A Citizen’s Guide

COMPLEX: The complicated new sliding scale for oil taxes included in the 43-page bill approved by the House Sunday has all the earmarks of an end-of-the session rush job, complete with an algebraic formula that almost no one understands.

At one point during the weekend debate, Rep. Mike Chenault, co-chairman of the House Finance Committee, tried to fight off claims from Democrats that the Legislature had not heard any analysis from independent experts.

As evidence, he held up a single piece of paper and turned the page back and forth, showing that there was a chart on one side and a graph on the other, prepared by a legislative consultant.

That’s not the level of scrutiny required on a proposed major change for Alaska’s largest industry.

I take no solace in the comments of those who argued that we need not worry because the bill mandates that an analysis of the bill’s effects must be done by the first day of the 2011 session. The analysis should take place before the bill is enacted.

In the short term, the forecasts about how much the state would collect under the bill should have been revised Sunday before the final vote, taking the BP shutdown at Prudhoe Bay into account.

At Prudhoe Bay, considerable investment by the oil companies will be required to make things right.

I was surprised Monday afternoon when Murkowski administration consultant Pedro van Meurs testified that under the House bill the state would pay 80 percent to 90 percent of the cost of fixing the problems at Prudhoe Bay, through reduced taxes. The tax credits, tax deductions and lower tax rate when the cost per barrel rises would mean less money to the state.

He said the oil companies would pay 10 percent to 20 percent of the tab of the Prudhoe Bay repairs, based on his early review of the House bill.

He said the formula in the House bill to set tax rates is “horrendously complex.” He added that it doesn’t take inflation into account and that within three or four years it would be possible for any producer to get a tax rate reduced to 20 percent.

While Rep. Mike Hawker of Anchorage was quoted in a press release saying the bill “is a triumph for statesmanship in the House,” Van Meurs said it is a “harvester’s” bill, in that it doesn’t encourage companies to invest in Alaska.

With the end of the session just three days away, our legislators ought to consider approving a simple reform to the oil tax laws, and keep the complicated tinkering, such as that in the House bill, until next year.

I agree with what van Meurs told the Senate committee Monday afternoon: “There is great virtue in simplicity.”

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MONITORING?: At a press conference Monday in Juneau, Gov. Frank Murkowski said that had the state owned a piece of the trans-Alaska pipeline, the maintenance problems that forced the BP shutdown might have been caught before the problem got so bad. He put this in the context of pushing his view that it’s important for the state to own a piece of the gas pipeline.

Regarding the oil line, he said with the state as an owner, it would have a chance to be “at the table” and use its expertise to help decide the proper level of maintenance.

“I would hope that we would have had the expertise to ensure that our input and monitoring would be independent of the producers and we would have caught this gradual corrosive increase and taken steps in an orderly manner,” he said.

I would argue that the problem might have been discovered in advance had the state and federal monitoring agencies done what they were supposed to do and “taken steps in an orderly manner.”

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HEATING OIL: The governor said that one potential problem this winter with reduced flow in the pipeline is that the oil may have to be heated to keep it warm enough to flow smoothly.

“The concern is with the winter temperatures and the reduction in volume that it might be necessary to heat the crude, which will add a substantial cost to our crude because an awful lot of energy would have to be used and a tremendous heating bill would be required.”

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HIGH PRICES: At today’s market prices, pushed a bit higher by the move to reduce Alaska production, the Prudhoe Bay shutdown will cost the state about $6.4 million a day, Revenue Commissioner Bill Corbus estimates.

The state budget is running about $200 million ahead of the break-even point and “we’ve got maybe 60 days that we could keep going until we start falling behind.”

Dermot Cole can be reached at cole@newsminer.com or 459-7530.