Johnson: Credit system changes warranted

Freshman says she’s enjoying House Resources, cautions pending advisory group against making changes just because of group’s formation

House Rep. DeLena Johnson had her sights set on a seat on the House Resources Committee since the Palmer Republican got elected. Having served two terms as the Palmer mayor, Johnson says she wanted the challenge of being immersed in resource development discussions. She got exactly that. Not long after lawmakers gaveled in, the House Resources Committee introduced House Bill 111, which ultimately ended exploration credits, allowing companies to carry forward the expenses against their taxes upon the beginning of production. Johnson shared thoughts on her first year in office with Petroleum News.

Petroleum News: I realize it comes down to a caucus vote, but what drove your interest in starting your first term on the Resources Committee?

Johnson: I’m a near lifelong Alaskan and we are a resources state. We talk about revenue and increasing revenue, so to me, we have to increase our production of the variety of resources that we have. To me, looking at the budget and looking at Alaska, Resources was the obvious place for trying to make sure we do something where we can make a difference.

Petroleum News: It’s considered to be one of the tougher assignments, certainly for freshmen but sometimes even for those who have served several years because of the heavy lifting that comes with that committee. Were there any surprises or maybe it was that difficult?

Johnson: I don’t think there were any immediate surprises because being in the minority I knew the committee would be focused on raising oil taxes. I don’t think there is any secret to it.

I think I was a little surprised that we were starting off with topics like invasive species and the wolf buffer. I didn’t see those coming. I did see what ended up being HB 111 coming. I knew that some version of that would be brought forward. We fought all the way through that to keep the tax burden minimized as much as possible in the minority.

Petroleum News: What about the volume? It piles up pretty quickly in Resources. The size of the binders you folks bring to the committee are pretty daunting, if also heavy.

Johnson: It does pile up. I have a great staff (Linda Hay) and that makes a big difference. Linda has been involved in many aspects of resources. She’s been a committee aide for years. I was blessed to have her on a team. That helped with the volume of work. I don’t think you can overwhelm someone too much if they know what they are doing, so that was a tremendous help. I think it also helps being an elected official before because there is a tremendous amount of paper coming through. The truth is there was a lot to learn for me, the verbiage, the language and all of those things very specific to that very committee. It was a big learning curve. I felt like I had a lot of background in many ways, but there was a lot more to add.

So I’m pretty appreciative of getting to jump right into things. I think our voice in that committee made a difference in the final outcome of the oil tax bill this year. I finally voted for HB 111. From the first thing put in front of me - the first version of that - there was no way that I ever anticipated being a yes vote on that. The process served that bill pretty well. I don’t love it. I don’t think anyone does. It was the process and I ended up voting for it.

Petroleum News: So what drove your vote on HB 111? Was it the compromise, the end product? Or was it the case of the cash credits dragging down the state?

Johnson: When I talked to people in my district, one of the things they generally agreed upon was we had to deal with the cash credits in the middle of our budget issues. We had to address that because it was getting too high. That’s one of the things that drove my interest in Resources, too. We also had a lot of these small companies in my district, these small service companies. I didn’t want to see them hurt either. That was foremost on my mind. My thought was, and I think other people too, was we were going to address some of the payoffs of those credits. It saddens me that we are only paying the minimum on that. Addressing the cashable credits is what really drove my vote on HB 111 and my interest in staying with it until the end.

Petroleum News: Obviously many are not pleased that a large amount of payment on the credits applied for still remains unpaid. Does that concern you even as that debt will not grow?

Johnson: You bet it concerns me. There are people out there who put money into developing a field based on the good faith and the word of our Legislature in Alaska. It’s our full faith that they operated under. It concerns me very much that even though we had a minimum in the agreement, I don’t believe that’s the understanding they went in with, so I certainly have concerns. You make those kind of promises, well a promise made is a debt unpaid. This is a debt that Alaska needs to pay. I believe it’s hurting our credit rating. We need to pay more than the minimum.

Petroleum News: During the conference committee, Rep. Pruitt tried to add $20 million to the credit pay down. Even at $20 million when nearly $1 billion will be owed by next year, is that important?

Johnson: I was pleased that he did that. The minimum sends a message. We are not really interested in getting this off the books. We aren’t really interested in getting those people paid off. I was pleased that he brought that up in the conference committee. I was disappointed that it didn’t go anywhere. I was pleased that he put it out there to be recognized. We can’t quit recognizing that it is having an effect on our small businesses throughout the state. As we stop talking about that, then it becomes another thing that maybe we pay or maybe we don’t pay. Well we don’t want that to happen because those are people inside Alaska that it’s happening to.

Petroleum News: The object of credits is to incentivize production. With these credits now tied to production, do you see it as an incentive to produce?

Johnson: It will incentivize production. They are not getting any kind of tax reduction if there is no production It’s going to have an effect. I don’t think we know what affect it’s going to have on exploration. I think there are some real questions on what affect it’s going to have. We didn’t even have any modeling. It went through the Senate process too. I have got confidence there were some good eyes on it, too, so we’ll see what’s going to happen.

Petroleum News: Speaking of modeling, the Legislative Budget & Audit Committee hired three consultants to complete some modeling. How do you think that may or may not help if the discussion of oil taxes comes back next year?

Johnson: Sadly enough, I don’t think it’s if. I guess it goes back to being on Resources. It’s constantly changing. I’m waiting to hear the statement, “we have to change oil taxes because we want to promote stability.” I am waiting for that statement to be made. That’s the most ridiculous statement, and I know it’s going to come. I expect that’s part of HB 111 - the working group. Those experts can be part of that working group. I hope having that working group doesn’t telegraph any message. I don’t believe just because you have a working group that you have to make immediate changes. It’s good to have those people, the better off you’re going to be in making predictions.

Petroleum News: There isn’t a prescribed number of people or even a prescribed breakdown of who should be on it other than presiding officers appointing co-chairs. Would you like a seat on that panel?

Johnson: Absolutely, I would love a seat on that working group.

Petroleum News: As you learned about the state’s tax structure, either through general presentations or discussions on HB 111, what are your takeaways from the structure now?

Johnson: We have royalties and taxes. We have a tendency to entwine those. We have to keep that royalty discussion, as the owner of the resource, separate from the tax discussion because I think it’s a beginning of confusion when you mix those together. We have a tax structure that’s evolved and I do think it’s very complicated and it gets more and more complicated instead of simpler when we try to do these quote-unquote fixes to them.

Petroleum News: We keep hearing how complicated, but as you bring a fresh set of eyes, is it as complicated or not as complicated as we’re led to believe?

Johnson: I like to focus on the idea that we have a royalty share. The royalty share is going to fund the state. The tax is complicated to me. From my experience with legislation, legislation that evolves from one thing to another and you add on patches and fixes, that’s where it starts getting complicated. I think that is what we are going to find, even in HB 111. We don’t know the effects of incentives or even the ringfencing piece. We don’t know what the effect of those are going to be. Not only have we not seen it modeled, but we haven’t seen it working in the real world. That’s the real model. When you have that many moving parts it gets complicated, so yes I do think our tax structure is complicated. There are lots of moving parts and they are not necessarily parts working together to make a finely tuned machine.

Petroleum News: The roles of the royalties and the roles of taxes are different. Should they remain that way or should they be mixed as a way of addressing the budget deficit?

Johnson: I think the role of Alaska as a royalty state is completely different than the taxes. When you are a government entity and you’re talking about taxes, that’s a whole different hat that you’re wearing than the royalty piece. People will talk about the government take, but we are no different than the private owners elsewhere who get mineral rights of their land. It will add an entire layer of complexity of you try to add the royalties and the taxes as a single piece.

Petroleum News: Let’s switch gears to AKLNG. You’ve had some presentations and you’re receiving updates. What is your overall view of the project as you understand it now?

Johnson: I really want to see us advance the sale of LNG for export. I’m concerned about the Lower 48 getting into export. We are in a global market. I think the stars have aligned in a way. The secretary (Interior Secretary Ryan Zinke) is very pro-development and the president (Trump) is very pro-development.

So on the one hand, we are very close to getting a FERC certificate. Hopefully that will happen this year. I would like to see a solid LNG project go forward, there is no question about that. I don’t think we should stop when we are so close to getting the FERC process finished.

Petroleum News: What would you like to hear next from AGDC (the Alaska Gasline Development Corp.)?

Johnson: The next thing I would like to hear is that they have signed an agreement that is more than a memorandum of understanding with a customer. I want to hear they have a solid 100 percent customer. That would be great news.

Petroleum News: You’ve getting periodic updates about every two weeks from AGDC. Have those helped you, especially in your first year? Prior to your election, there’s been recurring criticism that the communication gap is too wide.

Johnson: I don’t know what was happening before so I can’t speak to that comparatively at all. But I appreciate that they were clearly trying to be more interactive, no question about that. I appreciate that. There are so many different pieces and moving parts of the LNG project and attempts in Alaska. There is a whole bunch of things you need to know for background. That’s what I tried to do is get that background. I think I accomplished that.

Petroleum News: Not too long ago, Interior Secretary Ryan Zinke visited Alaska, touting the state’s resource development projects. Did that give you an optimism, his visiting so early into the new administration?

Johnson: I was encouraged when I heard the president wanted to see a large infrastructure project and then Zinke came to Alaska and is from a western state (Montana). It’s encouraging that he’s got an Alaskan (former Natural Resources Commissioner Joe Balash) working for him. To me, it’s encouraging. Maybe finally the stars have aligned with some resource development in Alaska. It’s not just a few people from Alaska talking about it, but actually having the executive branch and having the president talking about it. We’ve really been stalled on a lot of projects for quite some time now, certainly the last eight years, so this is a good step and is promising for us, I believe.

Petroleum News: You mentioned the hiring of Joe Balash. Have you ever met Joe or are you familiar with his work?

Johnson: I met him when he was working for Gov. Parnell. He knows Alaska’s Department of Natural Resources and when you have someone who knows that much and that person is close to the secretary of the Interior, that’s a big deal.

Petroleum News: Were you concerned at all that Secretary Zinke placed calls to Alaska senators and linked Alaska projects to the healthcare bill?

Johnson: I don’t know what all those conversations were. I don’t want to see anything interfering with our resource development, no matter what the situation is. I just don’t know enough about that. I certainly don’t think it makes sense to tie resources and healthcare vote together. I really expect our positive resource development to overtake that.

Petroleum News: So you’ve got one year under your belt, what do you look for in the coming year?

Johnson: Well, Resources and State Affairs are my primary committees, though I’m on the Energy Committee too. My hope with the advisory group is that we don’t scare off folks or anybody looking to invest. I do believe we are going to have some discussion next year on oil tax policy. I don’t know that it’s going to change significantly. I don’t know that it’s going to happen. I’m going to want to be front and center to keep anything from coming apart. We had a good compromise this year and I’m hoping it gets left alone for a year. While it may get discussed some more, I’m hoping we don’t have a big oil tax rewrite. I think we need time to let things happen. Even the last oil tax change (HB 247 last year), we barely had a chance to let that go into effect. It was supposed to go into effect January of 2017 and by February we were looking at HB 111.

Petroleum News: What should the goal be with a tax system? Some say the goal should be that it needs to be an affordable system, but that definition then becomes subjective. It can mean within the production tax system itself or it’s to include corporate income tax and royalties.

Johnson: One of the things that you have to consider is the market conditions. They and the circumstances are always changing. If you could make predictions of what the market is doing, you’d be very rich, even if you could do it for a year out. To think we are going to have one structure that is going to always be the same and be the definitive answer, probably not so much. The royalties need to be separated.

We have to remember royalties are not a tax. The tax structure does need to be simplified, I don’t think there is any question about that. How that is done is a whole study in itself. I’m a proponent of production and increasing our revenues through increased production and not looking to increase taxes to increase revenue. If we can get production up, we will have an increase in revenue. It’s still income to the state. My preference is to see it come through a royalty, not to figure out exactly how to make sure the taxes that come fit for what we need in a budget. That doesn’t make a whole lot of sense to me.