Homer Alaska - News

Story last updated at 4:14 PM on Wednesday, February 15, 2012

Consultant tells Senate panel Parnell's oil tax plan not viable option to ACES

The Associated Press

JUNEAU — Gov. Sean Parnell's plan to cut oil production taxes has "mega deficiencies," and isn't a viable alternative to Alaska's existing tax structure, a consultant told lawmakers Tuesday.

Pedro van Meurs said the current tax structure, known as Alaska's Clear and Equitable Share, or ACES, has major problems, and Parnell's plan, HB110, addresses two of those.

But he told a joint hearing of the Senate Finance and Resources committees that it doesn't deal with others, including what he considers to be excessive tax credits or the drag on revenues when oil prices are high relative to gas. And he said it creates a new problem by specifying different tax rates for existing and new production.

Parnell defended his plan, telling reporters it will encourage new production and investment and that he hasn't seen another proposal that would do that.

"That's the only plan on the table that is actually a road map toward a million barrels a day," he said, referring to his goal of having 1 million barrels of oil flow through the trans-Alaska pipeline within a decade. "It's the only plan on the table where industry has said that they will put at least $5 billion of new investment on the table in the next three years, so of course I'm going to stick with that plan."

A divided House last year passed a version of Parnell's plan, HB110, but the measure stalled in the Senate, where leaders said they didn't have the information needed to make a sound policy call. After hearing van Meurs' testimony Tuesday morning, Sen. Hollis French, D-Anchorage, said lawmakers made the right call.

Senators plan to write their own tax bill, with details filled in as any problems with the current tax structure are identified through the committee process. Senate President Gary Stevens said the goal remains to get a bill to the House with at least 30 days left in session, but much work remains.

ACES features a 25 percent base tax rate and a progressive surcharge triggered when a company's production tax value hits $30 a barrel. It also boasts a suite of tax incentives. The idea, when the law passed in 2007, was that the state would help companies on the front end and share profits with them when oil flowed and prices were high.

Van Meurs, an oil and gas consultant and one of the sources informing the Senate debate, said ACES, overall, is too complex, and that alone is disincentive to new investment. He suggested a simpler structure, with defined terms for different oil and gas resources, which he said could lead to more investment.

Senators plan to try to reach consensus on addressing progressivity, which Sen. Bert Stedman called the top item, and move on to other issues, like tax credits and separating oil and gas production for purposes of taxation.

Oil and gas production are currently taxed together, and there are concerns about a dilution effect on revenues when oil prices are high relative to gas. Van Meurs called this "the most nonsensical concept ever, in the world, almost," and said the state could see huge revenue losses with a gas project. The state is pursuing an in-state gas pipeline project and a major gas line that would be capable of exporting gas.

Stedman, co-chair of the Finance Committee, said the drag is currently about $80 million a year currently without much gas being produced.

Oil is king in Alaska, providing much of the state's unrestricted revenue, but production has been declining, leaving policy makers to look for ways to stem the trend. There's a shared goal — among lawmakers and the governor — on increasing production but the question is how best to do that.

Stedman said the system is too complex to deal with everything this year. He said one thing he took away from van Meurs' presentation was that it could be advantageous for the state to have structured terms for things like heavy oil. But he said that may be too much to deal with this session. The 90-day session is scheduled to end April 15.

Parnell said senators have been working on this issue for a year, and that Alaskans deserve better than the so-called placeholder bill that was recently introduced by the Senate Resources Committee.

He said he's getting mixed messages about the Senate's intentions and he wants to pull senators together toward a "vision for Alaska's economic growth."

"Let's get together and talk about a direction forward that actually grows production and grows our economy," he said.