Senate Resources Committee hears DNR on SB 280: gravel valuation, state equity and fiscal impacts debated

The Senate Resources Committee on May 1 heard testimony from the Department of Natural Resources and public witnesses about the committee substitute for SB 280, a bill that would change how Alaska taxes and facilitates development of a proposed Alaska LNG pipeline project.

Acting Deputy Commissioner Derek Nottingham told the committee that a recently amended regulation (cited in committee materials as 11 AAC 71.090(b)) would allow material-sales contracts to charge a cost of $0 for applicants that are state agencies or public corporations when the sale serves a public purpose. Nottingham said any such material sale under that regulation would be subject to a 14-day public notice. He also told the committee that DRIR — dismantlement, removal and restoration obligations under the statute the department cited as 38.35.100 — are a statutory requirement and that the commissioner does not have authority under that statute to waive those requirements.

Senator Kawasaki and other committee members pressed DNR staff about who would legally possess and therefore be charged for massive volumes of construction material. The committee referenced a FERC figure indicating the pipeline project could need roughly 20,000,000 cubic yards of gravel for rights-of-way, access roads, spurs, work camps and storage yards. Nottingham and State Pipeline Coordinator Tony Stroupolis said that if AGDC (the Alaska Gasline Development Corporation) or a project entity applies for a material sale under the regulation, the material would remain state property even if provided for on-site use by the applicant.

"In order for AGDC or the project to take advantage of the free gravel, it would have to be applied for by AGDC," State Pipeline Coordinator Tony Stroupolis said, adding that the state would retain an ownership interest. Committee members noted published DNR schedules that list regional prices for material (for non-state buyers) and quoted roughly $3 per cubic yard in Interior and North Slope areas as a market benchmark; DNR staff said the $0 cost applies to state agencies/public corporations under the amended regulation while published (non-state) prices remain in effect for private buyers.

Commercial analyst Weston Nash described how DNR determines financial assurance for pipeline projects. Nash said the department negotiates the type and amount of assurance on a case-by-case basis and can accept options including parent guarantees, bonds or cash accounts depending on the development and the parties’ financial capacity. "We do have a process in oil and gas where the financial assurance is individually negotiated with each party," Nash said.

Committee members also reviewed DNR’s fiscal note for SB 280. Nottingham confirmed the fiscal note estimate for the department is $355,000 per year for elements tied to section 20 of the bill; the fiscal package the department provided includes two additional positions to administer the proposed provision. DNR staff estimated roughly a dozen existing staff handle royalty accounting and auditing work and said experienced staff could absorb additional workloads, but the fiscal note nonetheless includes two new positions.

Frank Richards, identifying himself as representing a project entity, told the committee that developers are negotiating how in‑kind contributions of state resources such as gravel could be converted into an equity stake for the state in subprojects. "The negotiation that we will enter into ... will be for the use of the gravel in the individual subprojects," Richards said, describing the concept of negotiating an equity position for in‑kind contributions rather than a simple cash payment.

Public witnesses presented a range of views. Brian Kasoff of the Alaska Public Interest Research Group urged price caps and stronger oversight, arguing developer demand assumptions (he cited a 500 million cubic feet per day figure used in project presentations) far exceed reasonable in‑state baselines and therefore require protections for Alaskans. Henry Braun, a Denali Borough resident, cautioned the state may be taking on too much risk and "giving away" value. Jamie Benson, president of the Alaska Trucking Association, expressed support for SB 280, saying the bill addresses property-tax and structural barriers that prevent resource projects from being financeable and supports jobs and the supply chain. Doug Woodby of 350 Juneau said the project currently looks economically marginal and cautioned that phase‑1 benefits may depend on later project phases and global LNG market developments.

No formal action or votes were taken at the hearing. Chair Senator Giesel asked DNR to provide written follow-up on legal possession and valuation estimates (including a valuation assuming a $3 per cubic yard published benchmark) and said the committee expects to receive corrected analyses from GaffneyCline and a Department of Revenue presentation at its next meeting.

If enacted, the committee substitute’s regulatory and tax changes would change how state resources and tax timing affect project finance and could alter how the state negotiates in‑kind contributions such as gravel for equity. The committee took no vote and left record requests and clarifying letters as the next steps.