FAIRBANKS -- The trans-Alaska pipeline is worth $4.5 billion more for property tax purposes than the Parnell administration contends, the State Assessment Review Board said Friday, dealing the governor and oil companies a setback.
In setting a tax value of $10.2 billion, the appeals board offered a compromise of sorts. The three board members rejected arguments by Gov. Sean Parnell's administration that it is worth $5.7 billion, by the oil companies that the right number is $2.7 billion and by the municipal governments that $13.7 billion is correct. A year ago, the board set the pipeline value at $11.8 billion
Municipal governments of the North Slope Borough, Valdez and the Fairbanks North Star Borough will count Friday's decision as a victory because the board did not agree with the state Department of Revenue assertion that the pipeline is worth about half as much as SARB said it was last year. After a weeklong hearing in Anchorage May 12-16, SARB reduced the value by $1.6 billion from last year.
SARB is set up under state law to hear appeals of oil and gas assessments. The Parnell administration had argued that last year's assessment "ran counter to sound appraisal practice and principles and the determinations of the Alaska courts."
The board did not show proper "deference" to the revenue department in its decision last year, the state argued. In a press conference in March, Parnell said that because oil production is down, "everything says that line should be worth less today" than in the past. The counterargument by the municipal governments is that with higher prices, the total value of oil flowing through the pipeline is higher than it was when the pipeline was carrying more oil.
From its decision today, the partially reconstituted board continues to disagree with the administrative agency and the governor. All of its members serve at the pleasure of the governor.
Parnell fired former SARB chairman Marty McGee early this year and appointed two former oil company officials, one of whom withdrew because of a controversy over his California residency. The five-member board has two vacancies, but the other new Parnell appointee, Bernie Washington, appears to have sided with the two other members of the board on the decision, which is signed by the chairman, James Mosley.
The state had argued that SARB had made key mistakes a year ago in setting an $11.9 billion value on the pipeline. Last year, according to the state, the SARB "rejected the well-thought-out analysis" by state officials that the pipeline could operate only until 2046, based on proven oil reserves. Instead, SARB put the end date at 2066.
The Revenue Department made the same argument this year, but the board found that 2061 is a reasonable end date, figuring that the pipeline would remain a feasible means of shipping oil -- even as production slips to 100,000 barrels a day.
SARB said the owners' argument for a lower assessed value was flawed.
"In sum, the owners have based their conclusion that the assessment was excessive on their overall appraisal of TAPS. Because the owners' appraisal is not credible evidence of the value of TAPS, the board concludes that the owners have not met their burden of proof to show that the assessment was excessive," the board said.
On the other hand, the board said the municipal governments did meet the burden of proof to show that the state assessment was flawed because the state used a 2009 cost study on pipeline value, not two more current reports.
"More recent estimates of cost, based on actual quotes from vendors and research in the market, are preferable to trending forward old studies," it said.
The life of the pipeline can best be determined by how long there will be enough oil to keep it running, based on proven reserves as of 2014.
The board accepted the estimate from engineer Dudley Platt that there are 5.8 billion barrels of reserves, rejecting the lower numbers put forward by a state consultant.
Writing for the board, Mosley wrote that in the past the board, the state and the courts have found the pipeline assessment system is broken, but he said "the system appears to be righting itself."
He said the board found it encouraging that both the municipal governments and the pipeline owners presented new cost studies about the replacement value of the pipeline.
While the revenue department has criticized the approach by the SARB, he wrote that the board hopes "the methodology being used to calculate the taxable value is sufficiently explained so that future assessments will be done using this methodology."
The board also commended the oil companies for taking steps to ensure that the pipeline will be operated and maintained for the next half-century.
Reach Dermot Cole at email@example.com.
By DERMOT COLE