OIL AND GAS:

Pipeline case put tea party darling on the side of higher taxes

Alaska Republican Joe Miller is fueling his front-running U.S. Senate campaign with messages that appeal to both his base in the tea party and the famously independent denizens of the Last Frontier: Cut taxes, he urges, while shifting control of Alaska's natural resources from Washington, D.C., back to the state.

But greater state power over Alaskan fossil fuels can bring higher taxes on the companies that develop local oil and gas fields, a consequence that Miller and political patron Sarah Palin have experienced firsthand. While Palin raised taxes on the oil industry during her gubernatorial stint, Miller helped win a $5.6 billion hike in the taxable worth of the Trans-Alaska Pipeline during his time as a lawyer for the borough of Fairbanks.

Palin suffered no injury to her conservative bona fides from her tax increase, which she billed as a strike for Alaskans missing out on a fair share of the windfall from rising crude prices. And Miller, whose team made a similar case in pushing for more property taxes from the oil giants that run the pipeline, appears equally unlikely to take lumps for the episode from the tea party's broadly anti-tax activists.

"I tirelessly represented the people of Fairbanks and the people prevailed," Miller said in a statement to Greenwire. "In the Senate, unlike either of my opponents, I will focus on reforming our federal tax code to make it more fair and to make sure it does not obstruct economic growth."

Alyeska Pipeline Service Co., the consortium led by BP PLC, ConocoPhillips, and Exxon Mobil Corp. that owns the trans-Alaska line, did not share that rosy view. Alyeska's CEO cited the $100 million property tax hike secured by Miller and his fellow attorneys as a factor in labor cuts announced last year, and most observers expect the consortium to appeal the Alaska Superior Court ruling that raised the pipeline's assessed value.

"The major owners are vociferously fighting it," said Richard Fineberg, a veteran pipeline analyst who has advised four governors on the trans-Alaska line. Miller's argument against the oil industry's stance "happens to be the right answer," Fineberg added, "but it is contrary to his stated broader position."

Miller's campaign did not return a request for answers to several questions about his involvement in the pipeline case, which came to a head just as he resigned after seven years as a part-time assistant attorney for Fairbanks in August 2009. The Republican Senate nominee has outlined a vision for Alaska resource development, however, that would seem to leave room for higher state oil and gas taxes while dramatically cutting federal taxes.

Alaska's rich fuel and mineral deposits, Miller told Fox News last month, mean that "we have opportunity to drive ... the economic engine of this state in such a way that no longer would federal funds necessarily be required."

The political line between state and federal taxes is much stronger in Alaska, where oil-industry levies account for 85 percent of state revenue, than in other areas where the GOP is poised to prevail in next month's midterm elections. Alaska's $35 billion permanent fund last week began sending every resident a $1,280 share of oil royalties that have helped buoy the state economy since the Trans-Alaska Pipeline began pumping Prudhoe Bay crude to the lower 48 states in 1977.

"Given our high dependence on oil revenues, it would be hard for any candidate not to support taxation on oil," said University of Alaska, Fairbanks, political science professor Jerry McBeath.

The state's biggest partisan battles over oil taxes, McBeath explained, come between Democrats who see room to tax the industry more and Republicans who argue -- as the pipeline owners did when they squared off with Miller -- that higher taxes would push oil and gas investment out of Alaska.

Asked how Miller's role in the push for more tax revenue by Fairbanks and two other Alaska municipalities would play with national tea party activists, not to mention the anti-tax Club for Growth group that has heaped praise upon him, McBeath said: "They haven't figured it out yet. ... If they're in Alaska, they're benefiting from those high rates of taxation."

'Fiscal uncertainty' or vital tax revenue?

The tax case centered on a battle over the state's assessed value for the trans-Alaska line, which determines the size of Alyeska's local property tax bills. The major oil companies challenged the $4.3 billion state assessment for 2006, contending that the worth of the pipeline came largely from the tariff paid to ship oil through its 800 miles of steel.

Three Alaska municipalities, including Miller's home of Fairbanks, joined forces to fight the owners' appeal and bid for an even higher valuation of the pipeline that would raise their tax revenue. Former University of Southern California economics professor Charles Cicchetti, now a consultant, testified on behalf of the municipalities after working closely with Miller.

The oil companies "took the position that you could only look at oil that was flowing to determine the value of" the pipeline, Cicchetti said in an interview. "The [municipalities] took the position that you had to bring in wells that were currently being developed, you had to bring in additional fields that were yet to come online. There was a big dispute on that."

Alaska Superior Court Judge Sharon Gleason ultimately ruled against the oil industry this spring, handing a major win to Miller and others on the municipalities' legal team by setting a $9.98 billion taxable value for the pipeline (Greenwire, April 13).

"The case was less about whether you believe in taxes or not -- local governments have to have a certain amount of income," said Cicchetti, who praised the Senate hopeful's work and recalled that he only realized Miller shared his conservatism after their collaboration was done.

For the oil companies and economists sympathetic to their case, however, the legal clash cut to the heart of a highly political debate over the fate of the pipeline.

The trans-Alaska line now ships a daily average of less than 700,000 barrels of crude, less than half of its peak volume and a sign of dangerously dwindling supplies in coming years. Its operations are under intense scrutiny from federal regulators, and oil companies are warning that future upgrades to the pipeline may grow even more economically dicey.

The tax case Miller helped win "is one example of fiscal uncertainty that's facing Alaska's oil industry," then-Alyeska CEO Kevin Hostler wrote in a letter last November to the Anchorage Daily News. "Alaskans should be concerned about policies that favor short-term gains yet discourage industry investment that pays in the long run."

Asked whether the Alaska municipalities' victory could jeopardize future private spending on the pipeline, particularly when combined with falling estimates of oil flow, BP spokesman Steve Rinehart responded via e-mail: "It is a basic business fact that fewer barrels shipped, with rising operating costs, creates a challenging operating climate."

Questions about Miller's resignation

Meanwhile, Alaskans are wary of a future where waning Arctic development and rising costs -- from taxes to labor to equipment -- put the pipeline at risk. Among those concerned Alaskans is Miller, who cited the pipeline in a recent call to shift resources from the federal government to the state.

"Oil production has dropped precipitously during the last decade," Miller told Human Events magazine before his primary upset of incumbent Sen. Lisa Murkowski (R). "The Trans Alaska Pipeline System is currently running at one-third capacity."

Miller aims to open the Arctic National Wildlife Refuge to oil drilling as a means to keep crude pumping through the line, a bipartisan dream of Alaska lawmakers that would be near-impossible with a Democrat in the White House. But the candidate's role in the pipeline case shows that even his broader goals of lower taxes and more state control over resources may not mesh well, according to petroleum economist and Anchorage Daily News columnist David Reaume.

"State control leads to higher taxes because state politicians are like politicians everywhere else," said Reaume, who has worked in Alaska for more than two decades. As the state stakes its energy hopes on construction of a $30 billion-plus gas pipeline, he added, the industry could fly the coop amid fears of more tax fights like those waged by Miller.

"Businesses are well within reason to say, 'Whoops, if they're doing this to [the trans-Alaska line], they're likely going to do this for the gas line,'" Reaume said.

One reason that Miller's role in the tax case may not surface in the days before the election may be the continued mystery surrounding his departure from the Fairbanks borough attorney's office.

A redacted copy of Miller's resignation letter released to local media by his campaign indicates that the pipeline case was among the reasons for his less-than-amicable departure, but further details were shielded on the basis of attorney-client privilege.

Could Miller have left his post in a stand against the municipalities' bid for more property tax revenue from the pipeline? Alaskan voters may not know before they go to the polls -- and it may not matter to the tea party's dogged anti-tax activists.

"They continue to pour money into his campaign," said University of Alaska, Anchorage, political science professor Carl Shepro, in part because "they've scored some victories, and all the victories they've scored make them look better."

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