JUNEAU - State negotiators are trying to cut a financial deal for a North Slope gas pipeline without running afoul of Alaska's constitution.
But if a contract is signed creating a new long-term tax structure, a legal challenge will be the likely course to test the deal's constitutionality, the state's tax division director Dan Cickinson, said Jan. 21.
Two groups are negotiating with the state for terms to build a pipeline from the North Slope - TransCanada and the state's three major oil producers: BP, ConocoPhillips and Exxon Mobil.
A contract negotiated under the state's Stranded Gas Act would set tax, royalty and other terms for up to 35 years. The producers say those terms are important for providing financial certainty before they undertake a project estimated to cost as much as $20 billion.
Bonnie Robson, an oil and gas attorney and former deputy director for the state Department of Natural Resources, told the Legislative Budget and Audit Committee on Jan. 21 that one of the intentions of the Stranded Gas Act was to provide that financial certainty. However, there is a potential constitutional problem if the state becomes locked in a long-term tax contract, Robson said.
Article IX of the Alaska Constitution says: "The power of taxation shall never be surrendered. This power shall not be suspended or contracted away, except as provided in this article."
Negotiators are weighing whether a long-term stranded gas contract would break that article by taking away the state's ability to adjust tax rates for such a long period. A legal ruling may ultimately be the only way to settle the question, administration officials say.
"The constitutionality concerns are known to the negotiating team and they are being evaluated very carefully," said Becky Hultberg, Gov. Frank Murkowski's spokeswoman. "They take the issue seriously but their analysis has not yet concluded."
Tax division director Dickinson said the administration doesn't plan to request an opinion on the constitutionality question from the attorney general. Instead, he anticipates the matter will go to court for a judge's ruling.
That way, there would be less risk of a contract being dismissed in court after hundreds of millions of dollars have been invested, Dickinson said.
"It's our belief that this will be controversial enough that somebody will file a lawsuit," he said.
No contract proposal has been presented to the Legislature. Robson told the legislative committee that the earliest lawmakers can expect a proposal is March.
The North Slope producers would route a pipeline through Canada and to markets in the Midwest. Other proposals outside the Stranded Gas Act include a gas pipeline running from the North Slope to Valdez.
Legislative approval of a fiscal contract is only a part of what the major producers say is necessary for the project to go forward. Also required are lowered costs through improved technology, a clear regulatory process in Canada and incentives passed by Congress last year.
