As session end looms, Alaska lawmakers juggle bills addressing Southcentral natural gas crunch

Three months after a severe cold snap put Alaska’s most populated region at risk of rolling blackouts, state lawmakers are sifting through bills intended to prevent a repeat occurrence.

To address Southcentral Alaska’s dependence on dwindling supplies of deliverable natural gas, lawmakers may focus in the final two weeks of the legislative session on a series of bills that seek to encourage more gas production, make delivery through existing systems more reliable and spur development of renewable energy that can supplant hydrocarbons. On Wednesday, the House passed a bill intended to make storing Cook Inlet natural gas more affordable.

Because the issue is so important, several bills are making progress, said Senate Majority Leader Cathy Giessel, R-Anchorage. Even as lawmakers in both the House and Senate debate the details, they are united in a common search for solutions, she said.

“I think there’s considerable alignment,” Giessel, who co-chairs the Senate Resources Committee, said at a news conference on Tuesday. “We see the urgent need.”

Though the problem became acute in January, when regional utilities scrambled to deliver enough natural gas to users, it has been in the making for years.

The Alaska Railbelt, the corridor that runs from Fairbanks, the state’s second-largest city, through Anchorage, the largest city, and down to the Kenai Peninsula, needs about 70 billion cubic feet a year to meet demands for heat and electricity.

Under current production schedules and utility contracts, the supply of deliverable natural gas will fall short of that total as early as 2027, according to a recent state analysis. Unless more energy is produced at home, pricey imports of liquefied natural gas are inevitable very soon, experts say.

One effort to stimulate more at-home production of natural gas focuses on slashing state royalty rates for Cook Inlet petroleum from the usual 12.5% to 5%. That is the approach taken in Senate Bill 194 and House Bill 276, legislation introduced in January by Gov. Mike Dunleavy that would improve companies’ rate of return and shorten their time for payback from development, thus enticing more investment, supporters argue.

“As we all have seen, the Railbelt utilities are facing a gas supply shortfall. We think one of the quickest ways to fill that gap, if not the quickest way to fill that gap, is more gas from the Cook Inlet. And really, probably in the immediate term, in the next five years or so, it’s the only solution,” Derek Nottingham, director of the Alaska Division of Oil and Gas, told lawmakers at an April 26 Senate Resources Committee hearing.

He and other division officials and legislators pointed to estimates of abundant natural gas in Cook Inlet that has yet to be produced, as described in a 2011 U.S. Geological Survey resource assessment that had a mean estimate of 19 trillion cubic feet remaining in the basin.

“We know the gas is there. It just hasn’t been developed yet,” Nottingham said.

The 5% rate in Senate Bill 195 would be applicable to the first 10 years of production from pools not previously used for commercial sales, and it would apply to oil as well as gas, under the bill as proposed.

Lowering royalties in that way is a bit of a gamble, Jhonny Meza, an economist and commercial manager for the Division of Oil and Gas, admitted to the committee.

If it works, he said, there would be enough Cook Inlet gas supply to last through the mid-2030s and, thanks to new production that would not otherwise have occurred, an extra $136 million in state revenues through the same period. If it fails, it will not provide sufficient new gas and will also cost the state $26 million in lost revenues, he said.

But there is skepticism about whether royalty reductions will result in more gas supplies. Some legislators say they need more evidence of that result in Cook Inlet, where the market is challenged by its isolation.

“I don’t think it’s worth just giving our state dollars away and not knowing if it’s going to have any impact at all,” Sen. Bill Wielechowski, D-Anchorage, said at the Tuesday news conference.

To get that information, the Legislature just hired a consulting firm, Gaffney, Cline and Associates, to analyze and model the royalty-relief options and potential effects.

There are limits to how far the state may go with royalty relief.

One bill under consideration and sponsored by House Energy Committee Chair George Rauscher, R-Sutton, House Bill 223, would eliminate royalties entirely for new Cook Inlet gas production.

That approach is not legal, contends Rep. Andy Josephson, D-Anchorage. He pointed to a 1987 Alaska Supreme Court ruling that concluded elimination of mineral royalties would violate the Alaska Statehood Act. “You can’t, as a sovereign, take zero percent. Sovereigns can’t do that,” Josephson said.

Other legislation seeking to spur new exploration and production is more specifically targeted.

One bill, as crafted, could benefit a specific field of known but unproduced natural gas: the Cosmopolitan Unit offshore from Anchor Point on the Kenai Peninsula. The measure, House Bill 388, would establish a system for Cook Inlet reserve-based lending, a practice used in the oil and gas industry that allows parties to take out loans by using petroleum reserves as collateral. The bill would create a Cook Inlet reserve-based lending fund to be administered by the Alaska Industrial Development and Export Authority, a state-owned economic development agency.

The bill would not require any lending, but it would set up a system to make that possible, said its sponsor, Rep. Tom McKay, R-Anchorage.

“There’s absolutely no risk whatsoever to the state with House Bill 388. What House Bill 388 does is it enables AIDEA to go out and look at what the situation is in Cook Inlet officially and come back to the state with recommended — potentially recommended — projects, with economics,” McKay said during an April 19 House Finance Committee hearing.

The idea has some bipartisan support. Such reserve-based lending could be useful to help BlueCrest Energy, the small Texas company that operates Cosmopolitan but has been scrambling for money to develop it, Wielechowski said.

“The Cosmopolitan Unit is a massive unit, by all accounts,” he said in an interview. “The problem is they’re capital constrained.”

A different bill working its way through the committee process, House Bill 257, would make Cook Inlet seismic information free and more quickly available to potential producers. That information is already available, but there is a fee.

Eliminating ‘wheeling’ and ‘pancaking’ to gain efficiencies

In the second category of Cook Inlet and Railbelt energy bills are efforts to make utilities nimbler and more responsive to customer and emerging producers’ needs.

One idea with wide support would create some uniformity in the management of the power transmission system in the Railbelt.

Legislation to that end, Senate Bill 217 and House Bill 307, was introduced at the start of the session by Dunleavy. It seeks to change the way the transmission system is managed from the current practice, which is segmented, to an integrated and unified approach. To do that, it would remove the “wheeling rates,” the charges that compound costs for energy shippers using different segments of the system. Under the current system, those per-section charges can be compounded as energy moves from one part of the Railbelt to another, a situation referred to as “pancaking.” That creates unnecessary costs, the bill’s supporters say.

The bill also proposes extension of the same tax exemptions that utility cooperatives enjoy to independent power producers, a category that includes recently established renewable energy operators like the 8.5-megawatt solar farm in that Matanuska-Susitna Borough community of Houston. And it makes some changes in the state entities that oversee or support the transmission system, the Regulatory Commission of Alaska and the Alaska Energy Authority.

Both the Senate and House versions have been moving through the committee, with lawmakers embracing the overall concept. However, both bills are complex, with finer details about management structures that are drawing debate.

Another push being made in separate bills, HB 394 and Senate Bill 220, is to make storage of Cook Inlet natural gas more affordable. The House bill is sponsored by that body’s resources committee, while the Senate bill is sponsored by Giessel. The House version is moving faster; the chamber passed it on Wednesday.

The bill would extend the Regulatory Commission of Alaska’s authority over natural gas storage systems to keep storage rates at levels deemed reasonable. The RCA already oversees the Cook Inlet Natural Gas Storage Alaska system, known as CINGSA, which has been operating on the Kenai Peninsula since 2012, but other gas storage is not regulated by the commission. The goal is to encourage expansion of natural gas storage capacity while ensuring that costs are reasonable, according to a bill sponsor statement.

A different legislative effort to strengthen power delivery in the Railbelt is embedded in the pending capital budget.

The budget includes matching money, from a variety of sources, that is needed for a $206 million grant awarded to Alaska in October by the U.S. Department of Energy through its Grid Resilience and Innovation Partnership, or GRIP. The grant, made possible by the 2021 Infrastructure Investment and Jobs Act, would be used to build an undersea power cable in Cook Inlet, along with new battery storage, to prevent power outages that frequently occur in severe weather or natural events like earthquakes. To access the federal money, the state must provide a dollar-to-dollar match, though not necessarily in a single year.

“Our transmission system on the Railbelt would not even be permitted in the Lower 48 because it’s not a redundant system,” he said.

Renewables as an alternative to natural gas

While they consider numerous bills to increase supplies of natural gas or make deliveries of gas-fueled energy more efficient and reliable, lawmakers are also working on bills to help stimulate solar energy, wind energy and other sources of energy to displace the need for natural gas.

One bill that passed the Senate unanimously on April 23, Senate Bill 152, would enable customers to save money through power generated through their own solar arrays or other renewable-energy systems, through what’s known as “net metering.”  

Net metering, which is a system that credits utility customers for the renewable energy they produce and feed into the grid,  is already allowed in Alaska. But under current regulations it is limited to single meters. Under the bill approved by the Senate, customers could pool resources and get collective net-metering benefits from renewable-energy projects. The bill is now working its way through the House.

At about the same time that senators were approving that bill, the U.S. Environmental Protection Agency announced that it had awarded about $125 million in grants for solar energy development in Alaska under a national Solar for All program.

Other state bills focused on renewables have not progressed as far.

One measure, House Bill 368, would establish a statutory framework for leasing state land for production of renewable energy similar to what exists for oil and gas. The bill was introduced in February by Rep. Cliff Groh, D-Anchorage. It has cleared the House Resources Committee but had not been heard in any other committees as of Monday.

A geothermal bill introduced by the governor last year has yet to reach either floor of the Legislature. The bill would redefine geothermal energy, expand the size of leasable tracts on state land and extend the duration of leases. The House version, House Bill 74, had cleared one committee as of Wednesday. The Senate version, Senate Bill 69, passed out of that body’s Resources Committee on Wednesday.

While some bills may be stalled in the short term, renewables have a bright future in Cook Inlet and in the Railbelt in the long term, according to recent studies by the University of Alaska Fairbanks and the National Renewable Energy Laboratories.

The Railbelt could produce nearly all of its electricity from renewable sources by 2050, according to the study by UAF’s Alaska Center for Energy and Power. That would require billions of dollars in upfront investment, but the cost over time would be no more than the cost of continuing with the current natural gas dependence, the study found.

The National Renewable Energy Laboratories study found that Alaskans will save money in the long term by investing in renewables to power the Railbelt. The study compared scenarios that range from business as usual, with heavy dependence on natural gas, to varying levels of renewable energy use in the future. It found the lowest-cost scenario was investment that made renewables that, by 2040, would make them the source of 75% of power to generate electricity.

Correction: This article has been updated to include the time period over which the new revenue estimate for the royalties bill has been estimated.