In his Alaska Dispatch News commentary ("Alaska must do a thorough, independent review of oil tax regime," July 25), former Alaska Attorney General John Havelock suggests petroleum industry profits are unreasonably high now that the state has huge revenue shortfalls. The state's current tax regime greatly remunerates oil and gas companies, while Alaskans are being deprived of important public services.
While he acknowledges the difficulty of demonstrating a company's profit to be "unreasonable," Havelock believes the current oil and gas tax regime has run afoul of Section 2, Article VIII of the Alaska Constitution, which requires the state's natural resources be developed for the "maximum" benefit of the people.
Unfortunately, the state Constitution does not provide a handy formula for determining what the maximum benefit should be from any particular resource development. High private profits and low public revenues, however, are certainly an indication of trouble on the constitutional front.
Yet, high profits should not be the only warning light, because a company may be earning a reasonable, even minimal, profit while Alaskans fail to earn the maximum benefit due: Cook Inlet oil and gas development is a case in point.
About 75 percent of the energy for electric power and heating in the Railbelt depends on old Cook Inlet fields forecast to go bone-dry around 2040. New gas fields need to be found and developed, but looking for new gas is not worth the substantial investment for a market as insubstantial as the Railbelt. So, several years ago, the Legislature stepped up with tax provisions to incentivize industry investment. According to the state Department of Revenue, from fiscal year 2007 to fiscal year 2014, the state paid nearly $600 million in tax credits to Cook Inlet oil and gas companies, receiving zero tax revenue.
The now bankrupt Buccaneer Oil was major beneficiary of nearly $60 million in tax credits. Buccaneer's profits were nowhere near record-breaking. Ironically, Buccaneer did find gas when drilling for oil offshore, but the gas is still untapped and can remain in the ground if producing it is not profitable; meanwhile Alaskans receive no benefit.
Who, then, would not agree when Havelock states it is time for a thorough, independent review of the current state oil and gas tax code?
Who, then, is to be charged with such a review and how would the review yield tangible results? Given what is ostensibly at stake, this review will be of limited value should it devolve into an arcane, academic debate among competing experts.
If existing tax provisions have resulted in resource development in which the public is deprived of the benefit it is due, as stipulated by the Alaska Constitution, then the question -- the elephant in the room -- is whether the tax statute is constitutional.
The answer depends in part on whether maximum public benefit can be ascertained, given a particular set of facts. Consequently, litigation is the right process to determine whether the tax statute(s) are in conflict with Section 2, Article VIII of the Constitution. This would require the Alaska judiciary to conduct a thorough and independent review.
Of course, the Legislature is presumed to have broad authority and discretion with respect to its power to tax. However, given hundreds of millions of dollars in tax credits to the industry busy extracting Alaska's most valuable nonrenewable resource, the courts might find the facts in this case sufficiently persuasive to allow the lawsuit to proceed. Not only would a review be conducted, but also Alaskans could expect the review to produce a meaningful result.
Perhaps the current state attorney general would agree this litigation is worth pursuing.
Jan Konigsberg is a longtime energy analyst who has worked in energy planning and policy for both government and nongovernment agencies in Alaska and Montana..
The views expressed here are the writer's own and are not necessarily endorsed by Alaska Dispatch News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)alaskadispatch.com