Publications: Articles Authored by Eric E. Wohlforth

Oil lessons apply to gas line issue
By Eric E. Wohlforth [1]
For The Alaska Journal of Commerce

Thirty-three years ago, in 1972, Alaskans were faced with the issue of possible state financing and ownership of the entire trans-Alaska oil pipeline. Then-Gov. Bill Egan advanced the state ownership plan because he was worried that the state would not receive an adequate share of oil revenues if the trans-Alaska oil pipeline were privately owned. With oil selling at $4 a barrel, with taxes and royalties figured on value after deducting transportation costs of the pipeline, the state's revenue take was reduced to a mere pittance.

The answer? Gov. Egan said the state of Alaska, not the oil companies, had to finance and own the pipeline to assure adequate state revenues. We had to capture the profit of transporting the oil to Valdez. The oil company presidents he summoned to Juneau in October 1971 hated Egan's suggestion. They were angry that his ownership suggestion would further delay the start of construction, already long delayed after the 1969 sale of oil leases. This bonanza $900 million sale had caused a dramatic ramp-up in state spending which Egan worried was unsustainable.

The hugely important issue demanded a thorough hearing. A joint House and Senate Commerce hearing was planned for March 1972 at the Baranof Hotel.

Sen. Ron Rettig and Rep. Dick McVeigh ran the hearing, and Attorney General John Havelock was the state's team leader, assisted by me as commissioner of revenue and Joe Henri as commissioner of administration.

The department of revenue, which I headed, provided an early computer model of the sharply different picture of revenues under state and private ownership.

Winter storms socked in Juneau, trapping the oil company officials for a week. As if in retaliation, the phalanx of their lawyers lectured us in mind-numbing detail about pipeline regulations and ICC valuation, giving numerous legal reasons why the state could not proceed. However, they were stingy with information the state wanted and needed: How much would it cost? How long would it take? Experts said the state could not market the massive volume of financing within the time required and that any such financing plan would be unconstitutional. The chairman of Standard Oil of Ohio said that he was frightened to death by the delay the state's ownership plan entailed.

After all the testimony Havelock said:

"It has been a long week and I'm sure everyone's recollection of what has taken place in this room is by now crowded with conflicting testimony and strewn heavily with a jumble of numbers."

He continued:

"In this presentation, the industry didn't give an inch, didn't leave the shadow of doubt. We can't tax, we can't regulate, we can't own. As one spectator remarked during the break yesterday, 'You know what I have found out? Everything the oil companies don't like is unconstitutional.' "

All this rhetoric smothered the state's arguments which centered on the tax-free nature of state ownership and state's right to tariffs for transporting the oil.

The oil companies succeeded in frightening legislators into believing that even enactment of permission to negotiate an ownership statute could delay the state of construction.

Unlike the situation today, early start of oil pipeline construction was absolutely essential to state solvency, so rapidly had we ramped up spending since the 1969 lease sale. Legislators were unwilling to risk the responsibility that the oil companies were correct that further work on the state ownership plan might fatally delay pipeline construction.

Legislators gained confidence during the hearings and in the next year passed a range of pipeline and tax measures. As described by Jack Roderick in his book, "Crude Dreams", in 1973 the Legislature narrowly missed inclusion of an option to buy 20 percent of the pipeline in the legislative package that finally passed. Many think that partial ownership of the oil line would have been to the state's advantage then and over the last 30 years, and that partial ownership of the gas line makes sense today.

[1] Eric E. Wohlforth is an attorney in private practice and shareholder with the law firm of Wohlforth, Johnson, Brecht, Cartledge & Brooking, A Professional Corporation, with offices in Anchorage, Alaska, and is a former state commissioner of revenue and has been a trustee of the Permanent Fund Corp. since 1995. The content of this article was not prepared as, and must not be construed as, legal or investment advice to anyone. He may be reached at .

< Back to Articles Authored by Eric E. Wohlforth