Oil tax structure, Mat-Su prison weigh on House Republicans

The governor's proposed tax breaks for big oil producers, the troubled new state prison at Point MacKenzie, and subsidies for the proposed TransCanada gas pipeline all generated doubts.

At the same time, they justified the travel of about half the Legislature to a meeting in Washington last week with other energy-state legislators.

On an issue closer to home, Chenault joined in the criticism that emerged last week in the Senate over the costs of the new Goose Creek Correctional Center, nearing completion across Knik Arm from Anchorage.

"I certainly have some concerns when you take a $20 million (annual) cost and it goes to $70 million, roughly, in a few years, in order to house prisoners here in Alaska," said Chenault, R-Nikiski. "It causes a lot of concern for people all over Alaska."

But Chenault conceded that the Legislature shouldn't have been surprised by the costs of a facility under discussion and construction for nearly seven years. It was no secret, he acknowledged, that the remote Point MacKenzie site was chosen over one near Palmer, and required brand new utilities in addition to the cost of the prison itself.

"It's probably the Legislature's fault for not following it close enough," he said.

Last week, an influential senator, Republican Bert Stedman of Sitka, the co-chairman of the Senate Finance Committee, suggested mothballing the 1,500-bed facility before it even opens next year.

The oil tax break is one of Gov. Sean Parnell's top legislative goals. But it's already generated strong opposition in the Senate, and Chenault said it won't have clear sailing in the House either, although it has significant support there.

Sitting at Chenault's right at the press conference, Rep. Paul Seaton, R-Homer, voiced doubts about the oil tax break, which would cost the state billions of dollars over the next five years.

Seaton disputed the main argument for the tax break -- that it would encourage new drilling and other investments on the North Slope.

Drilling activity in years past has never followed changes in Alaska's tax regime, whether rising or falling, he said. Investments follow oil company plans for field development, not tax codes, he said.

He cited recent proposals by an independent oil company, Great Bear Petroleum, that are going ahead in Alaska without the incentive of tax breaks.

"The tax bill that we've got before us, none of that money is going to go there," Seaton said. "The money is going to go to the current producers who have put not one plan of development, or accelerated development, on the table."

On the day that an official of the Denali gas line project said it was behind schedule in getting contracts from potential gas shippers to the Lower 48, Chenault said he was still supporting a bill that would stop subsidies to the competing TransCanada project.

TransCanada has an official state license under the Alaska Gasline Inducement Act of 2007, entitling it to up to $500 million in development subsidies for a line to either Valdez or Alberta, depending on where potential customers want to ship the gas. But so far, no customers have signed up, and TransCanada started looking for them months before Denali. (Denali is a project of Conoco Phillips and BP. TransCanada Corp. has partnered with Exxon Mobil.)

Chenault is one of seven sponsors of House Bill 142, which could declare the TransAlaska project uneconomical and stop the state subsidies.

Chenault said his reason for the bill is to pry information from TransCanada about its chances for ultimately signing up customers -- information the company says is proprietary.

"If there's enough information that can be gleaned without passing a bill, I'd just as soon do that," Chenault said. But he added that he wasn't sure that enough information "could come out in such a fashion" for legislators to be comfortable appropriating the current year's subsidy installment of about $160 million.

Chenault didn't take the trip last week to Washington, but the other two representatives attending the news conference, Seaton and Anna Fairclough, R-Eagle River, did. In the face of widespread criticism that the Energy Council delegation was so large it virtually shut down the Legislature, both said the trip was worthwhile.

Fairclough met with Alaska's congressional delegation and staff, the Federal Energy Regulatory Commission, and other agencies and experts. She didn't get a very "positive reception" when she talked about the possibility of a gas pipeline to the Lower 48.

"With the price for gas today at $3.84 and I believe costs for transportation of natural gas (through an Alaska pipeline) exceeding $4 (per thousand cubic feet), it creates a challenge for us to compete in a global market," she said. One prevailing thought in Washington: Alaska should use state funds to subsidize construction of a gas line, she said.

"Right now, they're saying what's Alaska going to do for themselves," she said. "Until Alaska's willing to lay down a significant portion of the infrastructure costs, our gas line continues to be uneconomical."