Gas industry bills pass state Senate

Posted: Monday, May 19, 2003

JUNEAU Two bills aimed at helping Kenai Peninsula industries passed Sunday in the Senate.

House Bill 57 would give the Agrium fertilizer plant more certainty about what prices it's going to pay for the natural gas it buys from the state. House Bill 61 would allow a 10 percent tax credit for companies exploring and developing new natural gas supplies.

Both are sponsored by Rep. Mike Chenault, R-Nikiski.

The bill aimed at Agrium would allow manufacturers of agricultural chemicals to get a firm price on purchases of state gas. That could cost the state up to $11.5 million over the next six years.

But Sen. Tom Wagoner, R-Kenai, said the bill lets the Department of Natural Resources commissioner negotiate a contract to share in Agrium's profits, which could lessen the cost to the state.

Agrium uses natural gas to make fertilizer products for export.

Supporters of the bill say the state's current method of charging Agrium for natural gas exposes the company to costs after it's already sold its product.

The company buys the gas from oil and gas companies that have leases to produce gas on state land. Under the terms of most leases, the producers sell the state's share of gas along with their own share. But if the state determines they've sold it for less than market value, the state can come back and demand more money.

When that happens, producers pass the additional cost on to buyers, such as Agrium.

The bill would allow contracts that limit the price of the state's gas to whatever the producers are charging Agrium for their gas. It would only apply to future contracts.

The Division of Oil and Gas estimates the bill could cost the state $98,000 in lost royalty revenue next year. That loss could grow over time to $2.5 million by 2007 and $4.5 million by 2009.

The natural resources commissioner could veto the Agrium royalty deal for several reasons, including ''clear and convincing evidence'' that the price is unreasonably low or that the state's revenue loss would not be offset by jobs and other benefits the company brings to Alaska.

The vote on House Bill 57 was 15-4, with Democrats Johnny Ellis, Kim Elton, Lyman Hoffman and Donny Olson voting against it.

House Bill 61 would allow a credit of 10 percent of what a company spends exploring for and developing natural gas supplies south of the Brooks Range. The incentive would be in place until 2013.

Supporters say it will help entice firms to find new natural gas reserves to replace dwindling supplies in Cook Inlet.

But some legislators have questioned whether the state can afford the tax break without knowing for certain it will prompt development that would not have occurred anyway.

Under the bill, companies could write off half their state income tax bill in a given year. The credit would be allowed only for work that results in gas being brought to market.

Sen. Hollis French, D-Anchor-age, tried to amend the bill so the tax break would go away if natural gas prices reach $7.50 per thousand cubic feet for nine months out of a fiscal year. Prices would have to more than double to hit that mark, French said. If that happened, companies would explore for gas without any incentive from the state, he said.

The amendment was rejected on a vote of 9-10, with Republicans Con Bunde and Robin Taylor joining Democrats in supporting it. Anchorage Democrat Bettye Davis was absent.

The state Department of Rev-enue has said it cannot calculate how much the tax credit will cost the state. The bill calls for the department to prepare a report in 2008 on how well the program has worked.

The vote on House Bill 61 was 17-2, with Democrats Ellis and Georgianna Lincoln casting ''no'' votes.

Both bills have already passed the House, but were amended in the Senate, so the two sides will have to agree on compromise versions.

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