Alaska oil tax amendment creates undisclosed bonus for big oil companies

You may have heard about the $165 million settlement reached between the state and the oil companies about money owed to Alaska.

But the big oil companies will pay less than that amount because of a little-noticed amendment Senate Republicans inserted into a tax bill a year ago that created a bonus worth tens of millions.

I have no doubt that the companies backing the amendment last spring were already thinking about how it would reduce their cost in the December settlement.

What I find objectionable is that the public was never informed of how the change would impact the settlement and benefit the big companies.

There was no reporting on any link between the tax bill and the coming settlement. Perhaps legislators did not know that the companies were close to cutting a deal that would be sweeter with the change.

The amendment allowed oil companies to use tax credits to pay for back taxes, which was not allowed before the Senate amendment became law.

(The big companies can buy the credits at a steep discount because the small companies want the cash and the state has been slow to pay.  If BP buys $1 worth of credits for 80 cents from a private company, it can use that credit to pay $1 in taxes to the state. It would make more sense to ban the big companies from paying back taxes with discounted credits and have the state pay the small companies 100 percent, encouraging more competition in Alaska.)

With the credits now in the mix, the state expects about $25  million in cash to be turned over to the treasury by the oil companies in the next fiscal year under the settlement, while about $100 million of the back-tax debt is expected to be paid through tax credits purchased by the big companies. They will pay many millions less because of this amendment.

The provision to allow the big companies to use credits for back taxes appeared out of nowhere last April 24 in the Senate Resources Committee. Legislators never disclose when they take an action at the request of a lobbyist or an industry official for obvious reasons.

Anchorage Sen. Natasha von Imhof described it as a "win-win" for the oil industry and the state.

I would call it a win-win-win for BP, ConocoPhillips and ExxonMobil, as they stand to save tens of millions.

Sen. Cathy Giessel, the chair of the committee, said the change would have no "present cost to the state."  She should have said the cost was unknown. 

According to the minutes of the meeting, Von Imhof said that "legislators are looking for a way so that these small companies can get cash sooner rather than later while not reducing oil taxes expected to be paid to the state,  and therefore not affecting the revenue forecast. It creates a win/win situation for everybody."

What she did not say was that it also reduces the cost to the big oil companies.

If there was ever any public discussion about how this change would benefit the big oil companies and reduce the cost of their coming settlement with the state on back taxes, I haven't seen any evidence of it.

In comments submitted to the state last fall on proposed regulations for the bill, industry officials said they were worried about whether the back taxes under the tax settlement would be eligible for payment with credits under state regulations. The law does not allow the use of credits in cases where an "administrative proceeding or litigation" is involved. The Federal Energy Regulatory Commission $165 million settlement is not an "administrative proceeding or litigation," the attorneys and accountants will say with straight faces, but a regulatory matter. They had no need to worry.

Had the link between the Senate amendment and the settlement been made public, the amendment would not have survived and remained in the final version signed by the governor.

Dermot Cole3 Comments