Oil companies likely to get tax deductions for pipeline corrosion

Bill to deny credits stalls in Legislature

Posted: Wednesday, May 16, 2007

Alaska's powerful oil companies hoped to kill a bill denying them the right to tax deductions for the costs of repairing negligently maintained infrastructure on the North Slope.

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The bill now looks dead, despite overwhelming support from Alaska legislators.

With just one day left to go in the session, Senate Bill 80 is stuck in the House Finance Committee, where Co-chairman Mike Chenault, R-Nikiski, said they likely will not have time to hear it.

"It doesn't look like that is going to happen," said Gene Therriault, R-North Pole, leader of the Senate's Republican minority and a backer of the bill.

At a press conference Tuesday, Therriault said he couldn't explain why such a popular bill would die. It passed 20-0 in the Senate.

"I think you should ask Mike Chenault that question," he said.

Chenault did not return a phone call during business hours.

BP spokesman Steve Rinehart said his company opposed Senate Bill 80. BP managed the Prudhoe Bay field, which had an oil spill and production shutdown last year due to corroded pipelines.

The Petroleum Profits Tax adopted last year allows oil companies to deduct the costs of upgrades to their infrastructure. Sen. Tom Wagoner, R-Kenai, introduced Senate Bill 80 after BP said it would deduct some costs related to the corrosion.

"We felt that the law it sought to amend, which was adopted last year, should be allowed to work," Rinehart said.

Wagoner's bill would deny the companies the ability to deduct costs arising from negligence, but Rinehart said BP was denying negligence, or having made any improper deductions.

BP is replacing some corroded pipes with newer, smaller pipes that are better suited to Prudhoe Bay's declining production and are properly deducted.

"We did not claim the cleanup costs," Rinehart said. "We claimed certain repair and maintenance costs as allowed by law."

Both state and federal civil and criminal investigators are looking into BP's management of the field, said state Department of Law officials.

Gov. Sarah Palin reaffirmed her support for the Wagoner's bill Tuesday. She told reporters that exempting negligence costs was one of those issues that might prompt her to call a special session.

The problems of Senate Bill 80 in the House were similar to problems it had earlier in the Senate. It spent weeks stalled in Senate committees, despite the co-sponsorship by 18 of the 20 senators, including Senate President Lyda Green, R-Wasilla, and Majority Leader Sen. Gary Stevens, R-Kodiak, and numerous others.

"I never understood the delay in the Senate either," said Sen. Con Bunde, R-Anchorage.

One powerful senator who didn't co-sponsor the bill and could have delayed it was Sen. John Cowdery, R-Anchorage, chairman of the Rules Committee.

Cowdery did not return calls

Department of Revenue Commissioner Pat Galvin said tax bills like PPT can be amended retroactively during a special session later in the year or even during next year's legislative session if need be.

"It would be better to pass it now," he said.

• Pat Forgey can be reached at patrick.forgey@juneauempire.com.

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