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Alaska Taxes

2-25-14 "Alaska, where a deal is a deal?"

25 February 2014 11:24am

Today, we learned that the Board of Directors of Bristol Bay Native Corporation has urged shareholders to support Alaska's tax reform bill, SB21 and vote against repeal in the August primary election.  (Website).  -dh

Globe & Mail.  Spanish oil major Repsol SA says its board of directors has approved a definitive $5-billion (U.S.) settlement from Argentina.  Repsol is a new Alaska North Slope company which, after the Argentina adventure, are seeking a more productive experience in the far North.  As we wrote in October, the jury is still out on Repsol's Alaska venture, though we remain hopeful.  -dh


AP.  A bill aimed at advancing a liquefied natural gas project in Alaska has moved from the Senate Resources Committee.

 

Leslie Wien Hajdukovich: A Lifelong Fairbanksan Explains Why She Opposes Efforts To Repeal SB21, Alaska's New Oil Tax Reform Law.

 

 


Part II: Has Alaska Become A Place Where A Deal Is A Deal?

(See Competition Perspectives: Parts IIIIII, and IV

With a third of Alaska's economy based on oil, with oil production declining, and with the entire state economy over a third dependent on oil, repealing Alaska's new tax reform law poses a clear and present danger.

See More Tax History: "Don't Forget The Mackenzie Delta"

by 

Dave Harbour

Earlier this month in Part I, we asked if "Alaska has become a place where a deal is a deal."

The most recent evidence that in Alaska, a "deal may not be a deal", can be found by reviewing this month's Alaska Supreme Court decision affirming a lower court's decision to uphold a new assessment methodology, thus increasng the property taxes applying to oil company property in Alaska.  

We sympathize with the court about the difficulty of adjudicating property value among distinguished litigants--even when a taxing method is not at issue.

But when a court supports a change in the rules of the game, it makes investors less likely to be attracted to that jurisdiction.

The Journal of Legal Issues and Cases in Business, penned by one of Alaska's, most distinguished, retired Senior Economists, Roger Marks (NPG Photo) identifies this problem: "In 2005 the state changed the assessment method from an income approach to a cost approach.

"Under the income approach assessed value was based on production depreciation. Under the cost approach value was based on replacement cost new less straight-line depreciation.
 
"When the assessment means was changed there was no adjustment for past depreciation.
This inconsistency in depreciation treatment caused assets to be depreciated more than once over time, with the result being a double taxation of the property."
 
In fairness, we note that Marks was one of the oil companies' "expert witnesses".  

Used to be that a handshake was sufficient between honorable Alaskans to confirm a deal.

Old timers tell us that in the 40s and 50s and even to the mid 60s, Alaska used to be a place where you didn't need to lock your doors at night--even in the cities.

If you trusted your house to be secure in the evening, you surely trusted the word of friends and other fellow Alaskans.

Then came the great Prudhoe Bay discovery in the winter of 1967-68.  Our leaders then could have raised oil and gas taxes to a level they thought to be consistent with the Constitution's admonition to obtain the maximum benefit of resource development for citizens.  The rule in place, they could then have reasonably conducted the 1969 lease sale.  The oil company bidders could then have bid with the more reasonable certainty of knowing the rules would not likely change after investments had been made.

Instead, Alaska became greedy, we believe, having lived through those times.  Folks started locking their doors.  In the twelve years following the 1969 lease sale, the governor and legislature increased industry taxes dramatically, about a dozen times in that many years--after the lease sale had locked in company investment decisions.  Then followed a period of dramatically increased cost estimates caused by increasing environmental, legal, political, labor and tax burdens.

Yes, Prudhoe Bay was big and could sustain a lot of abusive tax attacks.  But when they bid, the companies did so contemplating the risks known at the time.  Then they found in short order that the rules of the game would be changing before, during and after vast new investments in Alaska occurred.

This commentary does not quibble with whether or not any of the decisions made were 'right' or 'wrong'.

We do conclude without much fear of contradiction that by changing the rules of the game so often and so dramatically after it was too late for investors to reevaluate, Alaska was beginning to develop for itself a reputation with early signs of tarnish.

Then after a decade of changing rules, Governor Hammond and both the Republican and Democratic leadership of the House and Senate convened a press conference -- 33 years ago next month -- to signal that a landmark bill had passed which created for Alaska -- in general -- a "Fair Share" of resource development revenue.

Frank Murkowski, Governor, Alaska, Gas Pipeline, Photo by Dave HarbourA rather peaceful investment climate ensued for a generation -- until the early 2000s when Governor Frank Murkowski (NGP Photo) attempted with good intent to bargain to give gas pipeline investors fiscal certainty in return for increased oil company production taxes.  The companies, in good faith agreed.  The legislature honored part of the bargain by increasing their taxes but neglected to provide the necessary fiscal certainty to permit the creation of a viable gas pipeline project.  The companies were rope-a-doped after two decades of improved relationships that even survived the desperate oil price drops of the late 1980s.

Sarah Palin, Governor Alaska, ACES, Oil Taxes, Photo by Dave HarbourGovernor Sarah Palin (NGP Photo) replaced Murkowski in the next election of 2006 and, with legislative acquiescence, increased industry taxes which were applied with no real or feigned pretense of good intent.  To add insult to injury Murkowski's tax increase was increased further and applied retroactively.

Last spring, the legislature and governor acted to more reasonably reform the state's production tax and immediately thereafter, legislative foes, environmental groups and others initiated a voters referendum designed to repeal the new law, (SB21).  Now, as we said in Part I, investors await the outcome of Alaska's August 19 primary election.  If SB21 is affirmed by a majority voting "NO" to repeal, Alaska will have improved its investment climate reputation.

Our astute readers will also note that a mid year primary election is often lightly attended, usually by those who are determined to support or oppose a particular candidate or ballot proposition.  In this case, in addition to primary candidates, voters will be adopting or rejecting very controversial propositions to advance widespread marijuana use in Alaska, to increase and provide a cost of living increase for the minimum wage in the state and an environmental initiative to block mining development. 

Mathematicians and odds makers among us agree on one thing: a determined voter base of those supporting drugs, labor increases and anti-development forces could, in general, be more likely to vote to repeal an improved corporate investment climate than to keep the new oil tax reform law in place.  (Note: these three propositions were moved to the November 2014 ballot, somewhat lowering the chances that oil tax repeal legislation will be repealed on August 19.  -dh) ​

Accordingly, those opposed to all the initiatives will need to mount a big and unusually creative campaign if they are to stimulate a turnout of pro-free enterprise supporters and have a hope of balancing the scales.  

So picture this.  In Alaska's late summer a great tug of war will occur with big stakes.  In the middle, we have a great chasm.  On the left is an army of environmentalist activists, some labor union activists, and marijuana proponents and their supporters pulling, sweating, grunting, polling, going door-to-door, advertising, and writing letters to the editor for all they're worth.  On the right side of the chasm, pulling the rope in the other direction are those opposed to drug use, anti-business tactics and policies that repel investment and natural resource development.  

One set of policies will be pulled into the chasm.  

If the left side is pulled down, Alaska's reputation as a good place to live, work and play might be on the way to repair--except that there would be always the threat of another, similar referendum, year after year.

If the business side goes down, we'll know that in Alaska, a deal is for sure not a deal--until further notice!

In that case, expect dramatic reductions in investment, significant out-migration, decreasing oil production, less employment, fewer government services, lower real estate prices and overall economic malaise.  Alaska would, in this fix, be more likely to become a ward of the federal government than living up to its former reputation as the Last Frontier, the Pioneering State.

And, finally, just as natural-resource-rich Alaska retreats from resource development, Russia, Canada and other Arctic nations are aggressively seeking to develop their far North resources and exploit the Northwest Passage while protecting and expanding their Arctic sovereignty.  

Reforming Alaska's tax policies that have put it behind California in production, therefore, is not a local issue, but an international event that affects the security and economies and people of both the United States and Canada.   (Commentary updated slightly, 8-19-14.  -dh)

Opinion Editorial: A Lifelong Fairbanksan Opposes Efforts To Repeal SB21

by

Leslie Wien Hajdukovich​

Leslie Wien Hajdukovich, Fairbanks, Lifelong, School BoardAlaska’s oil and gas industry has been the biggest driver in our state’s economy for 50 years. Responsible development of our oil and gas reserves has fueled our schools, roads, airports, government, our grocery stores, coffee huts and car dealerships. As a fifth generation Alaskan, I am thankful for an industry that allows me, and my family the opportunity to live in Alaska.

As an active member of the Fairbanks community, I have served on the Fairbanks school board for six years, three as president, and in other volunteer capacities that have benefitted our youth. It is important to me that every child in Alaska receive a quality education – an education that prepares them for the work force, and for future employment in our great state. Upon being elected to the school board, I quickly learned that our school district’s funding is heavily dependent upon the success of the oil and gas industry in Alaska.

Last October, I was asked to be a statewide co-chair for the effort to defeat the oil tax referendum that is on the ballot this August. I felt it too important an issue to say no. Over the last three months, I have become informed and carefully studied the issues around new oil tax reform. I have a clear understanding of why oil tax reform is good for Alaska.

The state budget shortfall is not due to oil tax reform, but rather to declining oil production in our state and falling oil prices. Oil prices are not something we can control in Alaska, however we can influence decisions that affect production. That is exactly what new oil tax reform does. Because of provisions in the new law, the outlook for Alaska is much brighter in the long term. With oil tax reform, state revenues from oil will be more balanced, predictable and beneficial to our state.

Since new oil tax reform passed, oil companies in Alaska have announced billions of dollars in new investment. In just one example, ConocoPhillips has announced a 54 percent increase in investment in Alaska over 2013, and most of that increase is due to the change in the tax structure. This investment is tied to new exploration and increasing oil production. The Trans-Alaska Pipeline has tremendous value to Alaskans, but only if it has oil flowing through it. Right now, it is flowing at one quarter of its peak capacity and still declining. Oil tax reform is about taking the steps necessary to add more oil to the pipeline.

As a Fairbanksan, I have high hopes that a gas line is in our future. We need the financial relief of heating our homes, businesses and institutions with cheaper and cleaner burning gas. Investment in North Slope oil actually increases our chances of gas exploration and a gas line. They go hand in hand.

One thing I’ve learned over the last few months is that new oil tax reform offers great opportunity for Alaskans, not only by boosting our economy, but offering a long-term, sustainable funding source for our state coffers. It promises our children and grandchildren a brighter future.  This is the right tax reform at the right time. I encourage Alaskan voters to get informed, and to please Vote No on 1 this August.


Leslie Wien Hajdukovich is a lifelong Fairbanksan and her family’s history in Alaska spans over 100 years. Her Grandmother Ada Wien was a delegate to the Alaska Statehood Constitutional Convention.    


BBNC Opposes Ballot Measure 1

FOR IMMEDIATE RELEASE

February 25, 2014

Contact: Jason Metrokin, President & CEO, jmetrokin@bbnc.net or

Scott Torrison, Sr. Vice President & COO, storrison@bbnc.net or (907) 278-3602

Bristol Bay Native Corporation Opposes Ballot Measure 1

On Friday, Feb. 21, the Bristol Bay Native Corporation (BBNC) Board of Directors passed a resolution opposing Ballot Measure 1, which is a veto referendum seeking to repeal the Alaska Legislature’s oil tax bill passed during the 2013 session. Ballot Measure 1 seeks to repeal Senate Bill 21, also known as the Oil and Gas Production Tax, which modified the state’s oil tax regime in a manner designed to increase oil and gas exploration, development and production, and stimulate greater investment in Alaska. Ballot Measure 1 will appear on the August 19, 2014 primary ballot in Alaska.

BBNC has made significant investments in the Alaska oilfield services industry through its subsidiary companies Kakivik Asset Management, CCI Industrial Services and Peak Oilfield Service Company. These subsidiaries provide substantial benefits to BBNC shareholders in the form of employment, wages, and profits that contribute to dividends. The operations also provide over 1,000 high paying jobs primarily to Alaskans. The continued growth and success of these subsidiaries, as well as Alaska in general, is dependent upon a fiscal environment that encourages investment and economic growth in the Alaska oilfield services industry.

In the past year, under the current Oil and Gas Production Tax, BBNC has seen a dramatic increase in oilfield activity. BBNC is concerned that if Ballot Measure 1 were to pass, and Alaska returns to the prior tax structure, it will result in decreased oil and gas investment activity in the state; this would have an immediate and negative impact on BBNC’s subsidiaries and its shareholders, as well as the state of Alaska as a whole.

BBNC’s prudent support of Alaska’s oil and gas industry aligns with its balanced approach to the development of state resources. “Alaska’s oil and gas sector provides our shareholders with significant employment opportunities and makes major contributions to our ability to pay dividends,” said BBNC President and CEO Jason Metrokin. “BBNC strongly supports the industry that makes it possible to provide such benefits to its shareholders and opposes Ballot Measure 1.”

###

Bristol Bay Native Corporation (BBNC) is a responsible Alaska Native investment corporation dedicated to the mission of “Enriching Our Native Way of Life.” Established through the Alaska Native Claims Settlement Act of 1971, BBNC works to ensure the continuation of the life and culture of its over 9,400 shareholders – the Eskimo, Indian and Aleut Natives of Southwest Alaska’s Bristol Bay region.

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2-21-14 Canada Pressures Obama On Keystone; Murkowski Pressures For Arctic Ambassador

21 February 2014 6:33am

Cathy Giessel, Alaska state senate, SB 138, AGDC, Oil & Gas tax, Photo by Dave Harbour, Senate ResourcesLindsay Williams alerts us that Alaska Senate Resources Committee Chairman Cathy Giessel (NGP Photo) will hold a hearing Monday morning from 8-8:50 a.m. on SB 138 Gas Pipeline, AGDC, Oil & Gas Production Tax.


Globe & Mail.  ​Prime Minister Stephen Harper was again rebuffed in his bid to press U.S. President Barack Obama to approve the controversial Keystone XL pipeline when he raised the issue during a North American leaders’ summit in Toluca, Mexico.  ***   Globe & Mail.  

Tracts of land that had been set aside for reindeer grazing in Canada’s North have instead been offered up by the Conservative government for oil and gas exploration, newly released documents show.  (Comment: As we in Alaska have learned, oil development and caribou herd growth are compatible.  -dh)


Lisa Murkowski, Arctic Ambassador, Photo by Dave HarbourKETCHIKAN, Alaska, Senate Energy Committee – One day after sharing her concerns that the recently-announced 'Special Representative for the Arctic' position represents mere "window dressing" on Arctic engagement, Senator Lisa Murkowski (NGP Photo) called on Secretary John Kerry to meet with her and provide more information about the nature of the position -- and why he is declining to name an official to a full Ambassador position.

With Senator Murkowski having recently delivered the Keynote Address at the Global Arctic Symposium and planning to participate in this weekend's Standing Committee of Parliamentarians of the Arctic Region (SCPAR) and meet with the Chair of the Arctic Council, she wants to be assured that the Obama Administration is truly raising the profile of its Arctic agenda.

In a letter to Secretary Kerry (attached), Murkowski writes:

“I am also pleased that the position will be filled by a high level individual of substantial stature and expertise. I am gravely concerned, however, that the Special Representative will not be on par with our Arctic partners at international bilateral and multilateral events, nor will it have the authority within the U.S. Government to direct resources to the Far North and I welcome the opportunity to engage with you on these issues.”

When the State Department announced its plans to name a 'Special Representative to the Arctic,' Murkowski first vocalized these concerns -- given that 7 of the 8 Arctic nations (and non-Arctic nations like Thailand) have appointed full Ambassadors -- since the United States should not relegate its Arctic involvement given the global attention and investment in the region.

Calgary Herald by James Wood.  As Canada presses the Obama administration to approve the Keystone XL project, the Alberta government has spent more than $2 million on U.S. lobbyists since 2008 on key issues such as the oil pipeline — although the flow of provincial money has dried up this year.


Bakken News: A year of records - 02/23/2014  It's hard to talk about North Dakota oil production these days without talking about setting records, and December production was no exception. But the record is not of the type people are used to seeing as a decline in output in December marks the largest single drop in average daily production in....


Houston Chronicle/AP by Becky Bohrer.  

Federal agencies are ready to work on an Alaska liquefied natural gas project but don't want another false start, state lawmakers were told Wednesday.

Larry Persily, Federal Coordinator, gas pipeline, lng, Photo by Dave HarbourIn testimony submitted to the Senate Finance CommitteeLarry Persily (NGP Photo), the federal coordinator of Alaska gas pipeline projects, said agencies would like to know a project has a real shot at making it this time.

Persily said this time could well be different than past efforts, like the proposed gas line ...

Lesil McGuire, Senate, gas pipeline, lng, Photo by Dave HarbourIn the Senate Resources Committee on Wednesday, Sen. Lesil McGuire, (NGP Photo), said she didn't want the deal to fall apart but had reservations  ...

Deputy Revenue Commissioner Mike Pawlowski said AGDCis Hollis French, Senate, Alaska, oil taxes, gas pipeline, lng, Photo by Dave Harbournot just about the in-state line and ...

Sen. Hollis French (NGP Photo), D-Anchorage, asked whether the bill, which references the oil tax law, will have any impact on ....

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2-20-14 Bob Berto Oil Tax Reform Commentary

20 February 2014 9:46am

Scott Goldsmith, Economist, Maximum Sustainable Spending, Alaska, Dave Harbour PhotoThe Institute of Social and Economic Research (ISER) recently released its FY 2015 update estimating how much Alaska’s state government can afford to spend from the unrestricted General Fund (UGF) in the coming fiscal year. In this year’s report, author Scott Goldsmith (NGP Photo) estimates that the state can afford to spend about $5 billion from the UGF in FY15.


Guest Commentary On Oil Tax Reform

by

Bob Berto

Bob Berto, Ketchikan, Alaska, guest editorial writerAlaska will sit at a critical crossroads when it is time to vote in this year’s primary election on the question of whether to repeal recently passed oil tax reform aimed at increasing North Slope oil production and investment for new oil.

I grew up in Ketchikan and have spent almost my whole life working in resource related industries.  I started working in fishery supply and aviation to put myself through college and much of my adult life has been spent in the state’s maritime and tourism industries in Southeast Alaska.

From "Keep Alaska Competitive"  

Janet Weiss, BP, Alaska oil taxes, Photo by Dave HarbourOil tax reform is delivering even more good news for Alaska. BP will increase its capital investment in Alaska by 25 percent to $1.2 billion this year, Janet Weiss (NGP Photo), president of BP Alaska, told the Anchorage Chamber Feb. 10. 

Next door at Kuparuk, ConocoPhillips Alaska has submitted permit applications for a viscous oil development targeting the West Sak reservoir, the company said in a statement released Feb. 18.

All resource industries require stable fiscal climates, robust infrastructure and quality transportation systems to thrive. When resource industries in Southeast Alaska are booming local economies thrive -- providing jobs and helping keep local taxes low.

There is a radio ad playing now across the state that says, in effect, that we all are in the oil industry. In Alaska, a truer statement was never made, no matter how far removed Alaskans are from the oil fields on the North Slope.  We are all impacted by the industry’s success.

When the Legislature passed oil tax reform to rectify the problems with the old oil tax system, it took a strong step forward in securing the state’s long-term economic future.

The old tax system contained a provision that was punitive as it ratcheted tax rates so high it made Alaska unattractive to the oil industry to increase investment here. As a result, investment went elsewhere, while North Slope oil production continued an average 6-8 percent annual decline.

Why does it matter to Southeast Alaska that oil in our pipeline is only about one-fourth of its capacity? 

Because even though it may not feel like it in Southeast, Alaska’s economy is fueled by oil production.  Oil revenues to the state are based on production, and the State of Alaska gets 90 cents of every unrestricted general fund dollar it spends - from oil revenues. The industry is responsible, directly or indirectly, for about one-third of all jobs and about one-half of Alaska’s entire economy according to a university study. It is the state’s biggest private economic partner.

Alaskans need a healthy, vibrant oil industry for long-term, sustainable state budgets, economic growth and to maintain the quality of life Alaskans enjoy.

Oil production decline is a serious matter for every Alaskan, and to generate more production, the state needs to attract more investment, but that was not occurring under the old tax regime.  Investment increased elsewhere.  In fact, among the other oil producing states in the U.S., as of 2012, all had shown increases or were flat with the previous year.  Alaska was the only state to decline.  Punitive taxes drove away new investment. None of that is good for Alaskans or our economy.

The good news is the new oil tax system is working. We are already seeing increased investment on the North Slope as companies position themselves to work under an improved business climate created by tax reform.

Southeast Alaska residents, in my view, would be wrong to vote to repeal the new tax reform and return the state to the old tax, which has a proven track record of failure - failure to attract increased investments, and failure to increase oil production that come along with more investment. Already, the Southeast Alaska Conference, the largest economic development membership group in Southeast, has endorsed a “No” vote on the repeal measure because of the harm passage would inflict on our state economy.  

We are at the crossroads. We must take the right path for the long-term. Join me in learning more at www.foraksfuture.com.


(We received the commentary above from a group advocating defeat of the referendum proposal to repeal last year's passage of SB 21, oil tax reform.  We took a similar editorial position soon after repeal advocates announced their intent to repeal the new law.  We have long said that tax reform is a huge incentive for gas pipeline success and that repeal of tax reform will lead to a dark new era of energy investment in Alaska.  The author of this piece, Bob Berto, is a statewide co-chair of a group advocating defeat of the referendum.  He is a small businessman involved in tourism and maritime services.  Berto is a lifelong Southeast Alaskan and lives in Ketchikan. -dh)

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2-14-14

14 February 2014 11:07am

What: Alaska Miners Association 2014 Biennial Conference 

When:  April 7—13, 2014

Where: Carlson Center: 2010 2nd Ave.  in Fairbanks, Alaska. 

About: The event will feature a multitude of lectures and workshops from industry experts; field trips to the Pogo and Ft Knox Mines; and the opportunity to network with individuals involved with all aspects of Alaska’s mining industry.

How: Register at www.alaskaminers.org, or by contacting Alicia Amberg: e-mail alicia@alaskaminers.org; tel: 907-563-9229

 

This morning, the Alaskanomics Blog posted and distributed (here) our February 10 commentary: "Has Alaska Become A Place Where A Deal Is A Deal?"  Copied below for reader convenience.  Of that commentary, on Tuesday we are honored that one of our more critical, fact-oriented readers sent this review: Just a quick note to offer you my 'standing ovation' for your commentary yesterday.  You should ask the xxxx and xxxx to run it ... after all, both claim to be willing to express points of view different from their own, the bunk they've both been peddling needs to be debunked.  (TK)       -dh


Kaye Laughlin, Alaska, Photo by Dave HarbourReader Kaye Laughlin (NGP Photo) alerts us to appearance of "the FIRST DIGITAL ATLAS of HISTORICAL SEA ICE CONCENTRATIONS in the BEAUFORT, CHUKCHI AND BERING SEAS", just released by UAF researchers and the Alaska Ocean Observing System. This web-based tool allows users to view and download sea ice concentration data from 1850 to the present. The atlas uniquely provides digitized historical sea ice data compiled from more than 10 sources, including the satellite record, various U.S. Naval and National Ice Center compilations, Canadian records, Danish and Norwegian ship records, and whaling ship reports. The interactive map allows users to select a date or a location to visualize how open water seasons have varied in a particular place. An animation shows changes in ice extent and concentration through time, year by year and decade by decade. The atlas also offers a glossary that defines different types of sea ice and provides information about the original data sources and how the data were compiled. The atlas provides coastal communities, industry, and state and federal agencies, among others, an objective, historical record of sea ice conditions during the past 160 years and is also a potential educational tool in the classroom. Anyone with a modern web browser and Internet access is able to use it. The sea ice atlas will be presented in a webinar hosted by ACCAP Feb. 18 at 10 a.m. Alaska Time. For webinar information, go to http://accap.uaf.edu/node/1048 or contact Tina Buxbaum, 907-474-7812

Thursday, February 13, 2014

Has Alaska Become a Place Where a Deal is a Deal?

In August, we'll find out

Commentary by Dave Harbour

Last Sunday’s Anchorage Daily News contains a 'news' article describing how Alaskan oil companies are "pouring" millions of dollars into an effort to stop repeal of the State's oil tax reform law.

Citizens should be applauding the companies for upholding a law approved less than a year ago by Alaska's Governor and a majority of the elected representatives of the people.  A number of groups representing the bulk of Alaska's private sector economy are responsibly recommending a sound "No" vote to repeal tax reform.

Here's why citizens should join the fight against activist minority and political groups (12345) trying to repeal the recently passed reform:

1.  Alaska's government operating budget is over 90% dependent on Alaska North Slope (ANS) oil production.  Over a third of our entire economy would collapse without ANS oil.  The Trans Alaska Pipeline System (TAPS) that carries ANS oil is 3/4 empty.  It is becoming dramatically emptier: 6-8% per year.  Massive new capital investment is needed to stem and reverse the production losses.  In the most highly taxed, highest cost "oil patch" in the free world (i.e. and we would be happy to discuss Norway anytime, for it is a place where 'A Deal is A Deal'), our leaders last spring decided to reform the tax burden.  Their objective was to increase capital investment, following several years of study and careful analysis.

2.  The Constitution and our kids.  Politicians are fond of quoting Alaska's Constitution requiring that natural resources be developed for the "maximum benefit" of the people.  Trouble is, as we observed in this 2012 editorial, greedy constituencies want the "maximum benefit" of anything now...today...for themselves...and to heck with long term, wise decisions that provide a sustainable economy for their children.  We see this disturbing trend played on the national stage as well as in Alaska.

3.  Alaska's integrity is at stake.  There is no citizen who thinks, "I want our state to be irresponsible".  There is no investor who would say, "I would prefer to invest my money in an insecure area." But when Alaska began increasing its already high oil taxes nearly a decade ago (i.e. after investments had been made), future investment became less secure here. When Alaska made higher tax collections retroactive, Alaska became a riskier, less reliable place to invest. Now, when Alaska's leaders have concluded after years of study that reform is required to save Alaska's economy, special interest efforts to repeal that effort a year later would put a nail in the coffin of Alaska's reputation as a reliable place to do business.

4.  The oil companies' fight is our fight.  Without more investment TAPS throughput inches closer to a disastrous closing of the pipeline and Alaska's whole house of economic cards gets wobblier by the year.  When the cards fall and TAPS oil slows to a trickle -- perhaps even causing closure of the pipeline -- every man, woman and child still here will suffer...a lot.  

  • The subsistence lifestyle in rural Alaska will become unaffordable as fuel, airport, social service, transportation, communication and public safety programs and subsidies evaporate.  Over two hundred Alaska Native village corporations and their non profit affiliates along with Alaska Native Regional corporations should be defending tax reform--or live to see their own non profit efforts diminish as their profit making entities face the prospect of increased taxes and fewer contracts. Huge North Slope Borough, Fairbanks and Valdez oil property taxes can be collected only when oil property is present and viable. Less investment produces less local tax revenue.
  • Subsidized health care from the smallest village to Alaskan cities will diminish in at least two ways: as direct subsidies diminish and as those with insurance coverage leave Alaska or lose coverage which, in part, pays for charity health care. Advocates for the poor, disabled and sick should be opposing repeal of oil tax reform with every spare spark of energy they can spare.
  • Education will be one of the hardest hit areas, as state funding of local and statewide elementary, secondary and university programs decreases. School boards, superintendents and teachers should start appreciating and defending where their funding comes from, in our view.

We continue to be surprised at how few non profit organization leaders testify to the Legislature in support of oil companies, how few write letters to the editor.  Yes, non profits are professional, profligate writers of corporate grant requests, but how many stand up to support oil company investment -- which directly and indirectly affects their own prosperity?

  • Alaska has more non-profit organizations per capita (i.e. 6,000) than any other state. While a third of their funding comes from federal sources, much federal and foundation and corporate funding is given on a matching basis. Certainly, non-profits providing youth, arts, education, disabled and dports programs will be badly affected as business giving dries up--as we believe it will with repeal of recently passed oil tax reform legislation.   

We do wonder at the motivation of those who argue more money will flow into Alaska's coffers by repealing oil tax reform.

Two years ago during a private luncheon with a well known liberal leader, she agreed that the state's economy was in peril.  Then, she agreed that the natural result of an imploding oil industry and economy would be that Alaska could once again become a ward of the federal government where houses are cheap, the population diminishes and where the dozens of federal programs and environmental activist organizations would prosper.  I know that she is well intended and believe her to be not evil, just wrong -- at least for my network of friends and coworkers.

A well intended citizen could oppose the tax reform law and support a political party's numbers simply because he or she is loyal to that party.  In that case, the party's economic projections may be trusted on faith -- however rational or irrational they might be.

A not so well intended politician might simply think, "Hey, opposing tax reform as a 'give away' makes me popular with my constituencies, likely to be reelected, more marketable when I retire --  with an oil subsidized retirement check to boot."

On the other hand, one might think certain constituencies -- like Alaska Native oil field contractors -- that make more money when the oil industry makes more investments -- are biased.

Chambers of commerce throughout the state might be biased in favor of the law which they believe will result in more economic prosperity for their members.

In short, all participants in the growing SB 21 repeal effort -- not just supporters of repeal -- will be pursuing their own economic and social agendas.

Citizens will listen to the messages amid the din of rhetoric and vote one way or another, or not vote.

As for this editorial writer, free enterprise wins the argument at day's end.  

We would like to see the 49th state adopt a new slogan: "Alaska, where a deal's a deal!"  After all, Repsol's relatively new investment here results, in part, from an expectation of tax reform.  We therefore align ourselves with the majority of our elected officials who are charged with protecting the public interest.  

We further align ourselves with the major employers and taxpayers of Alaska, who have certainly paid their dues, in spades, and at least deserve to operate in a state that establishes and defends fair and predictable tax and regulatory rules.

We will be voting "No" on the August primary ballot measure asking for repeal of Alaska's oil tax reform legislation.

We believe Alaska's future will dramatically depend on the outcome of that vote.  And in August, the world will know whether Alaska has matured into a place where a deal is a deal.

________________________________________________________________________

This editorial piece appeared February 10, 2014 on thehttp://www.northerngaspipelines.com website.  Northern Gas Pipelines publisher, Dave Harbour, is former Chairman of the Regulatory Commission of Alaska, Former Chairman of the Alaska Council on Economic Education and former Chairman of the Anchorage Chamber of Commerce.  He has served as chairman of numerous oil and gas conferences, including the annual Alaska Oil & Gas Congress.  His articles have appeared in hundreds of newspapers, magazines and websites throughout the U.S. and Canada.

 

 

 

 

 

 

 

 

Categories:

2-13-14 Jim Prentice Looks Beyond Obama For Energy Issue Coordination - Mystrom Comments On Alaska Oil Tax Reform

13 February 2014 9:31am

Canadian Press by Mike Blanchfield.  It's high time Canada Jim Prentice,Keystone XL, Photo by Dave Harbourstarted looking beyond the Obama era if it wants to push economic integration with the United States to a new level, says former Conservative cabinet minister Jim Prentice (NGP Photo).    ...   New gas discoveries in both countries have transformed North America's economic landscape, said Prentice, who urged the federal government to set its sights on 2017 when Barack Obama's successor arrives in the White House.


Commentary.  "Tis the season!"  Yes, a legislative session in an election year tells us it's the season for discussion of the most important issues facing our state and nation.  

As our readers know, we have consistently supported pro-free enterprise and reasonable economic development policies flowing from Washington and Juneau.  

For several years, we have urged public support for oil tax reform, to correct a very predatory and anti-investor tax policy that was eroding economic strength and Rick Mystrom, SB 21, Alaska oil tax reform, Dave Harbour Photoopportunity from Alaska's economy.  We posted the last of many of our commentaries earlier this week.  Even our commentary yesterday on LNG is linked to the issue of Alaska's investment climate and dependable tax policy.

Since then, we have received several opinion editorials.  Former Anchorage Mayor Rick Mystrom (NGP Photo) wrote the one below, which we submit for your consideration.  It deserves thought since Mystrom was elected to oversee the health of our largest city and since his family security depends -- like everyone else's -- on a state that can pay its bills and support the educational, social and business amenities everyone depends on in both rural and urban Alaska.   -dh

Rick Mystrom

"Why I Support The Current Oil Tax Reform Law: SB 21"

Few issues affect Alaskans more than the health of our economy. During the 42 years my family and I have lived here, we’ve experienced both good and bad economic times. As a two-term Anchorage mayor, as a businessman, as a parent and now as a grandparent, I know and appreciate the benefits of a thriving economy.

Since the beginning of Alaska’s partnership with the oil industry we’ve had long periods of healthy economic times accompanied by prosperity in both the private and public sectors of our economy. Schools have been built around the state, our university system has grown dramatically, and health and human services facilities have been built debt-free, all largely funded by the oil industry/State of Alaska partnership.

In Anchorage alone, we built the Sullivan Arena, the Loussac Library, the Alaska Center for Performing Arts, the Egan Center and the Dena’ina Convention Center—all without any debt. The partnership has worked well for Alaska and has given us an unmatched quality of life. All of this was accomplished with an oil tax rate that was more competitive and far lower than the old tax system, ACES.

In addition, that partnership has allowed us to accumulate over $76 billion in liquid assets including $50 billion in the Permanent Fund. The fund has paid every Alaskan who has lived here since its inception more than $35,000 in dividends—that’s $175,000 for a family of five. And that fund has nothing to do with taxes. It’s funded with 25 percent of Alaska’s fixed royalty. If production increases, our royalty share goes up. If production goes down, our royalty share into the Permanent Fund goes down.

But we’ve also had shorter periods of unhealthy economic times accompanied by hardship for tens of thousands of Alaskans. In the mid-80s when the price of oil dropped from $30 to $9 a barrel, the state, the oil industry and our citizens all suffered. Thousands of our neighbors lost their homes, businesses went bankrupt, banks closed and left the state and citizens left our state. Anchorage lost 13 percent of its population and 25 percent of its assessed value. The Interior, the Mat-Su Valley, the Kenai and the rest of Alaska suffered equally. But the State of Alaska/oil Industry partnership survived, and in the late 80’s we began a long period of sustained, gradual growth.

The continuation of our economic growth is now threatened. We’re facing a $2 billion deficit. This deficit is the direct result of lower oil prices and decreased production. The claim that this deficit is a result of the new tax structure is a myth. The deficit would be virtually the same under either the old tax structure (ACES) or the new tax structure now in place.

We can’t do anything about oil prices but we can do something about production. We can discourage it or encourage it. ACES discouraged production. We’ve watched our oil partners’ investments and oil service companies’ employees move to Texas, California, North Dakota, and other states who welcome their investment dollars and our employees. The tax structure now in place, created by Senate Bill 21, encourages production. Our North Slope partners have already committed to $4.5 billion in new projects since Senate Bill 21 was passed and signed by the governor.

Now comes another very important decision point for Alaskans—a decision that will determine Alaska’s future for years to come. In August we will vote on a ballot issue that asks whether we want to encourage our healthy partnership that provides 90 percent of our state government’s funding or discourage it. Do we want to keep the new tax passed by the Legislature last year which has already resulted in new investment and new jobs, or do we want to return to the failed tax of the previous administration that contained some of the highest taxes in the world and it did nothing to encourage production of a single, new drop of oil on the North Slope?

If we vote to repeal our current tax and return to the old tax, not only will our oil partner’s investments go to other states and our production continue its decline, but it would also be likely to end plans for a large-diameter natural gas pipeline and LNG plant to get North Slope natural gas to Alaska communities along a pipeline route and to profitable markets in Asia.

In August, I’m voting to keep our economy and our permanent fund healthy. I’m voting against repealing our tax structure.  I’m voting “no” on Ballot Measure 1.

Rick Mystrom is a former two-term mayor of Anchorage, a former member of the Anchorage Assembly, and a successful businessman.

Categories:

2-11-14 - Senator Murkowski Gives NARUC Policy Speech TODAY

11 February 2014 8:09am

For our Canadian readers: Want to become a temporary member of the National Energy Board in Calgary?  Knowing several of the Members and the Board's mission, we can say it would be both a high honor and experience of a lifetime to serve!  -dh


This morning, Keith Kohl wrote a column for Energy and Capital revealing that the Lower 48 may be looking more closely at Alaska.  He said, in part, "We've become a nation of spoiled children when it comes to energy.  This is particularly true for those of us living in the Lower 48, where we've enjoyed a shale and tight oil boom. Of course, I say the “Lower 48” because field output in states like Alaska (Note: see the EIA chart here and relate it to our commentary yesterday...scroll down) has actually declined 74% since 1988!"  -dh


COMMENTARY: This morning, U.S. Sen. Lisa Lisa Murkowski, NARUC, Powering the Future: Ensuring that Federal Policy Fully Supports Electric Reliability, Alaska, US Senator, , Energy 20/20 A Vision for America’s Energy Future, Photo by Dave HarbourMurkowski (NGP Photo, NARUC, 2-4-13) is addressing the National Association of Regulatory Utility Commissioners (NARUC).  Her major theme: “Whether here, in Alaska, or anywhere in between, our goal must be a grid that is more reliable and more affordable."  She is releasing a white paper on electric reliability – Powering the Future: Ensuring that Federal Policy Fully Supports Electric Reliability – at the event as part of her blueprint for the nation’s energy policy, Energy 20/20: A Vision for America’s Energy Future.  The paper looks at the impact of new environmental regulations on power plants that supply baseload electric generation, coupled with the influence of federal government preferences and subsidies, and the increasing usage of intermittent energy sources on the overall reliability and sustainability of the electric grid.  Energy Committee staff member, Chester Carson, tells us that copies of Sen. Murkowski’s speech and white paper will be available on the energy committee’s website, here, this morning.   For your convenience, we reprint her speech below.

Alaska Native News. (Reader Kaye Laughlin sends us this reminder of the increasing momentum toward the marketing of Alaska natural gas. -dh)  

Joe Balash, DNR, LNG, ConocoPhillips, Photo by Dave HarbourIn response to a September 5th letter from acting Department of Natural Resources Commissioner Joe Balash (i.e. now, the commissioner), asking them to re-open their mothballed LNG plant on the Kenai Peninsula to resume exports, ConocoPhillip has applied for a two-year export permit to do just that.

According to the DNR, re-starting export of LNG will stimulate natural gas production in Cook Inlet and spur more natural gas exploration. The Nikiski export plant was closed down because of shortages of LNG for local consumption in the state and an expiring permit in 2012. Those local needs have now been met through 2018 by Hilcorp, who purchased gas fileds from Marathon and Chevron.

ConocoPhillips says that they applied for the new permit from the U.S. Department of Energy on Wednesday, but would not export any gas this winter because regional utilities will be given priority during the season when gas is in demand. But, the application requests a permit to export 20 billion cubic feet of gas as LNG per year.

The 24-year-old plant was begun in 1969 by Phillips Petroleum and Marathon Oil. Phillips merged with Conoco and then Conoco-Phillips bought out Marathon's shares to become sole owner.

As a former member of NARUC, your author has a special interest in the organization, having served as a vice chairman of its 'Gas Committee' and written a number of NARUC resolutions supporting northern energy policies--including one endorsing passage of the Alaska Natural Gas Pipeline Act of 2004.  

We were also honored to serve as NARUC's Official Representative to the Interstate Oil and Gas Compact Commission (IOGCC), where we coordinated joint policy resolutions supporting Alaska in particular and sound energy policy generally.  

We remain focused on NARUC because some of NARUC's resolutions, affect developing national policies in the Congress and Administration.  NARUC deserves our scrutiny because members include not only regulatory commissioners from every state, including Alaska, but also federal commissioners from the FERC, FCC and even the Canadian National Energy Board.  DOE's senior management participates in meetings as do Governors and members of Congress.  

We, therefore, offer high praise to Senator Murkowski, who has addressed the organization several times, for exercising her national Energy Committee leadership with this key constituency.   -dh


Today's Energy References:

BuildKXLNow.org: Alex Pourbaix Answers the Los Angeles Times

Facts matter.  Activists certainly have their own opinions, but they are not entitled to their own set of facts. TransCanada, the builder and operators, of the Keystone Pipeline system recently wrote to the editorial board of the Los Angeles Times correcting the record on several claims made in their newspaper.  

 

BuildKXLNow.org: Crossing the wrong line

The Washington Post editorial page raised its voice even louder among the broad coalition of Keystone XL supporters. WP: ENVIRONMENTALISTS HAVE drawn a line in the sand on the Keystone XL pipeline. It’s the wrong line in the wrong sand, far away from any realistic assessment of the merits — as yet another government analysis has confirmed.

 

Portland Daily Sun: Report: New England needs to add 2 billion cubic feet of natural gas pipeline

New England needs 2 billion cubic feet of new natural gas pipeline capacity to eliminate cost spikes and make New England competitive with the rest of the nation, according to a new consultant's study.

 

The Hill: Cruz looks beyond Keystone XL

Sen. Ted Cruz (R-Texas) is shifting his focus to the nation's energy policy, starting on Monday. At the Heritage Action for America's Conservative Policy Summit in Washington, D.C., on Monday, Cruz will make the case that, while President Obama should approve the Keystone XL pipeline, Republicans need to come up with other ideas to expand the country's energy production.

 

Mother Jones: Is Shipping Oil By Rail As Dangerous as the Keystone Pipeline?

When the State Department issued its long-awaited environmental impact statement on the Keystone XL project earlier this month, one of its key findings was that if the controversial pipeline wasn't built, oil-laden rail cars would pick up the slack. "Rail will likely be able to accommodate new production if new pipelines are delayed or not constructed," it argued. As we noted recently, that rail transit is already underway.

 

ABC News: Ted Cruz Makes Case for Keystone XL to 'Birkenstock-Wearing, Tree-Hugging' Activists

If you love the environment, Sen. Ted Cruz says you should love the Keystone XL pipeline too. "If you're a Birkenstock-wearing, tree-hugging Greenpeace activist, you should love the Keystone pipeline," Cruz said at the Heritage Action's Conservative Policy Summit on Monday. Cruz, R-Texas, focused his remarks on a push to deregulate the controversial practice of hydraulic fracking and expanding offshore exploration, and in the process, appealed to any environmentalists listening in on his remarks.

 

The Hill: Canadian PM: Keystone XL 'inevitable'

Canadian Prime Minister Stephen Harper says building the Keystone XL pipeline is "inevitable" as the history and economics of a U.S.-Canadian relationship outlast a presidency. In an interview with Bloomberg News, Harper said economic forces determine whether projects like Keystone go through, not fleeting political calculations.

 

Shop Floor: Keystone Suppliers Pen Op-Ed

The Keystone XL pipeline represents a lifeline for American workers and the U.S. economy, and the longer we wait for approval, the longer the creation of thousands of high-paying manufacturing jobs for American workers is put on hold. That was the message from NAM Members Albert Huber of Patterson Pump Company and Peter Bowe of Ellicott Dredges in a recent op-ed.

 

Hot Air: Canadian ambassador: Rejection of Keystone XL would “definitely strain” diplomatic relations

No kidding. Canada doesn’t exactly tend to rile easily, but there are only so many years of flagrant abuse and neglect they can take when their interests are clearly being put on the backburner in favor of assuaging the well-monied environmentalist lefties that have managed to turn the otherwise innocuous infrastructure project into a political firestorm.

 

BusinessWeek: WTI Crude Narrows Discount to Brent as Libya Increases Output

West Texas Intermediate crude gained for a fifth day, paring the discount to Brent on speculation that inventories in Cushing, Oklahoma, decreased last week and as Libya worked to restore supplies. WTI rose 18 cents to a six-week high. Supplies at the delivery point for futures may have dropped for a second time as the southern leg of the Keystone XL pipeline moved oil to the Gulf Coast. Brent dropped as Libya increased output after protests at the Sharara field ended, according to the country’s National Oil Corp.

 

Times Online: Corbett awards $750,000 grant to shale center

Gov. Tom Corbett Monday awarded a $750,000 Discovered in PA - Developed in PA grant to help launch the Shale Gas Innovation and Commercialization project, an initiative founded by the Ben Franklin Technology Partners of Central and Northern PA.

 

90.5 WESA: Cold Weather, Natural Gas Development Make It Harder to Get Propane to Market

The brutally cold winter experienced by much of the Midwest and Northeast this year is partly to blame for higher propane prices and for making the fuel harder to come by in parts of the country. The Pennsylvania Propane Gas Association, or PAPGA, said other factors include a decreased capacity to get the fuel from one place to another.

 

State Journal: WVU conference to focus on new rules for carbon dioxide emissions from coal-fired power plants

The third annual national energy conference at West Virginia University will focus on new rules from the Environmental Protection Agency to regulate carbon dioxide emissions from coal-fired power plants. Featuring experts from government, the private sector and environmental organizations, the conference will explore how these new laws will be navigated and affect the power industry, states and communities.

 

NASDAQ: Forget North Dakota, Texas is No. 1 for Oil

Advances in drilling technology are expected to help North Dakota hit the 1 million barrel per day mark at some point this year. But it's Texas that still holds the leadership position in terms of oil production. Don't mess with Texas.

 

Pittsburgh Post Gazette: Washington County's Robinson to withdraw from Act 13 lawsuit

Newly seated supervisors in Robinson, Washington County, plan to withdraw the township from a joint suit against Act 13, the state law regulating Marcellus Shale natural gas drilling. Township attorney Alan Shuckrow said Monday night that the lawsuit nonetheless would continue to carry Robinson’s name, and the case would move forward with the remaining plaintiffs.

 

Newsday: O'Reilly: The case against fracking is cracking

"From my opinion and from what I've seen...I believe hydraulic fracking is, in fact, safe. We know that, from everything we've seen, there's not a single case where hydraulic fracking has created an environmental problem for anyone." What right-wing, knuckle-dragging Neanderthal uttered that inanity?

 

Wall Street Journal: Secondary Sources: Death by Finance, Middle Class, Shale Gas and Housing

Dani Rodrik looks at how financial markets view emerging economies. “This is not the first time that developing countries have been hit hard by abrupt mood swings in global financial markets. The surprise is that we are surprised. Economists, in particular, should have learned a few fundamental lessons long ago. First, emerging-market hype is just that. Economic miracles rarely occur, and for good reason.

 

Michigan Live: 'Fracking' on the agenda for public meetings in Ottawa County

The Ottawa County Planning and Performance Improvement Department is hosting a three-part series of meetings about hydraulic fracturing, the controversial method used to improve production in oil and gas wells, also known as “fracking.”

 

Columbus Dispatch: Revised fracking-tax bill expands income-tax cut

House Republicans hope to roll out a revised fracking-tax bill this week with a slightly higher rate, a bigger income-tax cut and money directed to areas where shale drilling is most prevalent.

 

FuelFix: Shell recommends science for Arctic headaches

Extreme cold. Ice-clogged seas eight to 10 months every year. An ancient, indigenous people living on Alaska’s North Slope who hunt local Bowhead whale. Marine mammals, deep-sea coral and Greenpeace.

 

E&E News: POLICY: Obama admin quietly preparing pledge of deeper GHG emissions targets for U.N. talks

The Obama administration is quietly working on new greenhouse gas emissions targets to deliver to the United Nations, even as it struggles to craft regulations that will enable the United States to meet its current carbon-cutting goals.


Senator Murkowski's Speech to NARUC, today.

Address for NARUC’s

Winter Conference Meetings

Sen. Lisa Murkowski

February 11, 2014

 

“Thank you for the warm welcome.  Last year I was honored to release my policy blueprint, Energy 20/20, during this conference.  As I said then, my report was intended as a conversation starter, with the goal of developing policies that would make our energy abundant, affordable, clean, diverse, and secure.  I’m grateful for the response it has received.  And I’m particularly glad that after asking you to read its 120 pages, you were still willing to invite me back again. 

 

“The focus of my remarks this morning will be narrower than a new vision for our federal energy policy – I want to use this time to discuss what it means to protect the reliability of our electric grid.  I’ve written a white paper on this subject entitled “Powering the Future: Ensuring That Federal Policy Fully Supports Electric Reliability.”  Any moment now it will be available on our Energy Committee website.  You don’t need to rush for the exits, though, as I will cover much of my thinking on this important topic here with you.

 

“Let me start by noting that I was pleased to see that your agenda dovetails nicely with the subject of electric reliability.  You have scheduled multiple sessions that focus on this issue, including the Polar Vortex debriefing, the value of the grid, and the European experience of integrating renewables.   

 

“I also want to explain why I care so much about this issue – why, out of all the challenges we face, this one stands out to me, and why I have given it so much attention in recent years.  My reason is that, like all of you, I recognize the essential role that electricity plays in our lives.  Too much of the developing world is forced to live in energy poverty, but whether we are at home, at work, or just about anywhere else, we have an expectation that power will flow instantly.

 

“Nearly always, that expectation is met.  We flip a switch or push a button and electricity flows.  That’s no small feat; it’s the result of countless hours of thinking, planning, engineering, construction, and maintenance.  That work – often your work – makes our lives better, and it makes the world around us possible. 

 

“The grid’s reliability has improved over the years, and it is now rare to incur an outage on the bulk power system of significant duration.  But there are also new factors and forces at play that could fundamentally alter and even degrade our grid network. 

 

“There may always be threats to our grid – at some level, and in some form.  There may always be squirrels and storms that can take out a line and cause an outage.  Last year I spoke with you the morning after the Super Bowl, which lost power for 34 minutes.  This year we had a blowout, not a blackout – and as a Seattle fan, I’m fine with that – but the experience of a year ago still remains quite vivid. 

 

“Something on our minds after the news of last week, about a coordinated attack in California last April, is sabotage – the possibility of a physical attack that disables key parts of the grid.  Sabotage has always been a risk, and we must recognize the need to protect against it.  As policymakers, we must include physical security as a key issue in our discussions.  And, further, we must take measured steps to protect the grid – not merely sensationalize the threat. 

 

“Based on what I have been told, industry and regulators are appropriately applying new lessons to improve the physical security of electric infrastructure.  More may need to be done.  But we can’t draw the wrong lesson here, either.  It would be a shame if newly-realized fears about physical security drowned out a sober conversation about the broader risks that we now face.  What we don’t need to do is stoke the drama, educate bad actors, and make copycats more likely. 

 

“One of the key points I want to make today is that sabotage is not the only threat we face in protecting the grid.  As we enter into an era of new environmental regulations on power plants, coupled with preference and subsidies for power generation and use, we must also recognize that grid reliability could well be impacted by the decisions of our own federal government.      

 

“I am concerned, as we all must be, with maintaining the stability of the grid as more and more baseload plants come off-line as a result of both market forces and regulatory constraints.  Clearly price is a major factor that owners of electric generating units consider to determine fuel sources, but it is not the only one. 

 

“Our natural gas production is at record high levels and generally this has led to low domestic prices.  The Energy Information Administration projects natural gas will become the dominant fuel source for energy production by 2040.  In line with EIA’s projection, we are already seeing a major shift.  Approximately 150 coal-fired generators were retired between 2001 and 2010.  During that same time period, more than 1,000 gas-fired generators came online. 

                                                         

Phil Moeller, FERC, Alaska, natural gas, Murkowski, Photo by Dave Harbour“As natural gas assumes a larger market share, we must be mindful of the need for additional infrastructure to accommodate its increased role in electricity production.  A more extensive gas pipeline network is needed to support the shift to gas (See Forbes commentary, below).  Thanks to Acting Chair Cheryl LaFleur and Commissioner Phil Moeller (Note: a former resident of Alaska.  NGP Photo.  -dh) – who started the entire discussion in 2010 – FERC has been engaging stakeholders on this topic.  As we rely more heavily on natural gas, better coordination between the electricity and gas sectors is necessary to protect grid reliability.

 

“As we examine the issue of grid reliability and diversity of fuel, we must acknowledge that even record natural gas production may not be enough to avert price volatility at every moment of every day.  For example, just last month we saw major swings in natural gas prices on the PJM system, which caused the RTO to seek price cap relief from FERC.

 

“Keep in mind that not a decade ago, natural gas prices were high enough to prompt what many thought would be a very broad renaissance for emission free baseload nuclear power.  The nuclear renaissance has obviously not been as strong as many of us had hoped.  Low natural gas prices, high construction costs, and uncertainty surrounding regulations in the nuclear industry have all been factors.  Just last year, four nuclear reactors were closed and a fifth unit is scheduled to shut down in 2014.  At least two of these facilities will close as a result of economic factors.  Despite receiving license renewals from the NRC, they were unable to generate power in an economically viable manner. 

 

“In addition to market factors, and vitally important for policy discussions because public officials have distinct responsibilities, we must also examine the cumulative effect on baseload capacity of federal regulations – particularly those from the Environmental Protection Agency.  Now of course I recognize that EPA has an important job to do, but it does not regulate in a vacuum.  In many instances EPA’s regulations will render generating units uneconomic, with compliance requiring retrofitting, the use of best available technology, and downtime for installation.

 

“As state regulators, you are all too aware that to maintain grid reliability, there must be a level of certainty in the power supply.  For example, if baseload coal and the ancillary services it provides account for almost 40 percent of our power, and EPA sets greenhouse gas emission limits without sufficiently considering whether technology is commercially available to meet the required standards, the impact on grid reliability could be severe.  I am greatly concerned that federal policies could result in a grid that is less stable than even two years ago.  And I am even more troubled that EPA – which has conceded that a single rule may have “localized” effects – has not sought from FERC or NERC an analysis of the cumulative impact its rules may have on grid reliability.

 

“Already this year, much of the Lower 48 has had a taste of what life is like during an Alaskan winter – an event known as the Polar Vortex.  It not only caused cold weather across the nation; it also caused 50,000 megawatts of power plant outages.  The electric industry has an impressive history of learning and improving from these system challenges.  Yet we also caught a glimpse of the challenge that lies ahead.  What we learned from the Polar Vortex is that for one key system, 89 percent of the coal capacity that is slated for retirement next year because of an EPA rule was called upon to meet rising demand.  That raises a very serious question – what happens when that capacity is gone? 

 

“Our reliance on installed, dispatchable power generation during extreme weather serves as a shining example of why diversity of baseload capacity is necessary to secure grid reliability.  It should serve as a wake-up call for policymakers as well as federal and state regulators.  The same might be said for nuclear baseload that could be put at risk by rules intended to protect more fish from power plant cooling systems.  

 

“Today it is uncertain how many plants will retrofit to comply with various EPA regulations or simply close.  It is uncertain if there will be enough time – to say nothing of sufficient capital available for investment – to build new facilities or other forms of generation needed to ensure the reliability of the grid. 

 

“Now I am very much in favor of clean energy, which I define as “cleaner” than the next most likely alternative.  Various state and federal policies, such as renewable energy requirements and direct financial incentives, have compelled significant deployment of intermittent energy resources.  And this has brought forth another unique set of challenges. 

 

“With the introduction of distributed generation, the concept of grid management is changing.  Although it is commonly believed that additional power onto the grid at any time is helpful, if you pose this question to a grid operator, you will get the true story—the injection of electricity without regard to consistency presents challenges to grid management, and it imposes costs. 

 

“As you know better than I, many states have adopted net metering policies, which allow customers with rooftop solar or other distributed generation systems to accrue credit for any electricity they sell to the grid.  Electric providers are often required to buy this power at the full retail rate.  You are the experts, but as I see it, regulatory policy must not create windfalls.    

 

“The grid provides transmission, distribution, generation capacity, ancillary and balancing services to everyone throughout the day, to every customer fortunate enough to be connected.  As I have considered electricity issues, I have considered how good it would be if my own state of Alaska had a more extensive grid.  On the cover of my white paper is a picture of major transmission lines in the United States.  From it, you can see the limited infrastructure in my home state.  Power costs in rural Alaska averaged more than 55 cents a kilowatt hour in 2012. 

                                                                                         

“Whether here, in Alaska, or anywhere in between, our goal must be a grid that is more reliable and more affordable.  To achieve that, we need to recognize the central challenge of electric reliability in the coming decade: finding a way to replace retiring base load capacity, while managing an increasingly variable energy mix.  While grid reliability is a difficult topic to tackle, it must be addressed.  

 

“In the Energy Policy Act of 2005, Congress properly gave the FERC-designated Electric Reliability Organization – NERC – the role of primary guardian of grid reliability.  FERC also has its own role, which is not only to engage government agencies to ensure federal regulations do not increase the risk of disruptions to the grid, but more broadly to enable investments in robust and reasonably priced energy infrastructure.   

 

“I challenge the leaders in this room and beyond it across all sectors of the electric industry to speak out more consistently and more candidly about the challenges you see.  My colleagues and I will be particularly interested in your critique of federal policy and what we can do to improve it.  We must be mindful that the burdens of maintaining the grid are fairly borne, that complex and powerful regulatory laws are judiciously administered, and that a due regard for balance prevents undue discrimination.  And we must do all of this, as I stated, while we ensure that electric systems maintain and even improve their reliability.  

 

“Thank you for having me.”   


Forbes article....

Forbes (2/8/14) reports: “We know where the gas is. The giant fields in Texas, Louisiana, Pennsylvania and elsewhere. And there’s plenty of it. The problem is that despite the thousands of miles of gas pipelines crisscrossing the country, there just aren’t enough of them going to the places that need it most. The trouble seems to be most acute in New England, where gas prices have shot up the most and where the supply bottleneck has gotten so severe that even newspapers like the Concord Monitor are editorializing in favor of more natural gas pipelines. State and federal regulators need to encourage their construction. NIMBYists in New England need to get out of their way. The other problem across the country is that in the face of what has appeared to be endless supplies of cheap natural gas we as a nation have stupidly turned our back on coal. From 50% of our electricity supply just five years ago, coal now provides for just 35%. Utilities across the country have closed down coal-fired power plants in response to ever more draconian emissions restrictions dictated by the Environmental Protection Agency.”

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