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Congress saves hardest for last Energy bill conference committee moves gas line tax credits to end of agenda Larry Persily Petroleum News Juneau Correspondent
Congressional conferees are leaving the hardest issues for last, and that means federal tax credits for the Alaska natural gas project will be among the final items on the agenda as negotiators craft a national energy bill.
As House-Senate conferees work their way through the easiest points, it looks like the final two contentious issues will be whether to approve tax credits and other financial incentives for Alaska’s gas pipeline, and how to help solve the nation’s electrical distribution and reliability problems, said U.S. Sen. Lisa Murkowski, R-Alaska.
In a political world where candidates often ride to victory on somebody else’s political coattails, the Alaska gas project may pull through by holding onto the power lines of congressional response to last month’s East Coast blackout.
The blackout was a wake-up call, Murkowski said. “People are motivated to get something through Congress on an energy bill,” she said, explaining that the political need to pass a bill could help Alaska’s cause. Final bill expected early October Negotiators want to wrap up the final package in the first week of October, she said, before Congress goes on its scheduled weeklong recess for the Columbus Day holiday.
Meanwhile, opponents have not strayed from their three reasons against tax credits for the $20 billion Alaska gas project that could add more than 6 percent to North America’s natural gas supply in the next decade.
The arguments center on what that much gas would do to market prices, how the tax credits would work, and the philosophical issue of federal support for private enterprise, Murkowski said. Supporters of the federal incentives package are working hard to convince skeptics that the benefits to the country far overwhelm any risk to the U.S. treasury.
The tax credits could cost the federal treasury almost $14 million for every month the wellhead value of North Slope gas is a dime below the support level proposed for the legislation.
Supporters also are busy telling anyone who will listen that the project will not move ahead without the tax credits.
“I am continually reassuring folks that this is what we have to have in the energy bill to make the project a reality,” the senator said.
Misunderstanding over tax credit “There’s a misunderstanding here on how the tax credit works,” Murkowski said, adding that some of her colleagues think it means writing a check to big, multinational oil and gas companies.
The producers, Alaska’s congressional delegation and Alaska Gov. Frank Murkowski are pushing a tax credit provision that would allow North Slope producers to take a credit against their federal corporate income taxes whenever the wellhead value of their gas drops below $1.35 per thousand cubic feet. The credit would not exceed 52 cents per mcf, no matter how low the price of gas might fall, and the credit would phase out as gas prices approach $1.35.
Though not entirely shielding the producers from extremely low wellhead values, the provision would protect the companies from the risk of high pipeline tariffs by pegging the tax credits to the wellhead value — the price for the gas after deducting for transportation costs.
Critics also argue on a philosophical level that the federal government should not be in the business of supporting commodity prices, Sen. Murkowski said. She reminds her colleagues, “There are commodity incentives for … many things,” and Alaska is only asking for the same treatment.
The third category of opposition comes from those who fear Alaska gas coming into the market would knock down gas prices nationwide, hurting Canadian and Lower 48 producers that do not have any Alaska gas to sell at a federally supported price. The senator said she is working to show those skeptics that the market not only needs Alaska gas but could accept the additional supply without causing a steep price drop. President still a problem And then there is President George Bush, a supporter of the Alaska gas project but an opponent of federal tax credits. Murkowski said she raised the issue at a recent meeting with the president. “He said, ‘Yeah, yeah, yeah, we gave you that loan guarantee,’” referring to White House support for a federal loan guarantee to help the producers obtain lower-cost financing for the project.
Murkowski said she reminded the president the state also wants the tax credit provision.
Bush’s Secretary of Energy Spencer Abraham referred to Alaska’s issues in a Sept. 10 letter to Sen. Pete Domenici, chairman of the Senate Energy Committee and co-chairman of the House-Senate energy bill conference committee.
“The administration strongly opposes the price-floor tax credit provision … and any similar provision because it would distort markets, could undermine fiscal responsibility, and would likely undermine Canada’s support for construction of the pipeline,” Abraham said.
“However, in lieu of the price-floor tax credit, the administration would be willing to support an appropriately structured 80 percent loan guarantee, accelerated depreciation, and an enhanced oil recovery tax credit.”
Although the tax credit pegged to the wellhead value is different from the original proposal cited by Abraham in his letter of opposition, it is similar enough that the White House has not changed its position.
Some items already in bill And while Alaska waits to see what Congress decides on tax credits, loan guarantees and accelerated depreciation as financial incentives to build the line, the energy bill conference committee has released draft language including several of the items requested by the state.
Domenici and his Republican colleagues on the committee are drafting the bill in private, then releasing provisions for Democrats and the public to see. Although the Democrats are grumbling about the tactic, there is little they can do to stop it.
The draft bill includes:
• Streamlined permitting for the project, with expedited court review to limit delays from any legal challenges.
• A provision for a federal coordinator to oversee and speed up agency work on the project.
• A statement that the Alaska line and Canada’s Mackenzie line will both be needed to fulfill North America’s natural gas demand. This “sense of the Congress” statement is intended to reassure Canada that Alaska is not trying to take the entire market to itself, Murkowski said.
• A statement encouraging, but not requiring, the use of North American steel and union labor on the Alaska line.
Bill encourages Alaska ownership The draft bill also includes one more “sense of the Congress” statement that encourages the producers to take on Alaska Native corporations and even individual Alaskans as partners in the project. The corporations, led by Ken Thompson and his Pacific Star Energy company, had asked for a federal law requiring that the producers let them invest and own 10 percent of the project, with other Alaska companies and individuals sharing in that 10 percent stake.
The producers objected to any requirement forcing them to take on partners, and Sen. Murkowski opted for the statement of intent instead of a mandate in the legislation.
The committee has not yet addressed several other Alaska issues, including whether the tax credit would apply to the state’s royalty share of North Slope gas production or whether a federal tax credit provision for heavy oil should be expanded and extended to provide a $3-per-barrel credit for North Slope oil. Murkowski said neither issue has generated much debate, and she is hopeful of winning approval of both provisions. ANWR still in trouble Alaska’s other wish-list item in the energy bill — congressional approval for drilling on the coastal plain of the Arctic National Wildlife Refuge — appears headed to another year of defeat. A coalition of 43 senators, 38 Democrats and five Republicans, have sent letters to the conference committee, warning them to leave ANWR out of the energy bill, or risk losing the entire bill.
It would take 60 senators to stop a filibuster of the bill, giving the 43 ANWR opponents a slim cushion to block the legislation.
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