Senator proposes separation in state oil, gas taxes

Some wary of changing the 'rules of the game' ahead of open season

Posted: Sunday, February 28, 2010

Alaska's system of taxing oil and gas production together has the potential to "blow up our entire fiscal regime," costing the state perhaps billions of dollars a year in revenue once gas starts to flow through a major pipeline, a state lawmaker said Friday.

Sen. Bert Stedman, a Republican co-chairman of the Senate Finance Committee, wants to separate the two, to limit the state's risk as the pipeline project advances. It's an idea that received a wary, if not frosty, reception from at least one other lawmaker and Gov. Sean Parnell, who said he's been cautious about changing "the rules of the game" right now.

May 1 is the targeted start of an open season, when the companies behind the project can court gas producers and try to secure commitments for shipping deals. There's debate about whether the state would face legal liability if it changes its tax structure - in a way companies consider unfavorable - after open season begins.

The existing tax structure essentially treats gas as oil; calculations are based on the energy value of gas relative to oil. Stedman said this creates a possible "dilution effect" on state revenues, particularly when oil prices are high relative to gas, to the tune, potentially, of $2 billion a year.

"A lot of people in this building failed to realize the impact, potentially, and clearly the public has no idea," he told a packed news conference where he was joined by Sens. Joe Thomas and Joe Paskvan a day after the finance committee concluded a series of highly detailed hearings on the tax. "And it does concern me."

Stedman plans to have a committee bill drafted in the next few weeks that would seek to separate the two. He said he has no interest either in changing the oil structure or in setting a gas tax at this point.

He hopes to secure passage before the Legislature is scheduled to adjourn in April. That may not be easy.

Parnell called the $2 billion calculation a "mythological" figure and said he doesn't believe the state is legally locked into any tax rate at open season.

He said he expects companies, through the open season process, will ask the state for tax changes.

"You don't want to do taxes twice," he said.

Sen. Bill Wielechowski, the Democratic co-chair of the resources committee, said he has "grave concerns" about rushing to change a tax structure that he's not convinced needs changing. While he said he appreciates Stedman's vantage point, Wielechowski said he's looking at it from a resource standpoint - he wants a pipeline built and new jobs, created, and doesn't want the state to jeopardize open season.

Stedman said lawmakers would be derelict in their duty if they didn't take the revenue issue seriously.

For lawmakers to leave Juneau "with this thing on the table, that would be disgusting," he said. "The fiscal impact, again, we're talking billions."

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