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One of the side-stories to Wednesday’s Judiciary committee was the suggestion that the state’s reduced production tax rate for in-state gas is illegal. Losing it could make “cheap gas” even less likely, so here’s a closer look.

When lawmakers rewrote the state’s profits-based oil and gas production tax last year, they added in a provision dropping the tax rate for gas that was ultimately sold in Alaska. The idea was to provide an incentive for gas producers to serve the in-state market and to lower the cost of gas for residents -- some of the lost tax revenue would go to the producers (the incentive), and some, ideally, would go to the consumers.

On Wednesday, a lawyer working for the Legislature told lawmakers he thought the provision would be struck down as unconstitutional because it violated the interstate commerce clause of the U.S. Constitution. (The provision has not yet been challenged because the state doesn’t export gas produced on the North Slope, and the whole Cook Inlet has the same lower tax rate.)

Revenue Commissioner Pat Galvin told me yesterday the administration didn’t have its own legal opinion on the issue but was aware of the risk.

So what does it mean for Alaskans? Assuming the provision would have lowered natural gas prices in Alaska, losing it means higher natural gas prices.

Here’s the idea, with some really rough numbers and ignoring transportation costs. If a gas producer can sell gas for 15 dollars an mcf in Chicago, but has to pay a 25 percent production tax rate, it might be just as motivated to sell it for 10 bucks in Alaska and pay a 5 percent tax rate.

When I asked Galvin about the impact on an in-state gas line, he explained that the impact would really be on the consumer and not on the pipeline owner, which makes its money from shipping gas, not selling it.

The only catch there would be if producers thought they could make just as much money selling their gas in Chicago. In that case, they might be less willing to commit gas to an in-state line, making it harder to finance and build the line.