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Sen. Micciche spends week in Houston after Legislature passes tax cut

Naomi KloudaHomer Tribune

Sen. Peter Micciche spent his post-legislative session week in Houston talking with industry leaders and policy makers about liquefied natural gas, a commodity he believes should take a greater role in supplying state revenue.

The legislative session ended on Sunday April 15. On Monday, April 16, Micciche traveled to Houston to take part in the LNG 17 Forum that featured him as a presenter, wearing his hat as the supervisor of the ConocoPhillips LNG plant in Kenai. At the same time, executives of ConocoPhillips met in Houston to discuss the new tax regime of Senate Bill 21 and announced a renewed commitment for drilling at Kuparuk on the North Slope based on the incentives of SB 21.

Micciche said he didn’t participate in those talks, but did at LNG 17 that included other legislators and members of the Gov. Sean Parnell administration. The LNG 17 Forum featured an international panel representing the Middle East, Australia, Japan, South America and Africa.

In his talks, Micciche instructed participants on the properties and benefits of LNG in four different presentations.

“It was really great that Alaska was invited,” Micciche said. “It has significance because where ever a LNG facility is constructed, we would have a number two industry. Right now, crude oil accounts for 92 percent of our tax revenue.”

The No. 2 source behind crude is revenue from alcohol and cigarette taxes, a state of affairs Micciche agrees is sad. The No. 3 revenue source is mining. Pushing natural gas drilling and marketing would give Alaskans a better, cleaner resource edge, Micciche said.

Micciche characterizes himself as proud of Senate Bill 21, the controversial new tax regime that many believed would pitch more advantages to oil companies than it would to Alaskans, who own the resource. But Micciche stands by his yes vote and defends it as a solution to inevitable revenue loss.

“There was tremendous pressure to reduce the budget and I support that, but we made sure critical projects were funded,” Micciche said Monday night. “Whether or not anything was done with oil taxes this year, we have an inevitable decline of revenue. The task is to get in front of that.”

Alaskans will have to deal with less revenue until production improves.

Even without SB 21’s passage, Alaskans would have been in a similar position with a down turn in revenue, Micciche argues.“The way ACEs (Alaskans Clear and Equitable Share) was set up, we would have owed large amounts of capital credits without any requirements for them to produce,” he said. Small independent oil companies will be less disadvantaged than what was characterized, he said. Other myths abounded: instead of a $2 billion tax cut, the incentives amount to a $500 million tax break.

“When they have political things thrown at them in the absence of the facts, it’s difficult for folks at home to understand. The reality is that ACES wasn’t working because it not only made the state no longer competitive, but also because of the liability due to the credits that weren’t tied to production,” Micciche argues.

Under that system, Alaska paid for an airport runway on the North Slope and new living quarters for oil field workers.

“That’s not related to finding and producing oil. The new regime rewards them to produce oil,” he said. “No business would do something without a guarantee. I argue every business has to compete. We’re still not taxing lower. But we think we are least now in the ballpark.”

To get 50,000-60,000 barrels per a day more into the Trans Alaska Pipeline is do-able, though that’s a low-end number, Micciche said. The hope is companies like Great Bear Petroleum, for example, will look for unconventional sources of oil.

“If we’re not competitive, the companies like Great Bear won’t be finding out if that shale source rock is productive enough to make it more than 50,000-60,000 barrels a day. We’ll have greater profits in the next 25 years than riding it down in the short term.”

Not that SB 21 is perfect, Micciche said. He wanted a sunset clause to terminate the incentives in a certain time frame if they proved ineffective. He also fought hard to gain the 35 percent base tax that did away with the complex progressivity tax. But after winning that amendment, he lost it in the House when members of the Resource Committee lowered it to 33 percent. In House Finance, Micciche’s amendment was reinstated.

“We had better see an immediate response. If we don’t see them -- I don’t like the rush or stampede because of its implications – but if we don’t see a steady increase in investment then it will be time to look at a new regime. We tried to get people excited about a sunset. But even without that, doing nothing has an inevitable result.”

SB 21 severed the ties of natural gas and crude production. Those talks need to occur in the future on the final tax regime, Micciche said.

In the end, Micciche took the heat from public criticism that he was going easy on an industry that employs him in the tax breaks. And he said he took heat from the pro-ACES lobby. “The industry was upset with me because they feel 35 percent was too high and pro ACES people think its too low. But in the middle is a good place to be,” Micciche said. “This is not a slash of ACES. We wanted to be in the ball park.

Under ACES, if oil were priced at $110 a barrel, Alaska’s take would be 70.7 percent. “Under the final bill that we voted for, that same $110 barrel of oil would bring us 65.3 percent. That’s a only a lowering of 5.4 percent government take difference,” Micciche said. “If you compare that to the governor’s request, it would be 62.8 percent under governor’s take. I felt that rate was too low, and obviously folks agreed.”

This first term in the Legislature involved 18-hour days and a long learning curve, but Micciche said he feels good about his accomplishments. He served on eight active committees and chaired two of them -- all as a freshman senator. He was able to get legislation passed recommending restricting salmon bycatch allowance. He’s also pleased that HB 77 didn’t pass.

“I do believe in streamlining permitting, but HB 77 needs some work. I plan to work to spend time with NGO’s this summer to talk about ways to improve it,” he said.

Micciche’s way, he said, is to not come across “like you’re the smartest man in the room.” The best answer is somewhere in the middle after people have worked together.

“I was at times wondering what the heck I got myself into. But in the end, I’m proud of how much work I am willing to put forward to represent them (the constituents.)”

The preceding report was first published in the Homer Tribune and is republished here with permission.