Group to call for pipeline accountability

Bill would ensure that companies can't pass maintenance costs back to state

Posted: Friday, February 09, 2007

A bipartisan group of state senators plans to introduce a bill today designed to keep oil companies from deducting facility maintenance costs that are the result of neglect.

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The bill essentially renews a narrowly failed amendment to the Petroleum Production Tax passed last year, which created loopholes that could make the state ultimately pay the costs of replacing improperly maintained equipment.

Lawmakers said they are concerned that BP will use the current bill to pass the multimillion dollar costs of repairing miles of corroded Prudhoe Bay pipeline back to the state through deductions and tax credits.

Eight senators, led by Tom Wagoner, R-Kenai, say they want to make sure companies are held accountable for their maintenance practices.

"The state of Alaska should not be put in a position where the people of the state of Alaska and the state treasury is being penalized due to poor maintenance practices," Wagoner said.

BP spokesman Daren Beaudo said Thursday the company wants to reserve comment until it could read the bill.

Still, Beaudo took issue with characterizing the Prudhoe Bay pipeline leaks as neglectful, saying it should be the legal system that determines neglect.

"I do reject the notion there was neglect involved," Beaudo said. "I'm not aware of anyone who has made that conclusion. We thought we were doing what we needed to maintain the facilities on the North Slope.

"We realize we had some gaps," he said. "What we are doing in order to maintain a healthy oil business is we are spending capital to replace equipment that's reached its useful life."

No cost assessment was available for the bill, but Wagoner and other lawmakers say they fear losing "tens of millions of dollars" if it isn't approved.

Rep. Kurt Olson, R-Soldotna, said he plans to introduce a companion bill when the House meets Monday, and he's already received support for his measure.

"I have a dozen people so far, and I haven't even tried; and that's on both sides of the aisle," Olson said.

Under Wagoner's proposed bill, the Department of Revenue would determine whether the costs claimed are due to improper maintenance.

As a result, the legislation does not make the distinction between work done to fix poor maintenance and work to replace old materials.

"There may be some justification to that argument if in fact the state decides to allow capital costs (deductions) when they put new pipe in," Wagoner said. "But you have to take into account whether that new pipe would have been necessary had the proper maintenance been done on it."

Sen. Gene Therriault, R-North Pole, also tried to push this consideration into the state's new tax bill last year just a few days after BP partially shut down Prudhoe Bay, the nation's largest oil field, following the discovery of a small leak and fears of corrosion.

The company is now replacing 16 miles of pipeline in Prudhoe Bay, at a cost of about $250 million. Corrosion also was to blame for another leak - one that spilled more than 200,000 gallons - last March in a BP pipeline at Prudhoe Bay.

To avoid complete state subsidization, last year the Legislature did insert a late amendment to the Petroleum Production Tax. It calls for companies to pay a minimum out of their own pockets for their capital expenses, about 30 cents for every barrel of oil produced. North Slope oil rose $2 a barrel Thursday to $57.46.

But that concession was not enough protection for some lawmakers.

"Before PPT, these costs would never have been deducted," said Rep. Les Gara, D-Anchorage.

Gara voiced additional concern that BP can legally wait as long as two years before taking deductions for the Prudhoe Bay repairs.

"BP has every incentive to hide their intention on deductions as long as possible," Gara said. "They don't want people to see the glaring need for oil tax reform."

Joining Wagoner and Therriault in co-sponsoring the bill are Republicans Fred Dyson of Eagle River and Gary Wilken of Fairbanks; and Democrats Hollis French of Anchorage, Kim Elton of Juneau, Joe Thomas of Fairbanks, and Albert Kookesh of Angoon.

"This isn't a partisan issue," Wagoner said. "This is an issue about the state of Alaska and making sure the state is protected."

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