Corrosion issue resurfaces in Palin's tax bill

House chairman wants to make sure loopholes closed in governor's measure

Posted: Thursday, October 04, 2007

Gov. Sarah Palin is taking a new tack to try to keep the state from having to pay for the cost of years of inadequate North Slope pipe maintenance with tax breaks.

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Oil company opposition managed to head off a bill preventing North Slope oil producers from taking a controversial tax deduction last session.

But a provision in Palin's new Alaska's Clear and Equitable Share oil tax bill, provided to legislators Monday evening and made public Tuesday, addresses the issue that failed to win legislative approval, despite strong support. The governor had Revenue Commissioner Pat Galvin introduce her bill this week. In the previous session she said she was opposed to letting oil companies deduct the cost of inadequate maintenance.

ACES "is intended to capture the concepts that were embedded" in an oil-tax-related Senate bill last session, Galvin said.

Web link

Click here to view the draft of Palin's oil tax bill.


Click here to view the state's web page detailing ACES.

Sen. Tom Wagoner, R-Kenai, introduced Senate Bill 80 last session to prevent companies from taking inappropriate deductions to fix a problem caused by inadequate maintenance. Palin publicly supported it, though it stalled.

House Oil and Gas Committee Chairman Rep. Kurt Olson, R-Soldotna, said he supported Wagoner's bill, but the Legislature would have to make sure any loopholes are closed in Palin's bill.

"If the final draft does not fix the inequities recently exploited by British Petroleum, passage of Senate Bill 80 becomes critical," he said.

BP operates the Prudhoe Bay field on behalf of itself and other leaseholders, including ConocoPhillips and Exxon Mobil Corp.

Some legislators fear the companies saved money for years by scrimping on pipeline maintenance. Then, after oil spills in 2006 that resulted in a partial shutdown of the Prudhoe Bay field, they tried to deduct those costs under the controversial Petroleum Profits Tax passed last year.

Senate Bill 80 last year eventually passed the Senate unanimously, but then stalled in the House. When the body adjourned in May, it was still awaiting action in the House Finance Committee.

Galvin said the companies can't deduct costs associated with in interruption of service due to maintenance failures.

House Minority Whip Rep. David Guttenberg, D-Fairbanks, predicted that the Legislature would look at that aspect closely.

"If that's their intent, we'll have to flesh it out in the committee process and make sure it does what it says it does," he said.

Despite the bill's slow and ultimately unsuccessful trip through the Legislature last session, Guttenberg said support for ending corrosion deductions is strong in both houses of the Legislature.

"Nobody who is negligent and cost the state and their partners so much should be able to write negligence off as an expense," he said.

Last session the Oil and Gas Committee was chaired by former Rep. Vic Kohring, R-Wasilla. He resigned his seat during the summer after being indicted on charges of accepting bribes to change the final version of the Petroleum Profits Tax. Olson now chairs that committee.

State Rep. Beth Kerttula, D-Juneau and House minority leader, said the Legislature would be taking a close look to make sure the Petroleum Profits Tax was not abused, and the new oil tax avoided the disputed language of the current tax.

"Obviously this is a section that all of us care deeply about," she said.

Senate Bill 80 refers to "imprudent" maintenance and says companies can't deduct those costs from their taxes. Palin's proposed oil tax bill instead refers to the companies' responsibility to exercise "due care" with respect to the operation of the fields.

Kerttula, formerly an oil and gas attorney with the Alaska Department of Law, said "imprudent" had a well-understood meaning in pipeline law, and she wanted to make sure the new wording accomplished the same thing.

Guttenberg said the emotion over the issue in the Legislature stemmed from the financial loss to the state, as well as the loss of confidence in the state's ability to regulate the oil industry.

"They've ruined the argument that they know how to do it right on the North Slope, and they should be able to go into (the Arctic National Wildlife Refuge)," he said.

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