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House panel trims proposed in-state refinery subsidies to $150 million

Dermot Cole
The Flint Hills refinery in North Pole, Alaska. Courtesy Flint Hills Resources Alaska

JUNEAU -- The House Finance Committee advanced a five-year financial aid program for Alaska oil refineries Monday, but only after cutting proposed state subsidies from $300 million to $150 million.

Supporters of the more expansive plan warned that tax credits trimmed to $10 million per year for each refinery might not be enough to save the two Petro Star refineries in Fairbanks and Valdez. 

“I just feel like this isn’t enough to get over that hump and get us to where we need to be without costing the state billions of dollars in the future,” Fairbanks Republican Rep. Steve Thompson said.

Petro Star is owned by the Arctic Slope Regional Corp. Company officials have testified that it is losing money, and its future is in doubt. “Uncertainties surrounding the continued viability of refining in Alaska make us question whether we should employ our assets elsewhere,” said a joint statement by Arctic Slope Senior Vice President Tara Sweeney and Petro Star President Doug Chapados.

Before forwarding the bill to the full House, the committee removed a provision proposed by Gov. Sean Parnell calling for direct tax credits and/or cash payments over the next five years, worth $100 million to Petro Star and $50 million to Tesoro. If Flint Hills sells its refinery, a new owner would be eligible for the tax credit program, but it's not clear whether a buyer will be found. The company is shutting the refinery down and plans to use it as a fuel terminal, selling fuel shipped in from elsewhere.

The scaled-back aid plan would offer a 40 percent annual tax credit on “infrastructure expenditures” of up to $10 million a year per refinery. Petro Star and Tesoro, if they spend $25 million a year on a refinery, would receive up to $10 million in tax credits or cash payments per refinery. Petro Star could qualify for $20 million in payments for spending $50 million in Fairbanks and Valdez.

Gara, Austerman critical

The two chief critics on the finance committee, Anchorage Democratic Rep. Les Gara and Kodiak Republican Rep. Alan Austerman, questioned the notion of making direct cash payments if a refinery did not have a tax bill from which to subtract tax credits. “That portion of the bill says that if you don’t have a profit and you don’t have a tax liability, we’re going to give you the money anyway,” Austerman said. “I have a problem with that.”

North Pole Republican Rep. Tammie Wilson said the state has other programs in which cash payments are allowed, such as the tax credits for Alaska filmmakers, which can be sold. The question for the state, she said, is whether it wants in-state refineries.

"We have to do something now to make them healthy," she said, adding that Petro Star may not be in business five years from now. "This is critical that we do something now."

Dillingham Rep. Bryce Edgmon said he agreed, and suggested that Petro Star presented a business model that is not stagnant, but "teetering."

"As a for-profit company, they're going to do what a for-profit company's going to do when you don't make money," said Edgmon. "What I've also heard is that there's a broader public purpose involved with keeping these refineries functioning."

'They don't need it'

A key sticking point for Gara was that Tesoro would be eligible for the subsidy, even though it did not seek it. The bill began as a straightforward royalty oil contract with Tesoro.

“Tesoro’s on record saying they don’t need it, but they’re going to get it,” said Gara, adding that state help should be aimed just at distressed refineries. The bill began as a royalty oil contract renewal with Tesoro before the financial aid provisions were added in response to the Flint Hills shutdown and Petro Star's appeal.

The 40 percent credit would be for “an expenditure directly attributable to the in-state purchase, installation, modifications, adjustment or other alteration of tangible personal property for the manufacture or transport of refined petroleum products or petroleum-based feedstock.”

Gara and Austerman said they supported low-interest loans, not tax credits and cash payments. Natural Resources Commissioner Joe Balash said such loans would not be enough to help Petro Star.

Thompson, the Fairbanks Republican, said the bigger picture needs to be considered, and he predicted severe consequences if the Petro Star refineries shut down -- higher electric rates in Fairbanks, the potential closure of Eielson Air Force Base, a loss of thousands of jobs and a reduction in state revenue of hundreds of millions over the years.