Free Money - Perhaps an Energy Solution

One of the questions falling out of this legislative session is what to do with billions of dollars of excess taxation paid by the North Slope producers. Any normal person would note that perhaps taxes are way too high and it is time to lower them so that we can increase production of oil and other products to fill the Trans Alaskan Pipeline System (TAPS).

Sadly, not so with the democrat dominated Senate Bipartisan Majority. But that fight will be the topic of future columns on the fight to revise Alaska’s Clear and Equitable Share (ACES).

The topic today is what to do with billions of dollars of free money. The same democrat majority in the state senate proposes to use most of it to prop up a failing and $11 billion in the red state retirement system, essentially stealing from the producers via government fiat and redistributing it to state employees and retirees. Paul Jenkins discussed the problem Sunday.

There has been no effort or mention in any senate legislation about fixing the overall problem of out of control health care costs for state retirees that are breaking the bank other than Hollis French’s version of ObamaCare for Alaska. No free market approach. Nothing more than bigger, intrusive, in your face government cram-down meddling in our lives from elected democrats. If we allow the democrats in the state senate to dump this money into PERS / TERS we simply kick the can down the road another few years until the system blows up and defaults (which appears to be the standard democrat technique for all budgetary issues).

The historical thing to do with free money has been to put it into the Permanent Fund. It has also been legislatively the easiest thing to do and smartest, as that money is never used to grow the size of state and local governments.

Perhaps it is time for another approach – one that addresses energy needs here in Alaska. Here in the Railbelt and in the Bush, there is a need for cheap, reliable electricity, natural gas for heating, and fuel for our vehicles. A natural gas pipeline to Valdez will only work one of those issues – that of natural gas for heating. And it is not certain that the cost of that natural gas delivered to Southcentral will be more economic than liquid natural gas (LNG) imported from elsewhere.

As to electricity, the Susitna Dam as proposed today will meet over half of current and future electrical needs of the Railbelt. But the proposed cost is in the billions. After the majority in the state senate killed the GRETC proposal to unify railbelt electrical utilities for future generation and transmission, either the state picks up that tab or it does not get done.

Finally, we have the problem with lack of liquid fuels – aviation fuels, diesel, gasoline and propane. Diesel and propane are particularly important for the survival of Bush communities. One solution would be gas to liquids (GTL) off the Slope and distribution into the Bush via a tap off a pump station near Fairbanks. Once again, GTL is hugely expensive as it is essentially a refinery, with costs in the billions of dollars. The good news is that unlike natural gas off the Slope, there is a large and growing market for these vehicle and aviation fuels across the Pacific Rim – including the west coast of the US with their clean fuels rules.

How do we create conditions where there can be commercial solutions for these very real and expensive energy problems, especially after the Obama administration has blown up the commercial lending marketplace? More importantly, how can we create conditions without picking uneconomic winners and losers and creating economic disasters (think Anchorage Fish Processing plant, MatSu Dairy, Fire Island wind farm)?

One way to do it would be for the State to use that excess money as a financial backstop for commercial bonding for these projects. The money could be put into a fund intended to back bonds issued to fund specific large projects – Susitna Dam, North Slope GTL, Tyonek GTL, for instance. A similar technique could be used for large transportation projects like a road to Nome, Knik Arm Bridge, Turnagain Bridge.

This is an opportunity to create conditions so that we can get some commercial solutions to our long term energy needs. It will not be as quick and easy as simply dumping a pot of money into PERS / TERS or the Permanent Fund. But the result can potentially solve energy needs in this state for generations. It is probably worth looking into.