Energy & Mining

After years of fighting for it, Gov. Sean Parnell has gotten his major legislative priority through: a reduction of the state’s oil tax rate.

Just hours before the legislature was scheduled to gavel out on Sunday, the Senate took a final vote on a bill that essentially scraps the current tax regime, known as ACES. They voted 12 to 8 to accept a version that the House passed early that morning. It was the bill’s final political hurdle.

“It’s a step forward in doing what’s right for our kids and the next generation,” said Sen. Anna Fairclough, an Eagle River Republican who carried the bill. She argued that the tax cut would encourage more investment and more oil production in the state.

While the majority voted for concurrence, Fairclough was one of just two senate who spoke in favor of the oil tax change on Sunday. The votes had already been counted, so the floor session gave those against the bill a chance to offer their swan songs for the present tax structure.

“I’m very concerned that this bill will bankrupt the state,” said Sen. Hollis French, an Anchorage Democrat. “I know in my heart this will lead to an income tax. I know in my heart this will lead to the loss of our permanent fund dividend, okay? I know for a fact that’s beyond contention that this will lead to greater profits for the oil industry.”

A number of the opponents used fiscal responsibility as a reason for fighting the bill. The bill creates a tax ceiling of 35 percent, which is offset by a per barrel credit that shrinks as the price of oil goes up. At forecasted prices and rates of production, the Department of Revenue expects the bill to lower taxes by at least $3.5 billion over the next five years.

Some legislators suggested that the price tag would be even greater. Sen. Lyman Hoffman, a Bethel Democrat, cited the numbers from the state’s Legislative Finance Division showing that the state will need to borrow $1.6 billion from savings this year with the tax change. Sen. Bert Stedman, a Sitka Republican, pointed to an analysis determining that the state would have lost $2 billion if the new tax rules were applied to last year’s production.

Bill opponents also rebutted arguments that oil production would go up if Alaska competed with states with lower tax rates, like North Dakota and Texas. They said that Alaska’s production decline began well before ACES was implemented. They held that it was technology, not taxes, that was causing the boom in shale-rich states. And they characterized anecdotes that oil industry workers were leaving Alaska as misleading.

Anchorage Democrat Bill Wielechowski noted that the number of energy industry jobs was at an all-time high, according to the Department of Labor.

“Companies are not fleeing Alaska. Jobs are not fleeing Alaska. Investment’s not fleeing Alaska,” said Wielechowski. “Those facts are provably wrong.”

In response, Fairclough described those figures as inflated. She argued that Alaska has a distorted view of the North Slope economy because companies can earn tax credits through capital expenditures. Those credits let them buy down the tax rate by putting more money into Alaskan oil fields. The bill that passed on Sunday removes them.

“The industry has figured out that the best thing they can do with their money is spend money, and it’ll reduce the tax rates that they pay on the North Slope,” said Fairclough. “ACES is broken.”

The bill ultimately passed with the support of eleven Republicans and Democrat Donny Olson, of Golovin. Coastal Republicans Bert Stedman and Gary Stevens joined a contingent of Democrats in voting no.

The oil tax overhaul is a major coup for Gov. Sean Parnell, who sponsored the bill and intends to sign it into law. Parnell has pushed for lower taxes throughout his administration, but was blocked by a bipartisan coalition in the Senate. That coalition fell apart last year, after a number of members lost their seats in the wake of redistricting. In a statement, Parnell described the legislation as “fair to Alaskans.”

“[I]t encourages new production, it is simple and restores balance to the system, and the tax structure is competitive and durable. Alaska’s oil comeback starts now.”

The new law goes into effect in 2014.

Another anniversary has come and gone. Another memorial was unveiled. Bells tolled again 29 times at precisely 3:01 p.m. in West Virginia Friday in memory of the coal miners killed three years ago at Massey Energy’s Upper Big Branch (UBB) mine.

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The public gets a chance to testify Tuesday on the latest oil tax reduction proposal before the Alaska Legislature.

Senate Bill 21 is in the House Finance Committee – the last stop before a  House floor vote.

Oil industry officials on Monday touted the bill as a possible game changer that could lead to increased investment on the North Slope, though none would commit to any.  That’s no different than their testimony over the three years  the legislature has been considering industry tax breaks.

Damian Bilbao, Head of Finance for BP Alaska, said the latest version of SB 21 is a signal Alaska is “ready to compete for investment.”  Conoco Phillips’ External Affairs Vice President Scott Jepsen said the bill addresses many of the issues his company has with current tax law.

“But until we see a final bill,  until we go back and look a lot harder at all of our projects, progress it up our chain of command to our executive management in Houston and in some instances to our board of directors, I’m not going to be a position to tell you that we’re committing to individual projects,” Jepsen said.

While most Republican legislators push the bill as a way to increase investment, Democrats call a giveaway.  As SB 21 is written, it could cost the state up to $6-billion through 2019.

Tuesday evening’s public testimony is probably the last to be taken before the bill is moved from committee.

The House Finance Committee will begin to take comments at 5 p.m. in Juneau and by teleconference from Legislative Information Offices throughout the state.   Public testimony will be limited to 2 minutes per person.

About 500 people took to the capitol building steps in Juneau Thursday for one of several rallies statewide against Governor Sean Parnell’s plan to cut state oil taxes.

Anchorage Democrat Johnny Ellis, the Senate Minority Leader, led the crowd in tearing up symbolic checks from the State of Alaska to oil giants ConocoPhillips, BP and Exxon. The amount of the checks – $5.5 billion – is the estimated amount of the proposed tax cut, which opponents call “a giveaway.”

Anchorage Democratic Senator Hollis French said the governor’s previous oil tax cut proposals didn’t pass muster with a bipartisan Senate majority. This version, French noted, barely passed a Republican led Senate on an 11 to 9 vote.

“Now you have to stand up, and you have to make your voices heard, and you have to let the governor on the third floor know this is a bad idea! Do you like this idea?” French asked.

“Hell no!” the crowd shouted back.

The governor and other proponents of cutting taxes say the state needs to do something to stimulate oil production, which has been declining since the late 1980s.

But one of the loudest cheers of the rally went to Madeline Handley, a student at Juneau Douglas High School, who said the proposed tax cut threatens her future.

“If you don’t get the best price you can for our oil and continue to save for the future, when my friends and I graduate from college in 2020 there will be no savings and less oil,” said Handley. “So, our oil and our savings will be almost gone. There will be no jobs for my friends and I here. This is our future, please don’t give it away.”

Rallies were held across the state, including Anchorage, Fairbanks, Homer, and Sitka among other locations. They were organized by the nonpartisan group, Backbone, which formed in 1999 to fight the proposed merger of ARCO and BP. It restarted last year to fight Governor Parnell’s proposed oil tax cuts.

Meanwhile, the tax cut legislation – Senate Bill 21 – cleared the House Resources Committee in an early morning vote Thursday.

The committee amended the bill to include a 33 percent base tax rate. That’s higher than the 25 percent in the governor’s original bill, but lower than the 35 percent in the version that passed the Senate last month.

The change might be significant, because it’s thought that raising the base tax to 35 percent got Fairbanks Republican Senator Click Bishop to support the bill. Without his vote it would have failed in the Senate.

Amber Bartlett was waiting last Friday for her kids to come home from school. One of them called from the entrance to the upscale subdivision near Little Rock, Arkansas to tell her the community was being evacuated because of an oil spill. Bartlett was amazed by what she saw out her front door.

“I mean just rolling oil. I mean it was like a river,” she says. “It had little waves in it.”

ExxonMobil, the company that runs the pipeline, says it has collected hundreds of thousands of gallons of oil and water from Bartlett’s neighborhood.

Bartlett says things could have been much worse. Her children’s baby sitter lives in the house closest to where the pipeline burst.

“They play right there every day where it busted,” she says. “We are fortunate our babies were not out there during that time.”

Bartlett says ExxonMobil has paid hotel bills, fed families and even given children Easter baskets.

“I’m upset,” she says. “But accidents happen.”

‘It Is Catastrophic’

It’s not yet clear what caused the accident. Exxon’s Pegasus pipeline is 65 years old. It runs 858 miles from Illinois to Texas. It was adapted a few years ago to increase its capacity by 50 percent.

Arkansas Attorney General Dustin McDaniel, who is investigating the spill, visited the subdivision Wednesday.

“I have been reminded by Exxon’s representatives that this is a relatively small spill and cleanup is going just great,” he said. “I hope that they realize that to the homeowners in this area it is not small. It is catastrophic.”

McDaniel said he knows underground pipelines are essential to keeping the country’s economy going. They carry fuel for cars, airplanes and home furnaces.

“We got to have that, but it has to be maintained,” he said. “It has to be inspected.”

McDaniel said Exxon has repeatedly told him that inspections were up to date and showed no cause for concern. He said the accident raises questions about whether the inspection process for aging pipelines is adequate.

In fact, more than half of the nation’s pipelines were built before 1970. More than 2.5 million miles of pipelines run underground throughout the country. According to federal statistics, they have on average 280 significant spills a year. Most of these accidents aren’t big enough to make headlines.

Accidents Preventable?

The National Transportation Safety Board has investigated 20 pipeline accidents since 2000. Debbie Hersman, who heads the agency, says by and large the system is safe.

“But that still doesn’t mean that we should accept these accidents when they occur,” she says. “Particularly if you can demonstrate that they are preventable. And I will tell you 100 percent of the accidents that we’ve investigated were completely preventable.”

Hersman says her investigators repeatedly find the same problems. For example, cracks and corrosion that were discovered by inspections but never fixed.

“If companies invest in safety, we can get to zero accidents in the pipeline industry,” she says.

“We spend over a billion dollars every year inspecting the pipelines, checking them for any issues, performing maintenance on them as they’re needed,” he says. “And it’s something we care a lot about. We certainly want to have as few incidents as possible.”

Stoody says pipelines are the safest way to transport the fuel we need for our daily lives. He notes than 99.995 percent of petroleum barrels reach their destination safely.

But Anthony Swift, an attorney for the environmental group Natural Resources Defense Counsel, says that’s “not a particularly comforting statistic if you look at the sheer amount of crude oil spilled.”

Federal data show that on average over the past decade, nearly 3.5 million gallons of oil spilled from pipelines each year.

Swift says the spill in Arkansas sends a wake up call: It’s a reminder of the real risks of an aging pipeline system.

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Arkansas Oil Spill Sheds Light On Aging Pipeline System

In a literal eleventh hour vote on Monday night, the Alaska House passed legislation meant to advance the construction of a small-diameter pipeline. The line would transport natural gas from the North Slope to Southcentral for Alaskan consumption and, potentially, for export.

While the bill had been moving at a sluggish pace in the House, Republican leadership put it on the fast track with just two weeks left to the legislative session. The 20,000-word bill would make the Alaska Gasline Development Corporation its own separate entity, and position it to receive $225 million in state funds this year. Bill sponsors had hoped to secure $400 million for design and permitting work need before the project can go to an open season. After that, the plan is to let the private sector take over construction.

Support for the bill was largely split on caucus lines, with Democrats making multiple attempts to amend the document. One amendment would have put into statute language prioritizing the Alaska market over foreign demand in the event of a gas shortage. Another would have given the legislature final approval of a pipeline plan before construction. As written, control of project implementation falls to AGDC and private firms. Rep. Les Gara, of Anchorage, called the amendment a matter of public oversight.

“The bill is written to say [that] by passing this bill, this is final legislative approval,” said Gara. 
”The public can talk all it wants in the future about how high the price of gas might be under this project, but nobody will be there to listen.”

Rep. Mike Hawker, an architect of the bill, responded that any pipeline would be reviewed by the Regulatory Commission of Alaska and an AGDC board made up of the governor’s appointees.

The Anchorage Republican’s opposition to the amendment also had a philosophical basis. The key principle for him in drafting the bill was market efficiency.

“Why in the world would we want the legislature to interfere in a private sector transaction that actually moves a pipeline project forward?” asked Hawker. “I don’t think we ought to be there.”

All eight of the Democrats’ amendments failed, though a pair of measures concerning local hire received some Republican support. The gasline bill ultimately passed 30 to 9, with four representatives splitting from their caucuses on the vote. Democrats Max Gruenberg, of Anchorage, and Scott Kawasaki, of Fairbanks, voted yes on the bill. Neal Foster of Nome broke with the majority, along with Eric Feige, a Chickaloon Republican who also represents Valdez. The City of Valdez has been an advocate for a bigger pipeline, and it was behind a million-dollar advertising campaign against the bill because of how it might sideline AGIA.

A similar gasline bill died in the previous legislature.

The bill will now be sent over to the Senate, where it is tentatively scheduled for hearings in the resources and finance committees.

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House Passes In-State Gasline Bill