Hughes: More AKLNG specifics needed

Sen. Shelley Hughes has long wanted to be on the Resources Committee. During her four years in the House, most of the majority’s seats went to veterans like Mike Hawker, Craig Johnson, Kurt Olson and Paul Seaton. With her move to the Senate, where members are half the number as the House, her chances improved.

Hughes, a Palmer Republican, says she enjoyed being in the mix of resource development discussions during her first year in the Senate. No longer a member of the Senate majority, Hughes says she isn’t sure what the change holds for her, but her views still closely align with the majority. Hughes shared her thoughts on recent developments such as House Bill 111, Interior Secretary Ryan Zinke’s visit and what may lie ahead for the AKLNG project.

Petroleum News: While this isn’t your first term, it is your first term on the Senate Resources Committee. Why did you look to get on the committee?

Hughes: Well, five years ago I first come to the Legislature, and I was interested from the onset in resources because it was so vital to everything about Alaska, who we are and why we can move forward as a state. It’s important to families and livelihoods; after all it’s the basis for our becoming a state. I was trying to come up to speed early on, even in the House sought a seat. It was near to impossible as a newcomer to get on. Even people who had been in four to six years, the seats would be taken up before they had a chance. So, I’m thrilled to have an opportunity to have a chance on the Senate with fewer people. I had been a strong advocate to promote responsible development.

As far as the first year goes, there was a lot of listening and learning. I do feel like I was trying to track things so it wasn’t brand new. Even prior to becoming a legislator, I did make the effort to attend certain conferences and meetings to have a good understanding going in. Even though there were a lot of things I felt I was learning for the first time, there was much that was familiar at the same time.

There are members who have been on for a long time. There’s always a way to ask members and find out what something means. I’m not shy about doing that in between meetings as well. Speaking to the experts in the field, I’ve never hesitated with that. So I sought the seat because it’s important for the state to move forward with its resources. It’s fundamental to our future and the welfare of our state.

Petroleum News: So is it what you expected?

Hughes: As far as the first year, I know we’ll talk about HB 111 and the gas line, I will say the confirmation process was interesting with DNR and the AG, and what to expect in addition to the development of oil and gas on our mining and timber, plus in regard to public access like Klutina Road issue is one of great interest to me. I’m trying to dig in and understand the agreement, not just for that road, but for the statewide ramifications going forward. My understanding in digging into it is that was a winnable case. Why did the administration try to go another route? Will we face similar situations down the road where we are put in a positon where we are going to have to settle and come up with agreements? It’s going to end up costing Alaskans access to certain places where they are going to have to pay. So that was another interesting aspect.

I know you want to talk about oil and gas, but the fisheries aspect, that’s a big deal in our area. I have friends who commercial fish, so this is not a diss on those who make their livelihood that way, but I have some concerns over how the rest of Alaskans can access that resource in a fair manner. It’s becoming a hot-button issue in our area.

Another reason I wanted to be on the committee is I believe we have hardly scratched the surface when it comes to mining in this state. I believe we are at a time and a place where there are doors of opportunity for advancing some resource development in a way we haven’t been able to for some time. When Secretary Zinke was up here, his discussion was the administration wants to move forward using the phrase energy dominance as opposed to energy dependence. That is a signal that they really want to move forward. We need to be in sync with that. I don’t know we are completely in sync in a couple of areas.

The (Walker) administration is focused on the gas line. I’m concerned we will miss opportunities with other resource development. We need to get in sync with Zinke. That’s kind of a catch phrase. The mining potential in this state is huge. Even coal, strangely enough. I know prices have dropped and I understand why, but there is a developing technology whereby coal can be burned emission free. We are at the very, very beginning of that technology. We know technology is exponential as it evolves: If there are units that can burn coal 100 percent cleanly, at some point that will be available and could be a real game-changer with energy. Whereas Asia and some of those locations are slowing down on coal, we may see a resurgence in the need for coal. Alaska holds more than the total combination of coal in the Lower 48. I’m not giving up hope for that, either.

We’ve got a number of developing mines and if we get in sync with where the federal government wants to go - some of these projects take years and years and years - I believe we can advance some of these projects more quickly. You’ve got Donlin, Livengood and Bokan Mountain. Those are really important considering the recession we are facing at present.

I realize we’re talking about oil and gas, but mining and timber are really important too. It’s a way to diversify our economy. That’s why you’re seeing all the pressure as far as changes in the oil and tax regime over the years. The more we diversify, the less pressure we put on that area. Hopefully, the more growth and development we’ll see oil and gas industry.

Petroleum News: Well let’s talk about HB 111. What are your thoughts on the process and result that took nearly 181 days to achieve?

Hughes: It was one of those things where I cringe thinking we had to address it. Yet again another change which is not good as far as planning and having a stable policy environment at the same time. I cringe yet at the same time we couldn’t afford doing what we were doing. We were the only tax regime doing that in the U.S., possibly globally. It just was not affordable. To come up with what we did, there is good and bad. For some of the smaller companies, it’s a tough hit. Some folks refer to the statute and say companies should have known, but when these discussions happened early on, and we were flush with revenue, that’s not how they went into it, so it makes it tough for some companies. I hope they can ride it out and make it work. It was one of those spoonful of medicine bills that you didn’t like but we knew we had to do.

Petroleum News: Are there any sections of the bill that give you pause? I know some didn’t care for the ring fencing.

Hughes: Ring fencing does go against free-market principles, but we are dealing with the state’s role and responsibility to develop the resources in the best interest of the state. That makes things a little different. Normally with ring fencing, let the company do what they want, but we have a responsibility to for the best interest of the state, so I kind of understood. That was one of the ways to bring the bill to the floor. I pushed back pretty hard the prior year (HB 247), but on these cashable credits we just could not do that in the present fiscal environment. We had to take some of the bad with the good. A lot of smart people in the industry will have the wisdom and forethought with some of the changes as much as it makes us all cringe.

The private sector has taken a substantial hit. The oil industry in particularly has taken a hit. It’s troubling to me that the public sector seems to want to convince the public they have also taken as large a hit. A lot of it is smoke and mirrors. The public sector has not taken the hit. That is one of things that I’m trying to highlight and help Alaskans, even the silent majority, wake up to the fact. Not only have some tried to hit the oil industry up for more - and I know there’s an effort among some Democrats to go back in the working group and try to convince everyone that we need to raise taxes on the oil industry, but in addition to that there will be pressure in individual Alaskans and families to draw revenue from their wallets as well.

I believe there is smoke and mirrors with some of what’s been done. It’s troubling and disturbing to me. Part of what I’m trying to do is make sure Alaskans get the real scoop. When the governor says he’s cut the budget 44 percent, most of that has been the capital budget. Of the operating budget that’s been reduced, if you factor in additional money we’ve brought in through designated funds, the federal fund category, and other category. Bringing those other categories up is not a bad thing, but you have to give the true story. When you look at the operating budget with what we’ve reduced in the one area with UGF and what we’ve increased in the other three areas, it’s really a 3 percent to 4 percent reduction in the operating budget. Not 44 percent. When somebody on the street hears the state has cut 44 percent of its budget, people think, “oh my gosh, no wonder they need to tax us, no wonder they need to tax the oil companies.” That’s something that I’m working to correct. It’s only been a net 3 to 4 percent operating budget.

That’s a nice little start but there is more work to do. I think that is an important message for Alaskans to know. Do they only want to cut the operating budget a few percentage points and go ahead to start paying taxes and hit up the oil industry? I don’t think Alaskans do. I think if they knew the true numbers they would say, “Hey, wait a minute.”

I know that’s a long answer to your original question, but it’s something that is often not talked about in conjunction with the oil industry and looking at taxes for the oil industry. I think where we are with the operating budget and the state budget overall, has the public sector taken its share of the adjustment? I think the oil industry has taken a hard hit. I don’t think the public sector has taken much of one except in the capital budget.

Petroleum News: HB 111 also called for the formation of a working group to further examine the state’s tax system. There is no specific outline for who is to serve on that group. Would you like to be part of that group?

Hughes: That was a noticeable feature. A lot of people assume the chairs of the respective resources committee would head it up. That’s a natural structure. I would like to be on it, of course. I’m not in the majority any more so I don’t know how that will play into it. I don’t know whether I will have the seat on Resources much longer. And Gary Stevens had to make some changes because he’s running for Lt. Governor (ultimately, he stepped down as LB&A chair).

It’s going to be hard with the number 13 in the majority. It really increases people’s workloads. It will be interesting to see how that falls into place and where everybody lands. There could be quite a bit of movement in order to fix all that. I do believe my vote in Resources has been consistent and would align with the Senate majority’s position. That would have to come from them. From my perspective, it does. But it could be there will be some movement, so I don’t know if I’ll be on it. I don’t know how it will be structured as far as who will have a seat on it.

Rep. Tarr and Rep. Josephson very much wanted the working group so that the conversation about raising oil taxes could be analyzed and discussed. It could be looked at, but I don’t have a sense from folks in the Senate that there would be the support for doing that. Unless they have some really, really new information coming forward. As I listen to the consultants during the HB 111 process, I was not hearing indication of moving toward that.

Petroleum News: Let’s switch to AKLNG. What are your general observations of where things stand with the project?

Hughes: First, (AGDC Board Chair) David Cruz is a longtime friend. I’ve known him 20-plus years, probably closer to 30 years actually. I have a lot of respect for him. I know there have been a lot of people who have put a lot of effort into the project. I have not been convinced as you’ve heard from many others that it’s economic at this point. As far as the recent news being granted federal tax exempt status, that’s good news. It’s limited good news. There are definitely parameters in three different ways as I see it. The corporation wouldn’t have to pay federal taxes. We aren’t assured the debt that would be issued would be tax exempt. I’m sure you’re aware of that. It would be project dependent and the mix of the public private ownership, plus the degree of public benefit derived. That’s a big one. That could make a difference in the financing. The letter to the IRS wasn’t public. We don’t know whether foreign investment would alter that or even undo the federal tax status. We don’t have that investment. Also, this isn’t really all of the sudden making it economic. Yes, it’s good news in the right direction, but it’s limited in scope at this point. Do I want us to have an economic gas line, yes. But do I want us to spend $45 billion on something that is not going to be economic? No. So I think we need to proceed cautiously.

We are supposed to know this fall whether it’s going to be a green light or red light. I haven’t heard that we are going to get that real clear message as I had hoped. I was someone who thought the funding for the gas line, we should have held some of it back. About $50 million wasn’t scheduled for use in the current fiscal year. If for instance the Trump administration wanted to partner and there was forward momentum, we could have re-appropriated that at some point. I’m not anti-gas line ever. It just has to make sense. I don’t see that it makes sense. When three private partners pull out, it gives me pause. Understanding what’s happening globally and knowing there are a lot proposed projects, I just need to know more.

Petroleum News: What would you like to hear next from the administration or AGDC on the gas line?

Hughes: I would like to hear something definitive instead of pushing down the road. Dave Cruz told me that by this fall they would know if it’s a green light. It’s been a while since I’ve spoken with him. I haven’t heard anything clearly that they will stay with that schedule.

Petroleum News: You spoke of Ryan Zinke’s visit a while back. What are your takeaways from his time here a few months ago? Did his visit give you additional optimism?

Hughes: Definitely. Considering our state of affairs here in Alaska and that we are in a tough period of challenges, it is incredibly excellent that at the federal level things are moving forward as far as resource development. As I talked about earlier, we have to seize the moment, capture the opportunity and get in sync with where the federal administration is willing to go and how they might be able to open doors as far as reducing some of the barriers. This goes across the board and all types of resources. I think it is a great time having a federal administration on board with these types of things instead of fighting us. The problem is we need to have a state administration who also gets on board and isn’t just hyper focused on the gas line. That’s my fear: are we losing time and opportunity because we are hyper focused on the gas line? I hope not.