House researches, Senate waits for answers
“We’re in the valley of a decision,” Rep. Alan Dick said April 24 at the end of the third daylong House Resources Committee hearing on Gov. Sean Parnell’s oil tax reduction bill.
As the first week of the 30-day special session ended, a decision was not expected soon. Co-chair Paul Seaton, R-Homer, had no target date or timeframe for debate on markup to House Bill 3001. The House Special Energy Committee is unofficially at the table during the research mode, but its members won’t be moving or voting on amendments. Other lawmakers can send written questions to the chair during hearings.
The measure goes next to the House Finance Committee.
The Senate Resources Committee was generally on a parallel course, planning in particular to question Parnell administration consulting firm, Gaffney, Cline and Associates on the economic basis for the twin Senate Bill 3001.
Otherwise it, and the full Senate are waiting for the House to take action after the Senate’s failed effort to pass an oil production incentive bill during the regular session.
“I do think it’s appropriate that we see what the House thinks at the end of their process and to see if there is a potential for compatibility in that regard,” said Sen. Joe Paskvan, D-Fairbanks, co-chair of the Senate Resources Committee.
He added that House hearings “are getting the answers with similar information we got in the Senate over a year ago.”
A two-hour Senate Resources Committee meeting held April 24 was the only one of any kind in the Senate in four days.
The April 20 committee session included a scolding for Revenue Commissioner Brian Butcher from the administration’s most ardent champion.
“We were called into session with kind of a half-baked bill, and I mean that in sincerity,” Sen. Lesil McGuire, R-Anchorage, said to Butcher. “You’re in a position where you’re trying to sell a bill where, I think, you just don’t understand the ins and the outs of it.”
After that and a two-hour hearing earlier in the month, Deputy Commissioner Bruce Tangeman and William Barron, director of the Division of Oil and Gas, Paskvan took a three-day break to await more specifics supporting a bill that is generally a different approach to the tax cuts in HB 110 for the Prudhoe Bay and Kuparuk legacy fields. The Senate majority summarily rejected that bill during the regular session.
The revised HB 110 provisions are viewed by most Democrats and several Republicans in both bodies as unnecessary or too generous. They exclude 40 percent of legacy field gross revenues from consideration in the calculation of the progressivity tax. They also cut the cap on the maximum progressivity tax rate to 60 percent from 75 percent of production value and extend to the North Slope the 40 percent well lease expenditure credit now available in Cook Inlet.
PFC Energy, the Legislature’s contract consultants, projected a $1.45 billion decline in revenue from what the state would have received under current tax law if the bill had been in effect last year.
The incentives that have bipartisan support give new North Slope fields a 30 percent gross revenue exclusion from base and progressivity tax amounts, but not from the progressivity calculation formula, for 10 years.
Sen. Bert Stedman, R-Sitka, co-chair of the Senate Finance Committee, called SB 3001’s legacy field provisions “almost identical” to HB 110. Paskvan agreed.
“It appears that they are advancing a policy but are not prepared on the detail or the substance of that policy, and so that is part of the further questioning that we’ll have to engage in,” Paskvan said.
PFC Energy spokesmen have given the House committees a mini-seminar on multinational oil and gas company investment decision-making, and global strategy and portfolio overviews of Alaska’s three major producers.
PFC Senior Director Ton Reinsch suggested Alaska should reach agreement with the majors on the rate of decline in the legacy fields and offer incentives for incremental production.
“It’s a tried and true method, but you have to incent that additional production. At the end of the day it is critical for the government to be perceived as getting a fair deal, but equally or more important that those flows continue,” Reinsch said.
He noted that the approach has been applied on a project or field-specific basis elsewhere and could be complicated if attempted basin-wide.
Reinsch also noted that the lag time from legislative action to field response to money in the treasury the state’s near term oil revenue future is already written.
PFC “can speak so firmly,” he emphasized, because “if it is going to turn the dial for any of these companies in the next five to seven years, they’ve already discovered it and we modeled it.”
Whether the committee will take Reinsch’s advice remains to be seen.
“It seems obvious more than half the committee understands this is not a good thing,” Rep. Berta Gardner, D-Anchorage, said of HB 3001. With sufficient data that she emphasized she has not yet seen, Gardner, a Resources Committee member, said a bill with new field credits could pass the House.
Gardner suggested the major producers couldn’t justify tax cuts because they have rarely applied for royalty relief under a long-standing option that would require them to disclose to the state detailed economic data.
Rep. Lance Pruitt, R-Anchorage, co-chair of the Energy Committee said, “It seems to be there’s alignment on (incentives for) outside of the legacy fields or the new producers, or everything that’s new. There seems to be a fairly good understanding that we probably need to make something to attract them there. I think the legacy fields, that’s the huge hiccup.”
The Senate is also holding on to HB 9, Speaker Mike Chenault’s bill to build a southbound natural gas bullet line from the North Slope to the Mat-Su Valley. The Senate Community and Regional Affairs Committee released its version of the bill shortly before a one-hour hearing April 19. Chairman Donny Olson, D-Nome, cancelled the next day’s session and had no meetings scheduled through April 25 at least.
As passed by the House, HB 9 creates the Alaska Gasline Development Corp. as an independent subsidiary of the Alaska Housing Finance Corp. with the authority to plan, design, build and operate a natural gas pipeline. Olson’s rewrite requires legislative approval before any construction, which Rep. Mike Hawker, the bill’s co-sponsor, panned.
Hawker said lawmakers’ interests are too local to give them control of project of state importance.
“We are essentially obligated, when a project comes forward, if it’s not the one that absolutely benefits me to the greatest degree possible, I’m obligated to challenge it,” he said at the hearing.