Costello enjoys dual committee role

Labor and Commerce chair also has Senate Resources vice chair post, says workforce plan for AKLNG project a must for Alaska

STEVE QUINN

For Petroleum News

Sen. Mia Costello gets two firsthand views of oil and gas issues: that as vice chair of the Resources Committee and chair of the Labor and Commerce Committee. The Anchorage Republican has already heard briefings from the AKLNG Project and the Labor Commission Heidi Drygas who reviewed workforce preparations for the pipeline project.

Costello offered her views on these recent presentations with Petroleum News.

Petroleum News: You have two views of oil and gas issues, as vice chair of Senate Resources and as chair of Labor and Commerce. How do those views work in sync?

Costello: I had a board member of AGDC (Hugh Short) come in my office the other day and he said you’re vice chair of Resources and chair of Labor and Commerce and tried to put it into that perspective. My response after the visit was over is that I’m really an Alaskan and a parent first. I tend to look at things in a very broad sense in how it affects me and my constituents as residents of this state. Once I’m in this building working, I tend to have that as my overarching view, my lens that I look through to see things. I know that folks have said the focus this year is the budget, budget, budget. I think the focus is the economy, economy, economy. I think we as a Legislature have a responsibility to look at what we are doing this session and how it will affect the overall economy, which is broader than just the state budget.

In the decisions we are making, we have to value what it will do to the state’s bottom line. More importantly how is it going to affect an individual, an individual family, a business and the economy? I have four of the governor’s tax bills in Labor and Commerce (income tax, alcohol, tobacco, cruise ship) right now. When those bills come to the committee, I’ll be looking at those from a policy standpoint because they all go to Finance after Labor and Commerce.

The committees they get assigned, I keep that in the back of my head, too, because I know once they get to Finance, they have a certain way of looking at things. I sat on Finance in the House. In that committee, they are looking at the fiscal impact. I think with all of the tax bills the governor has, we also will look at it that way but mainly with the policy call question.

I’ll be asking why is the governor proposing these and what impact does it have on the economy as a whole? I heard the mining tax in Resources already and I was disappointed there wasn’t more modeling and analysis, but we’ve given the department homework and they will come back with more information.

Petroleum News: So does it help, though to be on two committees like these when you look at say the oil tax credits or you get to take what you hear in Resources and bring it to Labor and Commerce when you hear an AKLNG labor presentation?

Costello: The experience and depth of understanding comes from my previous years in the Legislature and my work prior to being elected, just being here for as long as I have as a lifelong Alaska and I worked for government most of that time.

For example, (House Speaker Mike) Chenault’s bill that he had in Senate Resources about the lands that Alaska has claim to. In a previous position, I interviewed all the people who were alive during the constitutional convention: Tom Stewart, Bob Atwood and Wally Hickel. Just that history is what helped me form a real respect for the creation of our state and how we have relied on our resources and the amount of federal land we have in Alaska, and the relationship that we want to have with the federal government.

I think you can’t really separate all the parts and pieces of who a person is. I think what you’re asking in terms of those two committees, I think all the committees are looking at things pretty comprehensively. I think the Finance Committee sees everything in it. The value is in the testimony that we have and the public comment that we have for these things.

Petroleum News: So is there any collaboration between you two?

Costello: We do. When she (Sen. Cathy Giessel) came to me and asked me to be vice chair of Resources, I in turn asked her to be vice chair of Labor and Commerce. We do work together and I appreciate that. That’s the theme of this session: working together, whether it be the vice chair and every member of the committee, minority and majority members. What you see different this session in terms of the solutions to the challenges we face is that we are looking at all of the elements and all of the bills, for example the Permanent Fund restructuring to find out what the acceptance level is for each of the different bills. We have a lot of ideas in play.

Petroleum News: You heard Commissioner Drygas’ presentation on AKLNG workforce plans. What were your takeaways?

Costello: We are behind in terms of putting together a plan to know how many jobs, what kind of jobs, where are we going to get those jobs and how are we going to train people for those jobs. I’ll put on my parent hat. My two boys are in fifth grade and third grade, and we need the plan the department is claiming they will have ready this summer for jobs for the pipeline. I recognize that the plan is contingent on whether AKLNG is successful and it would be different than the ASAP line.

Petroleum News: What would you like to see? How much detail would be reasonable?

Costello: Well, I think we just need to answer those questions I was asking. How many jobs? What kind of jobs? And the training: What’s the plan for training? We have a lot of duplication and competition out there. I can show you a list I have that illustrates all the training programs in the state.

The state is offering some. The private sector is offering some. How do we get those jobs and the training for those jobs into our schools? There seems to be a need for better communication between the Department of Education and the Department of Labor. Both the commissioner and myself were saying you can’t silo government and expect government to work effectively. We have to really be looking at what programs do we have at our high schools. A lot of the high schools are doing more hands-on training.

My driving concern in all of this is that with the AKLNG project, we are looking at 15,000 jobs and I want those to go to Alaskans first. We will all fail if an Alaskan misses out on a job and we have to give it to someone else because we didn’t have the right opportunities in our high schools, in our universities, in our job training centers.

So we need to know what kinds of jobs there will be: how many welders; how many construction workers; how many engineers. That’s what the plan will tell us, then you work backwards. You look at when the gas line will come on line - those kids are in our schools right now.

We are paying for those programs now. A portion of the unemployment insurance goes toward several of those training programs, then you have the private sector also. We want to make sure government is not competing with the private sector.

Petroleum News: Do you get a sense the private sector is looking ahead 10 to 15 years for the workforce, too?

Costello: I do. I know the producers are putting together their own jobs plan and we asked them in Senate Resources if that was available, and it’s not yet publically available. You know the commissioner of Labor sits on the Alaska Gasline Development board. I asked her in committee if she’s carrying that flag in those meetings. I hope she is because that’s a really important piece that drives at the heart of why we are here at all: to create jobs and opportunities for our young people.

Petroleum News: Have you ever thought of having an Education commissioner testify along those lines?

Costello: I thought of introducing a bill to combine the two departments. That’s how strongly I feel about the overlap. I think right now what we can look at is divisions that have overlapping missions or need to be communicating. But I think they go hand in hand, educating and jobs.

Petroleum News: You mentioned AGDC. You’ve got the bill to appoint two legislators on the board. Many among the Legislature haven’t been happy with the new makeup of the board, acknowledging that’s his right, as well as changes in management. Is the bill a dig at the governor or something that’s trying to have this board reflect what some state boards do?

Costello: I actually met with the governor and I shared with him that the motivation and the reason for the bill I introduced is really just to increase communication, increase transparency and help the project move forward.

It has more to do with having two non-voting members of the Legislature there at the table. The Legislature created AGDC and this project is so important that I think it’s only going to help. I’ve gotten a lot of good feedback from both sides of the aisle and the public.

Petroleum News: Is this a position you would like?

Costello: I really haven’t thought that far. If asked I would step up to the plate.

Petroleum News: Let’s say the AGDC board gets these two appointments. How can that assist the Legislature?

Costello: I just think knowing we have a seat at the table I think makes all the difference. We don’t want to repeat some of the challenges that we had during special session where we don’t really know what the direction is.

Petroleum News: Speaking of special session, you were a yes vote, but many yes votes came with a footnote of concerns toward transparency and communication. Were you among them?

Costello: Yes. As far as TransCanada goes, that decision to go on our own to become a full partner, I think they provided needed expertise up until this point. The company is a wonderful company. Everyone was thankful and appreciative of their help and then we have continued involvement of their company.

But the question you’re asking, which is the concern of transparency, and I think that just played out in the committee where we were trying to figure out the structure of the organization, the structure the governor was trying to put together or the AGDC board had itself with lines of communication. Then there were some challenges of the role of the attorney general that made it confusing as to who was driving the direction of the board.

I think things have gotten better. We’ve had three updates in Senate Resources and I think that everyone is saying that things are getting better. I know that the board is looking at a replacement for the CEO position and Fritz Krusen is the interim. I’ve met with him personally and I think he’s doing a great job. He brings a lot of experience to the project that’s needed in the position that he’s in. I know that they are interviewing for a permanent president.

Petroleum News: I know that’s not a position you vote on in confirmation hearings, but still what would you like to see out of that person?

Costello: I was talking to Hugh Short and he was telling me what they were looking for. I’d like somebody who has experience that’s relevant to the project, somebody who understands the logistical challenges, the political challenges, the economic challenges of a project of this size and move it forward, someone who can work with the Legislature, the governor’s office and work with the board.

Petroleum News: Does this person have to be an Alaskan?

Costello: No, I don’t think they have to be an Alaskan. Frankly I think Fritz Krusen is doing an excellent job. I know they are looking elsewhere, doing a worldwide search. The person has to be passionate about why this is important to Alaska.

Petroleum News: As you talk to board members, do you sense things are getting better? I know you touched on this a bit earlier.

Costello: I do. I’ve talked to several different members of the board. I’ve talked to (board chair) Dave Cruz. He expressed that things are ironing out, things are only getting better. The challenge is finalizing the commercial contracts before we can move to the next step. We also have deadlines before we can put the issue before the voters.

Petroleum News: What are your thoughts on putting an issue like this before the voters?

Costello: Well, it’s necessary and it would be something I would be advocating for. It’s something that is necessary before the next step.

Petroleum News: So are you prepared for a special session on taking this segment of the gas line so to speak to the voters, or would you rather see it done during a regular session?

Costello: What’s important to understand is that when SB 138 was passed, there was a recognition that these stage-gated processes and the involvement of the Legislature aren’t going to align during session. So that’s a separate issue from the work we have during session. It would be nice if they lined up.

Petroleum News: You got AKLNG updates. What were some of your takeaways during those hearings?

Costello: I was really encouraged by the testimony by one of the partners when Exxon’s Steve Butt gave the logistical, boots-on-the-ground how the project is moving forward. Then with the partners, there was some concern in their presentation on how much work it is to get these commercial contracts signed. These are not easy to get done. You saw the governor’s letter. I think they are working full speed ahead. From a legislator’s stand point I have an expectation that they are able to finish their work.

Petroleum News: So what would you like see next or hear that suggests the project is still moving forward?

Costello: That the commercial agreements have been signed and we are putting the constitutional amendment on the ballot and we are on track for that, and we are on track to make a decision about FEED. SB 138 had very specific work products that happened during certain phases of the project. It’s getting work in time for a FEED decision.

Petroleum News: Is there anything specific you would like to hear from the producers because they have things to work out that are out of the state’s control, like gas balancing agreements?

Costello: What I’d like to hear from the producers that when they come to the state and they need information from the state, that they are getting it quickly. They are getting answers they need from the state and we are not hampering progress by playing out the clock where decisions are taking too long.

Petroleum News: You’ll soon be hearing the governor’s bill on oil tax credits. What are your thoughts on this? It could be more contentious that the income tax bill.

Costello: I think that we have to take into account the context of the economy. Right now we have unprecedented low oil. You’re seeing how it takes $52 to produce a barrel of oil and the price is $32. In this environment we are proposing to eliminate or reduce the tax credits we have on the books and the purpose was to incentivize exploration.

I look at Caelus. They are operating at Oooguruk. They have about 10,000 to 12,000 barrels per day and have yet to show a profit on their books. They are exploring at Nuna, and at Smith Bay, and then they are interested in areas south of Point Thomson. So here is a small company and we know we need to be increasing production and the point of all these credits was to help with that, help more companies explore with the idea that eventually they would produce and fill the pipeline higher than it is.

So here is this cash-strapped company with unprecedented low oil prices, then they will turn around and immediately pay a 5 percent gross production tax. They are already paying corporate income tax, property tax and royalty.

Now we are going to discuss an additional tax in this environment. Every single one of these taxes, I think we have to look at the effect on the economy. Yes the state needs to address its budget challenges, but are we doing more harm than good if we tax. I don’t think taxes encourage more activity. I believe tax credits do and so I’m very concerned about that.

Petroleum News: But if the state can’t afford the credits with these chronically low oil prices, how do you reconcile that?

Costello: Well can the state afford to lose these jobs and have the production go down? It’s the same with every single tax like the cruise ship head tax. If you drive the industry away, then it never gets better. That’s why the bills that address the management of the Permanent Fund are so important because if you start looking at all the taxes, they don’t fill the gap. Cuts don’t fill the gap. But I think we have to tread very carefully when we talk about making changes to tax policies that were intended to encourage investment.