Will ACES Be Discarded?

by Whitney Pitcher

During her CPAC speech last Saturday, Governor Palin included some Alaskan constitutional populism (emphasis added):

If Mrs. Thatcher were with us here today, she would remind us that there is a big difference between being pro-business and being pro-free market. On this there can be no mistake where conservatives stand. It’s time for “We the People” to break up the cronyism and put a stake through the heart of “too big to fail” once and for all.

That includes these resource-rich states like Alaska, my home state. Read your constitution, Alaskans. Realize that the natural resources that God has created for man’s use — they’re not owned by the big multinational conglomerates and the monopolies. They’re owned by the people. They don’t own them, so don’t let them own you. You have a right to those resources to be developed for our use.

Governor Palin rightfully notes two important issues in particular–1) the Alaskan constitution’s charge that development of resources for the good of the people 2) the warning that the people (and politicians) of Alaska  not allow themselves to be owned by the oil companies.

The Alaskan constitution notes that the state’s natural resources belong to the people and are to developed for their maximum benefit :

 The legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State, including land and waters, for the maximum benefit of its people.

Governor Palin’s point is especially salient and timely when it comes to Alaska’s natural resources. On Wednesday night, the Alaska state senate passed a bill that if passed in the House and signed by Governor Parnell would overhaul the oil tax reform plan, ACES, that Governor Palin signed into law in 2007. Unlike Governor Palin’s ACES, however, this bill was not discussed in a transparent and comprehensive manner:

 The newest version of the oil tax bill was introduced Thursday. In the hours before it passed there no public testimony. There was no testimony from Alaska’s independent oil explorers. The only industry testimony came from Alaska’s Big Three oil producers, which had been invited to testify.

“It was sort of striking that the oil industry gets a chance for public comment and the rest of Alaskans don’t,” Wielechowski said.

Many of the smaller independent players in Alaska’s oil patch are the beneficiaries of tax incentives aimed at new production from new fields, rather than the strategy pushed by Parnell and championed by legislative leaders of pumping oil, faster, from known fields.

Testimony from the Big Three acknowledged that the oil-tax changes proposed under SB 21 would make Alaska a more competitive tax environment. But they would not promise new production.

One of the positives of ACES is that smaller, independent oil companies have been able to develop in Alaska. In fact, the number of oil tax returns filed with Alaska has increased 383% since ACES was passed. Annual capital expenditures have nearly doubled since FY2007, meaning that producers are engaging in increased infrastructure development (i.e. more rigs) and the like. These expenditures are helping to lead to increased profits for even the major oil companies. For example, in 2012, 13% of Conoco Phillips’s oil and gas development occurred in Alaska, but Alaska contributed to 34% of their income. Additionally, according to Alaska’s own labor statistics, oil and gas jobs increased more than 15% between 2007 and 2012.

So, why is there a push for reforming ACES? Because of the very thing that Governor Palin warned against in her CPAC speech–being owned by the oil companies. In theory, the Senate bill is better for the oil companies because it flattens ACES’s tax rate and provides incentives for new oil. This sounds pro-business, right? That’s what Governor Palin warned about in her CPAC speech as well. There’s a difference between the invisible hand of the free market and the hand-in-hand “pro business” relationship between business and government. This “hand-in-hand” relationship is the very type of relationship that was the impetus for ACES being passed in the first place, as the Murkowski administration prior to Palin’s administration was shrouded in corruption due to the pay-to-play deals between the oil companies and lawmakers. Governor Parnell has not had that kind of relationship in his dealings, but he has had a revolving door relationship between the oil industry and politics. As I wrote nearly two years ago:

In the early and mid 1990s, Parnell served in the Alaska House of Representatives and Senate. Following his time in the Senate, Parnell became director of government relations for ConoccoPhillips. He then went to work for Governor Murkowski as the director state division of oil and gas from 2003 to 2005. During part of this period time, Governor Palin had served as an oil and gas commissioner until she encountered unethical behavior from another commissioner and Alaska GOP chair,Randy Ruedrich, and she resigned and lodged a complaint against Ruedrich. Prior to running for Lt. Governor in 2006, Parnell worked at Patton Boggs, a law firm that represented ConocoPhillips and ExxonMobil in the Exxon Valdex oil spill case.

Although the bill was passed in the Senate, it was proposed at the request of Governor Parnell. He found 11 allies in the Senate, and the bill passed 11-9. One Senator, Peter Micciche, who is also employed as a ConocoPhillips natural gas plant supervisor,  paid lip service support to ACES, indicating he would reject Governor Parnell’s proposal. However, Micciche ended up voting for the modified Senate bill that Governor Parnell applauded.

The Senate bill removed the capital expenditure credits that ACES has, which particularly benefited the smaller companies who were not given the opportunity to testify before the Senate. The credits gave companies breaks on infrastructure development and expansion (e.g. new rigs) and the like, which because of economies of scale, helped smaller companies (with their smaller budgets) be able to grow.  This was another thing Governor Palin noted during her CPAC speech, “if you’re not at the table, you’re on the menu”.  Such may be the case for these smaller companies who were not given a voice in these Senate debates.

ACES has not only helped boost Alaskan jobs and investments by oil companies, it has strengthen Alaska’s fiscal health. ACES has helped create $16.5+ billion in state savings and has contributed to Alaska being upgraded to a AAA credit rating by both Fitch and Standard and Poor’s in the past 14 months. As a House committee begins to discuss this bill today, one would hope that, rather than appeasing the oil companies for increased production that may or may not occur, legislators would look at the economic and overall fiscal benefits that ACES has brought to the state.