Alaska Dispatch

Not one but two new bills hit the Senate on Monday, delivering, as promised, a major change to the state's oil and gas tax structure as a pipeline open season approaches.

The bills, SB 305 (.pdf), and SB 306, would tax oil and gas separately instead of as a combined resource. Senate President Gary Stevens, R-Kodiak, took the unusual step of referring the bills to only one committee. Typically, bills are sent to three for hearings.

Some lawmakers -- most vocally, Sitka Republican Sen. Bert Stedman -- say a tax change is necessary, and soon, in order to protect Alaska's treasury once gas is flowing a decade or more from now.

That's because oil and gas are now combined for tax purposes. The fear is that lower-value gas, converted to barrels of oil based on energy values, would dilute the value of actual oil production. The effect -- called a cross-subsidy by the experts -- could put Alaska in position to lose out on up to $2 billion per year under certain price scenarios.

Stedman has put two bills on the table. Both break apart oil and gas for tax purposes. The first, SB 305, taxes gas at 25 percent, a truly surgical cut from the combined tax. The second, SB 306, includes a progressivity function identical to that on oil -- when prices are high, the state take grows.

Stedman is adamant that a change must break apart the two resources for tax purposes before May 1, when pipeline company TransCanada holds an open season soliciting bids on pipe space from companies with gas to ship.

TransCanada is offering the open season on a project it's proposing under a license issued by the state, with a pledge of up to $500 million, through the Alaska Gasline Inducement Act. Under AGIA, the state offered incentives to get companies to commit gas in an initial open season. Among those is a 10-year lock-in of the current gas tax -- which, as it stands, could have a heavy cost for the state treasury.

Revenue Commissioner Pat Galvin and several lawmakers said recently that the potential loss on gas tax revenues, and some lower oil taxes, was intended as a "give" in order for the state to get a pipeline built. But that was before oil and gas prices spread so far from one another, exacerbating the effect on the state's take.

Gov. Sean Parnell's spokeswoman, Sharon Leighow, said Monday night that the governor didn't have anything new to say on the gas bill. Parnell said recently that he doesn't believe a change is necessary, and tinkering with the gas tax so close to an open season could harm progress made under AGIA.

Stedman disagreed.

"You don't give away your hydrocarbon," Stedman said. "Obviously the only way it could impact that is if they're planning on giving away our gas."

The Senate Finance Committee's bill is surgical, as a number of lawmakers said it would need to be in order to meet with their approval. Stedman said the state doesn't have enough information to set a separate gas tax structure now, and suggested that will come once the administration enters anticipated negotiations with gas producers after the open season closes.

Only one bill will advance, but Stedman wanted to leave a little room for the finance committee to decide just how far to go.

"I think from a technical aspect it would be better to include progressivity on gas, but from a political aspect it may be easier to leave it off for now," Stedman said.

Senate Finance will walk through the bills on Tuesday. Additional hearings are scheduled through this week, and could include testimony from the administration, state attorneys and the industry. Stedman hopes to move the bill out of committee to a floor vote as soon as possible, but without rushing the process, he said. The chairman also noted that the committee has spent nearly two weeks on the issue already.

While many lawmakers are slowly nodding their heads in agreement with the need for a gas tax change, others fear that a bill breaking apart oil and gas could open a back door -- especially in the House -- to tweaks to the state's oil tax. That tax, ACES, is already under fire this session, with Parnell and several Republican lawmakers pitching changes large and small. All the proposals offer companies a sweeter deal. Republican lawmakers favoring changes say altering taxes will encourage investment and create new Alaska jobs. Democrats who oppose the changes say ACES is working fine as is and changes would give the companies too much.

One issue likely to come up during the debate is any potential impact to existing gas production, which is focused in Cook Inlet and, off the North Slope, to fuel the oil pipeline. According to Stedman's office, the new bills would de-couple oil and gas for current production but won't affect a number of special tax deals in place now.

Attempts to reach several legislators for their initial reaction to the gas tax bill were unsuccessful during an afternoon packed tight with committee hearings.

Contact Rena Delbridge at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

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