BP has some 'splainin' to do
Here's what we know:
1) on March 2 there was a massive leak from an oil transit line
in Prudhoe Bay; 2) subsequent inspections show instances of pipe
corrosion that, in some cases, exceed 70 percent of the pipeline
wall; and 3) half of Prudhoe's production is shut down at a huge
cost to the state treasury and to the nation's consumers.
Here's what we don't
know--how could this happen?
I suspect that over
time we'll have a pretty good idea of what went wrong. The feds
are fully engaged in criminal and civil investigations. The State
of Alaska has announced its own set of investigations. Just as
important, the huge spill and the partial shutdown of an oil
field that supplies 8 percent of the nation's fuel has captured
the attention of the national media.
Some snippets of information that have surfaced absolutely demand
further review. For example: 
the Wall Street Journal reported
Friday that an initial 2002 report on Prudhoe Bay pipeline corrosion
commissioned by the State of Alaska was changed after BP "complained
the report was overly negative."
One of the examples
cited by the national newspaper was the original conclusion by
report authors that BP's corrosion monitoring program "makes
it difficult to develop a quantitative understanding of the basis
for their corrosion strategy." After review by BP, that
conclusion was replaced with this: "BP has demonstrated
a clear commitment to corrosion control." BP argued that
there's been no corrosion so they've done well.
Over the last several
years there also were numerous cautions from BP whistleblowers
that maintenance cost cuts endangered employee and environmental
safety. Some BP employees took their concerns to Congress, some
to Alaska regulators and some to BP higher ups. We need to know
if they whistled in the dark.
Finally, the oil transit
line that sprung the disastrous leak March 2 hadn't been "smart
pigged" (a smart pig is
a mechanical device that travels through a pipeline looking for
problems) since 1992. Now BP admits that the results of the 1992
testing were so flawed the results were tossed. Further smart
pigging was not conducted.
The investigations
of BP by the feds, state, and media cannot mask, though, our
obligation to critically review our role as a regulator of activity
in the Prudhoe Bay Unit. Alaska has responsibilities for integrity
of the environment and operation of the Prudhoe Bay field in
a way that maximizes the state's financial return from oil and
gas we own.
On our watch, there
was a massive spill March 2 and, in recent history, other spills
and environmental transgressions. Now we're losing $6.5 million
in royalty and tax income every day because half of Prudhoe Bay
is shut down because of, at least, negligently delayed maintenance
and, at worst, gross misconduct by the operator of the Prudhoe
Bay unit.
We need to know if
we took our regulatory responsibilities too lightly. Several
events suggest we've been cavalier.
In 2001 the Senate
Finance Committee rejected a $500,000 request to better monitor
the oil field (that request was prompted by a pipe corrosion
rupture that spilled 92,000 gallons of crude and seawater). One
member of the Republican majority said: "the
oil industry is studying this and why not use their information?" Another
majority member said the state would be "duplicating" oil
industry studies.
In another instance,
Gov. Murkowski's first Department of Environmental Conservation
commissioner retracted her own letter to EPA that questioned
environmental practices in Prudhoe Bay. She withdrew the letter
after a meeting with BP.
Finally, there is a
certain irony that the DEC regulatory budget has been cut to
the bone while the state has spent millions of dollars lobbying
Congress to open ANWR and telling reluctant lawmakers the state
and our oil partners know how to do things right in the arctic.
The lesson here is: a $10 million marketing campaign must be
backed up by quality and service otherwise it's just wasted money.
Will the state help pay for BP negligence?
BP
has admitted to "gaps" in
their Prudhoe Bay pipeline integrity program. They've also
apologized to the state and to the nation. But they haven't
committed to holding the state financially harmless when it
comes to fixing the problems their negligence caused.
Most Alaskans appreciate that BP admitted to fundamental "gaps" in
pipeline maintenance. Some Alaskans even accept their apology.
But any good will they've generated by admitting mistakes and
apologizing disappears faster than a tank of gas in an SUV if
they pass part of the cost to fix their mistakes off to the State
of Alaska.
The state, if BP insists, may be liable for part of the $170
million repair bill for their negligence 
because changes made
to Alaska's oil tax recipe in special session less than a month
ago contain provisions allowing oil companies to take tax credits
and tax deductions for capital investments. Those untested credit/deduction
oil tax provisions leave the state potentially liable for over
40 percent of the $170 million needed to pay for BP's mistakes.
The BP negligence that led to shutting down half of Prudhoe Bay
is already costing the state more than $6.5 million in lost royalty
and tax revenues each day production is cut by half. Any mea
culpa and any apology will ring hollow if BP tries to take advantage
of brand spanking new tax provisions designed to spur new investments
in Alaska. Recent oil tax changes designed to encourage new investment
must not be used by BP to reward their misconduct.
BP has apologized. BP has admitted to mistakes. Now BP needs
to say they won't use the tax code to force the state to help
pay for their mistakes.
Thursday I was one of four signatories on a letter to BP (Reps.
Les Gara and Harry Crawford and Sen. Hollis French also signed)
that asked the company openly commit: 1) to not use the new tax
code to take a 20 percent tax credit against the $170 million
plus needed to fix negligently deferred pipe maintenance; and
2) to not use the new tax code to apply for a 22.5 percent tax
deduction for the $170 million plus.
Phone: (907) 465-4947
Fax: (907) 465-2108
Mail: Sen. Kim Elton, State Capitol
Juneau, AK 99801
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Capitol Undercurrents
Guv's jet--We owe y'all a couple of jet updates, since the newsletter's
been focused on other issues over the last two 
months (6/13-8/12).
Here goes: the jet was in the air for 67.6 hours (the guv was
aboard 72 percent of the time); the jet flew 25,105 miles; and
there were 69 flights. The total cost over the two months (airtime
only) was just shy of $128,000. The airtime only cost for those
flights that carried the guv and his entourage was over $109,000.
Eat your vegetables--Last session, I introduced legislation
that encourages school districts to provide healthier foods and
beverages in schools. It was, appropriately, a nutritious carrot
approach and not a punishing stick approach--meet nutritional
standards and there would be a state financial incentive in the
formula used to pay for schools. We've shared the legislation
with every school district in the state to make sure it works.
My bill was prompted by alarming increases in childhood obesity
and the health problems associated with being overweight. Now
the Center for Science in the Public Interest says Alaska and
22 other states received failing grades for the food that's sold
in public schools. You can download the report at: http://cspint.org.
A harbinger of things to
come--A "For
Sale" poster
was recently seen hanging in a mall in Juneau. It's not unusual;
it's a common way people here advertise locally. But I think
this one might be better off on eBay like the state did with
the MV Bartlett. FYI, both Tony Knowles and Sarah Palin have
said they will sell the jet.
