Rauscher: Proceed carefully on HB 111

Sutton Republican enjoying freshman term on House Resources Committee and immersion into oil and gas issues facing the Legislature

Steve Quinn

For Petroleum News

Never let it be said that House Rep. George Rauscher gives up.

The freshman lawmaker got into office on his third attempt, having beat incumbent Jim Colver last year. He lost his first attempt to Eric Feige in 2012, then came back to tie two-time House Resources co-chair Feige in 2014, but both times lost to Colver.

Rauscher, a Sutton Republican, gave it a third try and timed it well as Colver fell out of favor with the Republican Party who threw their support behind Rauscher. Colver began leaning away from his party on some oil tax provisions less friendly to the industry and was considered a liability.

Rauscher’s victory kept the current Democratic-led majority’s margin as slim as it is: 22-18

“It was important to our district that Jim did not win,” Rauscher said of his decision to try a third time. “I think more people in my district realized we have a problem with Jim Colver representing us and they didn’t want that to happen again. They sought me out on the third run.”

Rauscher found himself getting a seat on the House Resources Committee, one of four freshmen on a committee that featured no one with more than two terms on the committee.

He shared his first year’s experiences with Petroleum News

Petroleum News: Let’s start with your first year. You got on Resources. I know that takes the caucus support, but was that something you pursued?

Rauscher: Being in Resources goes to the community I live in. I live in a community that was founded by coal. The military took over the coal mines in the Jonesville area which were stated in the early 1900s. They utilized that coal. They kept Palmer warm; they kept Anchorage warm. They kept the war going. The effort in WWII was all support by coal coming out of the mines in Jonesville and Eska.

Those were actually live coal mines that were supporting all of those efforts. You’ve got to remember coal started to disappear toward the ’50s right after we started looking at diesel and other means. It was completely phased out in the Eska and Jonesville area during the ’70s. Most of those mines were closed by then. Ever since then, we have always wanted the coal mines to start back up. A Japanese company tried to start the coal mines up again. It didn’t work out for them.

Usibelli bought those companies. They tried to start up Wishbone. They worked real hard to get these up and running.

Back then I was just getting on the community council. I thought it was going just a little too far to the left. I wanted to see the coal mines go. There were some environmental issues. I probably got elected (resources subcommittee) chairman (on the Sutton Community Council) back then because I never had a political opinion in the public eye. I was always accepted in the community as a fairly nice guy, cooperative, somebody that works within the community. Somebody that gets things accomplished and always volunteered.

I was also a soccer coach and because my daughter had a game during the first meeting I couldn’t attend. While I was gone, I was named the chairman because he does the most work. I started to see Usibelli getting pushed out of the arena. I thought it was kind of unfair. They were trying to get project going that would create jobs. It was really important to me to get the jobs created. They were driving far to work to Anchorage.

I began an alliance or at least a friendship I should say with Usibelli. I think that’s how it all began. But you also have to remember that Sutton is an oil town. Most of the people when I was first there in the late ’70s and ’80s, they all worked for Parker Drilling and Brinkerhoff. I know I started out with Brinkerhoff. As recently as three years ago I worked for Dave Cruz and we were working on ice pads where you would maintain the hotels.

You’d be the camp operator, ordering sewer out and ordering water in, taking care of the whole operation there whether it’s parking, electric generators and getting it out on the ice once it’s scraped and leveled, then getting it out of there before May 1 once the ice melted. That was all part of the job and that process.

You were able to see what the oil companies went through from a different aspect. When you’re working for drilling outfits, you see what it takes for a drilling outfit to get their pad up from a place where there is no well, drill it in an exploration environment, come back to do a workover when you have the infrastructure.

So you see all that, but you don’t see everything else until you’ve actually been a camp operator. When you’re a camp operator, you’re working with all of the surface companies. Half of the equipment is parked right there on the pad. You’re talking to these operators. You’re going to the sites all the time. You’ve got the ice roads being maintained. It’s a big operation.

So when we are sitting at the table trying to decide who should be where, what they should do and what committees should they be on, you basically laid forth what experience you have and what committees you feel you should be on. So that’s how it happened.

Petroleum News: So, with your background and this being your freshman year, what have you learned most on Resources?

Rauscher: I have learned that it’s a whole different game when you’re in the minority. When you’re in the minority, you don’t have as much sway. You don’t have much pull. You have four votes to five so you’re really not going to get too far. You can put in amendments. If they are good and if they are agreeable you may get them through. Most of the time you don’t have the votes to get them through. I did have a bill - HB 6 - and that was the Jonesville bill. It ran all the way through the House (it’s in Rules awaiting floor vote). It (Sen. Mike Dunleavey’s companion bill SB 65) ran through the Senate and it’s sitting in Finance. That’s not too bad for a freshman. I think that’s a pretty good accomplishment. That’s not an easy task.

You have to remember I probably replaced somebody who the leadership would have appreciated having back (Colver). That kind of has some offset to it. I think over a period of time that dwindled. I think in the beginning that was a factor. I believe they (majority) have accepted me pretty well. I think I became something other than what they envisioned. I think we get along pretty well.

Petroleum News: In this, your first year, you’re faced with a pretty heavy hitting bill, HB111. What are your thoughts on this bill?

Rauscher: I remember answering a question of yours early on. I think there were a lot of moving parts. I didn’t at that point, the committee bill, I don’t think it was good for Alaska. There were too many taxes involved for the state, for the producers to enjoy, work with us or think that would entice them to want to continue in Alaska. So I think all those things are pretty important. We all realized cashable credits had to end. It wasn’t working for the state. It wasn’t working for the producers.

We also realized the NOLs (net operating losses) moving forward was one way we absolutely could make a save of that. I believe the majority in the House wanted to go for the whole bit all at once to fix everything. Then when it got to Finance it took it even further, which I think was kind of a downfall. Talking to Senate Resources, I think they were looking at taking smaller steps. That’s what they were willing to work with.

I had put in an amendment that basically covered some of where the Senate is at right now except for maybe ringfencing. I tried to sell it as something they could own in the House and take a little more next year. As it worked out, they kind of lost it. Now they Senate will probably get closer to what they wanted.

Petroleum News: One of the criticisms regularly heard about the state’s oil tax system is that it’s too complicated. Even the Legislature’s consultants stressed that in hearings in both chambers. The other is there is not enough confidence the state can afford the system in place at a broad range of prices, say from $20 to $120. Let’s start with the first. What are your thoughts on the criticisms that it’s become too complicated?

Rauscher: It’s true. Very true. It’s too complicated. The fact that is it’s so complicated that no one except for Paul (Seaton), (Geran) Tarr and (Andy) Josephson can comment on it. Everybody else, they are not wanting to deal with it, it’s so complicated. That right there is a problem.

If you remember, Finance wanted to put in DNR taking over certain functions. That opened up a whole new department for DNR. It would cost a lot of money. There would be new software, a huge learning curve, shifting and shuffling responsibility. It didn’t seem like it would make sense to me. It seemed like it was too much work to me.

If you remember me saying I realized what they were doing. They wanted to capture more information. They wanted more information than what they were given. I think that was a big part of it. I think we sacrificed too much. It was too much for me. That’s just my opinion. There are a certain amount of things they have to keep to themselves to be operable against their competition.

We had Ruggiero (consultant, Rich) who wasn’t in favor of a lot of things they were doing. He was looking at NOLs moving forward. He was talking about looking at it from a worldly view trying to figure out and whether or not we fit into that scope or whether we were on the bottom, and how that would work with producers with future oil as far as new fields coming on line. I think he thought if you get too far from where it was, we would be at the bottom of the barrel.

Petroleum News: So what about the affordability. Do you get a sense the state can afford the system that it has now, exclusive of the cashable credits or getting back to the complications, is the system too complicated to discern that?

Rauscher: So HB 247 combined with SB 21, I think right now we had to get rid of cashable credits because the state cannot afford to keep going with them. So what we did with the NOLs was offset it with production. So once those fields are producing, that is where they can recapture a percentage, whatever percentage we come up with, of the cost to get that field moving. Ringfencing kept it in that field only. You can sell wherever you want. Whoever owns it can only keep it (credits) in that field. They can’t charge it to a different field if that have eight or nine others. I don’t know whether the producers will agree with that one, but I think that’s part of it. That is something we should be thinking about perfecting if not accepting.

Petroleum News: You mentioned getting information from producers under DNR having a greater role in the House Finance plan. Do you feel the Legislature is getting enough information from the producers or the industry as a whole to make the decisions you arrive at?

Rauscher: Yes and no. And I have to be careful here because if you don’t explain yourself well, you give off the wrong impression. I think there is more information we could probably utilize, but I respect their ability - and I’m talking about the producers - to safeguard their projects across the industry. I think they have to have that advantage. They put a lot of time, they put a lot of money into getting that information, being able to put that information into a program, which they believe is a monetary gain for them or a way to produce a field. Once we start demanding that everything be given back to us, we’ve given that edge away. We’ve given that ability for them to utilize their big investment. I don’t think we should be doing that 100 percent. There is some information we could use but not to the degree that was given out in HB 111 in the House Finance Committee bill.

Petroleum News: Let’s shift to AKLNG. It’s a difficult topic for some people because they don’t know where they want the state to go next. So what’s your assessment right now of where the project is? You’ve had hearings; you’ve had updates. What’s your take?

Rauscher: I wish it were farther along; I wish we had buyers; I wish he had investors. We had people willing to see the economic benefit for the Pacific side. At this point, I think there is a lot of concern when and if all of that is going to happen. We all would like to see some positive feedback from some of those we hear are going to invest. Until I get that and hear about, it makes me apprehensive.

Petroleum News: What more would you like to hear in coming months?

Rauscher: Well you know we had the summit. I don’t need to have someone say yeah, here’s a pile of money, let’s go. I don’t need that. I need to hear people say yes and we’d like to work with people and put this together.

Petroleum News: From whom?

Rauscher: The Asian markets. The buyers. Those who are going to invest. If we had them say we want to work with you to see if we can put it together. It’s not a commitment to invest. It’s not a commitment to buy a share. It would mean someone else sees the value. Right now, where is it? Where are we?

Petroleum News: You’ve had periodic updates from AGDC hand-delivered to your office.

Rauscher: Oh, yeah. They are doing a really good job of working hard. They really are. They are just having trouble pulling it together. As the world markets change, as commodities and areas where they are producing LNG around the world starts to change and as demand changes it becomes very dynamic. Until we can grab a foothold, it makes a person wonder sometimes. I’m very hopeful. All I can say is I just wish a little bit more would happen - and soon.