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House does turnaround on decoupling Initially defeated 19 to 21, SB 305 then passed 23 to 17; Stedman pushed passage over concern that combined tax would cost state Kristen Nelson Petroleum News
Decoupling oil and gas taxes in advance of an AGIA open season scheduled to begin May 1 was a top priority for Sen. Bert Stedman, R-Sitka, co-chair of Senate Finance, in the just-concluded session of the Alaska Legislature. On April 18 — the last day of the session — Stedman saw success when the House overturned a defeat of the bill, 19 to 21, and passed it 23 to 17.
The measure, opposed by the administration, leaves taxes on existing oil and gas as they are currently, but treats gas sold for shipment in a North Slope to market pipeline separately.
Under current law, oil and gas are blended for taxation purposes. Because gas currently has a considerably lower value than oil, adding the volumes of a major North Slope gas sale to that calculation could lower the amount of tax the state receives overall if the current value relationship continues.
Stedman said the potential loss could equal $2 billion and urged passage of the bill this session prior to the AGIA open season.
The Alaska Gasline Inducement Act, passed after the present oil and gas tax system was enacted, says the Legislature will not change the tax on gas in place at the beginning of the initial binding AGIA open season for the first 10 years of gas sales for gas committed in that initial binding open season.
Decoupling insurance House Finance Co-Chair Mike Hawker, R-Anchorage, spoke for the bill on the House floor, telling legislators that the bill was a consequence of actions the Legislature had taken on production taxes and AGIA. The tax changes the Legislature made in 2006 and 2007 were primarily focused on oil, he said.
Legislators knew they hadn’t worked on the gas tax, but believed they had 15 years until gas flowed to make any changes.
But then AGIA was passed, turning a 15-year decision into a 15-month decision, “and now we’re down to 10 days,” he said.
Hawker called decoupling an insurance policy, and said by supporting the bill, legislators were giving the state the strongest possible hand in negotiations which will begin once companies have bid for capacity on a gas pipeline in open season.
Rep. Les Gara, D-Anchorage, said this was the first time he’d agreed with every word Hawker said.
Gara said he started out as a skeptic, fearful that the bill would become a Christmas tree with other provisions hung on it, but that didn’t happen.
He said the bill does exactly what the sponsor says it does and does it in a regal way. Under the current law there are circumstances “where if you built a gas line the state receives less money than if the state only taxed oil. Faced with a mistake you’ve made — one you can fix now — you do it,” he said.
Hurried process Arguments against passage were varied.
Rep. Paul Seaton, R-Homer, called the bill a very hurried process and said legislators were being hurried because they were ready to adjourn.
But the Attorney General, the administration and Legislative Legal Services “all tell us we can decouple now or later,” he said.
If there is no successful initial AGIA binding open season the state can take action later, Seaton said, telling the House passage of the bill would hamper negotiations.
Rep. Berta Gardner, D-Anchorage, said the commissioner of Revenue had said making a change now could hurt the state’s chances, when it has the best opportunity for a successful open season. She said the Alaska Oil and Gas Association called it a tax increase.
It is premature to do this, Gardner said.
Rep. Harry Crawford, D-Anchorage, said the bill could be what sinks a chance of a gas line. He noted, as had Seaton, that the Attorney General said “we didn’t need to act now.”
There is no reason to rush to judgment, Crawford said.
Rep. David Guttenberg, D-Fairbanks, said one consultant told him to sit tight.
The Legislature doesn’t have to act, he said, but staying calm is probably the hardest thing a legislative body has to do, urging legislators not to put the state in a position of negotiating against itself.
There’s a strategy we put in place, Guttenberg said, “let’s stay the course.”
The first vote, shortly after 3 p.m., was 19 in favor, 21 opposed.
But at 9:30, when Hawker asked the House to rescind its action in failing to adopt SB 305, the vote was 26 yeas, 14 nays. And when the House then voted again on the bill, it passed 23 to 17.
The Senate later concurred in the changes the House had made. The changes put oil and gas the state currently taxes in one bucket and create a second bucket to contain the gas which would be sold in a major North Slope gas sale.
The administration opposed the bill and Revenue Commissioner Pat Galvin regularly testified against it.
The bill was transmitted to the governor for his signature April 21.
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