Back in the office: Legislators get to work on oil taxes, coastal management

Posted: Monday, March 14, 2011

Legislators returned to work in Juneau March 7 after three days at meetings of the Energy Council in Washington, D.C.

The House took up the state operating budget during the week and hearings began in a Senate committee on Gov. Sean Parnell's proposal to modify the state's oil and gas production tax, possibly the most contentious issue of the 2011 legislative session.

The House Resources Committee also tackled a second controversial issue, an extension or revamping of the state's coastal management program, in hearings March 8.

The previous week the committee passed the House version of the governor's oil tax bill, House Bill 110, to the House Finance Committee.

The House Resources Committee will spend a considerable amount of time reviewing coastal management and possible changes, its co-chair, Rep. Paul Seaton, R-Homer, said in a March 7 briefing by House leaders.

Last year efforts to change the coastal management program almost shut down the legislative session at its end in mid-April. Legislators from Western Alaska pushed a bill to give local communities more voice in administration of the program. However, the effort was strongly resisted by the governor who said the changes would give coastal communities a veto over decisions affecting vital state interests, like oil and gas.

The bill died in the senate when the Legislature adjourned in 2010, but the fight may resume this year. Sen. Lyman Hoffman, D-Bethel, said he met with federal coastal zone management and former Alaskan Pete Rouse, now a White House official, while he was in Washington for the Energy Council. Hoffman, who is co-chair of the Senate Finance Committee, said he wanted to get their views on Alaska's coastal management program.

The governor's oil tax is considered likely to pass the House, although House Speaker Mike Chenault, R-Nikiski, said March 7 that there is not yet a House majority consensus on the bill because the Finance committee has not yet acted on it.

However, Sen. Tom Wagoner, R-Kenai, may have set the tone for the Senate's attitude in the senate leaders' briefing.

"I don't agree with the governor's bill. If we're going to give back up to $2 billion in revenues to the industry with no guarantees of investing or hiring Alaskans, I have a hard time supporting the bill," which is Senate Bill 49 in the senate version.

Wagoner is co-chair of the Senate Resources Committee, which took up SB 49 on March 9. Sen. Joe Paskvan, D-Fairbanks, the other co-chair of the committee, said the committee will do a thorough review of all elements of the bill including the "progressivity" formula that hikes the tax rate as oil prices rise, the governor's proposed cap on the tax rate, and tax credits allowed under the existing law, Paskvan said in the March 8 briefing.

The senate committee was to hold hearings March 11, and for three days the week of March 14, Paskvan said.

In the briefing by House leaders, Rep. Anna Fairclough, R-Anchorage, said she and other legislators in Washington, D.C., the previous week had been urged by both of Alaska's U.S. senators, Lisa Murkowski and Mark Begich, to act favorably on Parnell's oil tax bill.

"They see an urgent need to get more oil into the Trans-Alaska Pipeline System," Fairclough said. "Data that we now have from the pipeline shutdown in early January (on technical problems due to low oil flow) shows that we may need new oil faster than we expected."

On the natural gas pipeline, Fairclough and other legislators said they came back from the Energy Council meetings more discouraged than ever.

"The messages we heard weren't positive," she said. "There is an enormous amount of gas on the global market that can be shipped," to the U.S. in addition to domestic gas surpluses due to drilling in shale rock.

Chenault said there concern among legislators about the money the state is committed to spend to subsidize the TransCanada Corp. and ExxonMobil Corp. pipeline project under the Alaska Gasline Inducement Act, or AGIA, license awarded to TransCanada.

However, there is no consensus yet in the House Finance committee on House Bill 142, Chenault's bill requiring TransCanada to provide information on contacts to ship gas, which could set the stage for the state getting out of the AGIA contract.

"The Legislature is basically asking for information," from TransCanada and the administration, Chenault said. "If we can get information without having to pass a bill we'd prefer that. But we don't know now whether our spending another $160 million this year to support TransCanada is money being spent wisely."

The finance committees in the Legislature are also being asked to approve AGIA-related spending within state agencies, too. For example the Department of Natural Resources budgets includes $3.5 million for state state's AGIA coordinator office, which is within DNR.

On other matters, legislators are in sticker shock over sharply rising costs for the new state prison being built near Point Mackenzie in the Matanuska-Susitna Borough. Chenault said legislators were depending on the administration to keep track of costs for the project approved four years ago by lawmakers.

Costs of the prison construction itself are climbing but what has apparently added greatly to the state's expected expense is the new water and sewer system that is being built down to Point Mackenzie from the Wasilla area.

The Matanuska-Susitna Borough owns the prison and will lease it to the state when construction is finished, an arrangement similar to that at the Seward prison that is owned by the city and leased to the state. However, the project is actually being managed by the customer, the state Department of Corrections.

When the Legislature approved the project the assumption was that it would be built in the Mat-Su Borough near existing utilities, but the borough, which owns the project, opted to move it to the Point MacKenzie industrial area that is remote from residential areas, said Fairclough.

But that also meant that utilities had to be built to the area, an expense not expected when the project was approved.

"This is a shame because this project is 80 percent complete," Chenault said.

Fairclough said she is interested in how the Legislature can prevent these kinds of things from happening in the future.

"Perhaps we need some kind of legislative oversight team to track large capital projects," she said.

On the Senate side, Finance Committee co-chair Sen. Bert Stedman, R-Sitka, said talk that the new prison may be mothballed is premature.

"Let's not jump to any conclusions. We haven't had an opportunity to sit down with the governor yet to discuss this," Stedman said. "Once it's finished we'll have to pay another $25 million to outfit it. It appears the operating cost has increased from $20 million a year to $70 million a year, but if we just mothballed it we'd still be paying $20 million to $50 million a year."

Stedman said the Senate Finance Committee would request that an audit be done on the construction project, with the information to be back to the Legislature next year.

Chenault also said one aspect that is bothering legislators is that there was also a commitment by the administration four years ago, when the prison was approved, to build additional prison facilities in Bethel, Seward and other locations.

That hasn't happened, though, Chenault said.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.



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