Kerttula on oil taxes, in-state gas line

Juneau Democrat, House minority leader brings long-term perspective to tax change, Alaska Gasline Development Corp. legislation

Steve Quinn

For Petroleum News

Just as Gov. Sean Parnell’s oil tax bill hit parallel tracks in the Legislature, another oil tax bill emerges — this one from Democratic leaders in the House and Senate.

Right now Senate Bill 21 and House Bill 72 are being heard in respective House and Senate Resources committees.

But House and Senate Democrats say they have an alternative designed to create competition and achieve the goal all lawmakers on both sides of the oil tax argument agree upon: increasing throughput in the trans-Alaska oil pipeline.

On the House side, Minority Leader Beth Kerttula, a Juneau Democrat, is leading the efforts behind HB 111, the Democrat’s oil tax bill.

Kerttula does not sit on any resource committee but she has been on the front lines of oil tax debates since the Petroleum Profits Tax was approved in 2006.

She was also there when the Legislature replaced PPT with the current system known as ACES slightly more than one year later.

At the time, she successfully spearheaded efforts to secure a standardized deductions provision, which has since expired.

Before entering public office, she served as an attorney for the Attorney General’s office in the oil, gas and mining division.

Kerttula is among the longest serving House members and has begun her eighth term this year.

She sat down with Petroleum News to discuss her views on oil taxes and on advancing a natural gas pipeline project, as HB 4’s in-state line efforts are also being debated in the House Resources Committee.

Petroleum News: What would you say is the thesis of HB 111?

Kerttula: The thesis of the argument is that we want more production in the pipeline. To try to do that, there are three ways. First, get some new guys in the game. Get innovation. It’s what we know as the natural progression towards the smaller, scrappier companies. It means the tax breaks and credits. It also includes some things that have become more obvious after time. Get them access to the facilities. Get them that leg up that they have to have. We particularly have to have it in Alaska. We have a grip in the market from the big companies. We want oil and gas. We want to work with the big companies. But just classic economics tells you that you have to have competition.

That’s the second thing: Get competition going. Be sure that we’ve got some. Something that can progress the way most states have and that Alaska needs to.

Finally, try to incentivize, I guess what I would call the old oil. Get the older folks producing more oil and get heavy oil, those things going, too. So it’s a broad look at how to get production. For that we get reduced taxes. Alaskans have got to benefit along with the companies, especially on the high side. Now I’m hearing there will be a 0.1 progressivity. That’s laughable. That’s just laughable. That’s ridiculous.

Petroleum News: By offering an alternative, is this a statement that ACES is broken? Does it change your position on ACES?

Kerttula: It doesn’t. I think there could be things that could be tweaked. We had standard deductions that I would have liked to have seen kept for good, but they sunsetted. So there are obviously things that could be changed with any tax law. This is an effort to make changes that we think will help for a long time. ACES isn’t broken. ACES gave us in the enviable position that the state is in and it obviously hasn’t hurt the companies. Exploration is up; profits are high. It obviously isn’t broken.

Petroleum News: Why didn’t you offer one last year?

Kerttula: At that point the state was moving along and there was no real necessity for us to do that. Certainly there is the difference in the Legislature itself with the Senate having changed leadership, so we have to keep trying a little harder this year.

Right now there is such a huge push on the governor’s bill, and we need to be very clear on things that could help versus things they are doing.

Petroleum News: Do you think there is a chance that this can work its way to the floor?

I’m always an optimist that people will take good ideas and consider them. Then again, I watched what happened with the cruise ship bill in House Resources. That was a very poor process. I just don’t know. I’m hopeful any good idea gets discussed and we can see good ideas get into legislation, however it happens.

Petroleum News: So why not these bills that the House and the Senate are reviewing now? What problems do you have with the bill currently discussed in each resource committee?

Kerttula: For one thing, it gives away Alaskans benefit on the high side. What happens when oil goes to $250 a barrel? That’s just wrong. The second thing I really have a hard time with, why when companies are in the development stage, do we start messing with the credits then? We are trying to get them there, then all of the sudden the governor’s bill pulls the rug out from under them.

Kerttula: I’m concerned about it. Watching the Asian market and watching the fracking outside, I think that Alaskans have not yet put together how we get our gas to market so we can take advantage of things. That’s part of our problem. The question is how do we do this so we can be successful. I’ve always thought that the large line was our best bet, but perhaps it’s LNG through Valdez. I disagree with the small bullet line to Cook Inlet for a number of reasons. I’m in agreement with the governor in being concerned with the mega agency and having rights to do things that might not be economically wise for Alaskans. There is gas in Cook Inlet. Do we want to put millions and billions into something like this only to undercut what we’ve been trying to get going for decades in Cook Inlet? I think gas is incrementally more complicated than oil for Alaskans and we haven’t managed to get our paths straight. I thought AGIA (the Alaska Gasline Inducement Act) was the right thing. I think if the fracking and the lower cost of gas hadn’t come in, we might be there by now.

Petroleum News: There’s a lot of talk about restricting the export of LNG, and many believe Alaska should be exempted from those discussions and treated separately from the Lower 48. What are your thoughts on that?

Kerttula: I think we are a separate market and frankly a separate world. There are so many differences between Alaska and the Lower 48. I do think we should be exempted. What worries me and I think about it late into the night, we have a problem of how do we serve our own Alaskan citizens well? How do we get low cost energy across the state and by what method? Of course that isn’t just obviously gas. I believe the answer lies with renewable resources. That is what we are going to have to go to more and more. We have such inequities. For example, we have right next to each other, one with high-cost energy next to one with low-cost energy.

Petroleum News: Still on natural gas, what are your thoughts on HB 4, which is currently under review with the House Resources Committee?

Kerttula: It still has some problems that last year’s bill did (under HB 9). I still have great concerns about the economics and about the mega agency. You’ve got to be concerned about the economics for the consumer.

Petroleum News: Shifting north, you had Arctic exploration. You had a shorter season than you would have liked and there were problems with the rig afterward.

Kerttula: I have two major concerns. No matter if we do get production, that money is on the outer continental shelf. That’s going to the U.S. government, not to Alaska. We need to nail down revenue sharing and we need it before there is much more going on up there so we aren’t feeding the federal coffers while putting ourselves and the Arctic at great risk. That’s my second concerned.

The Kulluk became a big joke. Every time you turned around, there was a problem. I talked to a few of the guys who came up to work on the emergency crew. They told me there was never any risk of any oil leaking and more important nobody was hurt, but this is the next small step to a bigger problem. So I think we have got to figure out the technology. Mark Meyer sitting at the University of Alaska right now, that’s a really good thing.

Until we know how things are going to be cleaned up and what is the actual prevention, I have a real problem. If you look at the problems in the Gulf of Mexico, just wait until you see the problems of a big spill in the Chukchi Sea. They’ve got to do it right. I’m all for exploration. I want to see what the plans are and I want to be sure they can be performed safely. I know that sounds harsh, but with that environment and with that kind of risk, they have got to be sure they can do it safely and environmentally sound. Then we’ve got to be sure we get the money. Why put ourselves at risk. Alaskans are the ones who get hit. We would we do that if we can’t share the revenue.

Petroleum News: Have you been in touch with our D.C. delegation on that issue?

Kerttula: That isn’t news to any of them. They know that. I know they are both honest (Sens. Lisa Murkowski and Mark Begich). It’s still a problem complicated with the sheer geography.

Petroleum News: So in summary what would your priorities be for this legislative session?

Kerttula: I know we wind ourselves around oil taxes every year. That isn’t going to end. But I believe some of our answers lie with technology. How do we drill in the conditions of the Arctic? How do we foster low-cost access in to an aging pipeline? How do we tanker cost effectively out of Valdez? More and more that’s the future. The Legislature can try to bog itself down into trying to give the companies more and more money. It’s not about the taxes. It’s about the world price and it’s about how do you get to the oil and get it out. So my goals are to be sure Alaskans get a fair return, be sure that anytime we give a reduction in oil taxes, it’s linked to further production and try to work on the technology and incentivizing these ideas.