Bert Stedman

The Prudent Alaskan Oil Man

Author: Bert Stedman

During legislative deliberations, advocates of the Senate Bill 21 oil tax consistently used North Dakota as an example of the ideal tax regime that Alaska should emulate. We were told that because of North Dakota’s tax structure they are more competitive than Alaska resulting in huge increases in industry investment and rapid increases in production. If Alaska would just lower its tax to be more aligned with North Dakota, we would also benefit from rapid increases in investment and production. However the oil boom in North Dakota, along with Texas, is a result of the advancement of fracking technology that releases hydrocarbons previously trapped in shale rock and the private land ownership of the surface and subsurface. This boom is not tax driven.

In 1830, Massachusetts Supreme Court Justice Samuel Putnam established the Prudent Man Rule, a legal foundation for professional financial management that has been a guiding fiduciary principle in our country for nearly 200 years. Stemming from the case Harvard College v. Amory, Justice Putnam’s Rule states, “All that can be required of a trustee to invest is that he shall conduct himself faithfully and exercise a sound discretion. He is to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.”

The State of North Dakota levies a combined production and extraction tax of 11.5% on the gross value of oil at the wellhead. In addition, the individual landowner, as the owner of the subsurface resource, negotiates a private royalty payment that averages 20% on the gross value of oil. But in Alaska, the citizens of the state own the subsurface resources collectively and the Alaska State Legislature has the constitutionally mandated fiduciary duty to set a fair sale price for public resources. Referring back to almost 200 years of Judge Putnam’s Prudent Man Rule, I assure you that the prudent North Dakota farmer would never intentionally sell his hydrocarbon resources for less than the going rate, nor should Alaskans as owners of Prudhoe and Kuparuk – the two largest conventional oil fields in North America.

So how does Alaska’s net tax and royalty regimes compare to North Dakota’s gross tax and royalty system assuming the same number of barrels produced? In fiscal year 2013 (the last full year under the ACES oil tax), Alaska’s tax and royalty generated $763 million more than we would have under North Dakota’s tax and private royalty regime. Now that ACES has been replaced with Senate Bill 21, using fiscal year 2015 forecasts (the first full year under the new Senate Bill 21 oil tax), Alaska’s tax and royalty will bring in $1.5 billion less than if we had North Dakota’s tax and royalty. Since the goal of Senate Bill 21 was to make Alaska a more competitive place to invest by lowering our tax rate to something comparable to North Dakota, we missed the mark by $1.5 billion. In addition, North Dakota hasn’t provided fiscal incentives for the oil industry since 2004, whereas the per barrel credit in Senate Bill 21 is projected to average $6 per barrel produced at a cost to Alaskans of $953 million in fiscal year 2015 alone. That equals an effective tax rate of 21.9%, well below the 35% base tax rate that supporters of Senate Bill 21 want you to believe is what the industry pays. Furthermore, the fact that no incremental year after year sustained production increase is expected is a substantial deviation from what the Senate Bill 21 supporters were promised.

The prudent Alaskan man or woman would never accept the terms in Senate Bill 21 in setting the sale price of their subsurface oil. It’s up to you, the owner, to go to the polls on August 19^th and tell your government whether or not you believe we’re selling your oil for a fair price. A “no” vote on Ballot Measure 1 will retain the Senate Bill 21 oil tax and a “yes” vote will repeal Senate Bill 21. As for me, I am voting “yes”.

July 28th, 2014 | Posted in News & Comment | No Comments »

District Events

Author: Bert Stedman

I hope everyone had an enjoyable 4^th of July weekend celebrating our nation’s independence. I’ve had a busy summer since returning home after the Legislature adjourned in April. On May 5^th – 7^th, the Alaska Government Finance Officers Association held their annual spring conference in Sitka. I was invited to speak on the first day of the conference to give an update on the legislative session. I focused my comments on issues important to Finance Officers such as the $3 billion deposit into the Public Employee’s Retirement System and the Teacher’s Retirement System, the status of the Community Revenue Sharing Fund, the FY15 Capital and Operating Budgets, as well as other relevant topics. The three day conference was well organized with an impressive cadre of speakers. I was pleased to attend and even more pleased that Sitka was chosen as the host city.

Two days later, on May 7^th, I spoke at the Sitka Chamber of Commerce luncheon. My comments were mostly directed toward the Proposition to repeal Senate Bill 21. It’s well known that I support Proposition 1 and I appreciate the Chamber giving me the opportunity to present my opinion. Raven Radio did a good job of summarizing my presentation for those interested in reading more. Raven Radio link

So far this summer, I’ve had the pleasure of attending two ribbon cutting ceremonies for new harbors in Southeast. On May 15^th, I joined local officials and residents of Petersburg for the new North Harbor grand opening. The oldest harbor in Petersburg, North Harbor was first built in 1937. Petersburg residents have reason to be proud of their improved harbor which has been dredged and the pilings and floats have been replaced. I want to thank Harbormaster Glorianne Wollen for her tireless dedication to this project. It could just be coincidence, but I’m glad the new harbor’s grand opening happened during the Little Norway Festival. One of my favorite Southeast celebrations, I always have a good time at Little Norway.

Senator Bert Stedman and Sonia Henrick (Senator Murkowski’s office) speaking at the new Petersburg North Harbor grand opening

The second harbor grand opening I attended was on June 26^th for the new and improved ANB harbor in Sitka. Originally built in 1956, the harbor was in dire need of improvement. The new harbor boasts larger slips, steel pilings, new floats and a new gangway. Construction began last November with half the cost paid for by a legislative grant from the state and the City and Borough of Sitka picking up the rest of the tab. Congratulations to City Engineer Dan Tadic and Harbormaster Stan Eliason for completing the project early and under budget.

City Engineer Dan Tadic, Mayor Mim McConnell, Senator Stedman and Harbormaster Stan Eliason cut the ribbon at the new ANB Harbor (photo courtesy of James Poulson, Sitka Sentinel)

On June 11^th – 12^th I was in Ketchikan to meet with local officials and tour three projects in town: the new Bar Harbor South improvements; the PeaceHealth Ketchikan Medical Center expansion; and the Coast Guard Cutter pier expansion. City Councilmember Bob Sivertsen was kind enough to join me on the tours and I appreciate his company. Bar Harbor is owned by the City of Ketchikan who, along with the Borough, funded half of the cost of the current improvements with the remaining $4.7 million coming from the State’s harbor matching grant program. The project includes construction of a transfer bridge and drive down float with a crane usable at all tides, installation of an access ramp that meets American’s with Disabilities Act requirements, relocation of the existing gear float and two float replacements. The new drive down dock is an impressive, first class facility that will greatly improve access for existing users and increase opportunities for new users. I enjoyed seeing the new expansion at the PeaceHealth Medical Center and I’m pleased that it will increase medical services available to the residents of Southern Southeast. Over the past two years, the legislature has appropriated approximately $20 million towards the project. Penny Pedersen, the Executive Director of the Ketchikan Medical Center Foundation, was an integral force in helping me secure the funding for this project and I appreciate her tireless advocacy. Ms. Pedersen will be leaving that position shortly to focus on her family. I respect her dedication and commitment to the medical center and wish her the best in her future endeavors.

July 11th, 2014 | Posted in News & Comment | No Comments »

The Energy Council

Author: Bert Stedman

This year, the Energy Council’s 2014 State and Provincial Trends in Energy and the Environment Conference was held in Regina, Saskatchewan June 19^th – 22^nd. The day before the conference began, myself and other attendees had the opportunity to visit the SaskPower Boundary Dam. Located on the Souris River near the border of Saskatchewan and North Dakota, the dam is currently undergoing a retrofit to add a $1.4 billion carbon capture facility. When completed, this will be the world’s first full-scale carbon capture project from a coal (lignite) electric generation facility.

Senator Stedman and other Energy Council conferees tour the SaskPower Boundary Dam

On the opening day of the conference, we were welcomed by Regina Mayor Michael Fougere with a full day of presentations to follow. Topics discussed include an update on carbon capture technology, state sovereignty and federal rulemaking in the U.S., the future of nuclear power, North American liquefied natural gas use, and cybersecurity. Later in the day, conferees were welcomed at the Saskatchewan Legislative Assembly by Speaker Dan D’Autremont. The second day of the conference opened with a panel discussion of North American crude oil transmission patterns. Subsequent presentations covered the topics of North American grid reliability, Mexican oil and gas investment regulations, and renewable energy standards. The final day was comprised of administrative meetings of the Energy Council and the Center for Legislative Energy and Environmental Research. As always, I found the presentations well balanced and extremely informative. Thanks to the Energy Council Executive Director, Ms. Lori Cameron and her staff for organizing another productive conference.