Tim Bradner: Late-session Legislature devolves into a feeding frenzy

Tim Bradner | Alaska Journal of Commerce

The end of an Alaska legislative session seems like government at its absolute worst, and the 2014 session end seems typically messy.

That there was little money for capital projects has put everyone in a sour mood but what galls me is how people attach things to bills late in the session, which can create a feeding frenzy. It's at this point in a legislative session that one has to hold one's nose.

That said, this is how democracy works, and unless someone has a better idea, this is what we have. People we elect try to do the best they can and they deserve credit.

An example of a late idea, however, is the refineries' subsidy bill, House Bill 287, which started out as a governor's bill to continue a contract for Tesoro Petroleum to buy state royalty oil for its refinery near Kenai.

HB 287 was awaiting action in the House Finance Committee last Tuesday when a new idea was attached to it, a 40 percent investment tax credit for in-state refineries that can either be applied to taxes owed or cashed in with the state.

PetroStar Inc., an Arctic Slope Regional Corp. subsidiary, had asked for this in an effort to help the company deal with difficult economic challenges for its two small refineries, one near Fairbanks and the other at Valdez.

Tesoro did not ask for the tax credits -- the company just wants to buy state royalty oil -- but would benefit nonetheless. The owners of Flint Hills Resources, whose Fairbanks refinery confronts challenges that are similar to those facing PetroStar, did not ask for state financial help and will close their refinery.

One may not like the Koch brothers, who own Flint Hills, but give them credit for sticking to their conservative principles.

And to its credit, the House Finance Committee did reject the first proposal for the refinery tax credit, a direct operating subsidy for the refineries. This was a bit too much for the committee co-chair, Rep. Alan Austerman, and other members of the committee, given the current state deficit.

The finance committee did increase the investment tax credit from 10 percent to 40 percent, however.

The bill was broadened in its next committee, the Rules Committee, at the request of House Speaker Mike Chenault, to include Agrium Corp. in the tax credits. Agrium hopes to restart the shut-down fertilizer plant in Nikiski, Chenault's district.

This change, made last Wednesday, added facilities that are "hydrocarbon processing" to fit Agrium's hoped-for resumption of processing natural gas to make fertilizer.

Chenault's change made a lot of sense because it converted HB 287 into a broader natural resource value-added development tax credit. Gas-based manufacturing is an idea a lot of Alaskans support.

However, on the House floor the next day, Thursday, Rep. Mike Hawker took things into reverse with an amendment to exclude liquefied natural gas, compressed gas and gas-to-liquids projects.

Hawker argued that this was to limit any overly broad application of the tax credit but I think it was too limiting. Chenault's original amendment, for example, would have had a lot of beneficial effects for rural Alaska communities trying to develop small-scale LNG, compressed gas, propane and even, potentially, gas-to-liquids projects to help lower high fuel oil costs. I know that communities in Southwest and Northwest Alaska are very interested in fuel alternatives.

Hawker was well-intentioned but one can easily interpret this as limiting competition for the existing refiners.

It was interesting to me that lobbyists were handing out copies of Hawker's amendment to reporters in the Capitol as he was on the floor of the House making the amendment, which meant lobbyists had the amendment ahead of time.

Keep in mind that this language may change again -- things were very fluid in Juneau over the weekend -- or the bill may die.

I'm very supportive of doing something for PetroStar but not just because the company needs help. Fairbanks leaders are very worried that PetroStar's North Pole refinery might close and, because it is a major supplier of jet fuel to nearby Eielson Air Force Base, the loss would give the Air Force another excuse to attempt a downgrade of Eielson.

That makes helping PetroStar, at least at North Pole, a public purpose.

The closure of the nearby Flint Hills refinery will create problems for PetroStar's plant because PetroStar shares a pipeline connection with Flint Hills to take crude oil from the nearby Trans-Alaska Pipeline System.

Without Flint Hills, PetroStar has to carry the full cost of the connection. Because it uses much less of the capacity, those costs are very high.

PetroStar's other economic challenges include high crude oil prices, which benefit the state treasury but not the refineries.

Also, there are penalties PetroStar must pay to the Quality Bank, a financial mechanism used by firms shipping oil through TAPS, to compensate them (and the state) for the degradation of crude oil that happens when PetroStar returns "used" crude oil to the pipeline to continue to Valdez.

There may not be much to be done about high crude oil prices. Any initiative to sell state royalty oil to an in-state refiner at a discount will create a lot of other issues. Similarly, any attempt to jury-rig the Quality Bank to help an in-state refinery will open several cans of worms. The Quality Bank is regulated by the Federal Energy Regulatory Commission, so its administration is not even up to us.

There might be other solutions to help PetroStar that could be explored. Sustaining a refinery to support Eielson is certainly in the public interest. I think there's a role here for the Alaska Industrial Development and Export Authority, the state's development corporation.

AIDEA invests in infrastructure. Low-cost refinancing, or even purchase, of the pipeline connection to TAPS might be worth considering as one move. If it comes to it, AIDEA could even purchase and lease back the North Pole refinery to PetroStar.

The authority now owns and leases a shipyard in Ketchikan, an ore terminal in Skagway and a mining road and port in Northwest Alaska, all successful examples of stimulating and sustaining local development.

This option could be an alternative to the tax credit, which has now gotten messy.

As Anchorage Rep. Les Gara points out, the tax credit would be just a financial gift to companies like Tesoro that haven't asked for it, and an embarrassment in these times of state spending deficits.

Tim Bradner is an Alaska business writer who lives in Anchorage.

Tim Bradner