Gov. Sean Parnell has vetoed a bill changing oil and gas taxes that some legislators saw as an attack on the Alaska Gasline Inducement Act, the state's effort to develop a pipeline through Canada to bring the state's vast natural gas reserves to market.
Parnell's veto message said that Senate Bill 305, which would have "decoupled" oil and gas taxes from each other, would be an "overall tax increase" on the industry.
"At a time when my administration proposed tax credits to incentivize more Alaska jobs in the oil patch, a tax increase would send us in the wrong direction," he said.
Administration officials told legislators that under certain combinations of oil and gas prices the bill would be a tax increase, and in others it would be a decrease.
Senate Bill 305 was sponsored by Sen. Bert Stedman, R-Sitka, who warned that the state risked giving away as much as $2 billion a year in oil and gas revenues without it.
"Some people call that an incentive, I think that's laughable," Stedman said.
Rep. Harry Crawford, D-Anchorage, said the bill might actually undermine the state's effort with TransCanada Corp. to develop a pipeline.
"This bill could be the torpedo that sinks our chance of getting a gas pipeline," he said.
The bill seemed to have a sense of urgency, as TransCanada's "open season," during which the company will begin to accept commitments of North Slope gas for pipeline shipment, begins Saturday.
AGIA includes an inducement for natural gas lease holders to pledge gas during the open season. Those who commit gas may be able to get their gas tax obligations capped for 10 years at the amount in effect at the beginning of the open season.
Tension over the bill diminished, however, after legal analysis said that despite the gas tax cap, the Legislature could still increase oil taxes.
"The Department of Law has advised me that this bill is not needed at this time to protect the State's interest in obtaining a fair return for its oil and gas assets, because the Legislature retains the broad discretion to change tax laws," Parnell wrote in a veto letter to House Speaker Mike Chenault, R-Nikiski, and Senate President Gary Stevens, R-Kodiak.
State officials say they expect any gas pledged during the open season under AGIA, or a completing one shortly thereafter proposed by a separate project sponsored by ConocoPhillips Co. and BP p.l.c., known as Denali, to come with conditions such as changes in tax laws.
The tax lock-in would only have affected the pipeline developed by TransCanada under AGIA.
Parnell said a change in taxes now, and then another after the open seasons, would not provide the kind of stability and certainty that oil and gas companies have sought.
When Stedman first proposed the bill it included a big gas tax rate decrease, but after that was removed early critics such as Rep. Beth Kerttula, D-Juneau, said the bill was not a significant threat to a pipeline. Kerttula and Rep. Cathy Munoz of Juneau voted to rescind a vote against the bill, but then eventually voted against the final bill. Sen. Dennis Egan supported the bill.
Stedman did not return a phone call Thursday.
One Parnell political opponent, Republican primary challenger Bill Walker, on Thursday called Parnell's veto "a desperate attempt to save AGIA at all costs" and said the governor "opened the door for upwards of $20 billion in oil tax concessions to Exxon, BP and ConocoPhillips."
Walker supports a competing pipeline project, which would export liquefied natural gas through the port of Valdez.
• Contact reporter Pat Forgey at 523-2250 or firstname.lastname@example.org.