Josephson: Gearing up for co-chair slot

Anchorage Democrat says oil tax credit system needs further review toward fiscal plan, but refuses to place target on industry’s back

STEVE QUINN

For Petroleum News

House Rep. Andy Josephson’s view of the House Resources Committee is slated for a change. With Rep. Geran Tarr, he will share the chairmanship of the committee that has long been run by a Republican-led majority.

The Anchorage Democrat spent the last two years on the Resources Committee, including last year’s prolonged discussion on whether the state’s oil tax regime needed substantive changes to help narrow the state’s fiscal gap.

Josephson talked to Petroleum News about what may lie ahead in the upcoming session under the newly formed Democratic-led majority.

Petroleum News: I know you have a co-chair to consult with, but what are your priorities moving ahead?

Josephson: Well, I think that in some respects Rep. Tarr and I are going to surprise people because my priority for example is not to treat the oil industry as a foe because I don’t think it’s a foe. There is going to be ongoing discussion about credit reform. But I’m going to be very interested in having companies, for example companies like Caelus, connect the dots for me and make their case as to why the credit portfolio enabled them to explore Smith Bay, and any others in a similar situation. I want to be very prudent about the credit question for sure and not cut off our nose to spite our face.

So I think there is going to be some surprise there that there is going to be some receptivity to the needs of the oil industry.

Relative to the gas line, while I’m still a stronger supporter of the governor’s administration and his work, I think most of us will have a very high bar, or threshold, as to future investment in the work of AGDC and the governor’s gas team. We need to see something truly concrete or because of the fiscal situation, I can’t see the merit in investing substantial amounts of money. I think there has been some cooling for sure on the gas line. No one wanted it to come to that, but that’s sort of where it is right now.

In terms of other priorities, I know the Resources Committee, assuming that I’m indeed co-chairing it and that is what appears will happen, will have a more conservation-oriented agenda. You can expect hearings and legislation on climate change. You can expect legislation on wildlife management. I’m interested in having hearings on the recent article on the Pebble prospect, why there has been environmental damage in the exploration phase and why there has been a lack of oversight in that environmental damage.

It’s going to be a different approach. I’m looking forward to moving some bills that might not have ever gotten an airing and knowing the Finance Committee might also be receptive of those ideas. The final thing in terms of priorities is certainly the fiscal situation. I think the ‘New Majority’ - that’s what we’re calling it with a capital N and capital M - can be expected to get work done on Permanent Fund restructuring, budget overviews and some additional cuts, then a look at a broad based tax and a look at the corporate income tax rate.

I think there will be a lot of public interest in our work. We will deliver a product to the Senate and they are going to need to consider it. If they fail to consider it and they don’t have a meaningful option of their own, then the demise of Alaska’s economy will largely rest on their shoulders.

Petroleum News: Let’s go back to the credit discussion, and this certainly ties to the fiscal situation. You talked about wanting to hear from Caelus, what else would you like to hear from the industry?

Josephson: One of the things I want to know is would they be open to having an iterative system where there would be more dialogue akin to the royalty relief system and the industry would have to prove up and would carry a burden of showing the need and merit for cashable credits.

My view would be that there would continue to be a credit outlay but that it might be in the range of $100 million to $200 million a year but not $700 million to $900 million a year, and that the credits would be paid for - the outstanding obligations - then something more modest but helpful would be created. That’s my vision of it. I frankly feel like anybody who believes we should move forward as we have with $740 million in cashable credits, just isn’t being serious. It’s not a serious position to take because of our budget difficulties. There is going to be a battle over the net operating losses, so that discussion is going to continue as well. I’m not ready to say the oil industry is no longer a critical component of our state economy. I’m far removed from saying something like that. And I still want to help the industry where it’s practical to do it.

Petroleum News: The net operating loss credits could be among the most divisive for changing. What kind of questions do you have for the industry on this credit and what would you like to see for these credits?

Josephson: Very approximately, my strong memory is the cashable credits would have been $740 million and something like $200 million in credits against liability. We saw huge numbers on a spreadsheet that showed at the current pace the cost of credits against liability was over $1 billion - or more - over five years. The debate was whether or not those things would self-correct, and also there is belief that it’s in the nature of the net operating losses that they should be taken virtually into perpetuity. If we can’t get a compromise on that, they too are unsustainable almost by definition.

So when you have a situation like ours where we brought in $1.2 billion and we’re expected to pay $1.4 billion in Permanent Fund dividends, with this situation everyone must come to the table because the state’s treasury is in such peril. The House is certainly going to look at the net operating losses again.

People should be happy that at least Rep. Tarr and I are going to be more sensitive and receptive to the needs of the oil and gas industry than might be believed. I’ve talked with her a number of times and I think we are on the same page with that.

Petroleum News: So that’s what you want to hear from the industry. What is it you would like to hear from the administration, the other side of the tax credit argument?

Josephson: Well, I think the administration is interested in the reforms we are interested in. I think the administration is not interested in repealing SB 21. Of course there were a couple ways in which it was effectively repealed last session, particularly the gross value reduction. It was at least amended. I think the tax director (Ken Alper) and the Revenue commissioner (Randall Hoffbeck) basically will be working pretty synchronous with Rep. Tarr and myself. I don’t know yet where the agendas differ, except perhaps where it comes to a new AKLNG model, but that’s not something the Revenue commissioner and the tax director are focused on anyway. So I think that there may be some discussion of changing rates on progressivity if there is ever a return to per barrel price.

Petroleum News: So what is your take right now on the AKLNG project?

Josephson: Well, you are seeing some continuing interest in ConocoPhillips to be especially cooperative in working with the administration wherever it can to move the project forward, but it’s pretty clear through no fault of anyone’s the project is not economically viable right now. What I’m reminded of is the value of the resource underground is so enormous that the project is likely to happen someday.

The governor has, as does Keith Meyer, a belief there is a second way to move forward with backing by investors. I just don’t know how likely that is. I think that I was very gung ho in 2013 about the previous administration’s work on this. I think the previous administration also would have been where we are now. There were ways described by Mr. (Steve) Butt (project manager from ExxonMobil) how you could put AKLNG on life support and sort of table some of the work but continue some of the fine tuning, the research and some of the analytics, but not move into FEED. So I guess things under the Parnell administration would have been somewhat different but largely it would have been stymied like the current system has been.

My view is that what this does is puts a premium on the need for a fiscal plan. There is no life buoy anymore. There is no geez if we can hang on for a decade there is light at the end of the tunnel. There is light, it’s going to come almost metaphorically and spiritually from our own reform of the way we finance government. I’m still a huge believer in Alaska and the future of Alaska. It’s very great. I think great things are coming our way, but we are going to have to take care of our own problems. There isn’t going to be any simple solution.

Petroleum News: So what would you like to hear next from either Mr. Meyer or Resources Commissioner Andy Mack on AKLNG?

Josephson: Well, what I would need to hear is there has been some concrete development. In order for me to vote to spend millions more in backing this effort, I would have to see something from investors or Asian consumers that said this is the commitment, this is the security, this is the financing, this is the concrete plan. Not something speculative. So knowing how much the governor wants to move forward, even his strongest supporters - and I’m one of them - are going to need something like that.

Petroleum News: One thing Mr. Meyer had noted in one of his first committee appearances was how he was concerned about the communication problems between the administration and the Legislature. What’s your take on any communication issues?

Josephson: There is obviously a lot of politics involved in that. There is real uncertainty about whether this administration will enjoy a second term. There is continuing belief beginning in December 2014 when he was sworn in that he is somehow the Democratic Party’s governor, which I don’t think was ever true. You even hear this relative to the dire need for a fiscal plan. You hear water cooler scuttle butt about how some in what will now be the House minority want to just cut the budget, spend down savings and pray. I don’t think that’s a fiscal plan. Part of the reason they want to do that is to somehow put all of this on the governor and be political about this crisis rather than being productive.

I think you get some of this in the gas line discussion. Some of the so-called difficulties in communication are somewhat fabricated. Having said that, criticisms of the governor’s gas plan have valid points. We have changed horses many times. The vision and the development plan have morphed. The part that’s unfair is that critics believe the governor never wanted to subscribe to the SB 138 model and was looking for an excuse to pitch it, to see its demise. I don’t think that’s entirely fair or true. My sense was the state did what was asked of it and ultimately the profit margins just weren’t there because of lifting and delivery and all of the rest. I think to use a Cool Hand Luke term, “the failure to communicate” is overblown.

Petroleum News: You mentioned the turnover. There seems to have been some substantial turnover with the governor losing (Resources Commissioner) Mark Myers, (interim successor) Marty Rutherford and (oil and gas director) Corri Feige. Many see this as a loss of significant institutional and industry knowledge. How do you see it? Does it concern you?

Josephson: Yes it does; it does concern me. My experience is now four years in the Legislature, 52 years as an Alaskan. My first-hand experience was Gov. Parnell’s team, and no one ever seemed to leave. So you had in virtually every department, tremendous continuity. I don’t know if it spoke to top-down control. Perhaps it was a reflection of no one is allowed to criticize administration strategies. That can sometimes as we know from history be a bad thing. But, yeah, I’ve been concerned the amount of turnover not just in the governor’s gas line team, but within the administration generally. It’s sort of surprised me for sure.

Petroleum News: Let’s look a bit broader federally. There is a new administration coming in. The resource development priorities will be different from the current administration. What are your thoughts on what might be coming down the road from the Trump administration, at least from resource development perspective?

Josephson: I’m very concerned about it. There are some who believe the only goal of mankind should be the development of the planet as quickly as possible. We could now feed close to 7 billion people so let’s try to feed 10 billion people. That’s one model. Everything is - with limitations because everybody likes a Yosemite National Park - developable. I don’t believe that kind of world is sustainable. It may satisfy the next 30 years but beyond that it doesn’t speak to any plan that I know of moving forward.

I’m worried about the new administration giving away land. I’m worried about it having a weak environmental protection agency that doesn’t even speak to the title environmental protection. I’m worried about him believing climate change is a hoax, something the president-elect said then denied saying it even though there is a video tape of him saying that. It’s all sorts of things like that.

I’m less worried about ANWR because I’m a supporter of opening ANWR. But I think that his vision is for more and more energy production. I sense that we need to be more prudent than that. I think we do need to produce more energy. I think we need to continue to work on alternative forms of energy like renewables. I think that is too soft for this administration. It’s hard driving. It’s competitive. It’s wanting to beat the other guy worldwide. I guess I’m reminded that all of our major federal environmental laws - almost all of them with a couple of exceptions - were signed by the Nixon administration. I want that sort of stewardship. That’s what I want. I don’t think I’m going to get that from a Trump administration.

Petroleum News: You noted being a supporter of ANWR, and you’ve said that consistently, but what do you think it’s going to take to get exploration and development moving?

Josephson: As I understand it the only defensive posture the national Democratic Party can take would be to filibuster because there are 48 in their caucus and 52 in the majority caucus effective Jan. 6 or whenever the swearing in is. I’m not an expert on Senate procedure but there is probably a nuclear option that could be used where a simple majority could pass such a thing. That could also be used for Supreme Court appointments. As I said, I’m a believer in ANWR development. If I could use the nuclear option in a skeletal way and not anything else I suppose I would want to do that, but I’m not an expert in Senate procedure.

Petroleum News: OK, on the topic of swearing in, you get sworn in for your third term Jan. 17. What do you and Rep. Tarr do between now and then?

Josephson: There is constant things going on. I had a meeting with the attorney general today. I have the Resource Development Council conference. I have the Western Legislative Academy in Colorado Springs. We have the occasional caucus meeting. We have an effort to sort of get the office organized so we have more documents scanned and more documents in boxes. I have to hire new staff. There is the constant emailing. I’m also taking a course at the university called tribal courts in Alaska - Native rights. I’m the oldest guy in the class. It’s a class of 18 to 20 year olds. I’m taking it because I’m interested but also to renew my teaching certificate. This weekend I’m taking another class taught by Cliff Groh on the fiscal crisis and the Permanent Fund. I’m not making it easy on myself by doing the limited things required of me; I’m doing more than that.

But before we get down there (Juneau), we’ll begin to look at some of these key areas like the oil and gas tax credits, the fiscal plan, the budget. We’ll be looking to form teams to research those areas.