On Dec. 14, lawyers for the State of Alaska announced that they’d reached a massive multi-million dollar settlement centering on the Trans-Alaska Pipeline.
Under the proposed settlement, the state expects to collect about $165 million in back taxes, primarily from the major oil companies operating on the North Slope.
But, a new state law allows those companies to pay that debt with tax credits, meaning the state might not see any of that money. At least, not in cash.
The Trans-Alaska pipeline is essentially a toll road for oil from the North Slope and the state contends that the companies that own the pipeline — including BP, ConocoPhillips and ExxonMobil — charged too high of a toll.
That means the state has been losing out on money. Essentially, the cost of shipping is subtracted from the taxable value of oil. The lower the value of the oil, the less companies pay in taxes and royalties to the state.
John Ptacin handles pipeline rate-making cases for the state’s Department of Law. He said, by 2015 there were dozens of open rate cases.
“Because of how the litigation unfolded, every time between 2009 and 2015 that any carrier filed for a new rate case the state and the independent shippers filed protests at both FERC [Federal Energy Regulatory Commision] and the Regulatory Commission of Alaska,” Ptacin said.
Ptacin said once regulators determined that the rate costs had been too high, there was a lot to sort out between the owners of the pipeline, the shippers and the state.
“So that’s what we’ve been doing for the last two years is trying to see if we could work through all of the rates from 2009-2015 on file,” Ptacin said.
And they did finally sort it out. The state and the companies agreed to settle open cases with both federal and state regulatory authorities. They came up with a new kind of rate calculation that they’ll use through 2021. That should, in theory, keep disputes over rates down.
But, part of that settlement is that the state is owed about $165 million in back taxes from companies that paid to ship oil down the Trans-Alaska Pipeline.
In the past, that money would have been paid directly to the state. But that’s changed. Now, the state’s Department of Revenue is estimating that it won’t see the bulk of that settlement. At least not directly.
Instead, the the major oil companies on the North Slope are expected to buy tax credits the state owes to other companies and use them to pay their old tax bills.
Right now, the state owes nearly $1 billion to small, independent oil and gas companies under defunct cash-for-credits scheme that the legislature ended last year. And lawmakers tucked a provision into the law that ended that program that allows companies to buy cash credits and use them against past tax bills.
“Because of that, we believe companies are going to purchase, major producers are going to purchase about $100 million worth of these tax credits that are in the hands of the smaller companies,” Department of Revenue Tax Division Director Ken Alper said.
Alper said the major companies are probably going to get a pretty good deal out of it because there are more sellers than there are buyers.
That means that the major North Slope producers are not going to pay full price for those credits. But, they’ll be able to redeem them for their full value to the state.
“From the point of view of the company getting that money, they’re just happy to cash out. They want to be able to get their cash and get away, the question is, how much are they willing to accept to do that?” Alper said. “From the point of view of the people purchasing the credits, the major producers, if they pay 80 or 90 cents on the dollar, they get all 100 cents to offset their taxes when they use the certificate.”
Alper said the state isn’t expecting any of this to happen until next year.
But, there’s still a lot to sort out before it could happen.
For one, the settlement still has to be approved by the Regulatory Commission of Alaska and the Federal Energy Regulatory Commission. Ptacin said that could take up to six months.