Adding "H" to ACES, You Get ACHES & Pains . . .
(Continued from Home Page)

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How Profitable Is Oil, and Who Gets It?

Mysterious Oil Numbers Tell
A Troubling Story in Juneau:
Adding "H" to ACES, You Get
ACHES (Alaska's Confusing,
Hidden and Elusive Share) and PAINS (Piecemeal, Artificial, Incomplete Number Systems)

Bad Numbers, Legislative Stalemate

By Richard A. Fineberg
May 8, 2012

(Posted May 8, 2012)

ACHES (Alaska's Confusing, Hidden and Elusive Share) and
PAINS (Piecemeal, Artificial, Incomplete Number Systems)
. . .
(Continued from Home Page)

While senators were methodically identifying important background information on North Slope petroleum history, intriguing new developments were demonstrating the need for the same kind of careful examination and analysis of current Alaska petroleum development issues and proposals. For example:

  • " In the recent TAPS property tax case decision, it was revealed that BP had withheld as confidential its 2005 findings that TAPS could handle throughput levels far lower than those claimed by Alyeska, the TAPS operator, in which BP holds a dominant 47% ownership share. undermines the credibility of TAPS officials who testified to the House in 2011 that immediate action was necessary to counter critical low throughput problems on TAPS. This disclosure demonstrates the importance of ensuring that the veil of confidentiality does not deny policymakers the information necessary to set future development policies. [8]
  • During careful questioning of data presented by the Legislature's own consultants and the Revenue Department, it became evident that both presenters were substituting an illusory nominal 35% federal income tax rate for the lower effective rates at which corporations actually report and pay. their federal income tax. A study of corporate tax breaks prepared by two Washington, D.C. tax analysis groups reports that oil companies pay significantly lower rate, on average, than the nominal 35% rate. In light of this distinction, it is difficult to accept the resulting outputs as an accurate basis for formulating tax policy. [9]
  • ConocoPhillips is in the process of selling its refinery holdings; trade analysts note that the refineries are notably less profitable than the company's production properties, and some analysts recommend against buying them. However, the company is keeping its ownership stake in TAPS. [10]
  • The plan to build a natural gas pipeline through Canada pipeline to carry natural gas to the Lower-48 is presently being converted to an all-Alaska pipeline connection to an in-state port for natural gas shipment to Asia. [11] If the state had not bet on the wrong horse in the 2008 special session, Alaska could have been working on this plan for the last three years.

Lessons about the difficulties figuring out the future of the volatile natural gas industry were lost on the House leadership as HB9 romped through the House like a runaway stagecoach in an old Western movie. Despite the history of poor state performance in the natural gas arena, HB 9 would increase the chances for another natural gas failure by elevating confidentiality, eliminating transparency, eroding checks and balances and eviscerating judicial review.

Meanwhile, the shortened, 90-day session rules were setting the stage for unhealthy late-session compromise legislation. When a political agreement did not materialize, the Governor, pushing for replacement legislation similar to HB 110, called for another special session. As the 2012 special session began, the Legislature cleared the deck to focus on oil and gas by unanimously approving the only unrelated bill, which strengthened penalties for sex trafficking, But the Governor's new oil tax bill failed to generate enthusiasm from any quarter; even allies of the Governor criticized the confusing bill, while the Department of Revenue unable to answer critical questions about the bill, offering the Governor only weak support. The Governor, blaming Senate inaction, withdrew his revised oil tax bill and the special session surprisingly ended in confusion. [12]

In the aftermath of the session demise, some veteran observers castigated legislators for failure to take action. For example, on the Alaska Edition weekly television news commentary April 29, which devoted more than two-thirds of its time to the demise of the special session, veteran reporter Steve MacDonald (KTUU-TV, Anchorage) was asked to comment on the idea that complexity was overwhelming the Senate in Juneau. In response, MacDonald opined:

"Then maybe they need to get out of the Legislature. Because these are the folks that we elect to go down and make these kind of decisions, and if it's too hard for them, then maybe they'd better find another job. This is what the people putt hem down in Juneau for. Simple as that. They can't point fingers. . .There are people's whose lives are really on the brink of disaster because of high energy prices."

When moderator Michael Carey pointed out that the oil legislation dealt with shares of petroleum net revenue - not with what consumers pay for oil and gas, MacDonald responded by continuing to hammer on alleged legislative indecisiveness. He acknowledged that if the Governor's tax bill passed, that would result in

". . . . one to two billion dollars worth of revenue that comes out of the economy that will go to the oil companies . . . that could be] used to fuel construction jobs. . . [so] it's not an easy choice. But somebody's got to make a choice, they got elected to do it. They had 30 days to seriously concentrate on this issue. And they've had experts, they've had studies. What more do they want?" [13]

In fact, some senators did want something more. When the Senate Resources Committee sent SB 192 to the Finance Committee, the bill contained provisions establishing a new Petroleum Information Management System (PIMS), whose purpose was "to collect, secure, distribute, store, retrieve, and archive information related to oil and gas exploration, development, and production in the state." PIMS was intended to be accessible to the public and was intended to improve the administration of the oil and gas production tax and to facilitate development. The Resources Committee gave responsibility for the new agency to the Alaska Oil and Gas Conservation Commission (AOGCC). [14] The Senate Finance Committee reassigned the new agency to the Revenue Department, but Revenue Commissioner Bryan Butcher said he would rather not accept that responsibility because his department was already overworked implementing regulations for the tax system while trying to complete audits and establish the automated revenue collection system. [15] Unwanted by some and lost in the legislative shuffle, the fate of the short-lived PIMS proposal serves as a reminder of the importance of accurate, comprehensive and clear petroleum numbers - and of the difficulty in obtaining those numbers.

Although MacDonald was correct that the Legislature did not addressed the serious hardships that Alaska bush and urban interior residents are experiencing due to high energy prices, the oil tax plan dealt with problems in a different arena (as Carey pointed out). While castigating the Legislature for inaction, MacDonald failed to recognize that the Senate, despite the irrational tenor of the times, fulfilled a high public service in two ways: (1) seeking better historical information and better data to put petroleum development issues into proper perspective, while (2) refusing to be stampeded into supporting bad bills.

____________________________

Endnotes

(1) Patti Eppler, "Stevens: Parnell's hurry-up oil tax approach bad for Alaska," Alaska Dispatch, April 11, 2011.

The House Speaker and his cohorts, who frequently warned that that the state was "facing the specter of having the trans-Alaska Pipeline system close down," were so eager to move HB 110 that they ignored the counsel and sagacious questions of their own Resources Committee Co-Chair, Rep. Paul Seaton, whose arguments against HB 110 can be found in a Nov. 29, 2011 slide presentation, "ACES or NOT: Flaws in the HB 110 Approach to Reinvestment," on the House majority's home page. [Sentence added May 15, 2012.]

(2) CSHB 9(FIN) am passed the House March 27, 2012.

(3) CSHB 110(FIN) passed the House March 31, 2011; CSSB 192(RES) CSSB 192(RES) passed the Senate Resources Committee March 5, 2012; CSSB 192(FIN) passed the Senate Finance Committee April 11, 2012 but landed in legislative limbo and was referred to the Rules Committee April 12, 2012.

(4) The $34.7 million capital appropriation for a commercial, off-the-shelf (COTS) tax revenue management plan was authorized in the 2011 capital budget, enacted during the special session (Ch. 5, FSSLA 2011 [HCS CSSB 46[FIN]; project reference no. 52485), approved and transmitted by the Governor June 29, 2011.

(5) For a typical press account of confusion about tax credits, see: Alex deMarban, "Alaska oil tax credits: Where have all the billions gone?" Alaska Despatch, Feb. 3, 2012.

(6) See: "Decision following Trial de Novo," in BP Pipelines (Alaska), Inc., et al. and Fairbanks North Star Borough and City of Valdez (Appellants and Cross-Appellants) v State of Alaska Department of Revenue, et al. (Appellees), Case No. 3-AN-06-08446 CI (Consolidated), Alaska Superior Court, Dec. 30, 2011 (2007, 2008 and 2009 Assessed Valuations of the Trans Alaska Pipeline System), 502 and 505 (reproduced by attorneys Robin Brena and Craig Richards, "Senate Resources Committee Presentations," Feb. 6-8, 2012, slides 52 and 58).

(7) "Getting to the Future First" (interview with Archie Dunham), Hart's Oil & Gas Investor, August 1996, p. 41. Cited by Charles J. Cicchetti, "Expert Report of Charles Cicchetti, Ph.D.," March 7, 2011, pp. 29-30 (in BP Pipelines [Alaska], Inc., et al. and Fairbanks North Star Borough and City of Valdez [Appellants and Cross-Appellants] v State of Alaska Department of Revenue, et al. [Appellees] ).

(Three years after Dunham's statement on TAPS, during ARCO-BP merger deliberations, the Conoco CEO was asked whether he would be interested in returning to Alaska. Not without a share of TAPS, he replied. Dunham did return to Alaska - merging with Phillips Petroleum shortly after that company acquired ARCO's Alaska properties, including the second largest ownership share of TAPS.)

(8) See: "Decision following Trial de Novo," 406, 408 and 412 (reproduced by attorneys Brena and Richards, slides 65-67); and Dermot Cole, "Court ruling makes Alyeska low-flow study look more like a political document," Fairbanks Daily News-Miner, Jan. 3, 2012.

(9) For background, see: Robert S. McIntyre, et al., Corporate Taxpayers & Corporate Tax Dodgers, 2008-10 (Citizens for Tax Justice and Institute on Taxation and Economic Policy), November 2011, passim. For a summary of the nominal v. effective federal income tax rates, see Richard Fineberg, "Aches, pains and oil taxes: The weaknesses in governor's plan were coming out," Fairbanks Daily News-Miner (Community Perspective), May 6, 2012.

(10) See: Christopher Helman, "As ConocoPhillips Spins Off Refining Assets, Think Twice Before Buying The New Phillips 66," Forbes, April 30, 2012.

(11) Becky Bohrer, "Decision expected on request by TransCanada to alter gas line," Anchorage Daily News, April 4, 2012.

(12) Office of the Alaska Governor, "Governor Removes Oil Tax Legislation from Special Session Call," April 25, 2012 (Press Release No. 12-055).

(13) Michael Carey (Host), "The Special Session; and a New Film Incentive Credit Bill," Alaska Edition, April 27, 2012 (http://www.alaskapublic.org/2012/04/27/the-special-session-and-a-new-film-incentive-credit-bill/).

(14) CSSB 192(RES) (Work Draft 27-LS1305\E, March 1, 2012.

(15) See: Alaska Department of Revenue, "Comments on CSSB 192 (FIN) Work Draft 27-LS1305\O" (Presentation to the Senate Finance Committee), April 6, 2012, Slides 8 and 9.

 


 
 
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