New Gas Tax On the Way

By Dave Donaldson

The Senate Finance Committee is drafting legislation that would re-write the structure of the state’s tax on natural gas.   

The tax on Natural Gas from the North slope is currently tied to oil taxes from the state’s largest fields, and it’s expressed as the ratio in the amount of energy in each fuel.

Finance Co-chair Bert Stedman says that’s a fundamental flaw in the tax — and staying with it when gas begins to flow in the line to North American markets will create an expensive problem for the state.

If you have high oil prices,  which we currently have,  relative to gas prices that are low, which we currently have,  we have a substantial crossed-subsidization — or a dilution effect is another way of putting it — of our revenue stream.   I was rather surprised when we started looking at the magnitude of this potential impact.  It could be in the tune of a couple of Billion dollars.

Stedman points out that the oil and gas prices are not expected to get closer together for the next twenty years — based on all estimates from government and private sources.  And he says the risk is that the tax structure — and the two Billion dollar a year loss to the state – could be in effect for the first ten years gas is flowing.   He points to a calculation this week by a legislative consultant showing the effect of the element Stedman is pointing out — if the gas line had been in production two years ago.

His calculation was a negative impact to the treasury of one-point-eight Billion.  So the magnitude of what we’re dealing with here is, I think, where a lot of people in this building fail to realize the impact potential.

Stedman says the two taxes need to be separated … before May 1st.   That’s when TransCanada will present the gasline to potential shippers.  And those that commit to its use will have their taxes locked in — unchangeable for ten years after gas begins to flow.

Senators who have followed the Senate Finance Committee hearings for the past two weeks are leaning towards Stedman’s arguments.  Fairbanks Democrat Joe Paskvan says the result of the current tax regime is likely to lead to the state’s losing one hundred percent of the state’s production tax — and losing one hundred percent of the state’s royalty revenue.

The law as it currently exists puts Alaska at risk of being plundered.  And without changes before May 1, 2010,  my belief is that we essentially have a third-world extraction model that will end up being a plunder of Alaska’s resources.

Revenue Commissioner Pat Galvin earlier this week presented administration revenue calculations based on higher oil prices.  They are similar to those Stedman has produced .  However, Governor Parnell calls Stedman’s presentation of a two Billion dollar impact on the treasury as a “mythological figure.”

Clearly that coupling issue when ACES was passed was designed as an incentive.   There’s been testimony  from Commissioner Galvin as to that.  And so as Senator Stedman and the Finance Committee moves forward, they’re going to have to take into account whether that impacts the economics of a gasline.  Because frankly,  it very well could if it acted as an incentive.

Stedman says he anticipates his bill will be ready quickly — it will remove the ratio link between oil and gas.

House Finance Co-chair Mike Hawker shares Stedman’s concern,  saying the issue is — quote – “mission critical” for legislative consideration.   He says the issue needs to be dealt with as a single subject — indicating the need for a special session between the regular session’s adjournment and May first.


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