Proceed with caution on oil and gas tax overhaul

By FRANK MCQUEARY
VICE CHAIRMAN, ALASKA REPUBLICAN PARTY

In Thursday’s editorial, the Juneau Empire augured into the depths of oil and gas tax credits, and spudded some misconceptions.

Tax credits are complicated, but let’s first make it clear that HB 247, Gov. Bill Walker’s bill, is a major rewrite of energy tax credits, and would completely overhaul the relatively young SB 21 tax system itself. Bill’s bill needs work.

 Is the governor really prepared to kill the only commercially viable natural gas we have?

Major North Slope companies do not receive refundable tax credits, as some might be led to believe. Rather, they pay taxes and royalties to the State of Alaska. As a policy decision, lawmakers chose to use some proceeds to stimulate oil and gas development with smaller companies.

Some junior energy companies cannot afford to fully capitalize exploration; for others, the work may be economic but not competitive. Some operate in Cook Inlet; a few explore on the North Slope.

Smaller companies have diversified our economy, but they’ve done even more. Recall a few short years ago, when Anchorage residents were practicing for brownouts. During the extreme cold in the winter of 2008-2009, the city was concerned there would not be enough gas to meet demand, and homes and businesses would go cold, property would be destroyed, and lives would be lost.

Without the lush combination of rain and gravity that has given Juneau its steady power for decades, the Railbelt depends on gas that comes from below Cook Inlet. 

 Juneauites remember when Snettisham power lines were downed by an avalanche and people were plunged into the dark. Remember the high heating bills that were the result of the diesel generators the city used. That was what Anchorage faced – but as a long-term situation.

 And it wasn’t just Anchorage, but all the way to Homer, Kenai, the Mat-Su and Fairbanks, which buys gas-generated electricity from Chugach Electric. Inlet production was declining, and Anchorage was in serious discussions about importing gas.

A lot of work went into fixing the problem: Anchorage Mayor Dan Sullivan put together an Energy Task Force and Governor Sean Parnell worked alongside legislators such as Rep. Mike Hawker to create the Cook Inlet Recovery Act of 2010, which had several kinds of tax credits. They included significant tax credits to make Cook Inlet more competitive with other jurisdictions.

It was known there was plenty of gas left in Cook Inlet, but it took incentives to get companies to come north to explore and produce.

The Cook Inlet Recovery Act worked; there’s a stable, economical supply of gas through 2022, and more diverse companies paying state royalties, supplying jobs, and supporting service industries that create even more jobs.

But if Gov. Bill Walker has his way with HB 247, Cook Inlet credits could dissolve overnight, and Alaska could face shortages again.

Fixing the state budget is important, but the health of our energy industry is also critical. In addition to providing power for homes, hospitals, and businesses, our energy sector provides jobs that support families and keep breadwinners from having to file into line at the unemployment office.

Now, we are hearing some say the State doesn’t get a return on investment for the hundreds of millions it has spent on tax credits. But I would argue that Alaska has gotten enormous value by putting that oil revenue to work in other parts of the state to diversify the energy picture.  

And while we don’t ask for a “return on investment” for social welfare programs, we actually receive enormous “ROI” by not having our homes go dark, our pipes freeze, and our neighbors shuttling off to “warming shelters.”

What’s more, if we bludgeon our energy companies, they’ll find safe harbor elsewhere. Already the United Kingdom has abolished its petroleum revenue tax and backdated other cuts to help the North Sea oil industry survive in this period of unprecedented low oil prices. North Dakota, too, passed a sweeping oil tax reform, cutting the overall tax rate by 1.5 percent.

We’ve heard a good deal of talk from this governor about developing gas in this state. To date, the only commercially viable gas is what’s coming out of Cook Inlet, and that’s only because the Legislature took the bold step to incentivize it. Is the governor really prepared to kill the only commercially viable natural gas we have?

I recommend proceeding with caution on HB 247. We should not be opposed to phasing out the tax credits, but let’s encourage legislators to work methodically to develop a lasting Cook Inlet tax regime.

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