Alaska Senate panel strips $100M tax increase on Hilcorp from carbon storage bill

JUNEAU — The Senate Finance Committee has removed a provision from a carbon sequestration bill that would have raised state taxes on oil company Hilcorp, the operator of Prudhoe Bay.

House Bill 50 was introduced by Gov. Mike Dunleavy last year so the state could lease depleted gas reservoirs in Cook Inlet to store carbon dioxide deep underground. The bill was amended Friday in the Senate Resources Committee with the provision affecting Hilcorp.

As a privately owned oil and gas company, Hilcorp — which produces more than 90% of Cook Inlet natural gas — does not pay corporate income tax to the state. A senior executive at Hilcorp Alaska sent an email to the heads of the Railbelt electric utilities Sunday, warning that higher taxes could lead the company to significantly change its investment decisions and its existing natural gas contracts.

The Senate Finance Committee on Wednesday unveiled a new version of the carbon sequestration bill before an assembled audience of oil industry allies and representatives. The Hilcorp provision was gone.

Sitka Republican Sen. Bert Stedman said the committee had “peeled back” the bill to focus on the carbon storage proposal. He said that was due largely to timing with one week left in the legislative session. Provisions to regulate gas storage and to allow natural gas reserves to be used to secure loans were also removed. But Stedman said they could all be added back to the final bill.

The Alaska Department of Revenue estimated last year that applying corporate income taxes to Hilcorp could net the state well in excess of $100 million per year. Supporters of the Hilcorp tax hike say it is unlikely to be revived and pass into law this year.

Sen. Bill Wielechowski, D-Anchorage, said he was not surprised the provision had been stripped out. He said the threats made by Hilcorp about Cook Inlet’s natural gas supply were “intimidation.”

“It’s outrageous what they’re doing,” Wielechowski said Monday. “Holding Alaskans hostage for their corporate tax breaks.”

Anchorage Republican Sen. Cathy Giessel had also supported the tax hike on the Texas-based operator. She said it was “not unexpected” that the provision had been removed after a pressure campaign from Hilcorp.

“They’ve really got us over the barrel,” she said.

Legislators said the governor had made it clear that he opposed the proposed Hilcorp tax increase, and that it could be a deal breaker for him signing the carbon storage bill. Spokespeople from Dunleavy’s office did not respond to a request for comment.

In response to the addition of the Hilcorp provision, the House Rules Committee scheduled a rare meeting on Thursday. The committee usually just schedules which bills are heard on the House floor. But the Thursday meeting listed 14 Senate measures that could be amended by the committee.

After the Hilcorp provision had been removed, Anchorage GOP Rep. Craig Johnson said the planned hearing was no longer needed. Johnson, who chairs the committee, said Wednesday that the message was “very clearly” understood by the Senate.

”We will not allow good policy to die on the last day of the session,” he said.

[This oil platform stopped pumping 30 years ago. Alaska still won’t make the owner tear it down.]

HB 50 still has a provision intended to block oil and gas companies that receive federal tax credits from deducting carbon sequestration expenses from their oil production taxes. The revised bill has not yet been scheduled for its next hearing in the Senate Finance Committee.