The Alaska House of Representatives on Thursday voted down a multibillion-dollar tax break for the proposed trans-Alaska natural gas pipeline project. Glenfarne LLC, the project’s lead developer, has said the tax break is necessary for it to obtain financing from banks and equity investors.
The Alaska Senate voted 11-8 to approve a compromise version of House Bill 381, which contains the tax break. But after that vote and as the House gaveled in, Dunleavy announced he would veto the bill if it were to pass.
In a statement on social media, the governor said a provision that applies a corporate income tax to certain kinds of privately owned oil and gas companies “raises serious concerns.”
Legislators are meeting in a second 30-day special session devoted to HB 381, and Dunleavy said he will call the Legislature into a third session starting July 27.
After the governor’s message was read on the House floor, only 19 members of the House voted in favor of the bill. Twenty-one votes were needed to approve it.
Many of those who voted against the bill spoke against the provision identified by the governor, with Rep. Dan Saddler, R-Eagle River, calling it a “parasite” within a bill intended to benefit the gas pipeline.
The provision came at the insistence of state senators who said it was necessary for the bill to earn their votes.
“If you want a gas line, everybody’s got to compromise, and I think that’s ultimately what you saw today,” said Sen. Bill Wielechowski, D-Anchorage and one of the most vocal advocates of the provision questioned by the governor.
After the governor’s announcement, Senate President Gary Stevens, R-Kodiak, said he was unsure how the Senate would proceed in the next special session.
The bill could be referred back to the Senate Resources Committee, chaired by Sen. Cathy Giessel, R-Anchorage and a leading project critic. The Senate Finance Committee could consider the issue further.
Senators could simply take no action and wait for the current Legislature to end and Dunleavy to leave office in December.
“I sort of feel you need to go to the next Legislature,” Stevens said.
First gas expected before 2030, developer says
As currently planned, the Alaska LNG project would include three separate subprojects, built in two stages. Altogether, the project is expected to cost as much as $54.5 billion, making it one of the largest natural gas projects in the world.
Gas would be pumped from North Slope wells to a processing plant on the North Slope, then down a pipeline to an export facility on the Kenai Peninsula.
Developers expect to reach a final investment decision on the project’s first phase this year. It would include the pipeline, part of the North Slope processing plant and part of the export facility.
Initially, the export facility would function in reverse, as a place for Alaska to import natural gas for local use while the pipeline is under construction.
Southcentral Alaska is running short of domestic gas for heating and electricity during the winter months.
Adam Prestidge, president of Glenfarne Alaska, told state senators on June 3 that after the final investment decision, it should take about three years for construction and commissioning before gas begins flowing through the pipeline to in-state residents.
The second, export phase of the project would take several more years to complete.
Switching from a property tax to a gas tax
The main intent of the bill is to replace Alaska’s 2% petroleum property tax with a lower tax on gas shipped through the pipeline.
The pipeline is exempt from the tax during construction, but the state would start collecting taxes when gas begins flowing. Glenfarne has said that’s a problem because it won’t begin making money until exports begin several years later.
Glenfarne executives have said they cannot get financing to build the pipeline unless the tax is changed.
That led Gov. Mike Dunleavy to propose the tax change in March. Legislators were unable to pass the bill by the time the regular legislative session ended in May, and Dunleavy has now called lawmakers into special session twice to get it done.
Through 2063, according to estimates from the Alaska Department of Revenue, the tax change would reduce state revenue by $5.3 billion when compared to current law.
Because petroleum property taxes mostly go to municipalities, the amount received by cities and boroughs during that period would drop by another $5.3 billion.
Proponents of the change have focused on the benefits, rather than the lost revenue. Without the reduction, the pipeline cannot be built, they say. If the pipeline isn’t built, the state and municipalities get nothing.
“We want Alaskan gas for the Alaskan people, instead of Canadian gas for Alaskan people, instead of imports,” said Rep. Kevin McCabe, R-Big Lake, on the House floor. “It means the world to our people…lowered heating bills, a stronger economy.”
While proponents of the tax break have run a “Build the Line” ad campaign insinuating that the tax reduction would guarantee a pipeline, some state legislators say there is a low chance of a pipeline, even if the tax break becomes law.
“This has been billed as the bill that either makes a pipeline be built or does not make a pipeline be built, and that just really is not true,” said Rep. Justin Ruffridge, R-Soldotna.
No ‘better shot’ at compromise, drafter says
The House and Senate passed different versions of HB 381 in June, sending the bill to a six-member multipartisan conference committee tasked with negotiating a compromise.
For weeks, the key point of contention has been whether or not the bill will also include the erasure of a tax exemption for “pass-through corporations,” generally large companies that are owned privately and not traded on public markets.
In Alaska, erasing that exemption would affect the oil and gas company Hilcorp, which operates the vast Prudhoe Bay oil field, among other work in the state.
It also would raise taxes on the proposed gas pipeline.
On Thursday morning, the conference committee adopted a new version of HB 381 that specifically exempts “income of an Alaska liquefied natural gas project” from the revised tax.
That would include all three segments of the pipeline project. But it was unclear whether it would cover gas shipments between the wellhead and the North Slope processing plant.
“It will be up to the Department of Revenue to determine the scope of that exemption,” said legislative attorney Emily Nauman, answering a question from Ruffridge.
The revised bill also delays the start of the tax until 2029. Affected companies would be required to submit an “informational tax return” the year before the tax starts.
That would give the state better information about how much money the tax will raise and whether the proposed tax rate needs to be changed.
Rep. Calvin Schrage, I-Anchorage, chaired the conference committee.
“I don’t think, frankly, that we’re going to get a better shot at this,” he said before the House vote.
“I don’t think you’re going to get closer alignment between the different factions on this issue than you are going to get today.”
While the conference committee consulted with Glenfarne, the Dunleavy administration and the Alaska Gasline Development Corp., it didn’t discuss the bill at length with members of the House’s 19-person, all-Republican minority caucus.
Ruffridge, the minority caucus representative on the conference committee, said he received the final copy of the bill only 30 minutes before the meeting that adopted it.
On the House floor, members of the House minority lambasted the final version.
“In my opinion, this process was neither transparent nor collaborative,” said Rep. Frank Tomaszewski, R-Fairbanks and a member of the minority.
One member of the Democratic-independent-Republican coalition majority in the House also voted against the bill.
House Majority Leader Chuck Kopp, R-Anchorage, alluded to the way the pass-through tax would impact Hilcorp. Changing its taxes, he said, would deter future drilling because it would create uncertainty about what additional changes might be made in the future.
“From my perspective, that’s what’s killed this iteration of the bill,” Gov. Dunleavy said about the pass-through tax.
Climate protesters and oil advocates opposed the compromise
On Thursday morning, a small group of demonstrators gathered on the steps of the Capitol to protest the gas line and the proposed tax break. Protest signs called for investment in renewable energy instead of fossil fuels to help combat climate change, and called the megaproject a “pipedream” and a “scam.”
“I’m really concerned about the cost to the state and to the communities that would be impacted by the project,” said Sally Schlichting, a Juneau resident. “Especially by these proposed tax breaks. I just think it’s horrendous to forego all that revenue for so long, and I feel like there’s very little guarantee this project will ever happen.”
Schlichting said she’s concerned that Alaska is giving up too much, and the project developer Glenfarne has not disclosed who is investing or how much.
“I just think this is the most wrong-headed way of approaching resource development,” she said. “We don’t fund our education. We are running out of money, and Alaskans own the resources, and we deserve to receive the revenue from it — and not later, now.”
Another Juneau resident, Emily Kane, called the project a “boondoggle,” and said she also came out to protest the project’s climate change impacts.
“I am very concerned about the habitability of the planet if we don’t seriously dial down fossil fuels,” she said. “I know young adults who are choosing to not have children, and it just really breaks my heart — this selfishness about not thinking about future generations.”
A group of pro-development organizations, including the Alaska Oil and Gas Association, Alaska Support Industry Alliance, Alaska Chamber of Commerce and Resource Development Council, briefly found themselves on the same side as the protesters.
After the conference committee passed its compromise version of HB 381, they sent a letter to legislators, urging them to vote down the conference committee compromise.
Rebecca Logan, CEO of the Support Industry Alliance, said by phone that the pass-through tax would hit companies that are drilling for gas in Cook Inlet, at a time when the region is running short.
“The gasline is our future, but what we’ve got right now, we can’t hurt,” she said.