Stoltze to Walker: Proceed with caution

Outgoing lawmaker, now serving on Senate Resources, remains hopeful for a gas line, but adds market forces may push Alaska aside

STEVE QUINN

For Petroleum News

Sen. Bill Stoltze may not be running for re-election, capping a 14-year career in office, but his work is hardly done. The Chugiak Republican returns to Juneau in July for another special session on tax bills including another shot at reshaping the state’s oil tax credit system. Stoltze spoke to Petroleum News shortly before and after Walker issued a proclamation calling for the special session.

Petroleum News: You’re closing out 14 years. What comes to mind first when you think of the entire time you’ve been in office?

Stoltze: My first issue with a governor was with Murkowski when he made an executive order for the unitization of the fields, which was a tax increase on the industry. The big issue, the policy issue, was the Stranded Gas Development Act. It was a Murkowski bill but Bud Fate was really involved with that. Bud Fate in the House as the Resources Committee chair probably had more activity on that during his last term in office. These were major revisions to the Act. It’s kind of like during the Hoover administration: Prosperity is just around the corner. During my whole 14 years, a natural gas line was just around the corner.

Petroleum News: On the gas line, where do you think the state succeeded?

Stoltze: I think we’ve probably succeeded in not blowing more money than we did, not taking the steps that weren’t economic. Sometimes the whole market conditions forced that. We’ve spent a lot of money on the different ventures.

I think the bigger success is not throwing our only nest egg on something that right now if you were depending on gas line revenues to carry us over and not having the impending liquidity of Permanent Fund Revenue earnings to lessen the fall at a time when oil has dropped so low.

I’m a skeptic on this. The AIDEA bill the governor was pushing, I don’t want to be too pejorative, but it’s going a little Hugo Chavez, having the state - well nationalize isn’t the term - but directing the activity and being a player. Not just a player but the central player where the state has a role.

I think the governor’s team believes the state can be the key investor, maybe the single investor on this. We have laws of gravity and laws of economics and you’re not very successful when you mess with either of them, trying to force a market that doesn’t exist.

Petroleum News: Do you think the state saw it needed to back off when it slowly migrated from AGIA to SB 138?

Stoltze: AGIA pretty much died its own death. It didn’t take a court order or any kind of extra intelligent forces to decide to pull the plug on that process. Just about everybody voted for the framework of AGIA. I think 16 of us voted against the contract. I was accidentally right on that one. I wasn’t steering it. It was like a bunch of ants floating down a river on a rotten log. Everyone thought they were steering that one in the legislative process. It really died a natural death.

Petroleum News: LNG then became the path forward, though not right away. It was almost like a slow migration, first LNG would be considered as part of AGIA, then as part of a re-written plan under SB 128.

Stoltze: Well, the whole Midwest scenario, that dog just didn’t hunt. Under no scenario was it feasible to send our gas to thirsty Midwest markets as one of our former governors called it - energy hungry, energy thirsty - one of those. Can you imagine if we were sending gas at a loss every day to the Midwest right now?

Petroleum News: Even the previous proposed contract under Murkowski didn’t gain much traction, either.

Stoltze: I think he hadn’t brought the public along either. Some of the factors he talked about to push things forward, he never had the full legislative support, and definitely not the public support on the particulars of his method.

Petroleum News: OK, so the next step comes in the fall when we’ll be hearing from all four partners on pre-FEED? Even as you’re heading out, is there anything you’d like to hear specifically?

Stoltze: You know if we can begin to address the Interior energy needs. We’ve had so many efforts trying to address the needs of the Interior who have been very vocal and will vote for just about anything that’s going to offer a glimmer of hope. If we can provide for our internal needs, maybe it will take the severe politics you get out of the Interior and direct us more so they can be more objective towards looking at the market approach.

All of this is driven, one plan after another, as to how you take care of the Interior, and justly so for folks who represent their area. We’ve had a reprieve with the pricing right now.

That’s really out of the real frustration from the Interior. Motion and big economic investments by the state, don’t confuse those with necessarily progress toward a solution. Politics and the severe need, it forces folks to jump on decisions that aren’t part of basic economics or marketable supportable solutions.

At least that’s my observation. I’m not criticizing my colleagues. It’s just a reality. It’s put them in a tough spot. They have an imperative to deliver something for the Interior. It’s too easy to jump on any proposed solution that might get you there. Maybe we just isolate it and say we are going to bite the bullet and make sure we have a gas line.

Even a gas line for the Mat-Su Valley doesn’t mean a lot of the valley is on natural gas. The areas way off the grid, which is a big chunk, are still going to be on diesel - probably a pretty large percentage.

Petroleum News: The governor has taken unilateral steps before during an interim, as he did last year with the Medicaid expansion. Do you sense that there may be any of those coming when there is an interim on the gas line?

Stoltze: You know the governor has limits on what he can do. I think that’s a lot of the obsession with what the state’s bond rating has to do with and less about individual communities in the state, our university and AHFC’s ability to bond - that as well as restructuring of AIDEA, which is toward getting to a state-centric, government-driven pipeline proposal.

There were things that seemed like low hanging fruit when he was running for office, like salaries of executive directors of the gas line authority (AGDC). Seems like you need a ladder to reach some of the fruit they are growing there now. It probably makes Dan Fauske blush and ask what was I doing making a mere $366,000 when the next guy coming in could make three quarters of a million potentially.

Petroleum News: What are your thoughts on the structure of AGDC now with the new hire?

Stoltze: I think the expectations are built on a lot of shaky premises. I’m not trying to be pejorative. It seems to have more elements of pipedream and not pipeline. I realize these are from well-motivated people who have a passion for their direction.

Petroleum News: Would you like to hear from the new AGDC director soon, perhaps in a hearing?

Stoltze: I suspect once we get done with the business of special session, I’d be surprised if (Senate Resources co-chair) Cathy Giessel didn’t want to have some hearings. They have to have their quarterly updates, too. I’m looking forward to it. He appears to have good credentials. I like to know what does he expect to do? Does he expect to put together a framework, build a gas line and say you’ve got to put your gas in here? Is he part of a plan to take back leases? What’s the end game of this whole thing? Is he part of putting an investment into a pretty speculative project? Right now the numbers don’t show a lot of market support. The most objective analyses are very skeptical. If this is such a great project, how come there aren’t all kinds of investors coming forward? Everything has been kind of vague.

I keep hearing that we have Asian investors interested. Well Asia is a pretty big place. Indonesia has 125 million people. They are all players in this world market. That’s what this is - a world market. I guess I’m just at the level to know just enough to be very cautious and skeptical. I think Alaskans should be asked would you want to invest your Permanent Fund and potential dividends into this.

They certainly have shown an opinion every time we talk about using the Permanent Fund for anything. Maybe the public needs to be more involved in the conversation. Not maybe, they do need to be. It would be nice if there was some type of (voters’) blessing where we are willing to take this risk and hope there is a new panacea for state revenue. That will force a discussion over what the real numbers are in the public.

With these investors, they are very polite until they are asked to take out their checkbook. When you are at the alumni party enjoying the hors d’oeuvres and stuff, then they separate out who is really serious when they make the speech about bring out your checkbook. Both are cordial events, whether it’s a visit from potential Asian investors or the alumni meeting. Until someone whips out a checkbook they are just observers who are there for the free hors d’oeuvres.

Petroleum News: Do you ever see this coming to fruition?

Stoltze: I tell you, I would love for it to work. Just like (former House Majority Leader) Ralph Samuels said with AGIA, “I hope I’m wrong.” He had sincere hopes that he was wrong. Same thing when I hope I’m wrong on things I’m skeptical with.

Petroleum News: The other thing that has gone back and forth almost the entire time you’ve been in office is tax policy. Some believe the Legislature just hasn’t nailed down a stable tax policy either with PPT or ACES or SB 21. What are your thoughts on that?

Stoltze: Certainly the credits are an issue. I don’t think any of us fathomed the low oil prices, just as we didn’t fathom the high prices. Shame on the legislative branch for not delving into it. The governor’s as well.

We’ve got to stop thinking about what’s the right oil tax policy for high prices or low prices. We’ve got to have a tax policy for fluctuating prices, so it’s fair and rationale no matter what the market. I think Mr. Alper (Ken, Alaska’s tax division director) said something like “I’ve got a tough job. I’ve got to try and put together a tax policy for low prices.” Well, that’s not very comprehensive and visionary for a tax director. Our goal ought to be having a tax policy that will work at all levels of prices. It can’t all be what’s our maximum and adjust it because we aren’t doing well on tax revenues. It ought to be an enduring policy.

Petroleum News: Do you think the Legislature has an appetite for a review of the regime under the fluctuating prices?

Stoltze: We are pretty close. We had a 2014 vote and the public voted on it. I’m actually surprised the public voted for maintaining the tax policy because of most of the polling and anecdotes. But people looked at it and said let’s have stability. Let’s have an economy. The governor had said there would be no talk about income tax or taking the dividend away.

It wasn’t absent the discussion of reduced oil prices or less revenues. He was keenly aware. He was running ads saying we are spending $7 million a day we don’t have. It wasn’t said in a vacuum. It was said in conjunction. (The late former Gov) Steve Cowper got criticized a little bit for saying all bets are off, but at least he admitted to it.

Petroleum News: So what then do you think of the special session called by Walker, which has another attempt at oil tax?

Stoltze: It would make sense for him to sign HB 247. Then he’s not having to re-claw new turf. Would you want to have to go back and re-fight the parts you won with Cathy Giessel again?

Petroleum News: With exception of the GVR (gross value reduction), the new oil provision, HB 247 did not change SB 21.

Stoltze: No, but that’s the goal of the governor, to rewrite SB21, which is pretty well stated by Mr. Alper. You send a signal when you bring in a certain type of quarterback that you know you’re not going to have a certain type of running game. You know what kind of game there is when he hired Mr. Alper. He sent a pretty clear signal. It’s pretty consistent with notwithstanding that he said he didn’t think we should tinker with it again.

I won’t fault him on it. I don’t think he’s ever been shy through his litigation with the industry that he’s a critic and that he’s always had more interest in the revenue that the production and the jobs. I think that’s just the reality.

Petroleum News: Do you think the next regular session will have an oil tax bill?

Stoltze: I would guarantee it. I would guarantee it. The governor is probably better off taking where he was able to get a consensus and his people have said we probably need to change out the Legislature. It’s kind of hard to deal with people when your stated goal is to take them out of your seats. It makes for a less than a warm and loving relationship.

I guess the governor deserves his shot. If he wants more of his Democrats in office - and I understand that - and more malleable Republicans. That’s part of the process. It’s not unreasonable for a governor to try to elect a Legislature in his own image who will conform with him. He’s really been more of a Democrat and he wants to have a Democratic-led Legislature. I think every governor wants to have someone who melds with their philosophy.

I’m not being critical. It’s normal pragmatism or dogmatism, I guess. He’s going after some of the people who have been some of his key supporters on some issues, like his number one initiative other than the gas line, which has been the restructuring of the Permanent Fund and the Dividend. It creates a little bit of a risk when you go after the group you’re praising, the ones who stepped up (Giessel and Senate Majority Leader John Coghill), people who voted for his plan.

It’s an interesting dynamic with people who aren’t running again because of reapportionment cycle and the ones who are unopposed. You have more House members in competitive Senate races than you do senators. You’ve got Gattis (Lynn, seeking Charlie Huggins’ seat), Hughes (Shelly, seeking Stoltze’s seat) and Craig Johnson (seeking Lesil McGuire’s seat). It’s a pretty interesting observation. It would have been the easiest way to take a no position on SB 128. They took the more risk plan from a pure politically pragmatic point of view.

Petroleum News: So from 2002-2016 where do you think the state is better off when it comes to resource development?

Stoltze: Southcentral meeting its energy security is a pretty big deal. I represent the Mat-Su mostly now. We’ve been pretty blessed. We haven’t seen the severity of the issue because more production online and lack of severe winters. But during the middle of my term - around 2009 and 2010 - we had years when we were wondering if there would be a gas supply to the northern valley.

Once you lose that pressure and compression, just getting it fired up again is a big deal. We were the canary in the coal mine. That hasn’t been a problem with the major gas suppliers in Southcentral. We’ve spent a lot of money helping that, both in terms of credits and facilities that we invested in like the gas storage. Some of the folks in the Interior have not been shy about their disappointment but at the same time they are getting gas trucked up there. You’re talking about 55 to 60 percent of the population so it’s not a special interest we are talking about.

Petroleum News: That’s Cook Inlet. What about the North Slope?

Stoltze: We are on the cusp on a lot of potential investment from folks that have come in: Caelus; Armstrong; Repsol. My mom used to tell us when we were kids - don’t pick those carrots when they were little. Even though they were pretty tasty, you’re not going to have much of a crop. There is that temptation on wanting to maximize everything. I’d like these companies to be here for the long haul and continue to make those investments. It’s certainly not their fault that it’s so difficult to do business here. The environment is a struggle. When they tell you it’s going to take seven or eight years to get a project to production, it’s not because they don’t want to go faster. We put up a lot of the hurdles.