Alaska’s Senate Wants to Raise Your Cost of Energy—Again

The Iran war has taught us that America needs even more oil and natural gas production to protect consumers from events overseas, but Alaska’s Senate seems intent on reducing production. Lawmakers took a tax reform bill and turned it into a tax hike that risks wrecking investment in the oil and gas industry and ultimately raising prices for Alaskans specifically and Americans broadly.

House Bill 381 passed on June 12 with overwhelming bipartisan support. It would swap a punishing, inefficient property tax for a leaner volumetric tax on gas throughput—a change that would finally make the economics pencil out on billions of dollars in new energy infrastructure investment.

The Senate decided to undo that logic, grafting a tax hike on privately held oil and gas companies into the bill—even though the House had already rejected this same proposal, even though industry warned the tax kills investment, and even though Alaska’s major business associations begged lawmakers to leave it out.

The Alaska Oil and Gas Association called it what it is: a discriminatory tax on a narrow group of producers that was never adequately vetted or modeled. When the people who actually produce Alaska’s energy tell you a tax will chase away investment, that’s not noise. That’s the market talking.

The tax hike targets S corporations—privately held companies bound by strict shareholder limits, typically smaller and more capital-constrained than publicly traded C corporations like ExxonMobil. The top marginal tax rate would be a whopping 9.4%, the fourth highest in the nation.

Proponents claim this “closes a loophole,” but that’s incorrect. S corporations pay no Alaska income tax today because Alaska has no personal income tax, and pass-through income flows to the owners. That is not a loophole but is the entire design of pass-through taxation, working as Congress intended.

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This tax hike is also reckless because lawmakers cannot even agree on which companies the tax would hit. It’s insane to rewrite a corporate tax structure and leave unanswered the most basic question of all: Who pays it? The amendment touches every aspect of the oil and gas industry: production, transportation, treatment, carbon capture, LNG processing, etc.

Every privately held energy company doing business in Alaska is in that scope, including the Cook Inlet gas suppliers that the state is desperate to keep operating. That should stop everyone cold.

Hilcorp produces roughly 85% of Cook Inlet’s natural gas, the fuel that heats homes and powers the lights for the 70% of Alaskans who live along the Railbelt. There’s already a supply crunch: Utilities warn of a shortfall as soon as 2027, and prices are climbing now, with imported LNG expected to run at least 50% higher than local gas.

The Senate’s answer to a looming energy crisis is to tax the very companies still producing it, a surefire way to get less energy and higher prices.

The novelty of this tax is its own warning label. No state imposes an entity-level income tax specifically on S corporations in a single industry. The federal code has no framework for it. Invent a tax with no precedent, no case law, and no regulatory guidance, and the answers default to unelected bureaucrats deciding by regulation how it applies and whom it reaches.

A company headquartered in Texas with one engineer on the North Slope could suddenly owe Alaska tax on income earned thousands of miles away—an open invitation to years of litigation, and the uncertainty alone is enough to send investors looking elsewhere.

The stakes are not small. Glenfarne—an investment management firm heavily involved in energy infrastructure—estimates a full Alaska LNG project at $44.5 billion to $54.5 billion, with the first-phase pipeline alone running $13.2 billion to $16.9 billion. Capital does not commit to a project of that scale on hope.

Two-thirds of LNG projects worldwide come in over budget, with overruns averaging around 70%, so investors treat tax stability as a prerequisite, not a footnote. Alaska’s own Department of Revenue estimated this tax would extract nearly half a billion dollars per year from Glenfarne if the pipeline gets built—an amount that could easily flip an investment from profit to loss. Massive rule changes like this broadcast that Alaska will move the goalposts whenever its budget gets tight.

And the damage won’t stop with the energy sector. By singling out specific companies for a new tax, the State Senate has put every other privately held business in Alaska on notice: You could be next. That uncertainty suppresses investment across the whole economy—in a state that cannot afford to bleed capital.

The Alaska Legislature and the governor should focus on increasing energy production and lowering costs for Alaskans. When the conference committee reconvenes, it will have the opportunity to strip out this proposed tax hike and get back to real tax reform that the Alaskan economy needs.