Consumer Interests Are Best Protected by Free Enterprises and Not Government Enterprises

by

Dave Harbour

Alaska’s governor has taken FULL CONTROL OVER what amounts to a ‘nationalized’ North Slope natural gas project and has attempted to make it glitter with a supportive array of “memoranda of understanding” from Asian (i.e. most recently Chinese) countries.  Without political, uneconomic dealmaking, the project is infeasible at this time–even if it were more efficiently managed by the private sector.  This is because, with an 800 mile pipeline to fold into the LNG project’s cost the scheme is one of the–if not THE–least economically competitive in the world.   

The governor has simultaneously attempted to create a large, government-subsidized gas utility in Fairbanks (i.e. though in fairness we note that former Governor Sean Parnell planted the seed of this bad idea during his previous administration, on advice of one or more “advisors”). 

Neither of these politically inspired, subsidized and controlled efforts is consumer- or taxpayer-friendly; both boondoggles are steps toward a socialized energy economy a la Venezuela, while both have used OPM (i.e. Other people’s money) to avoid the messy process of due-diligence.

And we emphasize that both are managed by temporarily elected and appointed government officials working within vast bureaucratic, political networks whose goal is not the most prudent, best and highest use of public funds.  

Bill Walker, Governor of Alaska. NGP file photo by Dave Harbour.

Recently we gave our readers a thoughtful opinion piece by an anonymous Fairbanks citizen (i.e. here) criticising the logic behind Governor Bill Walker’s effort to subsidize growth of the small natural gas utility in Fairbanks.

The whole subsidy circle smells badly to ordinary citizens but benefits powerful special interests.  Subsidies allowed Fairbanks Natural Gas utility owners to receive an extraordinary price for an expensive start-up utility with no real future in a low-oil price era and with no reliable, long term gas supply.  (We are amazed not to see OUTRAGE reflected by both Fairbanks and Southcentral Alaska media and thought leaders — for different but compelling reasons.)

Certain Fairbanks leaders and citizens will benefit and are benefitting from this subsidized transaction.  Elected leaders are looking for votes and campaign contributions.  Contractors and labor unions are looking for a boom.  AIDEA and IGU officials seek an outcome that doesn’t reveal their role in this risky, irrational, subsidized venture.  Certain employed executives are enhancing their state government pensions.  Meanwhile, who would regulate the IGU if the whole project is completed–local politicians and their appointed overseers, and not the state’s more impartial and politically insulated Regulatory Commission of Alaska?

Losers: citizens of the entire state who, at a time of fiscal crisis, see money being wasted on political projects that the private sector, after due diligence, wouldn’t touch with a 10-foot pole.

In the right column is our second anonymous opinion piece from a second Fairbanks citizen, received today.  Although the writers are different the positions they present are compelling and appear to be in most if not all respects both logical and accurate.  (Note: In the interest of the accuracy of our searchable archives, we urge readers who wish to provide additions or corrections to any facts presented herein, to do so.)

We urge our Alaskan readers to review these North Slope gas export and Fairbanks gas distribution issues and make their own opinions known to state leaders.  We urge our Canadian and Lower 48 readers to better understand the political landscape of Alaska as it might apply now or later to their own political and economic futures.

We believe citizens will better appreciate, after reviewing the Alaska energy-socialism experiment, that Adam Smith’s invisible hand, the agile hand of free enterprise, best protects the interests of citizens–not politicians’ manipulation of economics to meet their own self-serving needs.

Interior Energy Project (IEP): We’re From The Government And We’re Here To Help

Opinion Editorial From A Citizen Of Fairbanks, Alaska

Following a board meeting of the Alaska Industrial Development and Export Authority (AIDEA) on September 21, I have three simple questions about the proposed Interior Energy Project (IEP):

     Question 1: As a business or homeowner, would you invest thousands of dollars in a new furnace, with the expectation of your monthly utility bill going up following the conversion?  The Interior Energy Project (IEP) is betting thousands of Fairbanksans will. The numbers they presented at the September 21 AIDEA board meeting show a model with more than four times as much gas usage in a few years, but with gas costs in excess of $20 per thousand cubic feet for the first few years. All of this information is publicly available.  Remember that IEP has always promised no more than $15 per thousand cubic feet to Fairbanks customers. At $20 gas, the comparable cost of fuel oil is about $2.70 per gallon. Current prices for fuel oil are lower than that. These prices would not include the investment cost of a new gas furnace or boiler. So again, which new customers are going to sign up for that deal in the next few years?  The AIDEA board, by the way, approved the deal.

     Question 2: Would you loan a business $150 million and charge no interest for 15 years?  A utility is a business. Yet the State legislature, in 2013 and again in 2015, has provided a $150 million loan to this project with no interest for 15 years – to be precise, it is a package of AIDEA issued bonds backed by the State with zero interest for 15 years. The State also provided a $57.5 million appropriation and appropriated another $125 million to the State Sustainable Energy Transmission and Supply program for the project in the same bills. Even with all of that essentially free capital, the IEP project cannot make $15 gas pencil out.  In a time where school districts are laying off teachers and the legislature has yet to create a “sustainable budget”, we are “investing” hundreds of millions of precious state dollars in this government enabled utility.  Decision makers should be ashamed of this deal, and Fairbanks should say, “No thank you.”

     Question 3: Would you walk into a store and pay more for a commodity than any other customer in the
store?  The IEP has secured a gas supply contract with a Cook Inlet producer at a cost of $7.72 per thousand
cubic feet. Major gas customers in Southcentral are paying significantly less, most no more than $6.50
per thousand cubic feet.  Every Fairbanksan I know would answer the three questions I posed with a resounding no. The question is why do the leadership of the IEP, AIDEA, and the State answer each in the affirmative? What are we
missing here?                                                                                                                                                                                                                                                                                                                                                                                                             When people show up on your doorstep and say “we’re from the government and we’re here to help”, many of us are skeptical.  The IEP deal is yet another example of why.