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House committee revisits key PPT issues Some issues of concern to Senate: Net vs. gross on progressivity, gas exclusion, state buyback of credits, offset of 5,000 bpd Kristen Nelson Petroleum News
The petroleum profits tax, the rewrite of the state’s production severance tax which died on the Senate floor May 9, was the topic of an evening work session hosted by House State Affairs May 16. The House amended a bill that came out of the Senate, but the Senate did not concur in the changes and the bill died May 9, the last day of the Alaska Legislature’s regular session.
Committee Chairman Paul Seaton, R-Homer, who worked the bill as a member of the House Resources Committee, said the purpose of the work session was to identify some of the issues of concern to House and Senate members. Seaton said the items he proposed for discussion — net vs. gross as a basis for a progressivity surcharge, gas exclusion from the tax, state buyback of credits and the offset of 5,000 barrels per day — were an initial cut he identified talking to members around Centennial Hall. Legislators are in Juneau meeting in special session at Centennial Hall and are partway through a 10-day explanation by the administration of the gas fiscal contract it negotiated with BP, ConocoPhillips and ExxonMobil, sponsors of a proposal for a gas pipeline from the North Slope to Canada.
The administration put the petroleum profits tax, or PPT, on the table in February, telling legislators it was a necessary part of the gas line fiscal contract and would be rolled into the contract. Since the tax did not pass in the regular session, portions of the contract incorporating the PPT could not be completed before the contract was released May 10.
Legislation not passed died at the end of the regular session.
Rep. Mike Kelly, R-Fairbanks, said he’d heard the Legislature would be getting a new PPT bill from the governor May 22.
Gross vs. net There was considerable discussion about whether progressivity should be based on the gross, as in the Senate bill, or on the net, as in the House bill. Both bills provided that, at different dollar triggers, a progressivity surcharge kicks in.
Rep. Carl Gatto, R-Palmer, noted that with gross you always get something from the progressivity surcharge whereas with net, if the profit is zero, you get nothing. Rep. Norm Rokeberg, R-Anchorage, said it was an issue of more revenue or more investment, and also said that with progressivity based on the net you didn’t have to deal with inflation proofing because the net was already adjusted, so 10 years from now the net would reflect costs at that time.
Seaton said while the net had a built-in inflation adjustment, he was concerned about manipulation of costs by the producers.
Kelly said the administration assured legislators that between the state auditors and the companies auditing each other’s costs at multiple-owner fields the audit issue was covered, and said he favored the more aggressive net-based House version. Rep. Beth Kerttula, D-Juneau, also expressed concern about the costs coming out when progressivity is based on the net, and suggested that a progressivity based on net should be higher than one based on gross.
Access, floor Rep. Berta Gardner, D-Anchorage, said the PPT doesn’t address access to facilities. The incentives and credits proposed won’t draw in new companies if there is no access to facilities, she said.
Kelly said he wanted to make sure the state didn’t get ambushed by credits, and asked for more testimony on that issue; he also suggested looking at a floor for the tax. Seaton said that with progressivity capped, perhaps it made sense to look at a floor as well.
The floor would be under the PPT, rather than the progressivity feature. The administration and consultants have concurred that at $20 oil, there would be no revenues to the state from the PPT, although the state would continue to collect royalties, property tax and corporate income tax.
There were also issues where legislators wanted more data or better explanations from administration, and administrative or legislative consultants, including point of production, the gas revenue exclusion and the provision that an expense doesn’t need to be on or near a lease.
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