Senate Resources, 4/20/26, 3:30pm

Senate Resources Committee meeting to order. Today is Monday, April 20th, 2026, and the time is 3:30 PM. Please turn off your cell phones. Committee members present today: Senator Rauscher, Senator Kawasaki, Senator Dunbar, Senator Myers, Vice Chair Senator Wielekowski. I'm Senator Giesel.

Senator Clayman will be along shortly. We have a quorum to conduct business. Thank you to Heather and Susan who are helping us out with the audio and recording the minutes. Two items on today's agenda: Senate Bill 275, Natural Gas Projects Income Tax Surcharge, and Senate Bill 280, Oil and Gas Property Tax Municipal Tax. We're going to start out with Senate Bill 275.

Today it's my intention to go through a policy rationale chart It's similar to— very similar to a sectional analysis of 275 and discuss what the provisions are in the bill. Here to present that chart is Sonya Kawasaki, Senate Majority Counsel. Welcome, Ms. Kawasaki. If you'd introduce yourself for the record and proceed through the sectional. Thank you, Madam Chair.

Sonya Kawasaki, Senate Majority Legal Counsel. Legal Counsel. Good afternoon, members of the Senate Resources Committee. Right now I will be going through a policy rationale chart that I created now last month over SB 275, the pieces of SB 275. The first topic is—.

Excuse me, Ms. Kawasaki, I want to clarify, this is version H. H as in Hilo, for public that are listening and for committee members, version H. Thank you, Madam Chair. Yes, that was the version that was introduced to the committee. It has not gone through a committee substitute process. So the first item is LB&A oversight. The bill would provide LB&A oversight over AGDC for annual audits to evaluate the ownership and management interests and projects of AGDC.

The rationale for this piece was that right now in our LB&A statutes, there doesn't exist any Legislative Budget and Audit Committee authority expressly over AGDC, but there does exist the authority over the Permanent Fund Corporation, the Alaska Housing Finance Corporation, and the Alaska Industrial Development and Export Authority. And so we added AGDC to the types of state corporations that would receive legislative budget and audit oversight.

The next item, or the next 3 items I should say, are all pertaining to this concern that the legislature has been having with acquiring information that would be helpful to policymaking decisions that are currently under confidentiality agreements, or we have been told that they are under confidentiality agreements by both the developer Glenfarn and the— by our state corporation AGDC. So in essence, the concerns would be what to do with confidentiality items under confidentiality agreements currently, and then after enactment, what can be garnered from information that is or is not under confidentiality agreements in the future for legislative policymaking decisions. So the first category would be that ADDC may enter into nondisclosure agreements with public agents, and public agents now under the bill would include legislators. That was not expressed in our current laws governing the confidentiality agreements. The second category is mandatory nondisclosure agreements with legislators.

Basically, once the bill is enacted, the legislature— members of the legislature as well as their agents who they'd like to have access will be allowed at their discretion to sign nondisclosure agreements in order to obtain information that they need to make policy decisions. And then the third category here is the waiver of current confidentiality. And the waiver of current confidentiality would be the parties to a current confidentiality agreement being encouraged to waive confidentiality and— so that the legislature can still review information that is protected currently under confidentiality agreements. And then another piece of these 3 categories would be that the legislature will be able to, moving forward, have the ability to review information in executive session.

And that would be any committee, not just Legislative Budget and Audit Committee. Okay. Page 2. The very first topic has to do with divestments of subsidiaries of AGDC. Basically, the status quo right now is that AGDC has divested itself in its 8-star formed entity of 75% to Glenfarn.

Um, this was not entirely expected by lawmakers, and I think that we wanted to assure that the remaining 25% would not be able to be divested without legislative approval. And another alarming aspect to it is that since 2011, since, um, AGDC was given a approximately $485 million. And with that, it does not sound like they asked for any stake in any of the projects that will be actually revenue generating. And so I think part and parcel with the legislature having oversight over further divestment would be to ensure that this decision is sound.

Um, the second item on page 2 has to do with option agreements and exercising the option in an option agreement. Basically, there is going to be structured a, um, procedure specifically in law that when AGDC negotiates with another entity to acquire acquire an interest in, uh, I'm sorry, that AGD shall negotiate with another entity that it's in negotiations with to acquire an interest in revenue-generating projects. And this option and the terms of the option must be approved by the legislature. And then there will be a notification requirement to the legislature to be notified that the option contract is ready for review by the legislature. And then once the legislature approves of the terms of the option contract and the development toward one or more of the subprojects proceeds, then the state must be allowed— or must be notified— I'm sorry, the legislature must be notified and the state must be allowed in this version of the bill, 6 months to exercise the option to acquire the interest.

And that would mean that the legislature needs to consider all of the parameters of investment and, you know, what might be the revenue-generating prospects for the legislature. And it also requires DO, Department of Revenue, to be involved with assisting the legislature toward potentially that acquisition of interest. And beyond that, the legislature must approve the interest by law. And the revenue generation— the revenue generation from the project shall be separately accounted for and placed in a separate fund that is available for appropriation.

The final topic on this page is subsidiary revenue separate accounting of appropriations or separate accounting and available for appropriation. This term in the bill came about because there was testimony on the record that potentially that AGDC has established a subsidiary to collect funds that the subsidiary— that a subsidiary of AGDC creates, um, is created and receives revenue. And so this provision was established to ensure that revenue that is generated by that subsidiary is actually accounted for separately, and that is available for the legislature to have appropriation authority over.

Page 3, the first topic is public disclosure of owners and investors in the projects and of gas purchasers. This topic would require ADDC to publicly disclose in an internet database information regarding owners and investors in gas line projects and purchasers of the gas. And sort of the rationale for that is that Alaskans have a right to know who owns and controls their North Slope natural gas pipeline and who's purchasing the gas and the markets where it's going to be used. Uh, the public, um, from public statements and reporting, the amount of gas expected to be consumed in-state is 0.25 billion cubic feet per day, while the expected foreign market would be receiving 3 billion cubic feet per day. So requiring transparency in These public disclosures will help policymakers shape future decision-making and implicates the legislature's maximum duty benefit to get the maximum duty under the Constitution for the people of Alaska for their resources.

The second item on page 3 is legal relationships with foreign entities. Would require legislative approval.

Basically, under this provision, AGDC and its subsidiaries and business partners would not be able to form a legal relationship with a foreign entity without legislative authorization. I think there have been— there's been concern that agreements made by AGDC have been kept confidential and that they could lead to ownership and control of Alaska's gas line and natural resources by foreign nations and foreign companies, which would— may or may not be an intended consequence by the people of Alaska. And I think that Alaskans would want to know before that sort of relationship is established. [FOREIGN LANGUAGE] Senator Myers. Yeah, just to clarify— thank you, Madam Chair.

Just a clarifying question on that part. I wasn't entirely certain when I read through the bill. If there is— if there's an ownership stake, yes, or something along those lines, ownership or management stake, that makes some sense. But the way I read the bill, I wasn't entirely certain if that would also apply to strictly just a sale as well. So if there was a sale of gas from what went through the pipeline and liquefaction facility to, say, a utility in Japan or Taiwan or South Korea, if That would also apply then.

Through the chair, Senator Myers. Under this provision, it does apply to foreign gas sales. And I believe it's in the definition of legal relationship under that subsection.

Okay, thank you. Before I go to Senator Rauscher, I do want to thank Senator Kelly Merrick for joining us today. Senator Rauscher. Thank you, Madam Chair. So back on page 2, the middle section, the revenue generated from the project must be separately accounted and placed in a separate fund and available for appropriation.

Is there stipulations on what that could be appropriated for, or what's the reason behind the separation?

Through the chair, Senator Rauchur, thank you for the question. It's in essence that provision or that term of the state option provisions just has to do with collection of the revenue that's generated from the revenue-generating project to Alaska. I think that constitutionally speaking, the legislature always has appropriations authority over funds that come to the state. And so that's just a clarification that when there's a revenue-generating project, that there will be a fund set up that separately receives those— that revenue from the revenue-generating project, and then the state can decide how to appropriate those funds. I have a quick follow-up.

Follow-up, Senator Rauscher. So does that include the royalties, or is that a separate part of the project where it's a different part of the project? Does it— is it included? Through the chair, Senator Rascher, thanks for the question. This does not implicate the royalties or production tax or other taxes.

This specifically— this revenue is generated from the state's involvement in a revenue-generating project, which in this case, from what we can tell from the record right now, would be the gas pipeline. The LNG plant or the gas treatment plant. If the state is involved in one of those projects in a situation where it would receive revenue, then that is the provision that speaks to ensuring that the legislature will have the opportunity to appropriate those funds. All right. Thank you very much.

All right. We're back on page 3.

Um, the final item on page 3 is partner entity notification of a significant change of ownership. This provision was brought about because, um, there's a concern that it would— apparently that AGDC may have entered into an agreement with Glenfarn in which Glenfarn doesn't have restrictions on its ability to divest itself. And so, um, the state or the legislature would not be able to impair that contract, but this provision would at least require notification if the partnering entity of AGDC, um, decides to divest itself. And there's a minimum that the partnering entity needs to already have a 10% share of the full relationship with AGDC. Between the— collectively between the two.

And basically it's just to ensure that we have knowledge if there's going to be a divestment in case that these are unvetted or unknown entities and that increases risk to the state.

So it's another transparency provision.

Page 4, the first item has to do with royalty prevailing value determinations. This provision would mandate DNR to ensure that when royalty is taken in money, it's appropriately paid even when the oil or gas is sold at a price that does not represent reasonably prevailing value. And in this instance, DNR must determine the reasonably prevailing value and publish it online in a written rationale. And you— the Department of Natural Resources may not use an unreasonably low value in its calculation of the reasonably prevailing value. Senator Myers.

Thank you, Madam Chair. So on this provision, I'm trying to understand where we would— how we would calculate that. Because I mean, we've— I think we've established that the Alaska gas market is, is weird. We're not really connected to the rest of the world. We don't have, you know, Henry Hub or some other, you know, a good benchmark to go against.

And I think we've already established through, you know, the Wood Mackey Report that we talked about last year and a couple of others that we're going to be selling our gas for a fairly low value because the transportation cost is going to be so high in order to be competitive on the world market. So how do we expect DNR to, one, figure out if our gas is being sold too low, and two, figure out what the actual price should be?

Through the chair, Senator Myers, that's a very good question. Understood from Department of Revenue, Mr. Stickel's statements the other day, that they actually do apply prevailing value determinations already in— under— given under the law when they have encountered this situation. So to the extent that they do that currently, I assume they base it on whatever values that they can for sales of gas up um, north for, you know, maybe potentially even for use up north. And I suspect that this prevailing value determination over time will get more, um, accurate to reflect what the value should be given the end value of the resource being sold. Senator Myers, it might be helpful to know they already do this for oil.

There's already provision in law to do this for oil. We're simply mirroring it for gas. Senator Myers. Yeah, um, well, I can, I can understand mirroring it to some extent, but I'm a little concerned because, I mean, oil at least, okay, we know what oil is being bought for on the, on the West Coast, you know. Um, you know, the, the gas, we're not there yet.

We don't even know, we don't fully know who the customers are yet. We've got a lot of perspectives, but we don't fully know the customers are yet. And so that That's concerning to me. One other question I had regarding this provision is I was noticing that we could also apply that same provision to something that got thrown into a gas storage. And I was wondering if that meant that we could effectively be taxing based on prevailing value for gas that got pulled up out of the ground and then put— and then re-injected back down.

Up on the slope.

Through the chair, Senator Myers, if it is gas that is being re-injected for, say, enhanced oil recovery, or if it's— I believe— so currently, now this is the royalty version. We will also have a prevailing value determination version for production taxes. But on existing in law right now for the production tax side of things, they have a discretionary ability to apply prevailing value in the instance of gas storage. I understood that if the gas will be sold later, they don't probably apply the prevailing value determination because the gas is eventually produced for sale, or in this case royalty purchase, or royalty value, and then we take our percentage then. So if your concern has to do with maybe a double counting— okay, um, thank you.

I, I understood that because the two discretionary terms are still preserved, that they probably wouldn't double count it. They would not end up applying the prevailing value twice. So prevailing value applies to gas storage in the term— in the sense that the gas or the gas will later be produced.

Then that's where we take our royalty share. Ms. Kawasaki, I'm going to interject here that Dan Stickel is online. Oh. So, Mr. Stickel, Have you followed the discussion, and would you please comment?

Sure. This is Dan Stickel with Department of Revenue, Chief Economist. To the Chair, so the discussion was specifically around the valuation requirements for DNR, which I understand are similar to some of the valuation requirements for DOR. So My understanding is the legislation would require that oil or gas that's sold at a low value be subject to tax and kind of strengthen up some of the language from "may be subject to tax" to a "shall be subject to tax," and then adds requirements around that oil or gas needing to be valued based on fair market value for production tax purposes, and then adds some written and published reports that DOR needs to do around those valuations. So that's my understanding of what, what this does is it's taking a little bit less, a little bit, a little bit less discretion on DOR's part as to how to treat potential low-value gas sales.

And I, I would mention that this provision would require We would need to do some regulations to flesh out this provision. We're going to need to do regulations regardless around gas sales valuation. Thank you, Mr. Stickell.

Um, I'm Senator Myers. I'm good for now. I might come back to it later. Thank you. All right, uh, Senator Dunbar, did you have your hand up?

Yes, thank you, Madam Chair. And I think it was partially, uh, answered by Mr. Stickell. I'll just say very briefly, I appreciate this, and there are several other provisions here too that You know, it's interesting. Gas is analogous to oil in a lot of ways, and we're trying to create a similar system, but it's also very distinct, and it goes to the comments that Senator Myers were making about, you know, obviously, there is some— not refinement exactly, but there is some difference in the oil that gets on the— that goes to the terminal in Valdez is a little bit different than what's coming out of the ground on North Slope. But it's very different.

I'll say what we are doing here is very different with the gas and the value of the gas as it leaves, let's say, the Kenai Terminal when it eventually happens, is going to be so radically different from when it is pumped out of the ground that it creates a number of difficult accounting challenges. And so I appreciate this and the other provisions that are to follow as I'm reading through them. And I think it's something we're going to, you know, just be working diligently on in the days to come. So that's all just a comment. That's it for now, Madam Chair.

Thank you. Thank you, Senator Dunbar. Senator Kawasaki. Yep, just a question since Dan Stickle's on the line. How was gas— export gas from the Kenai LNG area back in 2015—.

How was that dealt with? Was there a prevailing rate that it was—. That the cost— was there a prevailing cost rate? Mr. Stickle?

Um, to Senator Kawasaki through the chair, um, I am not intimately familiar with the gas valuation methodology in 2015. Um, I can, you know, I could speak generally to like the general concepts around how we how we value the gas.

It would depend on where the sales— where the actual sale of the gas takes place. So if the sale of the gas takes place overseas in Asia, there would be a destination sales price minus transportation costs, basically a netback to the wellhead value for purposes of valuing gas. You could also have the sales take place before or after the LNG facility or at the wellhead. And those would all be different situations. But, you know, essentially the concept is a netback calculation of, of some manner back to the wellhead, which is one of the— one of the assumptions that we've made around modeling.

And our understanding is for the AK LNG project being considered now, that the sales would actually take place prior to the gas treatment plant. So it would be at the upstream point, which kind of avoids the need to do that detailed netback. Okay, thank you. Senator Dunbar. Thank you, Madam Chair.

I just want a clarifying question to Mr. Stickel. That netback, was that in reference to a production tax or to a royalty?

Uh, Senator Dunbar, through the chair, so I'm speaking to production tax. I know that some— we've jumped ahead a little bit. I generally, I believe the royalty calculations are similar in nature, but yes, that's speaking differently from a production tax standpoint. Thank you, Madam Chair. All right, Ms. Kawasaki, page 4, and I believe we are to the gas line pass-through entity.

Thank you, Madam Chair. Um, for the record, Sonia Kawasaki, Senate Majority Legal Counsel. Okay. Um, the second item on page 4 is the gas line pass-through entity income tax. We've seen several times throughout the last few years, um, a form of an S corp tax or an LLC tax that will tax the income of entities that are involved in resource development, wealth in oil and gas, who are not subject to corporate income tax because they are not corporations.

And so this tax would apply a 9.4% tax on income over $5 million for S corps and LLCs who are involved with the gas line projects. And basically, when Alaska repealed its personal income tax in 1980, while maintaining an income tax on C corporations, it inadvertently created this anomaly that prevents taxation of the income of owners of pass-through entities. And today we know that these entities exist and they're highly profitable, including the current partnering entity of AGDC, who is Glenfarn, it's— which— who is an LLC. And We— our attempt here is to capture similar corporate income taxes to those types of entities who are involved in the gas line and the gas line subprojects in order to close the loophole as related to gas line entities.

And I might add, Madam Chair, that there's been discussion of acquiring gas from the Great Bear Pantheon lease, and Great Bear apparently is also an LLC. So this would cover Great Bear's production as well.

Um, yes, Senator Dunbar. Oh, uh, thank you, Madam Chair. Uh, Ms. Kawasaki, so here it says on the income over $5 million Am I correct that that's taxable income? So it would be net, not gross?

Through the chair, Senator Dunbar, that's correct. The way that the tax is structured in law would be taxable income, which is defined under those provisions of the bill. Thank you. Thank you, Madam Chair.

The final item on page 4 has to do with gas production tax in-kind. Now, this is an interesting area of law that evolved where it allowed the gas producer to pay taxes in-kind, as in with physical gas product, and the bill would eliminate the ability of the gas producer to pay on its own accord gas in-kind and would actually flip the ability to elect gas in-kind by allowing the state to take gas in-kind, and it would be based on a written public interest determination. And the gassing— so this provision would have been helpful if maybe if the state decided to take an interest, especially in the LNG processing plant, because we might have more ability to market our own gas.

Okay, page 5, the very first item has to do similarly with taking or having a prevailing value determination established by the department. In this case, it is the Department of Revenue, and it has to do with the 13% of the gross value at the point of production for production tax. And so similarly to the DNR duty, this would require DOR to come up with a prevailing value against which we can take our 13%. And there is also similarly a requirement to have a written determination established and a summary posted online.

The next item is prevailing gas lease expenditure deductions. Currently in law, the law allows both oil and gas lease deductions— expenditures, excuse me— to be deducted against production taxes, and this provision would eliminate the ability of the gas producer to take their lease expenditure for development of gas deposits. And the reason for that being that it could result in a substantial loss in revenue to the state of Alaska if we allowed gas lease expenditures to be deducted against our oil production taxes.

And then the final item in SB 275, the final major policy item on the Page 5, was the LNG processing surcharge. Um, this item essentially addressed, um, that the overwhelming use of Alaska's gas is intended to supply foreign markets, and so the foreign markets would be directly benefiting, um, from Alaska's gas and, um, and as well as the private gas line owner over monetizing, monetizing Alaska's natural gas resources. And so this provision would have established a 15% per 1,000 cubic foot surcharge for processing the gas through a liquefaction plant in order to ship overseas to overseas markets. And, um, in essence, it was aimed at those foreign market sales. And I had an estimate here that it— at about 3.0 billion cubic feet per day, which is approximately what was estimated— is estimated for maximum capacity of the gas line and production through the LNG plant, we could have made about $389 million off of this surcharge.

Per year, is that correct? I'm sorry, per year, is that correct? Annually. Annually. Yes.

Thank you. Senator Dunbar. Thank you, Madam Chair. Miss Kawasaki, why are you using the past tense? Thank you for the question.

Um, through the chair, Senator Dunbar, the reason being is that the CS that you— that we're about to introduce for you eliminates the surcharge. Understood. Thank you, Madam Chair. All right. Thank you, Ms. Kawasaki.

So the purpose of that presentation was so that you could see what was in Senate Bill 275. Senate Bill 275 is closely related to Senate Bill 280, which is the tax structure. And so the committee substitute that's being offered today combines what was Senate Bill 280, totally taxes, to Senate Bill 275, which is policy issues. You just— we just talked about mostly being policy issues. So we're going to set 275 aside right now and instead take up Senate Bill 280 with this committee substitute.

Senator Wilkowski. Thank you, Madam Chair. I move the committee adopt the committee substitute for Senate Bill 280, work draft 34-GS2038/G, as in Golovin, as our working document. Thank you. So I'll object for purposes of discussion.

Again, this is version G, as in Golovin. Many of the elements that we've already discussed will be found here. As well as some additional ones. Ms. Kawasaki, she— would you, in broad terms, today explain the contents? I will let you know also that online I see Emily Nauman from Legislative Legal.

Additional folks are online listening is Nicole Tham, Operations Manager, Division of Community and Regional Affairs, DCCED. Dan Stickel is also online, as well as Ryan Farnsworth, Assistant Attorney General, Department of Law, all related to the drafting of Senate Bill 280.

Ms. Kawasaki. Thank you, Madam Chair. For the record again, Sonia Kawasaki, Senate Majority Legal Counsel. I now intend to go through a broad overview of the summary of changes for the CS for today, which is version G of SB 280. The very— on page 1, we see that the SB 280 incorporates most provisions of SB 275 with some changes.

You just heard the transparency and provisions for— which would mean the waivers and nondisclosure agreements. Basically, this CS clarifies access to information by public agents, and then this includes legislators and attendance at regular or executive sessions. Now, this came about— because we've heard testimony from Glen Farn and/or their agent that they were now willing to go into executive sessions with the legislature. This was a new revelation. And so originally SB 275, when we had included ability of the legislators to sign on disclosure agreements and go into executive session, the developer now was offering to do so without having to sign NDAs.

And so the bill would now clarify that they could go into—. You—. I'm sorry, excuse me. The legislature may go into executive session, the committees of the legislature, with the ability of the developer to consent to this. And that would be without legislators having to sign nondisclosure agreements.

And it also adds the ability to go into a regular session as long as there's consent from the developer and the persons who had signed the confidentiality agreements. And that's just to help the legislature get at the information that it needs to make policymaking decisions that affect the state's financial interests. It also clarifies that information about project economics may no longer be subject to confidentiality agreements. And that they can be summarized and estimated or provided in a range of values. These are also to help the legislature make these significant, significant decisions that are, as you, Madam Chair, always point out, they are generational decisions for Alaskans.

And so to allow— to no longer allow those types of— that level of project economics to be kept confidential is the goal of this CS, um, so that you all can obtain more information for which to be able to make the important decisions that affect Alaskan interests. Um, page 2, items incorporated from SB 275 continued. Um, the enhancements to legislative oversight for the state's option to acquire the interest— these were mostly technical clarifications having to do with, um, the order of procedures for Um, the option, the option, the notification of the option, that the legislature approving the option, and then having ADDC and DOR, as well as the entities that would be entering into the legal relationship with the legislature, being available to testify and assist. One thing that we did make clear in this CS was that moving forward, um, for option contracts that have not yet been entered into, the legislature would have 12 months rather than 6 months. The 6 months I had based on, well, the testimony of the developer and the testimony of, uh, ADDC as to what they've already agreed to.

Since then, I've understood that the agreement that was made on that only has to do with the pipeline. And so moving forward, as far as the other two subprojects, which are the gas treatment plant and the LNG plant— or, I'm sorry, yes, the LNG plant— that the legislature should have now 12 months to consider whether or not it wants to exercise its option. And that just gives you more time to decide and determine where you would, you know, try to come up with funding to exercise your option, or so on and so forth.

On number— the second item on page 2 is— these are the items that just wholesale came in from SB 275. They are the separate accounting, the online public disclosures, the foreign entity business relationships, and notification of partner entity ownership change. There were some minor technical changes that I made to— the online public disclosures that had to do with also obtaining knowledge of the volume of that gas purchase agreement is being entered into for the— what volume is accounted for in the gas purchase agreement. And another one had to do with personally identifying information of persons purchasing gas who were individuals. And excluding or redacting the personally identifying information.

Senator Dunbar. Thank you, Madam Chair. And Ms. Kawasaki, this might not be practical, but as we're going through these slides, would it be possible to identify some of the sections this relates to, or is it just too intricate to do that? Senator Dunbar, that is the intention of our next hearing. Because we got this— Very good.

—CS at 11:00 p.m. last night, a full sectional has not been crafted yet. Okay. And so that's why we're doing it rather broadly. Okay. That's very good, Madam Chair.

So no worries on that request, and I'll wait to see that tomorrow. Thank you. Thank you. Alright, Ms. Kousaki— Senator Wilkowski. Alright, Ms. Kousaki, next page if you're ready.

Thank you, Madam Chair. Page 3, further items incorporated from SB 275. The duties of DNR and DOR toward prevailing value determinations and included with that are the public disclosure of the summary and the ability to acquire the full determination. Through the Alaska Public Records Act. The second item is the pass-through entity tax.

We have modified this pass-through entity tax to apply now to currently producers and current pipeline entities that are S corps or LLCs. Previously, in the last iteration of this tax in SB 275, it was related only to the gas line projects and their relationship to the gas line projects, but now we have broadened it to apply to all S corps and LLCs in the gas line, in earning income from the gas line projects or from production or from transportation through a pipeline, which is either pipeline.

And the other sort of significant change we made there is we started with a bracketed structure starting at $1 million and then, um, rack— um, will increase as you go up in $1 million brackets to $5 million, and at $5 million, the application of the maximum value of tax rate, which is 9.4%. Okay. The third item here is the gas lease expenditure deductions against production— oil production taxes is still eliminated so that it's prevented— the gas lease expenditure deductions are prevented from being taken against oil production taxes. One thing we clarified is that The Department of Revenue will make the determination based on BTU equivalence between oil and gas, and in that way they are allocated respectively to oil or gas. And then from gas, they are excluded from being able to be deducted against oil production taxes.

Senator Myers. Yeah, thank you, Madam Chair. So Mr. Nelson. You know, it is kind of a balloon situation. You squeeze it down on one part and you don't allow the deductions on the one side, it is going to come out somewhere else.

Whether that is a lower rate of return for companies or it is a potential, you know, investing less or maybe a higher customer price. Do we have any modeling as to if we don't allow those deductions where that's going to— where that cost recovery is going to move to then?

Through the chair, Senator Myers, I believe if we have modeling in the works, it will not be done by me. So we do have consultants that we have contracted with and they are reviewing the provisions of the CS currently. As well as the Department of Revenue. Senator Myers.

Moving on to page 4. 3 Items that the CS for SB 280 omits that were part of SB 275. The LB&A oversight authority. The reason that came out is that we received input from our legislative auditor who informed us that despite the fact that in law right now that LB&A has oversight over the various other state corporations, that it's not done in practice that way, and that we could separately request any time special audits over AGDC. And so we omitted it right now so that we can clarify how else to acquire that information, or if it's not necessary to be establishing it in law.

The second one that we've omitted from SB 280 for the CS that had been in SB 275 is the producer ability to elect to pay gas production taxes in kind, that we had changed to allow the state to take the election, to make the election to accept the gas production taxes in kind. The reason, we just thought that we probably didn't need this anymore because there are already provisions in law that have the DNR commissioner having to determine whether or not it would be in the state's best interest to take the gas or the— allow the lease to take royalties in kind, and the royalties in kind would impinge on whether or not we can take gas taxes in kind. So basically, it would be a condition to us taking production taxes in kind that royalties would be having to be taken in-kind. And so far that has not been exercised by any producer, and it also has not been approved of any of the DNR commissioner in any of their leases. So we just decided to omit it for, to, for clarity, because it doesn't seem like that will be exercised by the state at any rate.

And then the third item that we omitted from the SB 280 CS was the LNG processing surcharge. The rationale for omitting it from the SB 280 draft— CS 280.

Then there are several new, completely new features of SB 280 that will be— that have been incorporated into— On slide 5? Yes. Thank you. Slide 5. Into this CS.

And these are features that haven't been— they were not in current SB 280 and they were not part of SB 275. The first one is requiring AGDC to maximize economic benefits to the state by utilizing in-state contractors and suppliers that are in development and construction of gas line projects. The second one would be to require that AGDC ensure state public utilities receive priority, um, over essentially the export, um, sales in the event that capacity is reduced in the pipeline. And the third one would be a mandate that AGDC ensure a spur line to serve the Fairbanks North Star Borough.

Questions, Senator Myers? Yes, thank you. So appreciate mandating spur line being built. Of course, been wanting that. But I'm curious as to why we aren't exempting the spur line from property taxes in the same way that we're exempting the main line, because the way I'm reading the bill, and I know this is a couple of slides later, By the time the gas gets to the Fairbanks spur line, it's already going to get charged 30 cents per MCF already, and then it's still going to get charged 20 mils of state tax minus whatever tax goes to the borough into that spur line as well.

So Fairbanks is kind of getting— we're going to get the line built, but we're kind of going to kind of get double hit on the taxes. And since it's a small line, only going to the 3,600-ish customers in Fairbanks, at least in the near term, we're going to get hit with some pretty high per-customer charges as a result of that. So why aren't we exempting the Fairbanks spur line from the regular property taxes?

Through the chair, Senator Myers, thank you for the question. I think that at this point we are still investigating the issue of the Fairbanks spur. It was not a part of the SB 280 that was introduced by the governor. It was not considered at all. I mean, it was essentially saying that it didn't— it didn't— it wasn't covered by the governor's version of the bill either.

And I know there was some discussion in the record the other day about, about if the municipality were to own the spur line outright itself, that in fact that it wouldn't be subject to taxes already under the Constitution. And so I think we're still sort of investigating the parameters right now. Of the spur line. Right now, this duty that's placed on AGDC is in essence that AGDC will have to continue to pursue the spur line to the Fairbanks North Star Borough despite whatever their agreements are with Glenfarn and whatever, you know, Glenfarn is not a part of apparently the Fairbanks spur. And so this would just require AGDC to continue to ensure that the spur line is properly considered for Alaska, if that meets Alaska's needs.

And so really, AGDC would probably be doing a lot of that front work, trying to figure out what would be most appropriate for the spur line. Senator Myers, um, I did share last week that I had spoken with the RCA. They will be presenting to the committee, but they pointed out if it is a state entity that owns the spur line, it is not taxed. Yes, Madam Chair. Along those lines, I did have a phone call with IGU last week as well along those lines, and I shared that with them.

But what they shared with me was that they do not have the financial capability right now to own— to either build the line themselves or to purchase it after it's built. So at least for a while, it's not going to be owned by the borough. For now. Sounds like for a while it won't be built. So perhaps that will be resolved by the time it's actually built.

Further questions? All right, I'll let you go on to slide 6.

On slide 6, these are still new features of SB 280. We added a restriction to AGDC that They— that if there are cost overruns to the pipeline, that those cost overruns can't be applied to rates charged to Alaskans for— through public utilities.

The next bullet on page 6, we've prevented AGDC from charging a public utility more than $12 per MCF prior to commercial operations of the LNG export facility. And then once the LNG export facility comes online, we've restricted the amount that could be charged to $5 upon the commercial operations of the export facility. The numbers come from recent statements from, I believe, the governor about what is expected from the overall cost to consumers in Alaska once these projects are built. And so that's what we based listed on.

The third bullet on page 6 is we added a legislative approval requirement for bond issuance authority. This is a similar requirement that this committee has heard about for the railroad, that the, the AGDC would have to seek approval from the legislature if it intends to bond, and the legislature would have to approve it through enacting a bill.

And the final feature that is new to SB 280 that's on page 6 of the presentation, there's— we've incorporated the policy of SB 180, which is repealing FERC's— excuse me, the Federal Energy Regulatory Commission's authority over jurisdiction of an import facility in the state of Alaska, and that is the policy of SB 180 currently, which is moving through the legislative process right now. If you have questions on that, my colleague Paige Brown can speak to it, and she's very coherent in the policy of that bill.

All right, slide 7. Slide 7 is where— this is where we start our changes to the Application of the alternative volumetric tax.

This is the AVT. The AVT concept was introduced in the governor's bill. I think there's a general consensus that AVT is a decent concept for— in lieu of the current property provisions because it streamlines the ability to determine what is owed and it also doesn't get caught up in litigation over— or, sorry, disputes over how much a property is worth. And so we adopted an AVT concept in this bill. But the AVT in this bill is broken down into 3 separate tax components, and they are subject to separate tax rates.

The first one is the gas pipeline, which is considered Phase 1 by Glennfarn and AGDC, and that would be 15 cents per 1,000 cubic feet. Um, the second is a tax rate based on the gas treatment plant, which is also a carbon capture and underground storage facility, and it is also 15 cents per 1,000 cubic feet. And then the LNG export facility is set to 25 cents per 1,000 cubic feet. Proportionally, the way that those are structured is this notion that the export facility— the export facility is a more expensive piece of the whole gas pipeline— Alaska Gas Pipeline project. And the way that it is distributed here is that we expected that the export facility would have been— had it been subject to existing property tax law, it would have actually been valued a lot higher than the other two components, and so that's why it's receiving a 25% per MCF charge.

And the other sort of neat aspect to that is that it then also covers the foreign markets that we were more concerned with for obtaining our value for the fact that they're being sold in the foreign markets. Madam Chair. Senator Myers. Yeah, thank you. So I believe last year we heard a presentation from —somebody who wants to do a direct export off the slope, and then earlier this year another project was announced.

Would— so there wouldn't be a pipeline. If either of those projects move forward, it wouldn't be a pipeline. It would just strictly be an LNG export facility. Would this AVT apply to those potential facilities as well, or only what's connected to AGDC and a pipeline?

Through the chair, Senator Myers, thank you. That is a very good question. Currently, the way the bill is written, that project would probably be excluded because the definition of— the definition that's applied to the qualified property has to do with this specific project, which is the gas line projects in full. So it's tied to— it's on page 31 Um, subsection 6 of Section 4359.100 definitions. And, um, you can see that this qualified property has— turns on a major component of the Alaska liquefied natural gas project, which is also defined in law.

And as defined in law, that, um, actually just applies to this particular project. AKLNG project. Okay, thank you. All right, so the— are we to slide 8? Oh, I'm sorry, Madam Chair, I just had one more on this slide.

One more. Continue. Okay, at the bottom of page 7, um, a quantity of natural gas is subject to each tax rate, um, when processed through more than one component. So basically it accumulates. So for a quantity of gas that begins on the North Slope and is subject to the gas treatment plant and then subject to the gas pipeline and then subject to processing through the LNG export facility, in that situation, the full amount would be 55 cents for the tax.

And page 8, we want to make clear that there's no ramp-up period. The taxes basically just take effect whenever that component becomes commercially operational.

And then I just have a couple of examples for, let's say, if we were just looking at the pipeline. So this is the first in-state use of the gas. You can see that we are— we would suspect it would be around 65 billion cubic feet per year, and that's just based on current rail belt use right now. Annual estimated ABT payment would be $10 million. When the other two portions of the project, which are the LNG export facility and the gas treatment plant, come online, assuming they all work in unison, um, the expected maximum capacity would, would be 3.3 billion cubic feet per day.

And that's with an export amount of 2.7 billion cubic feet per day, because we assume that some of that will be taken up for in-state use to South Central consumers, and another little portion of it will be used to actually run the facility itself. But at that maximum amount, we were expecting— we are expecting $610 million under this alternative volumetric tax. And another feature that we added in was after 10 years of commercial operations, there will be an inflation adjustment at that time, and that is based on the U.S. Bureau of Labor Statistics inflation numbers for urban Alaska, so urban Alaska being the Anchorage area.

Page 9. And thank you. The inflation adjustment would happen annually? Yes. Annually, correct.

Starting after 10 years. Page 9.

On page 9, more parameters of the ABT for the CS for SB 280. This commits to statute the revenue sharing and distributions involved with the ABT. For the CS. The first phase, Phase 1 of the gas pipeline, 50% would go to municipalities along the corridor, and that would be based on a ratio of the pipeline to the whole pipeline and— I'm sorry, the pipeline located in the municipal boundary to the whole pipeline. And then for unorganized boroughs, the state retains the amount that that 50% would raise.

The other 50% is apportioned to municipalities through the Community Assistance Program, which is already a program established in law. And that is implicated under existing law. Senator Dunbar. Thank you, Madam Chair. This question is for Mr. Stickell, but it might be a policy too far afield, but hopefully he can answer it.

It occurs to me looking at this chart that that given that the AVT is higher for the LNG export facility, this is going to be a pretty huge amount of money to Kenai Peninsula Borough. And so my question is, how does this impact the minimum— I'm trying to remember the right term— the amount of school funds that Kenai Borough is required to pay Does it impact that or not? Does it impact the, the funds the state will now have to pay for the school district? Because obviously property taxes would have, um, they go into the formula. Is this outside of that formula?

Mr. Stickel?

Yeah, this is Dan Stickel for the record, through the chair. So we are just getting acquainted with the new CS for the bill. You know, the previous version, and my understanding is the CS retains this, that the alternative volumetric tax, that that is kind of carved out of the minimum required contribution. But Department of Law or bill drafter might be able to opine further on that particular All right, I will ask Emily Nauman, who is online. She is the bill drafter.

Ms. Nauman, did you hear the question, and can you offer an answer?

For the record, this is Emily Nauman, Legislative Legal Services. Can you hear me all right? Yes. Okay, great. The bill retains the original structure proposed by the governor in the A version, and I believe that was as Mr. Stigl said, to carve out that amount towards local contributions.

Follow-up, Madam Chair? Yes, Senator Dunbar. Thank you, Madam Chair. And, and I apologize, I didn't have this conversation on the original version. Oh, the original version was a comparatively small amount of money to the boroughs and to everyone else, and so it didn't raise the same concerns.

I'll say that I was just doing the back of the envelope math here, and I think this would result in something like $100,000 to $130 million to Kenai. I might be doing that wrong per year. Um, no, I think it is. I mean, because it's 0.25 instead of 0.15. Um, and that is a substantial portion of, of, of, I'm sure, of their school budget, even of Anchorage's school budget.

And I do wonder if it raises any equity concerns under other provisions of our law and our state constitution. I guess I ask Ms. Nowman if she's considered that. You know, we do have laws against spending beyond a certain amount, actually, because of that equity concern. Is there any— do you have any thoughts on that, Ms. Nowman? Ms.

Nowman? Through the Chair, to Senator Dunbar, that was an issue, the equity issue that our office did flag when we put out this— when we looked at the initial version, the governor's draft, and continues that same issue with the CS. I am not terribly familiar, and so I don't want to overstep on the legal issues specifically. I think you're probably really thinking of the Kassily case. But if you'd like additional analysis from our office, I'd be happy to dive in a little deeper with you.

On that, I—. Yeah, Madam Chair, follow-up. Senator Dunbar. Thank you, Madam Chair. Yeah, I think that analysis would be helpful.

I appreciate what you've done here, Madam Chair, and the structure you are creating, but I just say what your version creates a lot more revenue than the governor's version did. And, uh, you know, as they say, more money, more problems when it comes to, uh, these kind of equity issues. This is a huge amount of money to the Kenai Peninsula Borough, and we all hope the Kenai Peninsula Borough does very well. But I'm just thinking about the students, you know, perhaps only, uh, however many miles away in Girdwood, um, getting far less money, uh, per student, um, despite being similarly situated, uh, sort of in terms of geography and economics. So I do think it will create some challenges that I would like to hear analyzed.

Thank you, Madam Chair. Thank you, Senator Dunbar. It is— it was in the original memo that Ms. Nauman submitted with the governor's bill. And so we will pursue that. So, Ms. Nauman, the request has been made if you would continue— if you would start that analysis.

Next up on this slide Was there more to cover on this slide, Ms. Kawasaki? Thank you, Madam Chair. Sonya Kawasaki, Senate Majority Legal Counsel. On page 9, we were going through the distribution shares that are established under the bill.

So we went over Phase 1, which would be the gas pipeline revenue. Phase 2A, I called it, the gas treatment plant CCS facility on the North Slope, we have 50% being distributed to the North Slope Borough and 50% retained by the state. And then Phase 2B, which would be the LNG export facility, we had 50% going to the Kenai Peninsula Borough and 50% to the state.

All right. Slide 10. Okay. Slide 10. Um, this slide— this, uh, principle in the CS would attempt to sunset these ABT provisions, um, that, that change current property tax law by, um, if construction of the gas pipeline has not commenced by January 1st, 2028, or if commercial operations, um, of the pipeline have not commenced by January 1st, 2032.

And— oh, I'm sorry, Madam Chair. I, I just wanted to state that the rationale for this is that, um, I, you know, the legislature feels that it's being hurried through a decision and we want to get something that is, um, in the state's interest into a bill. But if this, um, project ends up not proceeding as, as along the pathway that has been stated publicly by the developer as far as timeframe, then we want to make sure that we haven't done something that would be against the state's interest and we'd want to take more time to reconsider the impacts of the changes to the property tax laws. Senator Dunbar. Thank you.

All right. Slide 11. Um, slide 11 is a completely new concept to the Alternative Volumetric Tax because it creates an impact payment fund for communities that are affected by the construction of the gas pipeline during Phase 1. Um, basically the developer has assessed $1 million per mile of pipeline constructed in the prior year. And the legislature may appropriate funds for the activities that are from the revenue that is acquired from through this impact payment feature.

And the legislature may appropriate for activities, services, and facilities for actual impacts that are due to construction or operation of the pipeline. And then we are establishing a grant program in the Department of Community Commerce and Economic Development, and then those impacted communities— sorry, that should be communities— can apply for this grant, for grants, and then DC CED will be required to annually report to the legislature on these programs in which the communities have experienced the adverse effects and have received or could receive grants based on recommendations for the legislature to approve of appropriations. Ms. Kawasaki, this is patterned after what? Madam Chair, this impact grant program is patterned after the NPRA grant program, which is federal royalties to the North Slope. The phrasing as well as the method of distribution through the DCCED has been patterned and modeled after the NPRA Impact Grants Program.

So there is a pattern— there already is a program in place that this is patterned after? Yes, that is correct, Madam Chair. Thank you. Senator Myers. Yeah, thank you.

So the way I'm reading the bill, it looks like this is a one-time payment, but you know, we've already been told that it's going to take 2-3 years to construct the line. So it says before commencement of commercial operations, which would tell me the last year of construction. Does that mean that, you know, if they build two-thirds of the line the first year and a third of the line the second year, and then we commence commercial operations the third year, that we're only making a payment for what was created— what was the pipe that was laid in the second year?

Through the chair, Senator Myers, the intent of prior to commencement of commercial operations of the pipeline is to capture revenue for impacts for construction of the pipeline on our communities. And so the full amount in total, once the full pipeline is constructed, would be a maximum of the 100— or, I'm sorry, excuse me, $807 $1 million because it is based on a payment that is based on per mile of the prior year that is constructed. In other words, Senator Myers, it's not a one-time, it's each year, the previous year assessment. So it is—. Okay, so it is over multiple years then?

That is the intention of it, and we'll certainly make sure that that's how it's interpreted as well. Okay. We will be having Department of Natural Resources, DCCED, and Revenue all opining on the bill, offering input.

All right. So that is a high-level overview. It is the intention to have a detailed sectional ready for tomorrow morning's hearing. But this gives you a general idea of what is in the bill. So at this time, we are at the conclusion of our agenda for today.

And so we will set this bill aside. Tomorrow's hearing will be at the usual time, 3:30, here in this room, and we will again be taking up Senate Bill 280. At this point, I do— I will remove my objection to adopting the CS. Is there further objection to adopting the CS? I'm going to object to adopting the CS.

All right. Heather, would you call the roll, please?

Senator Dunbar? Yes. Senator Clayman? Yes. Senator Wilkowski?

Yes. Senator Kawasaki? Yes. Senator Myers? No.

Senator Rauscher? No. Senator Giesel? Yes. 5 Yeas, 2 nays.

And so by a vote of 5 yeas and 2 Nays. The committee substitute version G has been adopted. So this will conclude our next meeting— or conclude this meeting. Our next meeting is tomorrow morning at 9:00 a.m. in this room. The subject matter— there will be two bills heard: House Bill 117, commercial fishing, set net, gill net cooperatives, and Senate Bill 280, the oil and gas property tax.

So at this time, the meeting will stand adjourned. Time is 4:49 PM.