Energy & Mining

While the legislature debates whether to cut taxes on oil companies, state lawmakers were in Washington, D.C last week– meeting with oil and gas lobbyists.

It was a meeting of The Energy Council – a group consisting of Alaska, ten other states, four Canadian provinces, and the Venezuelan government.

Neither The Energy Council nor its affiliated nonprofit CLEER has a website. They’re headquartered at the same address in Dallas, Texas. And The Energy Council’s filings with the government list its mission as serving as a forum for governmental entities to discuss energy and environmental policy issues.

That was on full display Friday morning at the elegant Washington Court Hotel.

Kansas State Senator Carolyn McGinn kicked off the conference by thanking the sponsors.

“Today’s luncheon is sponsored by a longtime friend of The Energy Council, Mr. Mike McGarey of the Nuclear Energy Institute,” McGinn says.

McGinn went on.

“Tomorrow’s breakfast will be hosted by Sara Tays of Exxon Oil.”

And she continued.

“For a number of years, Paul Quesnel of BP Alaska as the primary sponsor for each and every CLEER University Advisory Board Seminar. This meeting is no exception, and I’d like to ask Paul to stand so that we may thank him for his continuing generosity. Thank you Paul, and thank you BP.”

Also on the list of attendees: Bill Brackin, ExxonMobil’s lobbyist in Alaska. Portia Babcock, ConocoPhillips’s chief lobbyist in Alaska. Michelle Egan with the Aleyeska Pipeline Service Company. Nikki Martin from the Alaska Oil and Gas Association. Rick Rogers, the executive Director of the Resource Development Council for Alaska.

The list goes on and includes about twenty members of the legislature. Some brought spouses, others brought staffers.

The Energy Council chairman is Sitka Republican Bert Stedman.

Senator Stedman had the honor of introducing Billy Tauzin. Tauzin, a democrat turned republican, is also a congressman turned DC lobbyist.

Stedman told the crowd, there’s something to learn from Tauzin’s career.

“As a Democrat he didn’t have Republican opposition. Then he swapped to the Republicans and didn’t have Democratic opposition. So we should all aspire to those goals, getting elected and not having opposition.”

Tauzin regaled the attendees, who were busy eating plates of bacon and eggs, with stories of a different Washington – of a Washington where opposing lawmakers would come together to work on energy, or to fix the tax code.

He’s lobbying to protect certain federal tax provisions for oil producers:

“But as long as we have it, the provisions in the tax code that are critical to the production of energy in this country, and to strip them out to save a few billion dollars in a sixteen trillion dollar deficit situation, makes little sense to me.”

Some lawmakers have proposed cutting two to four billion dollars in tax credits to the oil industry as a way to offset spending.

‘There’s one particular provision in the code I’m trying to preserve, which affects ConocoPhillips Alaska, which is a sponsor of this meeting today. It’s called dual capacity.’

Tauzin says that provision prevents U.S. based oil companies from double taxation on foreign earned money – meaning if they bring the money back to the US, they won’t be taxed on it.

“More and more of our companies are seeing their revenue from foreign sales,” Tauzin says.

Tauzin is lobbying to protect federal interests.

But the lobbyists in from Alaska will have plenty of time to make the lower-taxes pitch to state lawmakers this weekend.

The Alaska Railroad is cutting more than 50 jobs in an effort to trim the corporation’s costs as federal grants and revenue decline sharply.

About half of the jobs are already vacant. Christopher Aadnesen is President of the Alaska Railroad. He says the cuts will come from all areas of the company, but more than 1/3 of the jobs lost are in management.

“Maybe the best way to explain it is to give you an example, my direct reports have gone from 13 to 6 and we’ve taken out lots of management positions, many of them senior management positions,” Aadnesen said.

Aadnesen says one of the company’s main revenue sources comes from shipping coal, but the railroad is operating just two coal trains a week, down from four last year, because the international coal market has weakened. Grant funding from the Federal Transit Administration has also declined sharply. Combine that with an unfunded federal mandate to implement a new safety system and Aadnesen says it adds up to a $45 million hit to the corporation.

Besides the job cuts, Aadnesen says the railroad is trimming millions of dollars by conserving fuel, changing the way it maintains vehicles, and reforming other out of date practices.

“So we have changed the company so it looks very different from the inside, but shouldn’t look different from the outside, to passengers, freight shippers, the public, hoping that as we go forward we will be nimble enough and lowered the cost base of the company enough where we can weather additional storms that may come along while we look for and hope for revenue increases to come back to get us out of this challenge,” Aadnesen said.

Since 2009, the railroad has cut nearly 300 positions out of a workforce of about 900 employees.

Former Alaska Governor Bill Sheffield says it’s time for Alaska to build its own gas pipeline.

Sheffield has been stumping the state on his own dime to promote the Alaska Stand Alone Pipeline – or ASAP.  The acronym is appropriate, he says, because Alaska is on the threshold of an energy crisis and needs the gas As Soon As Possible. Sheffield says some communities are already over the edge.

“Too many of our residents are struggling to deal these days with bills to heat their homes and cook their meals that add up to the price of a monthly mortgage,” he told the Juneau Chamber of Commerce Thursday.

Once called the Bullet Line, the current proposal under the Alaska Gasline Development Corporation would take natural gas from Prudhoe Bay  to Southcentral Alaska.

Sheffield says the decline of Cook Inlet production is driving up commercial and domestic energy costs.  He says the instate gasline could help those plants reopen, rejuvenate the Flint Hills Refinery near Fairbanks, and spur other business and industry along the way.

Sheffield, a Democrat, served as governor from 1982 to 1986.  For several years he was CEO of the Alaska Railroad Corporation; now in retirement, he is still on the board of directors.

He says he knows how the lack of natural gas has changed the economics of the railroad.

“In the past, Flint Hills, when they had all three stacks working, (they only use one stack at the refinery now),  used to send 130 railroad cars a day down to the port of Anchorage with product —  jet fuel to the Anchorage airport, gasoline for Southcentral Alaska,  and other products like NAPTHA to South American and to Asia.  Now instead of the 130 railroad cars, there’s 20 cars five days a week,” he says.

While the gas pipeline would mainly serve the Interior / Southcentral region of the state, Sheffield believes surplus gas could be shipped to other parts of Alaska,  including Southeast. He says surplus gas also could be sold to other countries.

The Alaska Gasline Development Corporation was funded by the state legislature in 2010.  Since then it has received $72 million  in state funds  toward the $400 million needed to get the project to open season then sanctioning.  During an open season, natural gas producers indicate their interest in shipping down the line; the sanctioning stage is when the corporation decides if the project should move forward.

The cost of 737-mile pipeline and facilities is estimated at $7.7 billion.  AGDC Public Affairs Director Leslye Langla says the pipeline would be financed and not paid for by the state.

AGDC last month awarded a contract for design of facilities, to include a North Slope Gas Conditioning Facility and Cook Inlet Extraction Plant.  The Final Environmental Impact Statement is done, and state lawmakers are working on legislation to establish AGDC as an independent public corporation of the state (House Bill 4).

 

 

 

 

While oil and gas companies are inching towards a new tax break in Juneau, they’re fighting to maintain their preferential tax treatment in Washington, D.C.

The Senate Democratic budget is expected to take aim at some controversial tax privileges.

The Senate has not passed a budget in four years. Many contend a budget doesn’t amount to more than a political document that forces senators on the record about what types of programs they’re willing to pay for.

But Idaho Republican Mike Simpson says it’s a bit more than that. He’s a leader on the House Appropriations Committee.

“Partly they’re message documents, but they’re also documents by which we set the appropriations bills. If one gets passed the House and it can’t get past the Senate, as the last four years have indicated, we use that as our budgeting document on what we can put in the appropriations bills,” Simpson says.

After years of chiding, Republicans will get their wish to see a Democratic produced budget. That’s set to come out next week.

And it’s widely expected to cut tax breaks for profitable oil and gas industry.

Jack Gerard is the CEO of the American Petroleum Institute – that’s the oil and gas lobby association in Washington. He says tax revenue from the industry is more beneficial to the government – some eighty six million dollars each day – than ending any tax breaks.

“Do you want real revenue from economic activity, or do you want to be punitive with small provisions?” Gerard says.

Gerard says the tax credits he’s looking to protect don’t cost taxpayers much – about two to four billion dollars per year.

So he says any effort to end the industry’s tax breaks looks like political posturing, not any real attempt to off-set spending.

“The provisions they’re talking about are designed in essence to be punitive measures against the industry,” Gerard says.

Gerard says that other industries get similar tax treatment, and aren’t being singled out.

Eric Toder disagrees. He says the oil and gas industry benefits from unique tax breaks.

“This one doesn’t apply to anybody but them,” Toder says.

Toder is a former deputy assistant secretary of the Treasury during the Clinton presidency. Now he’s at the nonpartisan Tax Policy Center. He says certain tax credits – like the one for expensing exploration and development – don’t cost much, but are unnecessary.

They allow large and small oil companies to write off initial construction over the lifespan of the well.

“Operating costs are always deductible. It’s the expensing and the development, which should be a capital expenditure,” Toder says.

Both of Alaska’s senators have said they do not want to single out the oil industry, that they prefer comprehensive tax reform.

Senator Lisa Murkowski says tax reform is just one piece of an overall deficit reduction package.

“It looks pretty gloomy right now, but if we’re going to be honest with how we’re dealing with our fiscal issues and the reforms that are necessary, it’s got to be reductions in spending on the discretionary, but also on the mandatory side, but also, tax reform has got to be a piece of it,” Murkowski says.

But most in Washington seem to think, the further into this Congressional term we get, the less likely we are to see any real tax reform.

Shell’s damaged Kulluk drill rig has arrived in Unalaska, a week after leaving Kodiak. The rig will be towed to its specialized dock in Captain’s Bay later this afternoon.

Shell spokesperson Curtis Smith says the heavy-lift vessel that will be picking up the rig is on its way as well. The Xiang Rui Kou left China on Sunday, according to its automated tracking system. Once the heavy-lift vessel arrives, it will fill its ballast tanks, sink below the Kulluk and lift the drill rig onto its deck.

The rig will then head to dry dock in Asia for repairs. Smith says as of today, no shipyard has selected.

Electricity rates in Juneau will go up in April, due to low water levels in the mountain lakes supplying Juneau’s hydropower.

Electric utilities in Alaska are allowed to adjust their rates with the costs of producing electricity.

Alaska Electric Light and Power calculates the Cost of Power Adjustment quarterly.  It will increase to 1.2 cents a kilowatt hour through June. Right now, AEL&P customers are enjoying a COPA credit of .07 cents a kilowatt hour.

Generation engineer Scott Willis says the problem began last fall, when October was one of the driest months on record.

Willis says it’s important not to draw down the lakes to the point where the company has to use diesel, and the company did not have to use the expensive fuel this winter to supplement hydro.

“I have a lower limit that I don’t want the lakes to go below at different times of the year.  Crater Lake was right on its low limit and Long Lake was below its lower limit,” Willis says.

Lake levels were low enough that the company turned off power to Greens Creek Mine in December, forcing the Admiralty Island mine to produce its own electricity from diesel.  The mine buys surplus power and is considered an “interruptible customer,” as are “dual-fuel” customers that also have another source of electricity.  They were shut off in January, but AEL&P has since reconnected dual-fuel customers, now that lake levels are coming up.

Willis says February’s wet, warm weather is beginning to turn things around and Green’s Creek will be reconnected to hydropower when lake levels are higher.

Revenues from surplus power customers help keep rates down to AEL&Ps main customers.

“We want to sell as much energy as we can to Greens Creek because that keeps our rates low to our firm customers.  But we don’t want to sell too much and have to generate our own diesel, so it’s always a balancing act based on how much rain I’m going to get a few months from now,” Willis says.

At 1.2 cents per kilowatt hour, the Cost of Power Adjustment will add about $10 a month to a customer using an average of 850 kWh. The COPA will be re-calculated again in June.