Gas line bill ready for Senate debate, with a new energy program for rural Alaska

Lisa Demer

JUNEAU -- Bethel's senator opened up the governor's natural gas pipeline legislation Friday and successfully inserted a new special energy fund that would bring cheaper energy to rural Alaska or any part of the state that wouldn't get natural gas directly.

The bill, which creates a framework for developing a liquefied natural gas project, cleared the Senate Finance Committee Friday after being reshaped by the panel members in a series of hearings, sometimes two of them a day.

Senate Bill 138 now is scheduled for debate, the possibility of more amendments and a vote before the full Senate on Tuesday. The measure sets a path to state investment in a liquefied natural gas project and pipeline estimated to cost $45 billion to $65 billion, and makes the state a partner with oil and pipeline companies. The Finance Committee upped the state's share to 25 percent.

The measure's impact was broadened Friday when Sen. Lyman Hoffman, D-Bethel, engineered a change that would set aside a percentage of the state's natural gas ownership share, or royalty sales, for rural Alaska energy projects. Hoffman estimated $100 million a year could go into the new rural capital energy fund, starting a decade or so from now.

"This is going to go a long way to make Alaska a more affordable place for most Alaskans," Hoffman said.

Senators on the Finance Committee also learned the state will need to set aside more than $200 million over the next four years just to determine whether the Parnell administration's LNG project will be a go. That includes $70 million that would repay pipeline company TransCanada Corp. if the project collapsed.

Regarding the new rural energy fund, Sen. Anna Fairclough, R-Eagle River, asked how "rural" would be defined, given that the term is defined differently in various statutes.

Hoffman said the fund was intended to deliver affordable energy to areas "that are not expected to have or do not have access to a North Slope gas line."

The projects could stretch from Southeast Alaska to Western Alaska and even parts of Interior and Southcentral that are too sparsely populated to receive natural gas from a pipeline's main off-take points, Hoffman's aide, Tim Grussendorf, told the committee.

"It's not limited to LNG," Grussendorf said. "It could be wood. It could be coal. It could be wind."

Under the rural fund provision, at least 25 percent of the North Slope gas royalty payments would still go into the Alaska Permanent Fund, just as happens now with oil royalties. Ten percent of the remaining royalty gas sales would go into the new rural energy fund. Hoffman had wanted 30 percent but urban legislators including Sen. Kevin Meyer, R-Anchorage, said that was too high.

The new fund would only happen if a liquefied natural gas project were developed and an 800-mile pipeline were built to deliver Alaska's natural gas to a liquefied natural gas processing plant, which is now planned for Nikiski. Most of the LNG would then be shipped on tankers to commercial markets in Asia.

Hoffman had pushed administration officials to incorporate a plan for rural Alaska into the legislation, then ended up pushing the change himself, with support from three other Finance Committee members, Sens. Donny Olson, D-Golovin, Click Bishop, R-Fairbanks and Mike Dunleavy, R-Wasilla.

The entire committee huddled in a private side room before returning to the big wooden conference table and taking up amendments.

"You guys hit a home run for your communities," Sen. Pete Kelly, R-Fairbanks and the Finance Committee co-chairman, told the legislators.

Some senators have been arguing about the rural provision for days, Kelly said.

Not arguing -- discussing, Olson said. The rural project fund was key, he said.

Years from now, legislators should be able to look back and feel glad they ensured remote areas would benefit from a pipeline, Kelly said.

The rural fund provision was a significant addition, and Kelly said his support of the provision could change with new information. But it looks like Hoffman and the others "are on the right track," he said.

Meyer said the fund could siphon off money that might be needed for the Medicaid insurance program, public schools or other state needs.

"It concerns me that this action here is taking away some flexibility and some options for future legislators," Meyer said.

Everyone in Alaska will benefit from the revenue generated by sales of Alaska natural gas, he said.

"A rising tide raises all ships," he said.

Not so, Olson said.

"It raises those ships that are connected to the ocean," he said. "It doesn't raise those isolated boats that are in lakes out there like we have in rural Alaska."

Rural residents may spend 40 percent, 50 percent, even 60 percent of their disposable income on energy bills, Hoffman said.

"If that were the case in any urban community, there would be action taken," he said.

Also on Friday, the committee accepted a proposal by Bishop to expand an existing program in which oil and gas producers that donate to training and apprenticeship programs can receive tax credits.

To keep the project moving, the administration is seeking almost $80 million for the current budget year and next year.

About $67 million of that would go to the Alaska Gasline Development Corp., mostly to cover the state's share of technical design and cost studies. AGDC has budgeted 30 percent extra for overruns or other contingencies.

The Department of Natural Resources is asking for almost $9 million next budget year, including close to $2 million to create a highly paid team of in-house experts whose main job would be marketing Alaska's gas. Four team members would make about $200,000 a year and one would earn $250,000, DNR Commissioner Joe Balash said.

Team members might travel four time a year to Asia, DNR says.


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