Guttenberg: Tax system still unstable

Fairbanks Democrat, Finance Committee member says Legislature has historically not done well crafting system that offers balance

STEVE QUINN

For Petroleum News

House Rep. David Guttenberg says lawmakers have failed to get oil taxes right in previous attempts and it’s hurting the state’s bottom line. The man who once worked on the Trans Alaska Pipeline System says the state needs a more transparent and easily understood tax system. He’s not confident any efforts thus far will advance that change. Guttenberg, a Fairbanks Democrat and member of the House Finance Committee, discussed his views with Petroleum News.

Petroleum News: You’ve been around when most of these changes were being discussed, be it PPT, ACES or SB 21. Why do you suppose you’re wrestling over taxes and credits again, even as it’s not a wholesale rewrite of SB 21?

Guttenberg: For a large degree, we never get it right for lack of a better term. The outside influences pushing and pulling our decision making process are always making sure there is ambiguity in it. People take advantage of it when it’s not clear. We didn’t get to do all the scenarios. When we did ACES, nobody ever thought prices were going to go over $100 or crash down below $40. We didn’t run those scenarios. We didn’t run the credit scenarios.

Personally, I think some people like that. We get caught up in the political process and that is what it is. We simply do not create a stable system for the state or the industry. As long as you don’t have something that is stable, it’s always going to be changing.

Petroleum News: Without knowing what may emerge from this building, do you suspect that you could be doing this next session in some form?

Guttenberg: You know we are so dependent on oil and gas that regardless of the volatility of the market or whether money is rolling in or not, it’s the prudent thing to do to be examining the nature of the regime here. Who wouldn’t do that? Who wouldn’t look at are we doing enough or are we not doing enough? What do we need to be doing that we are not doing before? Unfortunately, all too often there are winners and losers. I think the state has taken a poor policy approach that has caused this.

Petroleum News: Do you get a sense that this could be tougher because there are some among the 40 in the House who want some changes, some who want a lot of changes and those who want almost no changes? The spectrum seems to be stretched more than in past years when oil taxes were on the table.

Guttenberg: there is always a feeling from some of us in the building that we had the wool pulled over our eyes as well. That includes all the 60 (including the Senate) that something was done that we didn’t like. Now you have where we have pulled the books out of children’s hands and we have to balance that with the $700 million worth of credits we are paying to industry that is hemorrhaging the state’s economy. That is the world we live in.

Petroleum News: What was your reaction to hearing the $700 million and the state’s ability to pay for it?

Guttenberg: My biggest problem is not understanding the ramifications and the return. What is the return the state is getting for its credits? Theoretically we would know the increase in flow, the finds, the production that is coming on board, how many jobs have been created. How much gas is going to be available for Alaskans. We can only guestimate at those things. We don’t have a simple result from an investment that we are paying for.

Petroleum News: How can that change?

Guttenberg: I prefer to have a more public process. Like credits. Credits aren’t taxes. Credits are credits. You have to apply for it. It’s a voluntary program. If you want to apply for credits, then you should supply the state with information that we need to value whether or not you are doing that. You have to make your records public. If there are confidentiality issues on proprietary information, there are ways to get around that. We can waive certain things. Again, they are not taxes; they are credits. They are voluntary. If you want it, make the information available. Then we’ll take a look at it and decide it’s in the mutual best interest, not just the industry’s best interest.

Petroleum News: Last summer, you had hoped to get more answers and what you’re getting from the credits?

Guttenberg: I’ve gotten some through channels. You can extrapolate from the Department of Revenue’s resource book and how much things have changed. There is no way to put a definitive statement on almost any of this stuff. The availability of gas in Cook Inlet for in-state use, you can guestimate what that is long term. The increased flow - most of those projects are old numbers. Development plans were in place long ago and they are just coming to fruition. The answer to that is no.

Petroleum News: I’m not asking you to speak for him, but do you suspect the governor might have to cut or veto more credits?

Guttenberg: If I were the industry, I would be at the table a lot more than they are now. The one thing we are always hearing is they want stability. The governor rolled it forward last year; he didn’t really cut it. He is only obligated to put in $73 million this year.

The companies have borrowed money with the understanding that it’s coming back. If I were them I would make sure I’m at the table participating in a functional way. Not the screaming that we hear from all the government relations people. Don’t touch me. Don’t hurt me. You’re going to kill the industry if you cut a penny. Last year they were arguing over a penny: A penny for the spill response fund. They didn’t want to give up a penny per barrel. Not per gallon, per barrel. That can’t go on. That’s completely unconstructive to what needs to be done in the state of Alaska.

Petroleum News: Have you heard anything from the industry that makes sense to you?

Guttenberg: No. I mean I’ve heard some back channel stuff about what somebody wants or needs. But the industry comes to the table and all they ever say is don’t touch me, don’t harm me, don’t hurt me. When you ask a question, it’s all the same answers. It’s never what can we do. So there is a lot of cynicism built into this. They created the unreliability and the unsustainability issues.

Petroleum News: What concerns you most about the state’s tax credit system?

Guttenberg: We have to have a manageable system that works. We are hurting Alaskans. We’re clearly hurting Alaskans in the budget climate in the cuts that we’ve done and the hundreds we’ve laid off. We have to have something that gets us closer to being sustainable both for them and for us.

We want to increase production. We are in a worldwide down turn. So much of what they are doing has nothing to do with us. We act in this building as if the world revolves around us, that if we do the wrong thing the whole industry is going to cave in. I’ve never been convinced that that is the case. Legislators might think the world revolves around them.

(Citing an article in the Calgary Herald) It’s always interesting to hear a viewpoint from outside this building. You only hear one thing inside this building. “You’re going to hurt us; you’re going to hurt us; you’re going to hurt us.” Then you hear outside stories where they don’t need this credit anymore or that credit anymore.

The important thing in Cook Inlet is to make sure there is gas well into the future. That’s done. We threw a lot of money into Cook Inlet. Then in Prudhoe, one of the important things is we have independents operating because that is who is going to be finding the new oil. So how do we go into this taking care of these two things? Well Cook Inlet is fine. There’s a lot of gas in Cook Inlet.

In Prudhoe it’s to keep independents operating and finding more oil. When you look at the history of the evolution of an oil field, that’s where we are now: companies like BP sell off their marginal assets and the independents come in and take the smaller fields. Good for them if they find a big one, that people overlooked or the research wasn’t done.

And continue exploring the frontier basins. That’s also very important. I think the frontier basins are potential game changers for in-state gas. If you find gas in good commercial quantities whether it’s Ahtna in the Glennallen area or Doyon in the Nenana basin, those could be game-changers for costs and availability for gas throughout the state, and reaching out to rural Alaska, too.

Petroleum News: So what kind of bill would you like to see emerge from the Legislature when it’s done, be it HB 247 or SB 130?

Guttenberg: First of all it has to be fair to both the state and the industry. They have committed to projects right now they are already on the hook for. I’m not sure it’s fair to pull the rug out from under them, but certainly to shut off credits into the future that aren’t committed yet. If they are in place, they will be used.

My problem is the state’s entire focus has been wrong. It has not been looking after its interest first, then the industry’s interest. I live in Fairbanks. The price of oil is high. Even when it’s low it’s high. The price of a Btu it’s high compared to Southcentral and in rural Alaska; it’s significantly higher. So there is a part of it that need to make sure that Alaska is taking care of Alaskans, not to the exclusion of industry, but at the top of the list.

We need to make sure industry has opportunities to produce as much as they can. They have a business plan that we don’t see. We don’t get to see their internal business plan about how much they want to invest, how much they can invest, how much risk they want to take. We don’t get to see that. We have to figure out what’s in the best interest of the state. I think between us and the industry, part of that is a stable transparent process that goes forward and fits in all the modeling.

There are other ways to do it than the way we have. We have so many different tax regimes and so many different players, that one size does not fit all. That’s problematic. There are too many moving gears to do one thing and have everybody be happy. You don’t want to pick winners and losers.

Petroleum News: Speaking of gears, let’s switch to AKLNG. You’ve received updates on the project from the partners and the governor had an update saying things would be moving along with more caution. What’s your take on things right now?

Guttenberg: You know people plan for these spikes, the long-term approach to dealing with this stuff. The state always has a very narrow view, a very short-term view - maybe two years in this building because it’s always two years until the next election. I’ve never really done that but it’s out there. We were told before that there was going to be I wouldn’t say a pause but the need to take a deep breath right about now, that there was going to be a slowdown because things need to catch up regardless of the price. They said this when things were hot and heavy.

From what I understand from the AKLNG folks, there is a lot of stuff in the works. If you are working on the study, there is a lot building up to the study and then there is a long lag. We’ve got partners and they are interested in getting to FEED, getting to a point where the next decision making process is.

It’s expensive. All of these decision-making processes are staged-gated. They tell us take your time. Don’t be anxious. Don’t rush. We’ll get there and we’ll make the right decision.

Petroleum News: As with taxes, you’ve been around for a lot of the discussions on a gas line. Do you believe a gas line will come on line?

Guttenberg: Yes. I do. There is too much product. There are too many hydrocarbons up there. We are a stable environment. We are not shooting at the pipeline. We are not pulling executives off the pickup trucks. I think this has always been the savings account for a lot of these businesses, for the producers. They always come back here. When there is a window to do something that is high risk, they’ll go out and do it. They always come back here because of the place that it is. They know what’s here. They have had basin control for a long time. They control TAPS. They have complete control of the product from bay to port. This is a safe place for them and they are here now when they are leaving other places. I think part of it is it’s safe. We are giving away stupid amounts of money in credits and they are going to get it as long as they can. I think when the time comes and the time is right to start a line, they will do it again. They will build another pipeline. Even if we started going off a hydrocarbon economy, we’ll still need hydrocarbons. It’s not like we are going to valves off tomorrow.

Petroleum News: What do you think it would mean to have two pipelines running north and south? Do you think people will look at it as this pipeline or that pipeline or two pipelines?

Guttenberg: I think the most important thing it does for the state is that it brings a stable in-state use of natural gas.

Fairbanks got a 48-inch oil line running through town. We never got any benefit from that. The economic growth difference between Fairbanks and Anchorage, which has gas, prices were dirt cheap when we were paying big bucks. When prices skyrocketed, they were paying a little bit more but we were paying $5 a gallon for oil. Think about the state having disposable gas because it’s not all going to markets outside.

And jobs. I advocate not so much the construction jobs but the long-term processing facility jobs, the jobs you retire from, the maintenance jobs and facilities management, running the compressor stations. All those facilities. Even now, 40 years after we started construction, we are still saying the industry doesn’t have enough qualified Alaskans to do it. That’s trash talk from the industry. That’s how they have managed the workforce. There are not enough engineers so the industry is trying to tell the Legislature to finish the engineering building (at UAF) because there aren’t enough Alaskan engineers. Every Alaskan that goes through the school of engineering at UAF or UAA has a job as soon as they get out.

Nobody knows cold weather better than a kid growing up here. You see these employees getting off the plane or the bus and it’s 20 below and they want to go home. Alaskans are going to the store in their shorts. Kids are wearing flip-flops. The difference in attitude toward working in this environment is phenomenal between bringing people up from Outside who have no idea what to do. I think the industry has mismanaged the Alaskan workforce.

Petroleum News: You talk about working on the pipeline in committee hearings and on the floor. Would it be fun to go back there?

Guttenberg: You know I joke about it all the time. A lot of times it is my reference point for the positions I take. You know I’m too old and too heavy to be throwing skids anymore. I think about it.

My job was a young man’s job. I think about the old guys working slowly. I had some crews taking care of different facilities. One scenario I had three or four guys working their butts off, just running around everywhere; then I had another facility with an old guy, poking along.

A supervisor came in and said you need to get rid of that guy. I said let’s go look at the module units, and I said that one is always dirty and that his is never dirty. They are bringing equipment in and out, they are testing; there is water on the floor; there are boxes stacked up and his place was never dirty. He pokes along, takes care of his business. Over there with the young guys, they are all out of control. The place is a mess.

When you think about what old hands bring to the game is: Don’t sweat the little stuff. He’ll get to it. I think about that in this building, too.