STATE LIFTS SPILL-RESPONSE TAX
2-CENTS-A-BARREL LEVY ON OIL SUSPENDED; 3 CENTS FOR PREVENTION UNAFFECTED

By HELEN JUNG
Daily News business reporter

ANCHORAGE- The clink of the last two pennies to drop into the state's oil-spill response fund last year sounded the rare suspension of an oil industry tax.

It's official: The total from the 2-cents-a-barrel tax on oil producers has surpassed the required $50 million floor, meaning that the state will lift the tax for the first time in the levy's six-year history.

The tax arose out of the 1989 Exxon Valdez oil spill as a dedicated source of money for the existing "470 Fund." The legislature levied a nickel-a-barrel tax on oil producers to fund programs to prevent future oil spills and better clean up those that do occur.

The nickel tax would turn off once the fund's total reached $50 million more than the total spent on cleanup, said Bob Poe, who administered the fund until he left the Department of Environmental Conservation in mid-January.

But the $50 million mark seemed like a moving target to the oil companies, Poe said. Confusion over the law led to a heated dispute between the state and the oil industry last year. The oil companies were frustrated that despite paying about $100 million, the fund reflected a negative balance due to expenses from the Exxon Valdez and other spills, and the tax remained in force, Poe said.

As a compromise, the legislature split the tax into two sister accounts: the 2-cents-a-barrel tax for oil-spill response and a 3-cents-a-barrel tax for spill prevention. Although the 2-cents-a-barrel shuts off once the response fund hits $50 million, the 3-cents-a-barrel tax always remains in effect.

The response fund hit $51.1 million from taxes paid through Dec. 31, according to the state's Oil and Gas Audit Division. The division will alert the oil companies once it determines the exact date to stop collecting the tax, said John Pilkinton, the division's director.

He said his initial reading of the law suggests that the cutoff date is the start of the next quarter, which is April 1. The tax brings in about $32,000 a day, based on an average daily production of 1.6 million barrels a day.

The state will start up the tax again if the fund drops below $50 million, Pilkinton said.

Based on current production, the dropped tax would leave BP Exploration (Alaska) Inc. about $11 million or $12 million a year richer, said spokesman Paul Laird.

The tax suspension was obviously a boon to BP, the state's largest oil producer, Laird said.

"The thing was debated and redebated and re-redebated a year ago," he said. "We thought it (the new legislation) was equitable."

An Arco Alaska Inc. spokeswoman declined to comment until the state officially notifies the company.

Typically, the state spends about $250,000 a year on spill-response expenses, barring any major disasters, Poe said, meaning the 2-pennies-a-barrel tax will probably stay turned off for a while.

The response fund covers cleanups of oil or hazardous-substance spills that pose an imminent and substantial threat to the state. The prevention account pays for drills, inspections, equipment, training and other expenses related to averting spills, Poe said.

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