The Legislature is rapidly approaching its April 15th terminal date, and while there's been much discussion of possible solutions to the dauntingly high cost of our energy, there has been little to no talk about what separates Alaska from the other 49 states: The state, on behalf of the people, owns oil (see Alaska Constitution, Article 8).
We all know we have an energy crisis, not just in the Interior but throughout rural Alaska, even on the Kenai; we all rely upon diesel derivatives for heating and electrification. The staggering monthly bills to the homeowner and business person are taking their toll. The urgency is real! Interior Alaska cannot continue in its present form without taking a dramatically different approach to the current discussions.
I applaud the Thomas/Thompson initiative of providing vouchers for a one-time assistance. The benefit is that it at least provides some help to the residents. But two-thirds of the people who receive a PFD don't need relief -- they live in areas served by inexpensive natural gas for heating and electricity or are served by low-cost hydroelectricity. That means that three-quarters of our state population doesn't need the shot in the arm that will cost the state treasury almost a half-billion dollars and will cost the recipient in additional federal taxes.
Don't get me wrong, we need the help, but more, we need to stabilize our economy. If our residents can't spend extra money because every month, especially in the winter, they're scrimping just to pay for heating and lighting their homes, then many of our businesses will also be hurting for lack of sales. Interior Alaskans can all name stores and restaurants that were brutalized over this past winter. If a store cuts back or goes out of business, then people are out of work, making it even more difficult for them to pay for essential heat and electricity, and that exacerbates the economic downturn!
On top of it all, every year the state spends over $30 million to provide Power Cost Equalization (PCE) to approximately 80,000 people spread out across 185 communities in Alaska. This assistance is a vital life-line to those communities, but the assistance doesn't create an economy. Unfortunately for our rural neighbors, the 2010 census shows there's been a large out-migration from rural to urban Alaska. We will never create a vibrant statewide economy with the quality of life desirable in Alaska if only a couple population centers benefit from affordable cost of living.
How can the governor or Legislature use state-controlled assets to invigorate the economy, stabilize the family budget and not take a huge one-time bite out of the State's savings account?
The guidebook is the Alaska Constitution -- but too few of us have read it to understand we don't have to be living in crisis mode.
Let's do something that makes sense, but doesn't use cash: Use royalty oil. Royalty oil is a percentage of all the oil brought out of the ground in any particular field which becomes the property of the state (i.e., you and me). A small percentage of this royalty oil is currently sold in-state and made into commercial jet fuel. A small fraction is used to manufacture diesel products that are sold as heating oil and for generating electricity, such as at Golden Valley Electric Association's North Pole diesel-driven turbines, which are capable of generating 180 megawatts of electricity (the Fairbanks North Star Borough uses approximately 180-225 megawatts of electricity daily).
Using the principle of "Charge owners (i.e. you and me) at cost, sell to everyone else what the market will bear," here's my suggestion: Until we get affordable energy relief, the governor should authorize the discounted sale of royalty oil to any refinery willing to contractually accept a fixed profit on the sale of only two types of product: 1) Heating Oil, and 2) fuel for electric generation. The discount should be structured to cut home heating oil and electricity generation costs by half of current expenses when it reaches the consumer.
What are some of the benefits of using a fraction of the royalty oil to reduce the cost of heating oil and electricity?
First, no state dollars would be actually spent -- and the amount of unearned income to the state would probably be far less than the half-billion dollars being paid out in one-time aid. Second, every in-state refinery is eligible -- one won't have an unfair market advantage over the other. Additionally, in-state demand will increase the economies of scale allowing in-state refineries to maximize their production.
Several more vital reasons to do this: Affordable heating oil and electricity stabilizes the Interior region and provides cost relief to rural Alaska, increasing the ability to live and work in any community in Alaska; jobs can stay local, incentivizing further investments in Alaska, and we will import fewer refined products made by workers Outside; and it will provide real energy relief using something we all own -- our oil.
Some people may argue against this approach, citing the 1979 Superior Court Judge Compton decision. That decision was discussed in another opinion piece from January 2011, "Let's Get Real Maximum Benefit From Selling Royalty Oil," to which I would refer those people.
Please keep in mind, reducing the cost in half for oil-based space heating or electricity may still cost more than the equivalent derived from natural gas and hydroelectricity. There is no free ride. But real energy relief comes from using what we collectively own for the maximum benefit of our residents.
Can the State provide immediate energy relief to the many Alaskans now being forced to consider moving elsewhere? Yes. I urge the Governor to take the lead; he's got smart people to work out the details. Real energy relief comes from reducing energy costs -- let's do it now!
Doug Isaacson is mayor of the City of North Pole.
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