ACES bill is fair and spurs investment
from the Anchorage Daily News | By: Sens. Hollis French & Bill Wielechowski
Recently, the Senate Judiciary Committee passed a new version of the governor’s ACES bill. Gov. Palin praised our bill as a “reasonable” solution. The comments we heard from the public greatly shaped the direction we took. Many of you were concerned Alaska was not getting our fair share. A few were concerned that increasing our valuation rate might discourage investment. Still others wanted to ensure that we didn’t allow excessive deductions. We believe we addressed all three concerns.
Here’s an overview of our bill.
Valuation Rates: We carefully balanced getting Alaska’s fair share with making sure we remain an attractive state for investment. The bill we passed is a fair compromise. While one expert told us we could increase our base rate to 35 percent, we took the more reasonable step of setting the rate at 25 percent. But the key change was an increase to the progressivity rate — when the value of oil is high. Our bill generates an additional $1 billion annually for the state over the current PPT at $65 per barrel.
Future Investment Is Protected: It is projected that 70 percent of all future oil development on the North Slope will occur in Prudhoe Bay and Kuparuk Units. This is not exactly wildcatting, though, because about 80 percent of the wells drilled there find oil. These are “world class” fields, and Prudhoe Bay is considered one of the “crown jewels” in the oil world. Even assuming costs triple, the big producers will still generate between 72 percent and 123 percent rates of return on their infill drilling investments.
Future exploration outside Prudhoe Bay and Kuparuk is enhanced because our credit system is among the best in the world and greatly incentivizes future investment in Alaska.
Saving Surpluses: Many Alaskans expressed concern that we would just let government grow if we increased oil revenue. That’s why we amended the bill to save a huge portion of the additional revenue we receive from this bill. This will help us ease any economic downturns in the future.
Allowable Deductions: We tightened deductions, including provisions clarifying that lobbying, public relations and advertising expenses can’t be deducted. “Indirect: costs — such as health club memberships or expensive dinners — may no longer be deducted. And costs related to spills, shutdowns and shoddy maintenance may not be written off either, under our bill. New language in the law will benefit the state by not allowing more than a reasonable deduction for transportation costs, which alone will save the state $160 million per year.
Reporting, Auditors and Penalties: We added provisions requiring major producers to declare their Alaskan revenues and expenses. It seemed like common sense to us that under a net valuation system, the public needs to know what each companies’ net income amounts to. We added more auditors, so the state can closely monitor deductions. Whistle-blower provisions were added that allow someone who reveals cheating committed by the industry to receive a portion of the amount that is recovered as a reward. New stringent penalties were added for underpayment of taxes, as a way to enforce early compliance. We learned that it can take many years for the state to complete an audit, so we increased the statute of limitations for collecting our revenue from three to six years.
In-state Gas: We added a provision that reduces the taxes paid for in-state use of natural gas. This provision is expected to spur future exploration and industry in Alaska and lower in-state natural gas prices.
The Way Forward: Many of us remain skeptics of a net profits system. However, the additional auditors, penalties, and disclosure provisions make a net system more viable.
We think we have a fair bill and hope most of these components prevail as they merge with the work of other committees. Working together, we can have a system that gets Alaska our fair share and spurs future investment.
Sen. Hollis French , D-Anchorage, is the chair of the Senate Judiciary Committee. Sen. Bill Wielechowski, D-Anchorage, is a member of the Senate Judiciary and Resources committees.
