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This editorial appeared in the Anchorage Daily News:
Once the trans-Alaska oil pipeline was the hottest property in the state. It carried 2 million barrels of oil a day at its peak in 1988. It was a cash machine that made its owners billions of dollars over the years.
Now, though, the line moves about 850,000 barrels a day - a drop of almost 60 percent. The line is 30 years old and a badly needed, half-billion-dollar upgrade is under way. The pipeline is a fixer-upper serving a declining market.
And when the line is done pumping oil, it will have to be dismantled and the entire 800-mile right of way restored. The cost is likely to reach into the billions. The pipe's original oil company owners have already pocketed the necessary dismantling money through tariffs on past oil shipments; any new owner would likely have to pick up a share.
Nonetheless, Gov. Frank Murkowski thinks the state ought to get in on the oil line action. He wants the state to buy a minority stake in the aging line. If the state does, it will get all the disadvantages of ownership with few benefits.
Sure, the state would get a seat at the table with pipeline owners. But, as a minority owner, that would mean getting a share of the bills without getting the clout to drive decisions.
What about being able to see the books? Wouldn't the state have better access to cost and management information? Yes, but the state would be bound by its legal responsibility to the pipeline company - which it would co-own - not to share any confidential information with state agencies that might use it for enforcing taxes or other laws.
Wouldn't the state as a part-owner be able to help hold down tariffs? Actually, the state would find itself on three different sides of a big fight on that score.
The state regulatory commission in 2002 ruled the pipeline owners were charging too much to ship oil to in-state refineries (the case is under appeal, while the state works to negotiate lower tariffs with the pipeline owners). Low rates are good for the state, which owns about one-eighth of North Slope oil production. Lower rates mean higher oil values at the wellhead. The higher the wellhead value, the more royalties and the more taxes the state collects on each barrel produced.
But as an owner of the line, the state would like high shipping rates, to get a higher return on its pipeline investment. As a part-owner, the state could be in position of defending high rates, not arguing for lower shipping costs.
So the state would have to wear three hats: It would be a pipeline owner that likes high tariffs. But the state treasury would want low tariffs. And the state would run the regulatory commission that is supposed to referee rate disputes. This looks like an irresolvable contradiction that poses a hopeless conflict of interest.
And there would be additional conflicts when state agencies need to enforce laws that could drive up the cost of pipeline operations. The state has a job to protect wildlife, public health and safety, and assess property taxes on the pipeline. But, as a co-owner of the line, where would the state's best interests lie? In enforcing the laws or maximizing its investment?
And, as a co-owner, the state also would share in the liability for any spills from the line.
Then there's the question of how much the state should pay to buy into the deal. Since 2000, four different ownership shares have been sold at wildly different prices. In one transaction, the implied value of the entire line was just $1.1 billion; in another, the implied value was $3.2 billion. How's the state to know the real value?
Past state investments in private ventures, like the failed Anchorage seafood plant, don't give Alaskans a lot of confidence that politicians know a bad deal when they see one. When it comes to owning a share of the oil line, the state should stay where it is, on the sidelines, collecting taxes and working to drive down what the owners charge to move oil.