The state House has passed the Cook Inlet Recovery Act, which provides tax credits for construction of natural gas storage projects plus incentives for gas explorers.
The legislation, House Bill 280, could emerge as one of the state Legislature's top energy initiatives for the session, which ends April 18.
The bill addresses a major and increasingly popular concern -- a looming shortage of Cook Inlet gas, long the primary fuel for heating homes and businesses and for generating electricity for the state's main population center including Anchorage.
The House voted 38-0 for HB 280, whose prime sponsor is Rep. Mike Hawker, R-Anchorage. The bill now moves to the Senate, where similar legislation is pending, Senate Bill 203. Its sponsor is Anchorage Democrat Sen. Hollis French.
THE MAIN FEATURES
HB 280 has two major components, one providing tax credits and other incentives for developing gas storage capacity, and another offering incentives to explorers.
The bill also includes language mandating that the Regulatory Commission of Alaska regulate gas storage facilities. The RCA in January said it was unsure of its authority with respect to storage.
Hawker and other backers believe gas storage is crucial for ensuring the region has enough supply during cold winters, when gas demand increases. Where Cook Inlet producers once had no problem delivering enough gas to cover demand, deliverability has become strained in recent years.
With storage, utilities could buy gas during the summer, then hold the gas until it is needed, Hawker said in his sponsor statement. "The state needs to promote the rapid development of storage facilities."
For storage incentives, the bill would create a corporate income tax credit of $1.50 per thousand cubic feet of gas storage capacity opened during 2011-15.
The maximum credit per facility would be $15 million -- available for a storage capacity of at least 500 million cubic feet of gas and a capability to deliver at least 10 million cubic feet a day.
The bill also would exempt new storage operations from state land lease fees or rents for 10 years.
As for exploration incentives, the bill would sweeten existing Cook Inlet tax credits by providing a straight 40 percent credit against production taxes for exploration expenses. Under current law, the credit is 30 to 40 percent, a bill summary from Hawker's office said.
The bill also would let explorers use the full value of their earned Cook Inlet credits in other parts of the state, such as the North Slope. The current law generally allows those credits to be used only against taxes paid on Cook Inlet production, Hawker's office said.
Finally, HB 280 would allow Cook Inlet explorers to take their full production tax credit in one year, rather than over two.
Hawker said his bill is structured so that financial incentives must pass through to the ultimate consumers.
ADMINISTRATION IS WARY
While the administration of Gov. Sean Parnell supports developing Cook Inlet storage capacity and encouraging exploration, it has misgivings about HB 280.
Of particular concern is a change made by the House Finance Committee that says state officials "may not deny an application for a lease or assignment of a lease of state land for the development and operation of a gas storage facility solely because the gas storage facility would be used exclusively or primarily to store gas owned by the owner or operator of the gas storage facility."
Hawker said he offered the amendment at the behest of oil and gas companies that want to be able to hold gas for purposes of managing their inventory and fulfilling supply contracts.
PUBLIC SERVICE OBLIGATION
Kevin Banks has a different perspective. As the state's oil and gas director, he has the power to approve or deny storage leases.
Banks believes a storage lease carries a public-service obligation, and so a storage facility should be available to third parties such as new Cook Inlet explorers that don't have any storage of their own.
Typically, depleted gas fields are used to store gas, and the established oil and gas producers control these.
"There isn't an empty gas field out there whose leases have been handed back to the state that I could offer on a competitive basis as a storage lease," Banks said.
During a House Finance Committee hearing on March 17, legislators discussed who might take advantage of HB 280's incentives for gas storage.
Hawker said a public utility might construct its own storage capacity, or contract with a third-party storage provider.
But producers simply warehousing their own produced gas for purposes of meeting delivery contracts later wouldn't qualify for the storage development tax credits, Hawker said.
By WESLEY LOY
Petroleum News