JUNEAU -- A five-year plan to subsidize in-state refineries by up to $10 million a year won easy approval Thursday from the state House.
But the 35-5 vote followed prolonged debate over whether the 40 percent tax credits/grants should be scrapped in favor of low-interest loans, and why Tesoro, which didn't seek a subsidy, should get one at all.
The measure now heads to the Senate, with a Senate Finance Committee hearing set for Friday as the Legislature nears the final days of its 2014 session, with most major issues unresolved.
In the end, the House rejected the loan plan, sticking with tax credits on infrastructure expenses for the refineries owned by Petro Star in North Pole and Valdez, the Tesoro refinery in Kenai and the shuttered Agrium fertilizer plant in Nikiski, which might be restarted if the company gets a gas supply.
It appears that most of the tax credits would take the form of direct cash payments because there is not enough tax to require refunds.
The aggregate corporate income tax from the companies that own refineries -- not counting those on the North Slope -- has been less than $11 million a year over the last five years, according to the Department of Revenue.
The ultimate cost to the state of the subsidy plan could be $200 million, if the three refineries and the Agrium fertilizer plant have $500 million in qualified expenses over five years. Supporters said the total probably wouldn't be that high.
Fairbanks Rep. Steve Thompson and others talked about the broader economic consequences of not providing a subsidy. Losing the refineries would be a disaster, he said.
He argued that if Petro Star shuts its two unprofitable refineries, the future of Eielson Air Force Base and much of the Fairbanks economy would be at risk. The problems would extend statewide, he said, as Petro Star ships heating fuel to Kodiak and jet fuel to Anchorage.
Eielson buys its jet fuel from Petro Star, which is owned by Arctic Slope Regional Corp., the largest Alaska-owned company.
Regarding the direct cost to the state, Thompson said it is unlikely that each refinery would qualify for $50 million over five years.
"For them to receive that money they'd have to invest $25 million every year," said Thompson. "That's a big investment."
He said the refineries might qualify for the subsidy once or twice on major projects.
Anchorage Rep. Les Gara, a critic of the bill, said the language on what expenditures would qualify for a tax credit is loose enough in the bill to cover spending on many different aspects of refinery operations.
Gara said that Tesoro would qualify for the subsidy but didn't ask for it and doesn't need it. During a finance committee hearing last week, Natural Resources Commissioner Joe Balash said the administration did not want to pick "winners and losers," so it wanted benefits extended to all refineries in the consumer market.
"I didn't hear a single person explain why we would write a check to a company that doesn't need it," Gara said.
He said the bill was like throwing money out the window and hoping it lands in the right place.
Kodiak Rep. Alan Austerman said it is getting "harder and harder for us to continue to look at bailing out the refineries when you look at something like Flint Hills."
Flint Hills has announced plans to shut down in the spring for economic reasons, some of them having to do with the spill of the solvent sulfolane. Austerman said his understanding is that the latest proposal is for Flint Hills, the state and the former owner of the refinery, the Williams Cos., to each pay one-third of the cleanup costs for sulfolane pollution.
(On Friday, Alaska Attorney General Michael Geraghty said the parties have been in talks for an interim agreement under which they would split the cost of feasibility studies for cleanup and a water system extension. He said no agreement has been made on cleanup costs.)
Anchorage Rep. Mike Hawker said the problem facing the refineries is not that they can't find capital but that they are "profitability constrained."
He said they are not "asking for massive corporate bailouts. They're asking for, in the grand scheme of things, a very small boost."
The question for the Legislature is whether it is in the public interest that in-state refining "remains economically viable, regardless of it being marginally viable."
The companies want "just enough tax relief to heal these industries," he said.
North Pole Rep. Tammie Wilson defended the tax credit programs that take the form of cash payments, saying that the state has other programs in which the same practice is common.
"Now we're incentivizing our businesses here in Alaska to stay," she said.
Regarding the internal financial situation of the refineries, she said the Legislature did not ask private companies to show their records.
"No, they didn't bring their books with them and no, we didn't get to go through it, but my understanding is those questions were asked on a different level to see what was necessary," said Wilson.
North Pole Rep. Doug Isaacson said it might be better for Arctic Slope shareholders if the company shut down the Petro Star refineries, following the example of Flint Hills, but he said that would put in jeopardy one-third of the Fairbanks economy. He said Petro Star wants to install a railroad connection at North Pole to improve its ability to transport fuel.
North Slope Rep. Ben Nageak said the state has helped other industries to keep them from going "belly up," including fishing, mining and logging.
"At this time the refinery industry needs help and I think we should step in and help them," he said.