end.                                                                                 
CHAIR MCGUIRE said they would continue to work on that.                                                                         
11:30:09 AM                                                                                                                   
PAUL THOMPSON,  Director, Policy and Business  Development, Ormat                                                               
Technologies, Reno,  NV, expressed  support for  SB 31.  Ormat is                                                               
very  encouraged to  see the  legislative  commitment to  develop                                                               
alternative energy resources in  Alaska. Ormat first did business                                                               
in Alaska in 1976 when it  sold remote power units to the Alyeska                                                               
pipeline company.  His chairperson  has always pursued  the dream                                                               
of developing a  geothermal project in Alaska.  Ormat is publicly                                                               
traded on  the NYSE  and has over  1,000 employees  worldwide. It                                                               
currently owns and operates 350  megawatts of geothermal power in                                                               
the United  States and is  responsible for one gigawatt  of power                                                               
generation  around   the  world.   Ormat  is   evaluating  energy                                                               
opportunities in  Alaska and looks  forward to trying  to develop                                                               
its recently  acquired 36,000  acres at Mt.  Spurr. This  type of                                                               
bill  will  help get  meaningful  renewable  projects in  Alaska.                                                               
Ormat  hasn't run  all of  its financial  models, but  0.35 cents                                                               
won't greatly  incentivize large-scale  geothermal projects  in a                                                               
state  where development  costs are  high. The  federal PTC  is 2                                                               
cents, and with double the  development costs, "we would push for                                                               
a PTC in the 3.5 to 4.5-cent-per kilowatt hour range."                                                                          
11:32:46 AM                                                                                                                   
CLAY  KOPLIN,  Cordova  Electric   Co-op  and  the  Alaska  Power                                                               
Association, said  SB 31  is an  exciting bill.  Cordova Electric                                                               
depreciates  its  hydro  projects  over 50  years.  A  challenged                                                               
economy  is  a good  time  to  invest in  energy  infrastructure,                                                               
because there is  a good workforce and lower  material prices. It                                                               
is  a  good time  for  a  bill  like  this to  encourage  private                                                               
industry investment in alternate  energy production that provides                                                               
benefits particularly  in rural  Alaska. Most of  Alaska's energy                                                               
needs are met  by nonprofits and municipals,  so the transferable                                                               
tax  credit is  very attractive.  Cordova Electric  is partnering                                                               
with a Native corporation in  an alternative energy project. They                                                               
were trying  to find ways  to tie  the federal tax  incentives to                                                               
their  tax liability  because the  projects are  on their  lands.                                                               
This  bill will  encourage  those  partnerships between  electric                                                               
utilities and the Native corporations.  He is pleased that the CS                                                               
broadens  the  scope.  Different  areas of  the  state  will  use                                                               
different  technologies.  He  said  that  hydro  isn't  generally                                                               
considered, at  the federal level,  renewable or  alternative, so                                                               
he was glad to see it included in SB 31.                                                                                        
11:35:37 AM                                                                                                                   
MR.  KOPLIN  said  that  Cordova Electric  took  the  $40,000  of                                                               
revenue from  last year and  retrofitted some street  lights with                                                               
LED fixtures,  which use one  half to  one fourth of  the energy,                                                               
greatly reducing winter  diesel use. He asked that  the credit be                                                               
claimed for  the first  48 months of  operation rather  than four                                                               
years. So if a project went into  service on the tenth month of a                                                               
fiscal year,  it could  get the  full four  years of  tax credits                                                               
instead of  just three years  and two months. He  encouraged that                                                               
it apply to  other taxes rather than just state  income taxes. It                                                               
could also apply to existing alternative energy projects.                                                                       
CHAIR MCGUIRE noted his suggestions.                                                                                            
11:37:23 AM                                                                                                                   
HAP SYMMONDS,  Ocean Beauty Seafoods,  Cordova, said  he supports                                                               
SB  31. Alternative  energy is  important for  seafood processing                                                               
plants  that  are  located  in rural  communities  and  have  the                                                               
prospects of  hydro, wind, and tidal  energy. It is a  great bill                                                               
for  outlying  communities with  seafood  plants.  He supports  a                                                               
credit  of 3.5  to 4.0  cents rather  than 0.35  cents. It  would                                                               
provide even more incentive to get off of diesel.                                                                               
11:39:30 AM                                                                                                                   
TOM LAKOSH,  Anchorage, said  the bill  is a  great idea,  but it                                                               
needs work.  He concurs with the  suggested amendments, including                                                               
raising  the  subsidy to  match  at  least the  1.9-cent  federal                                                               
subsidy.  He  suggested  changing  line  14  by  adding  "or  btu                                                               
equivalent  of alternative  energy  ... consumed  or sold"  after                                                               
"kilowatt hour". This would encourage  production of biofuels for                                                               
use  other  than  electricity  generation.  Gas  and  diesel  are                                                               
consumed  for  heat.  On  page  2,  line  17,  "hydrokinetic"  is                                                               
redundant to "tidal  and wave" energy. The bill  should provide a                                                               
definition  of  hydrokinetic  that  includes  things  like  ocean                                                               
currents   because  the   modifying   language   may  be   overly                                                               
restrictive.  There are  problems  with  biomass. Alaska  doesn't                                                               
want pollution  from biomass  energy. "We  need a  definition for                                                               
biomass that has some sort of pollution standard."                                                                              
MR.  LAKOSH said  he  has suggested  using  a particular  biomass                                                               
generator that produces  wood pellets and uses  sewage and liquid                                                               
biomass  to  produce  ethanol  as   back  up  to  wind  in  rural                                                               
communities. Pellets  can be  used in  stoves when  not producing                                                               
electricity, and  the alcohol can  be used for heat  or gasoline.                                                               
Alaska   could  subsidize   the  production   of  E10   in  local                                                               
communities  for  alcohol stoves  or  clean  wood pellet  stoves.                                                               
There  should  be  a  number   of  alternatives  that  should  be                                                               
subsidized if they are clean.                                                                                                   
CHAIR MCGUIRE said those are excellent points.                                                                                  
11:44:31 AM                                                                                                                   
SUE  ELY, Alaska  Conservation Alliance,  Juneau, said  her group                                                               
represents  over   38,000  Alaskans.  Alaska  is   at  an  energy                                                               
crossroads, and  volatile fuels  prices are  negatively impacting                                                               
its  citizens. Many  electrical generation  facilities are  at or                                                               
near the  end of their life  spans and will need  to be replaced.                                                               
Alaska  should  take full  advantage  of  its vast  clean  energy                                                               
resources. The governor  wants to produce 50  percent of Alaska's                                                               
electricity from  renewable resources. An alternative  tax credit                                                               
could help  get there. Geothermal, reasonably-sized  hydro, wind,                                                               
solar, biomass,  hydrokinetic, and tidal can  all provide stable-                                                               
priced  power. It  can fill  batteries in  electric vehicles  and                                                               
warm and  illuminate greenhouses to secure  Alaska's food source.                                                               
Germany has  already used  a clean energy  incentive to  build an                                                               
$8.7 billion renewable energy industry.  It created 170,000 jobs.                                                               
The bill is a strong first step in an energy plan for Alaska.                                                                   
11:47:04 AM                                                                                                                   
CHAIR MCGUIRE set SB 31 aside for continued work.                                                                               

Document Name Date/Time Subjects
SB 54 Bill Packet.pdf SENE 2/12/2009 11:00:00 AM
SB 54
SB 31 Bill Packet.pdf SENE 2/12/2009 11:00:00 AM
SB 31