{"id":1971,"date":"2012-03-02T09:56:51","date_gmt":"2012-03-02T18:56:51","guid":{"rendered":"http:\/\/bertstedman.com\/new\/?p=1971"},"modified":"2012-03-05T09:07:02","modified_gmt":"2012-03-05T18:07:02","slug":"aces-needs-to-be-fixed-but-hb-110-is-not-the-solution","status":"publish","type":"post","link":"http:\/\/bertstedman.com\/new\/?p=1971","title":{"rendered":"ACES Needs to Be Fixed, but HB 110 Is Not the Solution"},"content":{"rendered":"

This week I\u00a0wrote\u00a0an op-ed\u00a0piece for distribution to Alaska media\u00a0regarding reform of Alaska’s petroleum tax system.\u00a0\u00a0This is one of the largest issues of this legislative session.\u00a0 In\u00a0the article below\u00a0I reiterate my stance on past and proposed reforms and highlight how the Legislature is currently moving forward on this issue.\u00a0\u00a0Here I post the\u00a0full text of my letter; please note that some media\u00a0may have printed an abbreviated version due to word count limitations.\u00a0\u00a0<\/em><\/p>\n

Alaska\u2019s current petroleum tax system, Alaska\u2019s Clear and Equitable Share (or ACES, for short), was an ill-conceived policy pushed through by then Governor Sarah Palin in 2007.\u00a0 When ACES was voted on in the Senate, I was one of only five Senators who voted against it.\u00a0 My reason was simple: I felt then and I still feel that ACES is anything but \u201cequitable\u201d and that under ACES the government take at high oil prices is excessive.\u00a0<\/p>\n

Those who voted for ACES did so with the best of intentions and I don\u2019t hold that vote against them.\u00a0 Instead, I have been working with my colleagues to convince them to reevaluate their decision.\u00a0 Progress is being made because there appears to be a growing consensus in the Senate that changes to ACES are necessary, but the Governor\u2019s proposal in the form of House Bill (HB)\u00a0110 is not the answer.\u00a0<\/p>\n

The Administration has argued that we need to drastically cut taxes now to increase throughput in the Trans Alaska Pipeline System (TAPS).\u00a0 Declining TAPS throughput is a very real and serious concern for the state.\u00a0 Current flow rates are roughly 600,000 barrels per day and decreasing by three to seven percent annually. (It\u2019s important to note here that the annual decline in TAPS throughput has been occurring since 1989 when production hit its peak.) \u00a0Industry advocacy groups have suggested that without a significant reduction in taxes the shutdown of the TAPS pipeline is imminent and could become a reality at 300,000 barrels of throughput per day. \u00a0This is a downright misleading scare tactic. \u00a0A landmark case handed down by Alaska Superior Court Judge Sharon Gleason in December found that TAPS could continue to safely operate at levels down to 70,000 to 100,000 barrels per day and that the pipeline should remain economic until the year 2065. \u00a0Judge Gleason also determined that there are still 7 to 8 billion barrels of proven reserves which she defined as economically, technically and legally deliverable between now and 2065.\u00a0 To put that in context, when the pipeline began operations 34 years ago, there were an estimated 9.6 billion barrels of proven reserves yet 16 billion barrels of oil have already been produced.\u00a0 Prudhoe Bay continues to be a world class hydrocarbon basin and remains one of the top ten largest fields in the world.\u00a0 Still, Prudhoe Bay is an aging basin with high operational costs and our tax structure needs to reflect that.\u00a0\u00a0<\/p>\n

As for assurances offered by the Administration that the tax cuts proposed in HB 110 will result in increased industry investment and oil production, what we\u2019ve seen thus far essentially amounts to the argument that a reduction in Alaska\u2019s cruise ship tax led to an uptick in cruise ship sailings so reducing oil taxes must do the same for oil production in Alaska.\u00a0 This is an apples-to-oranges comparison that has little to do with petroleum economics.<\/p>\n

Furthermore, the information the Administration has been using in its analysis is at best incomplete.\u00a0 A report commissioned by the Department of Revenue and conducted by FAST Enterprises found that \u201cThe Department of Revenue Tax Division cannot easily produce reports required by the legislature and policy makers because the current systems prevent timely, complete, and correct extraction of data. Reports can be inaccurate and misleading due to incorrect and incomplete data and human error.\u201d\u00a0 Last year, the Senate Finance Committee appropriated $34.7 million to the Department of Revenue to undertake a multi-year effort to update and improve its tax management system.<\/p>\n

In the absence of adequate information from the Administration, and in order to provide legislators with the information they need to make sound decisions regarding changes to Alaska\u2019s tax policy, the Legislative Budget & Audit Committee, of which I am the vice chair, set about hiring energy policy consultants. \u00a0This process began over a year and a half ago, even before Governor Parnell introduced HB 110. \u00a0<\/p>\n

Recently, the Senate Resources Committee heard from PFC Energy, a global consulting firm specializing in the oil and gas industry.\u00a0 Senior executives from PFC Energy testified that ACES\u2019 progressivity feature, which increases the amount of tax owed by an oil producer as the price and profit from a barrel of oil increases, is the second highest among developed countries, making it one of the most aggressive progressivity taxes in the world.\u00a0 I believe that progressivity is where changes to ACES need to be focused and, working through the LB&A Committee, I have requested that PFC Energy develop a model to show how changes to specific features of ACES, features like progressivity, might impact our overall fiscal system and the state treasury.\u00a0 PFC Energy will present its model to the Senate Finance Committee later in this legislative session.<\/p>\n

In mid-February, the Senate Finance Committee received a two-day presentation from Dr. Pedro van Meurs, a world renowned consultant on oil and gas fiscal systems who has a long history of working with Alaska and who has done extensive research into the competitiveness of Alaska\u2019s oil tax relative to other oil producing regions.\u00a0 Dr. van Meurs asserted that while ACES has \u201cserious deficiencies,\u201d \u2013 namely it is too high, too complex, and under certain scenarios nonsensical \u2013 \u201cHB 110 is not a viable alternative to ACES.\u201d\u00a0 He criticized HB 110 for making an already complex tax system more complex and for setting tax rates unnecessarily low for oil being produced from existing legacy fields like Prudhoe Bay and Kuparuk.\u00a0 In short, it amounts to a giveaway.<\/p>\n

So, while evidence is mounting that ACES needs to be fixed, it is also mounting that HB 110 is not the solution.<\/p>\n

It would have been a huge disservice to Alaskans if the Senate had passed the Governor\u2019s proposed tax cut in HB 110.\u00a0 We will continue to gather the information we need to make sound, reasonable and responsible decisions based on fact, not emotion.\u00a0\u00a0 It is my belief that the Senate is poised to make calculated and well informed changes to ACES that is fair to both industry and<\/em> the state. \u00a0<\/p>\n

Industry advocacy organizations such as the Alliance, the Alaska Oil & Gas Association, the Resource Development Council, and the State Chamber of Commerce are working hard to represent the financial interests of the oil industry.\u00a0 In the meantime, I will continue doing what I was elected to do: represent the interests of those who own the resource \u2013 all Alaskans.<\/p>\n

-Bert Stedman<\/p>\n","protected":false},"excerpt":{"rendered":"

This week I\u00a0wrote\u00a0an op-ed\u00a0piece for distribution to Alaska media\u00a0regarding reform of Alaska’s petroleum tax system.\u00a0\u00a0This is one of the largest issues of this legislative session.\u00a0 In\u00a0the article below\u00a0I reiterate my stance on past and proposed reforms and highlight how the Legislature is currently moving forward on this issue.\u00a0\u00a0Here I post the\u00a0full text of my letter; […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"ngg_post_thumbnail":0,"footnotes":""},"categories":[1],"tags":[108,7,110,111,92,109],"class_list":["post-1971","post","type-post","status-publish","format-standard","hentry","category-news","tag-aces","tag-bert-stedman","tag-hb-110","tag-oil-and-gas-taxes","tag-resources-committee","tag-sb-192"],"_links":{"self":[{"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/posts\/1971","targetHints":{"allow":["GET"]}}],"collection":[{"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1971"}],"version-history":[{"count":16,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/posts\/1971\/revisions"}],"predecessor-version":[{"id":2030,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=\/wp\/v2\/posts\/1971\/revisions\/2030"}],"wp:attachment":[{"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1971"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1971"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/bertstedman.com\/new\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1971"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}