Alaska Conservation Voters

Conservation Watch

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Alaska Conservation Voters
works to protect Alaska's environment through public education and advocacy, and supports pro-conservation candidates for public office.

“I'd like to get a deal like that.”
--- Senate Resources Chairman Tom Wagoner (R-Kenai) speaking about the provisions of SB305 and Murkowski's proposed tax breaks for oil companies.

• Exxon Valdez Reopener
• Murkowski's Oil Tax Bills
• Mining Tax Revamp

In Every Issue

• On the Move
• New Legislation
• Hot Bills
• Hearings this Week

For many of us the day, now almost 17 years ago, is seared in our memories. In 1989, the Exxon Valdez ran aground in Prince William Sound and spilled approximately 11 million gallons of crude oil into the water which blackened the shoreline from the Sound to Cook Inlet to Kodiak. The State of Alaska and the U.S. Government sued Exxon for the damages it caused to the natural resources of the region, and in 1991, the governments and Exxon settled the civil lawsuit for $900 million.

The settlement states that the governments can “reopen” the settlement with Exxon if there are unanticipated injuries to the species or habitats of the spill zone and recover up to an additional $100 million for restoration projects. The deadline to reopen the settlement is June 2, 2006 . Governor Frank Murkowski will make the decision whether to reopen the settlement for the state of Alaska, with advice from the Departments of Law, Fish and Game, and Environmental Conservation.

Rep. Eric Croft introduced Resolution HJR 29, which encourages Governor Murkowski to hold Exxon accountable to the agreement it made in 1991 and pay for injuries to species and habitats that were unanticipated at the time of the settlement. A similar resolution, SJR 17, was introduced by Senator French in the Senate.

The resolutions urge the Alaska Department of Law and the U.S. Department of Justice to identify all unanticipated natural resource damages from the Exxon Valdez spill, to develop plans to remedy the damages, and to present Exxon Mobil with a detailed, project by project request for up to $100 million to enact the plans. The Cities of Kodiak and Cordova, Borough of Kenai Peninsula and Kodiak and the Alaska Municipal League already have passed resolutions in support of the reopener.

At the time of the 1991 settlement, many of the long-term ecological effects of the spill could not be anticipated. Only in the wake of the spill have scientists been able to document and study many of the spill's lingering effects, most of which were little understood at the time of the settlement.

Almost seventeen years later, only 7 of 30 injured species and resources monitored by the Exxon Valdez Oil Spill (EVOS) Trustee Council are considered officially recovered, with the vast majority only marginally on the mend if at all. Lingering oil likewise remains buried on the beaches and is more toxic than originally thought. Surveys in 2001 and 2002 by NOAA’s Auke Bay Lab found significant quantities of lingering oil contaminating shorelines in Prince William Sound (approximately 20 acres of shoreline are contaminated--a number almost twice the size of the estimate given in the EVOS Trustee Council’s 1993 survey). The remaining oil's effect on populations living or feeding in the isolated oil pockets is of extreme concern, particularly for sea otters, harlequin ducks, and their intertidal prey, where even trace levels of oil have been found to disrupt health patterns.

The reopener decision is intended to initiate a formal judicial process for detailed consideration of these issues. The final decision about the amount of additional damages will be made by a judge if a settlement can’t be reached between the parties. On the other hand, if the governments do not tell Exxon they are reopening the settlement by June 2, 2006 , the opportunity to seek the full amount of damages for restoration projects will be lost forever. It is expected that Exxon will disagree with the reopening and the debate will continue, but the reopener will have to be triggered by the state to allow the conversation to continue.

A hearing for HJR29 was held on Wednesday, February 20, where the bill passed from the House Fisheries Committee without objection. That is a good sign but there is a long way to go.

For more information check out:

The Alaska Center for the Environment

Exxon Valdez Oil Spill Trustee Council

U.S. Fish & Wildlife Service - Reopener Fact Sheet

Oil & Gas Tax Bills - Will the stars align?

Governor Murkowski introduced his proposed oil and gas tax overhaul in two new bills, HB488 and SB305, on Tuesday, February 21. With numerous hearings scheduled for last week and this upcoming week in the Senate and House Resources Committees, other bills are likely to slow down as the legislature works to hash out the details of the proposed tax system.

The issue of how to modernize Alaska's oil and gas tax system, first raised a couple of years ago by Democrat Les Gara and others, has become the instant focus of attention in the Legislature for two big reasons-- (1) Money – a rewrite could add hundreds of millions a year to the treasury; and (2) more money – the Governor says the change is necessary secure a gas line contract.

Under HB 488 and SB 305, the new petroleum production tax will change the existing oil and gas taxation system in Alaska. The proposed system has the potential to generate much more than the $884 million expected from petroleum taxes this year, but there is also the possibility that less could be generated if oil prices drop significantly. The current production tax on oil is based on a percentage of the gross value of production and is calculated using a system that many claim is no longer working for Alaska. An example of this flaw can be found in the fact that the second largest oil field in the nation (Kuparuk) will no longer pay a production tax in the next year and Prudhoe Bay will pay a near zero production tax in 12 – 14 years.

The proposed production tax would be driven by net cash flow and would be based on a percentage of the net profit. With this system, tax revenue would be lower when initial new capital outlays are made and higher as production responds to that investment and net cash flow becomes positive. According to the current provisions of SB305 and HB488, producers will pay a 20% tax rate. The bill also attempts to create new incentives for investment, exploration, and development with a 20% tradable capital investment tax credit and a $73 million “standard deduction.” The Governor says that new incentives were included in the legislation because Prudhoe Bay is an aging field with few prospects for new, major oil fields on state land and the North Slope. A breakdown of the provisions of the bill can be found in Wesley Loy's Anchorage Daily News Article, "Governor's Oil Tax Plan."

By contrast, Rep. Gara and Sen. French have their own bills in the hopper, HB466 and SB292, which are currently not the focus of the Resource Committee hearings. The bills propose a 30 percent tax on oil companies’ Alaska profits, while allowing up to a 15 percent exploration credit.

Why should the State change the oil tax? It goes almost without saying that Alaska should receive a fair share of the revenue generated from its natural resources. There is likewise little in the way of debate over the fact that the old taxation system does not provide Alaska the same level of revenue as similar oil provinces around the world, at least at higher oil prices. However, a multitude of questions will need to be answered as discussions of a new tax proceed to ensure that the new system is in the best interest of Alaska and that Alaskans receive their fair share of the revenues.

This is a mind numbing, immensely complex matter that will be hashed and rehashed by the Legislature. You can rest assured that the devil will be in the details as they struggle to reach some kind of agreement on this highly important issue.

For more information check out:

"Murkowski tax plan includes plenty of industry breaks," Juneau Empire

"Lawmakers let public in on tax debate," Juneau Empire

Petroleum Production Tax Webpage

"All Eyes on Plan to Revise Oil Taxes," Anchorage Daily News

"Governor Puts Forth Oil Tax Reform Plan," Anchorage Daily News

"Governor's Oil Tax Plan," Anchorage Daily News

HB418 - The Push to Update Mining Taxes

Times have changed and Ma and Pa operations are taking a back seat as large corporate mining ventures and proposals spring up across Alaska.

In an effort to address this new world and ensure the state gets its fair share of revenues from production, HB 418 replaces the existing Mining License Tax, AS.43.65.010, and applies the tax on all mined products at the value immediately following their removal from the mine. In other words, the tax is applied to the initial sale price after subtracting the costs of processing and transportation. The bill also repeals current exploration incentives in current law.

Originally imposed by the territorial legislature in 1913, the Mining License Tax underwent several transformations until 1955 when the current structure was adopted. The tax is levied on all net income and royalties received in connection with mining properties and activities. Tax rates are based on a graduated scale that increases with net income, topping out at 7%. Mining operations (excluding sand and gravel operations) are exempt from paying the mining license tax for the first three and a half years of production.

The mining industry opposes the bill as a complicated and regressive proposal that will have a “chilling effect” and set back 20 years of efforts to encourage mining. They claim the industry has not yet lived up to its potential and is still facing difficult times. The industry also says that this question was raised and answered in the 1980’s when Alaska had no hard rock mines and that it is now unfair to change the rules of the game.

On the other hand, as bill sponsor Rep. Seaton claims,“Alaska 's mining industry bears a light tax burden compared to Alaska 's other high value resource industries. State revenue generally amounts to about 7/10 of 1% of the mined resource value, while an additional 1% is paid to municipalities. State revenue from oil and gas amounts to about 20% of total production value, while an additional 2 % is paid to municipalities. State revenue from fisheries amount to about 2.8% of the total production value, while an additional 2.5% is paid to municipalities… It’s time to revise our mining tax structure to address the changing complexion of the mining industry in Alaska.”

Rep. Seaton further contends that provisions in the bill will ensure that marginal and initial operations will not be delayed and a 3 year tax deferment will aid in capital cost payback “without depriving the people of the State of Alaska of their constitutionally mandated benefit.”

The bill was discussed for two days in the House Ways and Means Committee was heard again on Monday, February 27 and will be heard again on Wednesday, March 1.

On the Move

HB418 Mining Production and License Taxes/Royalties - Rep. Seaton (R-Homer)
HB 418 replaces the existing Mining License Tax, AS.43.65.010, and applies the tax on all mined products at the value immediately following their removal from the mine. The bill was discussed in the House Ways and Means Committee for two days last week and was discussed again on Monday, February 27. The bill will also be heard again on Wednesday, March 1. For more information, reference the above article.

HJR29 Exxon-Valdez Reopener - Rep. Croft (D-Anchorage)
A hearing in the House Fisheries Committee occured on Wednesday, February 20. Following a motion from House Speaker Harris, the bill passed from the committee without objection and with little in the way of debate or discussion. The bill will be heard next by the House Resources committee. For more information, reference the above article.

New Legislation

These bills popped up since our last issue of Conservation Watch . If the bills fail to pass during this session, they will die.

HB471 / SB303 Knik Arm Bridge and Toll Authority- Rep. Stoltze (R-Chugiak) / Senate Transportation Committee
HB471 and SB303 propose to expand the powers of the Knik Arm Bridge and Toll Authority (KABATA), particularly with regards to issuing bonds and taking on various forms of debt, to finance the construction and maintenance of the Knik Arm Bridge. As Rep. Stolze commented, HB471 will "give KABATA the authority to finalize financial arrangements to complete the financing of the construction, operation and maintenance of the bridge."

HB488 / SB 305 Oil and Gas Production Tax - Introduced by Request of the Governor
Governor Murkowski unveiled his proposed oil and gas production tax legislation on Tuesday, February 21. The legislation would replace Alaska's current production tax with a tax tied to oil company profits. The bills had hearings in House and Senate Resources all last week and has several scheduled for the upcoming week. Reference the above article for further information.

Hot Bills

Bills move at a rapid pace this time of year. You can obtain up-to-date legislative information on the BASIS website. The following chart notes the status of a few bills of importance to the conservation community.

Hearings this Week

Click on the date in the table below to get the most current schedule information for that day, or check the BASIS hearing schedule. Once a bill has been heard in a particular committee it may be brought up again without public notice or listing on the weekly committee schedule. You can click on a committee name to see a list of its members.