Energy to be at the fore of session

Posted: Monday, January 17, 2011

JUNEAU — A big question this legislative session will be whether to overhaul a signature of former Gov. Sarah Palin’s administration as a way to boost oil production and make Alaska more attractive to industry.

Some House Republicans believe change is needed to stem the forecast decline in oil production and address what Rep. Mike Hawker calls the “aggressive, punitive” provisions added onto Palin’s bill in 2007 by “anti-industry legislators.” But other lawmakers question the push for change and worry about the message it will send to industry, particularly as the state seeks to secure a major natural gas pipeline, if the Legislature tinkers with the oil and gas production tax for the third time in over four years.

“I think we need to approach this with a healthy degree of caution,” and move ahead with facts that will lead to a system that can endure for decades, said Republican state Sen. Lesil McGuire, who sits on the resources and finance committees. “My concern is we have a knee-jerk reaction.”

She favors a competitiveness review to see what it will take for Alaska to vie for industry attention globally. She also supports lawmakers meeting in special session, if it’s decided that any major changes to tax, regulation or permitting policies are needed.

Senate Majority Leader Johnny Ellis, D-Anchorage, said the House seems to be the “hotbed” for proposing changes to the tax. He said he doesn’t see a bill advancing unless lawmakers have “reliable facts and figures at our disposal so we can have a reasoned debate, and not a debate based on emotion.”

The issue is expected to be prominent in an energy-centric session in which lawmakers must decide how much of the state’s money to sock away and how much to spend on infrastructure and legacy-type projects. Gov. Sean Parnell, for example, is proposing what his office has called a “comprehensive energy build-out,” with $60 million for roads and ports he considers key to furthering resource development; $165.5 million for natural gas pipeline projects and $65.7 million to move forward with a massive Susitna hydroelectric project that could help meet electricity demands along the state’s Railbelt.

House Democrats and members of the Senate’s bipartisan ruling bloc also hope to build on gains made last session in emphasizing development of renewable resources, energy efficiency and efforts to realize more reliable, affordable energy for many of Alaska’s residents.

“We want to save as much as we possibly can,” House Minority Leader Beth Kerttula, D-Juneau, said. “But at the same time, wouldn’t it be cool if we could invest in these things for the future.”

Parnell also is set to unveil his own proposed changes to the oil and gas production tax, known as Alaska’s Clear and Equitable Share, or ACES. He has said his own research lends credence to industry complaints that there’s no incentive for companies to invest in the state when oil prices are high since the current tax structure eats into profits.

The tax features a base rate of 25 percent; there’s also a progressive surcharge, triggered when a company’s net profits top $30 a barrel. According to the Department of Revenue, the tax generated $6.8 billion in fiscal year 2008, a period marked by high oil prices and profits; it generated over $3.1 billion the following fiscal year, when West Coast oil prices averaged about $68 a barrel.

That’s more than the state would have received under either of its previous tax regimes, the department said in a status report last year. A new report is expected to be released Tuesday.

Hawker’s bill, which has drawn support from prominent House Republicans, including Speaker Mike Chenault, would set a 20 percent base rate and impose a bracketed progressivity rate that, according to an analysis by petroleum economist Roger Marks, would subject only the incremental value — and not the full value — to higher taxes.

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