The great gas tax dilemma

If this legislative session was lacking a capstone issue, it has one now .

A deep debate is brewing over how much a natural gas pipeline is really worth to Alaska, and whether lawmakers and the state have fully and publicly acknowledged the potential risks.

But there's also the question of whether it will matter, as the company holding the state's Alaska Gasline Inducement Act license prepares for an open season that starts May 1.

As a natural gas pipeline planned by TransCanada Corp. -- with a pledge of up to $500 million in state money -- gains momentum, the possibility of actually linking Alaska's gas with markets is seeming more like reality than wishful thinking. But under certain future oil and gas prices, the state's current tax structure could potentially result in no tax revenue from gas production and give companies a break on oil taxes. The overall loss could be as high as $2 billion per year.

Long an advocate for changing the way Alaska taxes gas, Senate Finance Committee co-chairman Sen. Bert Stedman, R-Sitka, said he will roll out a committee bill to break about a combined oil and gas tax, and by May 1.

"Nowhere on the planet do you give away a hydrocarbon basin like this -- it's just not done," Stedman told reporters. "It's ridiculous."

Stedman, who has the support of Fairbanks Democrats Sens. Joe Paskvan and Joe Thomas, among others, said it's unconscionable that Alaska would give away future revenues just to get producers to put gas in a pipeline.

At a press conference Friday morning, Paskvan noted the state constitutional mandate to manage resources for the maximum benefit of Alaskans, and said the current structure wouldn't do so.

"I believe now that the law, as it currently exists, puts Alaska at risk of being plundered," he said. "Without changes before May 1, 2010, my belief is essentially we have a third-world resource extraction model."

But other lawmakers and Gov. Sean Parnell say the tax break on oil was fully intended as an inducement for companies to agree to ship gas on a pipeline, and is worth the ancillary economic boost Alaska could enjoy once gas is commercialized. Some are concerned that an 11th-hour change to the state's tax structure could adversely influence the outcome of TransCanada's open season.

"As Sen. Stedman and the finance committee move forward, they're going to have to take into account whether that impacts the economics of a gasline," Parnell said. "Frankly, it very well could ... I'm open to listening, but I'm cautious to change the rules of the game right now."

House Minority Leader Rep. Beth Kerttula, D-Juneau, said she's also hesitant.

"We are acting a little prematurely," she said. "I'm not sure we should do anything."

Stedman's call for action sounds like a "scare tactic," she said. Instead, lawmakers should back off and allow the state's business negotiations under AGIA help define what changes may be needed to net a gas pipeline that could bring jobs and other economic development.

Parnell said he doesn't believe the current tax rate could be locked in May 1, and added that companies will be asking for tax rate changes as conditions to committing gas, leaving the state room to make changes later on.

"As a state, we think the economics of a pipeline are there," Parnell said. "But I think (companies) are going to ask for it. And what you don't want to do, you don't want to do taxes twice. The state seems to give each time."

But he also acknowledged that the state would enter such negotiation with the current tax regime as a baseline.

Stedman says that's his worry -- that the state will be willing to start negotiations for tax rate changes with a structure in place that already has the potential to set up a scenario in which companies pay no tax on gas and less tax on oil.

"My concern is that that puts the state in a precarious position," Stedman said. "I would like to see the state in a better position, going in to deal with the major oil producers."