Friday, May 4, 2012

Senate bails, followed by House; oil tax, in-state line left hanging

—Kristen Nelson
Petroleum News

There were a variety of reactions in Juneau following Gov. Sean Parnell’s April 25 withdrawal of oil taxes from the call for the special session of the Alaska Legislature which began April 18.

The adjournment of the Alaska Senate April 26 generated debate as well.

The Senate Bipartisan Working Group — 10 Democrats and six Republicans — challenged Parnell’s right to withdraw an item from the special session call and said the administration had not adequately defended the governor’s oil tax proposal.

On April 26 the Senate voted 14-2 to adjourn sine die, after voting 14-2 to adopt a “sense of the Senate” that by withdrawing one of the items on the special session call, the governor had, in effect, ended the special session.

The Senate’s small Republican minority, in debate and votes on the floor, opposed the Senate’s interpretation of the governor’s ability or inability to remove items from the call, and that body’s subsequent adjournment.

House Bill 9 remained on the call for the special session.

The House majority — Republicans and Bush Democrats — said the Senate had refused to work on the proposal in HB 9 to move an in-state gas pipeline project ahead.

The House Democratic minority opposed both the oil tax change and HB 9.

The House struggled to continue after the Senate left, but without the oil tax the only issue remaining was HB 9 which had been in the Senate since before the end of the regular session in mid-April. After efforts to redraft HB 9, the House followed the Senate out of Juneau April 30, adjourning sine die.

In a statement following House adjournment the governor said he supported the House decision to gavel out “after the Senate Majority failed to address the state’s energy needs.”

“By failing to consider HB 9, the Senate Majority has delayed shipping gas from the North Slope to Fairbanks and the Railbelt for at least one to two years,” Parnell said.

House Democrats
House Minority Leader Beth Kerttula, D-Juneau, said April 26 that she believed the governor “needed to fish or cut bait on the oil tax and it was kind of a shock last night when we all saw him cut bait.”

She called it “a good day for Alaskans. There was no reason to have a $2 billion a year giveaway that gives away roads, schools, our ability to see good strong jobs for Alaskans.”

Minority Whip Berta Gardner of Anchorage said “the administration simply failed to make the case” for its oil tax changes. She said administration officials “were unprepared to answer obvious questions; they answered inaccurately; they said they’d get back to us and failed to do that; and lastly they told us to ask the oil industry.”

Rep. Pete Petersen of Anchorage said he was surprised by the governor’s withdrawal of oil taxes, but said “we have been making the case the entire session — we didn’t feel that there was a need to lower oil taxes, especially on the legacy fields.”

On HB 9, Rep. Scott Kawasaki of Fairbanks said energy relief is a concern for Fairbanks, but that area also wants to make sure it’s at an affordable price, “and House Bill 9 as it crossed over to the Senate was a plan that missed Fairbanks by 40 miles, would have added an extra billion-dollar straddle plant so that Fairbanks, once again, is helping to pay for a line that’s not economic” with gas from the line more expensive in Fairbanks than it would have been in Anchorage.

Petersen said that with the tax credits the Legislature passed for Cook Inlet exploration and additional rigs posed for drilling there this year, “I believe we need to give the explorers a chance to use those credits and find more natural gas in Cook Inlet.”

The Senate’s view
Members of the Senate Bipartisan Working Group met with the press after the Senate adjourned April 26.

Senate President Gary Stevens, R-Kodiak, said that since the governor had removed oil tax legislation from the special session call, “I see little option for the Senate other than to bring this session to an end.”

He said the Senate was holding hearings on the governor’s oil tax bill, but was “disappointed in the administration’s poor performance throughout this special session. They could not adequately defend the governor’s plan.”

On HB 9, in the Community and Regional Affairs Committee, Stevens said the chair of that committee, Sen. Donny Olson, D-Golovin, said there weren’t the votes in the committee to move the bill. Stevens said he didn’t think there were the votes in other committees or in the majority caucus to pass the bill out of the Senate.

Stevens said the Senate Bipartisan Working Group did not “set out to oppose the governor at every turn — that’s not the case at all. It is that we honestly and respectfully disagree.”

He said the administration had not proved its case for an oil tax change.

“We are fairly being blamed for asking tough questions — but that’s our job,” Stevens said. “And it’s the administration’s job to answer those tough questions.”

There are billions and billions of dollars at stake, he said, “We just have to be convinced with expert testimony, with adequate defense of the governor’s bill, with answers to basic questions, with study and analysis.”

The governor’s tax bill was in Senate Resources during the special session, and the co-chair of that committee, Sen. Joe Paskvan, D-Fairbanks, said he’d requested that the committee hear “from Gaffney Cline, the governor’s advisor.” He said Gaffney Cline “is well respected and we were hoping to engage in the policy discussion with the advisors to the governor.”

Since the Senate asserted that the governor did not have the ability to withdraw a subject from the call, they could have continued on, but since the governor had withdrawn oil taxes from the call, “it’s unlikely that we’re going to receive access to the governor’s advisors” for a policy discussion, Paskvan said.

House majority view
Following the Senate’s adjournment on April 26, the House majority held a press conference — it held another one April 30, after the House adjourned sine die.

On April 26, House Speaker Mike Chenault, R-Nikiski, said he was disappointed that the Senate “refused to take up House Bill 9 in any credible manner.”

By leaving without addressing HB 9, the Senate “has delayed in-state gas by in my estimation of minimum of a year and probably longer,” he said.

HB 9 was a complicated bill which included giving the Alaska Gasline Development Corp. access to pre-approved funding to get through an open season and exemption from Alaska’s public information requirements in business dealings.

Chenault said there was a committee substitute proposed to the Community and Regional Affairs chair that would have allowed AGDC “to build a line from Cook Inlet to Fairbanks” and said the Senate, “by their inaction ... effectively killed any opportunities for Fairbanks to have a gas pipeline anytime in the near future.”

Rep. Mike Hawker, R-Anchorage, co-sponsor of HB 9, said opponents of the bill have played “awfully loose” with the facts.

He said statements that Cook Inlet is “awash in gas” are difficult to support with Southcentral utilities “developing plans to build LNG import plants” just to meet baseload natural gas needs in the area.

As for U.S. Geological Survey projections that there may be as much as 19 trillion cubic feet of natural gas in Cook Inlet, he noted USGS recently cut its estimation of oil in the National Petroleum Reserve-Alaska “by over 90 percent.”

He said he and Chenault “don’t want to bet our communities” on the possibility of 19 tcf of natural gas.

Chenault said some have claimed that bringing North Slope natural gas to Cook Inlet would kill Cook Inlet exploration. He said he has letters from Cook Inlet explorers saying they don’t think a line to Cook Inlet would hurt exploration, and in fact, that a line with some sort of export facility would give them an opportunity to sell gas that they find.

Hawker noted that HB 9 had “a number of critical elements that would be universally applied to all gas pipeline development in the state.” The regulatory structure in the bill would apply to a standalone pipeline under the auspices of AGDC or a larger line under the Alaska Gasline Inducement Act, AGIA, he said.

Hawker said the Senate refused to consider the work the House did on House Bill 110 in 2011.

So the Legislative Budget and Audit Committee engaged consultants to support work in the Senate.

“Over the course of the past three months, our friends in the Senate have spent nearly $650,000 with those consultants to develop a new method of calculating progressivity,” he said, a method based on the gross value of oil.

But the tax on new oil only that the Senate sent the House on the last day of the regular session, “reverted back to net progressivity,” Hawker said.

That mechanism was never stress tested by consultants engaged to support the Senate, he said.

Hawker said he did some rudimentary stress testing and found that for frontier basins at oil prices of about $100 a barrel, “those basins had no taxes for a long time.”

“Now to me, that’s a real giveaway,” he said. “We’re basically giving away more upfront tax credits but still not getting any long-term production in this state.”