Changes proposed to ACES will restore legislation’s original intent

Chuck Legge’s Aug. 4, 2012, column (“How much more ‘outside’ does Palin need to be?”) concerning Alaska’s oil tax, known as ACES, claims my push to amend ACES is tantamount to attacking Gov. Sarah Palin’s signature piece of legislation. The writer’s characterization is so inaccurate and misleading that readers deserve a response to set the record straight.

The reality is my proposals for changing ACES are moderate adjustments that will bring taxation closer to what Governor Palin originally proposed.

Near the end of legislative consideration of ACES in 2007, Sen. Hollis French, D-Anchorage, demanded at least an extra $1 billion be extracted from oil production, far above what Governor Palin had proposed. Sen. French accomplished this by jacking up the rate of progressivity calculated on each barrel.

Rep. Paul Seaton, R-Homer, helped Sen. French pass the amendment in the Alaska House. This drastic increase in the tax rate was done in a matter of days with no actual information available in order to justify the increase. This is a far cry from the “demand for information before any change can be made” that was the cornerstone for inaction by the Senate these past two sessions.

At the time, we were told oil prices would likely range between $60 and $80 per barrel. We were further assured that prices over $100 per barrel would be extremely rare occurrences, and therefore the higher progressivity calculation would be justifiable and competitive. However, two years ago we saw prices at $140 per barrel and today, prices average above $100 per barrel.

Since 2007, Alaska has been the living laboratory of Sen. French’s unique oil tax progressivity experiment. We now know how the tax behaves when the per-barrel price is in the $40 to $60 range, and we know how it behaves at $100 per barrel and higher. It is no longer theoretical.

We know that in the $60 to $80 per-barrel range, Alaska is competitive with other jurisdictions, just as the experts told us we would be. However, when the price per barrel is above $80, oil field investment dollars begin going to other jurisdictions. At higher prices, when the state scoops up the lion’s share, oil companies will inevitably invest their money elsewhere.

The results are in on the “French experiment.” More of Alaska’s oil remains locked in the ground, rather than being maximized for Alaskans’ benefit.

We cannot stand by and watch pipeline throughput slow to a trickle in Alaska while virtually all other oil producing regions enjoy a production boom. The question is, how do we increase production when we know the current path is one of decline? I will not stand by and watch Alaska’s opportunity dwindle with declining production. We must do something about it.

Our real world experience with ACES progressivity calculation demonstrates that the French experiment has not worked and, indeed, has hurt opportunity for Alaskans. We need to return Alaska to competitiveness by adhering more closely to oil tax levels originally proposed by Governor Palin instead of sticking with Sen. French’s failed experiment as Mr. Legge urges. That will restore Alaska’s competitiveness and will grow jobs for the benefit of our economy and for us all.

Sean Parnell has been Alaska governor since July 2009.