House and Senate conference committee members unveiled a draft compromise bill on Thursday for the proposed Alaska LNG gas line project, pledging that debate, input and revisions will continue on the state tax break legislation up until a floor vote scheduled for July 16.
“We know we have more work to do,” said House Speaker Rep. Bryce Edgmon, I-Dillingham, following the committee hearing. “It’s a complex topic, and our goal today was to first get through the working draft that had, we thought, a lot of areas of compromise between, you know, sort of all the partners involved in crafting the bill.”
The six member conference committee is tasked with negotiating a compromise bill from the versions of House Bill 381, which was passed by the House and Senate in a special session in June.
Amid high political pressure, lawmakers are now in a second special session called by Gov. Mike Dunleavy to hammer out a state tax proposal that is workable for both the state and the project developer, Glenfarne, which owns 75% of the project. Glenfarne executives say the multibillion dollar tax break is essential to the project’s economics — and that it must come before the company determines a final investment decision with investors.
Dunleavy and members of the House and Senate have taken decidedly different approaches to the size and scope of the state tax break for the proposed project. The project would be built in two phases — first, an 807-mile gas line from the North Slope to Cook Inlet, then gas treatment facilities on the North Slope and on the Kenai Peninsula to export gas internationally.
One of the most fiercely debated provisions in the draft compromise is a proposal to apply the state’s corporate income tax to privately-owned oil and gas companies that currently do not pay them. The provision is favored by some lawmakers and was included in the version of the bill passed by the Senate. But Dunleavy has called the tax a “poison pill” and pledged to veto any bill that includes it. Legislative leaders say they will revisit the topic and expect to make changes to the draft.
Edmon called the corporate tax provision the “elephant in the room” and said further negotiation will continue after the holiday weekend. “I’m really looking forward to after this period of what I would call percolation that we come back and make further changes to the bill,” he said.
Rep. Calvin Schrage, I-Anchorage, who chairs the conference committee, said its members will continue hearing input on the draft bill from relevant groups, and many provisions will be further debated and revised.
“We’re going to continue that work, see how far apart the goal posts are, and do what it takes to try and bring those together,” he said. “And again, ultimately arrive with a bill on the floor that we think can be successful, and give this project a chance.”
A spokesperson for Dunleavy said his office is reviewing the new draft bill, called a committee substitute, or CS, and repeated the governor’s objections to the corporate income tax provision, known as the S corporation tax, which was included in the draft bill on Thursday.
“Our initial take on the CS is that while it appears to address several of the harmful provisions for the gasline, it still contains the S corp tax that the governor and the developer have said will hurt the project’s ability to secure financing,” said Jeff Turner, Dunleavy’s communications director in an email.
In the draft compromise bill unveiled Thursday, legislators are offering a significant tax break that would replace the state’s property tax with a volumetric tax on the gas flowing through the gas line after five years, or when the gas flow reaches 500 million cubic feet per day, whichever comes first. The plan includes gradual tax increases over time as gas flows from the North Slope.
Lawmakers have proposed extending a deadline for construction to be completed on the gas line and phase one from 2032 to December 31, 2034. The provision allows the Commissioner of Revenue to review the tax deal if there are unforeseen delays outside of the developer’s control like severe weather or litigation.
The draft bill requires the gas price cap for Alaskans to rise with inflation at the national inflation rate, rather than Alaskan inflation rate, and the increase may not exceed 3% annually. It requires a variety of reporting requirements for labor agreements, filings with federal oversight agencies and construction updates on a public dashboard.
Another provision requires Glenfarne and developers to disclose their investment agreements with foreign companies investing in the project. It requires notice of any “significant changes” in the project’s ownership structure, defined as changes in entities holding more than 5% ownership interest of the gas line or 10% of the gas treatment plants.
“We’d like transparency and forthright information on who’s involved in this project and who owns a piece of that pipeline that’s dividing our state down the middle,” Schrage said.
The draft also contains a provision that prohibits the project developer from seeking payment from the state if the project is abandoned, and requires the developer to return all shares and assets to the state within six months in such a case. The issue was spotlighted by reporting on a confidential draft agreement between Glenfarne and the Alaska Gasline Development Corp. that under some conditions, the state could be ordered to pay in order to take the project back.
“It’s very important that if the state is going to offer tax concessions, that those concessions not then be leveraged against the state for a payout to the project developer,” Schrage said. “In the event that this project goes awry and the developer tries to exit, we don’t want to pay them for our concessions.”
Rep. Justin Ruffridge, R-Soldotna, raised questions and objections to a provision around how much municipalities’ gas line tax revenue would apply to their school funding formula, known as the local contribution. According to a legislative memo, the Kenai Peninsula would be required to contribute millions more to its school district beginning in 2034.
Ruffridge, a member of the all-Republican House minority caucus, said it was one of several provisions he objects to and cautioned the committee against “putting additional barriers” up for the project.
“We’re seeking maximum government take. I think in here we’ve asked the question, ‘How much can we extract from this project?’ And I think we’ve missed the fact that we are asking potentially to put on the line jobs, cheap energy and potentially a boon to Alaska’s economy in the form of revenue,” he said.
He said the proposal needs more work.
Several members of the House Republican minority flew down to Juneau this week to raise objections to the conference committee process and urge swift action on the bill. A full vote on a compromise bill was tentatively scheduled for Wednesday, but postponed. Technical House floor sessions were canceled on Wednesday and Thursday, to avoid what House Speaker Edgmon called “political hijinks or theatrics.”
“There’s no time for games, and as the presiding officer, I’m not going to play games like this,” he said.
Edgmon said the committee has been deliberating with legislative attorneys, finance officials, various related departments and project developers in a process that would normally take years.
Rep. Donna Mears, D-Anchorage and a member of the House Resources Committee, also attended the conference committee hearing on Thursday and said rushing the process is not in the best interest of the Legislature or Alaskans. She said hammering out a compromise bill that will be approved by a majority of legislators and by the governor is an enormous task.
“Trying to rush through is not feasible. We’re making a lot of big changes, and the details matter,” she said. “And the process today wasn’t obstructionist, it was moving along and making progress, and even without big huge policy decisions, there’s a lot of little things that need to get ironed out.”
Lawmakers said they are tentatively planning for the compromise bill to go before the House and Senate for a full vote on Thursday, July 16. The special session is scheduled to end on July 19.
