Palin's approach to big oil: more mainstream than maverick

McClatchy NewspapersOctober 9, 2008 

Sarah Palin addresses the Republican National Convention.

OLIVIER DOULIERY / ABACA PRESS / MCT

ANCHORAGE — In November 2006, before Gov. Sarah Palin took office, a respected former Republican governor sounded the alarm against Alaska's powerful oil and gas industry.

"Alaska's governors must not be swayed by the wealth and political power of that industry," Wally Hickel testified in a hearing about a controversial plan to reclaim vital natural-gas leases held by Exxon Mobil Corp. and others. "It's time to take those leases back. In fact, it's way past time."

The state did move against Exxon Mobil, starting a game of high-stakes legal chicken that continues to this day. And in the following years, the Palin administration took other aggressive actions against the industry — something she and Sen. John McCain have repeatedly used to bolster her credentials as a maverick.

However, a review of the Palin administration's record on big oil shows a stance that's in many ways less maverick than mainstream. Challenging the oil industry may have been somewhat unusual for a governor of Alaska, but Palin did it at a time when the public was clamoring for change. And she did so with the help of Democrats, even following their lead on a key oil tax issue.

"Her luck was to be in the right place at the right time," said Beth Kerttula, an oil and gas lawyer, a Democrat and the minority leader of the state House of Representatives. "It almost would have happened no matter who was governor."

Ever since Palin joined McCain, the ticket has touted the first-term governor's in-your-face relationships with oil and gas companies. The campaign Web site says she "took on the oil companies" by starting a competitive process to build a natural gas pipeline across the state; "sent a large share" of oil tax revenue directly back to the people of Alaska; and "successfully fought the special interests, the lobbyists, the big oil companies and the good ol' boys network."

In the vice-presidential debate, Palin hit the theme hard: "You know what I had to do in the state of Alaska? I had to take on those oil companies and tell them, 'no.'"

To an outsider, sticking it to the industry that supplies 85 percent of a state's revenue might seem a real profile in courage.

At the time, though, her views were in line with public sentiment. The governor, who's now No. 2 for a party that advocates low taxes and limited regulation, succeeded in her home state by raising taxes on its most important business and exerting government power over it.

Despite her partisan rhetoric on the campaign trail, Palin's known at home as a governor more than willing to work with the opposition.

"In Juneau she was very respectful of Democrats," said Kerttula, the House minority leader, whose district includes the state capital of Juneau. "The only two issues that mattered — the oil tax and the gas line — were Democratic issues for a long, long time."

At the same time, she has alienated oil companies, who've found it difficult to negotiate on the key issues they faced. "The word would be frustration," said Ken Boyd, a former director of the state's oil and gas division and now a consultant for oil companies. "I don't think the oil companies dislike the governor. I think they are frustrated with a lack of give-and-take."

Palin has tangled with the oil and gas industry on three pivotal issues.

The first is known as the Point Thomson oil and gas field, and the state's aggressive stance began before Palin became governor. Although her Republican predecessor, Frank Murkowski, was considered friendly to oil companies, it was his administration that first moved to yank a hugely valuable field away from Exxon Mobil and other leaseholders.

Engaging in a battle that was popular with the public, the state moved to strip the firms of their right to extract the oil and gas under Point Thomson. The government said leaseholders had delayed far too long to develop the field, depriving the state of tax revenue that comes when gas flows. The companies responded that they were working hard on the project; the dispute is now in court.

Compared with Murkowski, Palin "hasn't done anything different, but she has shown tremendous resolve," said Kurt Gibson, deputy director of the state's division of oil and gas. "There has been a great deal of pressure brought by the industry to convince the government to cave, and she has said, 'I'm going to leave this to the professionals.'"

The second energy issue was securing an agreement for a pipeline that — if it's built, which isn't certain — will take natural gas from the northern coast of the state to the lower 48, by way of Canada. There, Palin changed the direction her predecessor had taken, engineering a proposal to award the pipeline project to an independent firm, and not to the state's major industry players. But she did it with the help of Democrats, and for a project the public had supported — in fact demanded — for years.

The third was the oil tax, which had been pushed for years by Democrats and found favor with an electorate increasingly annoyed with its benefactor industry.

The Murkowski administration also had pushed through an increase in the oil tax. But that legislation was ensnared in a widespread local corruption investigation and came to be seen as tainted.

"She doesn't have it in for the oil companies — that's not what this was all about," said Gibson of the state's oil division. "It was about reestablishing the relationship of mutual respect between the industry and the state of Alaska. . . . She had the support of Alaskans in doing that — an incredible majority of Alaskans are in favor of what she's done and how she's done it."

Oil and gas are Alaska's lifeblood, past and future. Oil started flowing, and money started rushing into the state's coffers, in 1977, when the Trans Alaska Pipeline began moving oil from the North Slope. But production there is in a long, steady decline. The state's next big hope is for the natural-gas pipeline that — if it's ever built — would provide the state a new source of revenue.

For both oil and gas, the state leases the right to extract it to private companies.

All three issues — the Point Thomson take-back, the oil tax, and the gas pipeline — had been brewing for years. Then, in 2006, the Federal Bureau of Investigation stormed into the state, eventually indicting a handful of lawmakers for their ties to an oilfield-services company.

By the time Palin ran for office, Murkowski was extremely unpopular, Alaskans held the legislature in contempt, and big oil — despite essentially funding the state government and providing lucrative jobs to thousands of Alaskans — was knocked on its heels.

Ivan Moore, a local pollster, said that "given the absence of a public-relations disaster," Alaskans are naturally inclined to like the oil industry.

"You really have to go to the extreme environmental left wing to see people not preconditioned to like it," he said.

But the corruption investigation and other problems changed public attitudes. Asked in May 2007 whether their views toward the industry were positive or negative, the breakdown was basically even: 45 percent positive, 43 percent negative.

"Given the FBI's presence, it had become untenable for a politician to oppose oil tax reform," said Les Gara, a Democrat in the state House from Anchorage.

Democrats in the legislature had been pushing for oil-tax reform long before Palin came into office. After she arrived, Palin found that revenue wasn't coming in as fast as expected under the oil tax Murkowski had passed just the year before. Given the tax's checkered history and the ongoing FBI investigation, the administration decided to rework it.

"I'd say the vast majority of the public was on board with making changes," said Palin's commissioner of revenue, Pat Galvin. "And a majority of that group was comfortable with raising revenues as well."

Palin and her staff worked through the summer to devise a plan that would tax oil production in a different way. They sprung it on the legislature, unclear of the reception it would get, Galvin said.

There were three blocs in the legislature: no-change Republicans, Democrats who wanted to boost tax revenue when oil prices went up, and a middle ground that wanted to make sure the current system wasn't rigged in the industry's favor. Palin set broad parameters for her staff and met with them several times a week, Galvin said.

Democrats considered her bill far too weak and worked it over in the legislature. They worked closely with Galvin and others in the administration, but some Democrats considered the governor hands-off.

"She's not a detail person," said Bill Wielechowski, a Democratic senator from Anchorage. "I think there was some frustration there when I wish she was more involved. This has been a constant thing — where's the governor? We need her here."

In the end, the bill raised far more tax revenue than Palin's original bill (and record oil prices of the last year boosted the state's take even more).

"They ended up losing control of it, quite frankly," said John Harris, a Republican and the speaker of the state House of the Palin administration. "They didn't keep a good lid on it."

The industry was definitely not happy with the bill, Harris said. But with gas at $4 or $5 a gallon, the mood of the electorate had shifted.

"It was a people-versus-big industry thing. It was an opportune time to do that," Harris said. "It was not that difficult to stand up to" the industry.

The final bill added substantially to Palin's original proposal. At $80 a barrel, for example, the Palin plan would have raised $3.14 billion; the final bill would raise $4.66 billion. Although Republicans control the Alaska legislature, the bill passed because of majority Democratic support.

The McCain campaign Web site biography for Palin doesn't mention the oil-tax legislation. It does mention that she suspended the state's fuel tax, which saved taxpayers about $40 million.

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