Alaska LNG bill negotiated between lawmakers and Dunleavy hangs in the balance as end of session nears

JUNEAU — Alaska House Majority Leader Chuck Kopp on Monday introduced a new version of legislation meant to advance the Alaska LNG megaproject, the result of a dayslong negotiation process involving Gov. Mike Dunleavy.

But after nearly 10 hours of debates about the proposed legislation on the House floor, it was amended in a way that Kopp said would kill the deal with Dunleavy.

The legislation was introduced directly on the House floor, circumventing what has been a lengthy committee review of competing bills. It is a last-ditch effort meant to grant tax breaks to the gas line developers before the legislative session is scheduled to end Wednesday.

The bill is Dunleavy’s top priority for the session, his last session before his eight-year tenure as governor concludes in December. He offered to legislative leaders to allow a new public pension plan — House and Senate majority leaders’ top priority — to become law, in exchange for lawmakers adopting a new tax regime for the gas line that adheres to his demands.

But after negotiations faltered, Dunleavy vetoed the pension bill just before 11 p.m. Monday, all but assuring that collaboration between legislative leaders and the governor would end.

[Gov. Dunleavy vetoes public pension bill]

Dunleavy’s deadline to veto the pension bill, aimed at reinstating defined benefits for Alaska’s public workers for the first time since 2006, was Monday. That gave lawmakers mere hours to pass a complex revenue structure that could impact the state for generations.

In the race to pass a gas line bill, House members had drafted dozens of amendments to the legislation early Monday. By dinnertime, the House had considered more than three dozen of them, some of which would have incorporated ideas taken from substitute bills crafted by the House and Senate resource committees. Most amendments were rejected.

But an amendment by a North Slope lawmaker that passed 21-19 appeared to derail the House’s efforts to pass the bill.

The change came from Rep. Robyn Niayuq Frier, D-Utqiagvik, who gave an impassioned speech arguing that the North Slope and Kenai Peninsula boroughs needed to retain some taxing authority over the project.

Frier, co-chair of House Resources, argued that the boroughs had received few details about the project from Glenfarne, the project developer, and its partner, the state’s Alaska Gasline Development Corp.

“Everyone wants to pull resources out of there to benefit the rest of Alaska, but you want to take away our property taxing rights,” Frier said, referring to the North Slope Borough and the region where the natural gas would originate.

Her amendment altered the legislation to allow the boroughs to negotiate with Glenfarne for a deal involving property taxes in their backyards.

Kopp’s proposal had sought to move toward a different structure for the project that would replace the state’s property tax with a much smaller alternative volumetric tax based on gas flow through the project.

Kopp and others had argued that the alternative tax would allow the project to receive financing and be built, producing significant revenue for the state and local communities even with the property tax cut.

But Frier asserted that the boroughs need the chance to negotiate directly with the developer because of the lack of information about the project.

The North Slope Borough would house the gas treatment plant, where the natural gas would be prepared for shipment in the pipeline. The Kenai Peninsula Borough would house the plant where the gas would be liquefied for shipment to Asia in tankers.

“All we’re doing is asking for the ability to negotiate,” Frier said. “We want to have a seat at the table.”

Her measure also added another change, proposing a new rate for the alternative volumetric tax that would apply to the 800-mile pipeline that would ship the gas from the North Slope to the Kenai.

After lawmakers failed in a 20-20 vote to rescind their action on Frier’s amendment, Kopp said lawmakers may be called into a special session to keep working on the gas line legislation after the regular session ends on Wednesday.

The House and Senate majority caucuses so far have favored approaches that would generate more revenue than Dunleavy’s proposal for the state and for local jurisdictions if the gas line is built.

The Senate Resources Committee, led by Senate Majority Leader Cathy Giessel, has so far held 36 hearings on competing legislation that would raise more revenue for the state and update Alaska’s oil tax system in the process.

An ‘energy crossroads’

As the floor debate began Monday morning, Kopp said that “Alaska is at an energy crossroads.”

The gas line “is essential to securing a long-term stable energy supply for Alaska,” said Kopp.

Watching from the House gallery were Dunleavy’s deputy chief of staff Rachel Bylsma and former U.S. Sen. Mark Begich, who was hired by Dunleavy to push for the project.

As lawmakers worked their way through dozens of amendments, Kopp repeatedly sought advice from Bylsma and Begich on whether the proposals from his colleagues were amenable to Dunleavy.

Bylsma and Begich, along with other lobbyists advocating for the project, had been in and out of meetings with Kopp throughout the weekend as they worked to craft legislation that could draw enough votes to pass the House and Senate.

Kopp introduced the negotiated compromise as an amendment that would add 22 pages to what was once a one-sentence bill clarifying the state’s authority to regulate the importation of natural gas to protect ratepayers. That bill passed the Senate unanimously in March.

Because the Senate has already passed the underlying bill, the chamber would only have the option to either approve or disapprove of the House’s gas line bill. The Senate would not be able to make further amendments to the bill once it passes the House.

Throughout the floor debate, members of both the minority and majority caucuses spoke in favor of the gas line and the legislation Kopp had introduced.

“Normally, this would have gone through (the committees of) energy, resource,” said Rep. Kevin McCabe, a Big Lake Republican. Despite the lack of a typical process, he said, lawmakers “need to say ‘yes’ to this amendment.”

“Let’s start with a ‘yes’ mindset for our state and for our children, for their children,” said McCabe.

Anchorage Democratic Rep. Zack Fields, speaking in support of the amendment, said Kopp’s proposal represents “the best possible legislation under extremely severe time constraints and without anywhere near the typical level of project economic data that any sovereign in the world would demand in order to set tax policy.”

“I think our colleagues have done extraordinary work under the most difficult circumstances possible,” said Fields.

Senate President Gary Stevens, a Kodiak Republican, said after the introduction of the amendment that he had yet to review it.

“The retirement bill is really important, and I really hope we do that, but it’s not so important that I’m willing to sell the state out,” said Stevens. “So we’ve just got to make sure that it’s not doing that.”

Terms of the bill

With two days remaining in the session, the fate of Kopp’s proposal remained unclear.

The proposal’s key feature would create a much smaller alternative volumetric tax in place of the state’s property tax, following the structure originally proposed by the governor in his bill introduced in late March.

The alternative volumetric tax would bring in about $121 million starting in 2033, Kopp said, the point when the project reaches full operation. That’s more than the governor’s proposal, which would generate about $75 million annually, but less than House and Senate substitute bills that committees have weighed for several weeks.

Revenue to the state over three decades, from a variety of income streams including royalties, would be about $23 billion, Kopp said. The proposal would also generate additional income for local communities.

The alternative tax would increase only 2% annually, below long-term inflation rates of more than 3%, and lower than proposed in the House and Senate substitute bills.

The volumetric tax would be calculated using a formula that includes the capital expense of each major facility, the pipeline, the gas treatment plant on the North Slope and the liquefaction facility on the Kenai Peninsula.

“The bigger the investment, the bigger the share (of revenues),” Kopp said.

The proposal requires collective bargaining agreements with unions, tied to the project’s major facilities, Kopp said.

It requires the developer to pay $40 million into a community impact fund to support communities affected by pipeline construction, he said.

It also requires that the project build a roughly 40-mile spur line off the main gas line to deliver gas to Fairbanks, estimated at $250 million.

Construction must begin by 2032, or the project developer loses the exemption and the state’s property tax kicks in.

Uncertain project costs

Alaska LNG would tap long-stranded gas from the state’s North Slope oil fields and ship it 800 miles to Southcentral Alaska.

It has proposed delivering gas to Alaskans starting in 2029 and delivering liquefied natural gas, or LNG, to Asian entities starting in 2031. Its cost is publicly pegged at $46 billion, similar to figures a decade ago.

Gas line developer Glenfarne has updated the cost of the project but has not publicly released the new figure, saying that could affect ongoing negotiations with gas providers, gas buyers and contractors.

Several lawmakers have complained about a lack of information from the project developers as they consider a multibillion-dollar tax break to support it.

The missing details include the gas line’s current anticipated cost and clear details on what price the gas is expected to bought and sold for, they have said.

Some members of the Senate Resources Committee, meeting Monday to consider that committee’s substitute bill for the 36th time, expressed skepticism about the House bill and the project.

Sen. Matt Claman, D-Anchorage, said the situation lawmakers are is akin to deciding whether to buy a house without being able to go inside, hire an inspector or talk to the owner.

“All I can do is look across the street at the house and see if I want to buy it,” he said. “And in many respects that reflects the challenging place that as a state government we are in, trying to analyze what is essentially a very, very private transaction,” he said.

Claman said he’s “very skeptical” the project will be built, and added that analysts in the Capitol think the pipeline may cost far more than is currently estimated, perhaps $70 billion or more.

Sens. Forrest Dunbar and Bill Wielechowski, Democrats from Anchorage, said they wouldn’t vote for the House bill in its current form.

The House debate was largely “missing the mark,” Dunbar said.

It hasn’t done enough to ensure project transparency or to address concerns that lease expenditures by oil and gas producers, which are used to lower production taxes under state law, won’t severely hurt state revenue.

“What they’re debating on the floor now on the House, I do not think is an acceptable bill, and I won’t vote for it,” Dunbar said.

The Daily News’ Iris Samuels reported from Juneau, and Alex DeMarban reported from Anchorage.