Alaska lawmakers are poring over the numbers as they focus on a major proposed tax break for an 800-mile pipeline and liquefied natural gas export facility megaproject during a special session called by Gov. Mike Dunleavy. And in Fairbanks, project backers are pointing to high energy prices in the Interior as one reason to push through the tax bill, which currently includes provisions for a spur line to the Golden Heart City.
A Tuesday “Build the Line” rally, organized in part by Alaska Support Industry Alliance, drew a large crowd, including energy officials and a bipartisan group of 10 state legislators, to Golden Heart Waste Management in South Fairbanks.
City of Fairbanks Mayor Mindy O’Neall and Fairbanks North Star Borough Mayor Grier Hopkins were among those who spoke on behalf of the project’s benefits at the event, as was a remote U.S. Sen. Dan Sullivan, who delivered his remarks from a cellphone held up to the microphone, and Rick Solie, a board member for Golden Valley Electric Association.
“You know that your rates are going up because our cost of fuel is going up,” said Solie. “We need to not depend on what’s going on around the world. We need to depend on the North Slope, and an export-priced gas pipeline.”
Solie also credited Hopkins, Interior state lawmakers and Glenfarne, the lead developer on the megaproject, for coming up with language to include the Fairbanks spur line as an eligibility requirement in the tax break bill.
The rally comes about a week after Golden Valley, the Railbelt utility in Interior Alaska, announced a massive rate hike for members. The co-op estimates average residential bills will go up by $46 per month, in what GVEA CEO Travis Million called “an extraordinarily large increase.” The utility said that’s due to extended periods of cold weather this year, a shortage of cheaper power coming up from Southcentral utilities and high fuel prices amid the war with Iran.
GVEA, which serves about 45,000 meters in the Interior, doesn’t have facilities to generate power using natural gas, but it could “easily convert its North Pole Combined Cycle Unit to natural gas if it became available in the necessary quantities,” according to the utility.
“Currently, there are no affordable prospects that can be delivered locally to Interior Alaska in the quantities needed, after taking into consideration necessary transportation and storage costs,” the co-op’s website says.
Dunleavy and Glenfarne say tax break legislation is a big part of the megaproject moving forward. And legislators in Juneau are trying to figure out whether – and how – to cut taxes on the pipeline and related infrastructure while also considering possible risks for the state, municipalities and Alaska ratepayers. That’s the topic of a special session set to run through June 19, which has been playing out in the House and Senate finance committees.
At a Wednesday meeting with Glenfarne, Anchorage Republican Sen. James Kaufman laid out some of the stakes, saying there’s a reason lawmakers are taking time to carefully review the numbers.
“If you don’t have good oversight, costs can easily get away, then that means that we’re kind of leaving money on the table through revenues that we don’t get or the cost that’s imposed on the consumer, and so both of those have a heavy impact on the future of Alaska,” he said.
Adam Prestidge, president of Glenfarne Alaska LNG, gave an updated cost estimate for the megaproject at the meeting – $44.5 to $54.5 billion dollars – something lawmakers have been asking for and that the company had declined to release publicly. Legislators have instead been relying on an inflation-adjusted version of a 10-year-old estimate, which put the project at $46 billion and garnered some skepticism.
“That number is complete garbage, and it makes it very misleading,” Sitka Republican Sen. Bert Stedman, Senate finance co-chair, said at a May 27 meeting. “So we're going to have to deal with that somehow at this table to get a rough idea of what actual costs we are looking at, especially when somebody is going sit at the end of the table and ask for a concession.”
Dunleavy first introduced a bill back in March that would establish a tax on gas through the pipeline in lieu of developers paying property taxes on the infrastructure. The proposal would drive down projected state and municipal revenues by billions of dollars in a bid to increase the chances Glenfarne goes ahead with the two-phase project.
Phase one is a 740-mile pipeline from the North Slope to Southcentral; the second phase involves extending the pipeline to the Kenai Peninsula and constructing an export facility in Nikiski. The main line, though, would bypass Fairbanks to the west by about 30 miles, which has long led local leaders to advocate for a spur line into the city.
The governor’s initial bill didn’t include plans for construction of the smaller line in the Interior as a requirement for developers to earn the tax break. But during the regular legislative session, the Alaska House and Senate resources committees added language to their versions of the bill that, though different, both said there must be plans to build a lateral line to serve Fairbanks if developers want to get the tax break for the main project.
In an interview this week, Dunleavy said he didn’t include something similar in his initial legislation because he’d assumed the spur line would be built.
“There was never an attempt to sideline Fairbanks,” he said. “They were front and center, one of the biggest drivers to really get this pipeline going and get some energy relief for our second largest city.”
The new bills Dunleavy introduced at the start of the special session in late May, HB 2001 and SB 2001, do have the Fairbanks spur line requirement. The line must “be scheduled to begin operations within two years after the commencement of commercial operations of a major component of the natural gas project,” the bill says.
It also retains another provision legislators added that Interior lawmakers have long sought: Recouping the cost of building the Fairbanks connection would be spread “systemwide,” instead of being shouldered only by Interior ratepayers.
Fairbanks North Star Borough Mayor Grier Hopkins spoke in favor of that component by telling what he called a “joke” during a May 28 House finance committee meeting.
“If Fairbanks had to pay for the spur line, then, you know, we should make sure that Anchorage pays for the Anchorage spur line, which would be everything south of Fairbanks,” he said, encouraging lawmakers to keep the language in place.
An April fiscal note from the state-owned Alaska Gasline Development Corporation, a 25% owner of the AKLNG project, estimates capital costs for constructing the Fairbanks spur line at about $245 million.
Hopkins said the borough doesn’t need more gas; it needs affordable gas. In response to a committee question, Hopkins defined “affordable” through a comparison to the borough-owned Interior Gas Utility, which currently serves about 3,500 customers and charges almost $25/mcf, or thousand cubic feet of gas, and uses a supply trucked in from the North Slope via agreements with Harvest Midstream and Hilcorp. He said getting gas to people for $19 or less per mcf would be a boost for the Fairbanks area.
Precisely how much Alaska ratepayers would pay for gas from the Alaska LNG megaproject isn’t certain, but Glenfarne and a state Department of Revenue model have estimated it could provide in-state supply of natural gas in the single digits per mcf.
The estimates rely on various assumptions and variables, including cost overruns as well as whether and when the full project is constructed. Exports from phase two would help push the price for Alaskans much lower than if only phase one, the in-state pipeline, gets built, though Glenfarne maintains it would still provide gas at a competitive price in that scenario.
On Wednesday, Prestidge, the Glenfarne Alaska LNG president, said the company would support language that prevents the state and ratepayers from bearing the costs of overruns, and that it had agreed with Southcentral gas utility ENSTAR on capping the price of gas to the utility at $16/mcf, linked to inflation. The Alaska Department of Revenue modeling estimates adding another $4.36/mcf to represent the cost to the end customer.
Asked specifically about what prices in Fairbanks might be, Prestidge couldn’t immediately provide exact numbers, but said the company believes the project would “result in a serious reduction” compared to alternatives.