A legislative consultant said Tuesday that rough calculations suggest Alaska LNG project developers could earn about $8 billion annually by 2050 on a $15 billion equity investment, roughly a 50 percent return, while the state receives about $1 billion in combined taxes. The consultant later cautioned the figures were preliminary and may contain errors requiring reconciliation with Department of Revenue data.

Nick Fulford, senior director of gas and LNG at Gaffney Cline Energy Advisory, presented the analysis to the Senate Resources Committee during a hearing on Senate Bill 280. The bill would replace oil and gas property taxes with a volumetric tax for the Alaska LNG project. Fulford acknowledged the model was hastily constructed, focused purely on the midstream segment, and contains potential errors.

The analysis assumes a 70-30 debt-to-equity ratio with a 10 percent target return on equity for project investors. The $15 billion equity investment represents the developers' share of total project costs. Corporate income tax projections in Fulford's model suggest actual returns far exceed that stated goal. By 2050, state corporate income tax collections would reach approximately $900 million annually, Fulford said.

When Senator Bill Wielechowski pressed Fulford on the calculations, the consultant agreed that the $900 million figure, when extrapolated using the state's 9.4 percent corporate income tax rate, implies roughly $8 billion in annual profits for midstream developers.

Fulford later expressed concern about these figures. "With the speed at which this has been put together and the degree to which we have been able to check and look at it, I am concerned that there are some errors in the model which I would prefer to clarify in writing," he said. Fulford indicated he suspects his state corporate income tax projections may inadvertently include federal taxes, which would explain some of the discrepancies. He said the corporate income tax slides should be regarded as needing additional clarification.

Senator Scott Kawasaki referenced Department of Revenue projections showing total state benefits through 2042 at $7.4 billion. Senator Forrest Dunbar noted the disparity between developer profits and state revenue becomes significant when viewed cumulatively.

"So it is not we get $1 billion and they get $8 billion under the governor's plan," Dunbar said. "It is they get $8 billion in a year and Alaska gets $8 billion over 15 years."

Fulford's analysis showed that alternative volumetric tax collections under the committee substitute version of the bill would remain relatively constant over the project lifetime at approximately $400 million annually. Corporate income tax would climb from $157 million in year two of operation to nearly $900 million by 2050. The cumulative revenue to the state over the project lifetime would total approximately $20 billion under the committee substitute version. That version sets volumetric taxes at 15 cents per thousand cubic feet for processing and pipeline segments and 25 cents for liquefaction.