Commentary

Environmental Protection Agency: "Lisa Jackson Leaving EPA In January."  (Commentary on Government Waste, By Dave Harbour)

We received an email about Jackson's upcoming departure with this message: "This service is provided to you at no charge by U.S. Environmental Protection Agency."  

We boldfaced two words above to demonstrate the abysmal lack of business and economics knowledge possessed by this federal agency and Administration.  Of course, our readers know that the Taxpayers paid for the agency to spread its propaganda throughout the country via a sophisticated mass delivery program known as, "GovDelivery".   Every federal email should proclaim: "Funded at taxpayer expense."  

We get similar EPA mailings regularly, announcing "settlements" between the agency, would-be developers, environmental groups and others.  From what we have seen, every settlement restricts free enterprise, increases America's cost of living and puts the opposition in a "No Win" situation whether the entity is guilty or not of anything requiring the payment of huge extortion fees.  Massive millions are flowing from the private sector to government or environmental causes and no one seems to care.

P.S.  Tuesday, we received the 'free' email, described above.  Below, is the 'free' email we received yesterday.  Note that EPA didn't fine the company $62,985 for hurting someone with 'hazardous chemicals', but that the punishment "settlement" is extracted for failure to tell the government entities about what chemicals the company was using.  For a small company, an unexpected loss of $60k could mean the loss of an employee, failure to pay rent, inability to fund optional employee benefits, bonuses, etc.  It will likely increase the company's risk profile along with liability expenses.  For sure, it will increase operating costs that will be borne by the consumer.  Multiply that by hundreds of EPA penalties and harrassing techniques employed throughout the country -- whether or not any actual enviornmental damage has occurred -- and one wonders, "Why are prices going up so fast?".

YESTERDAY'S:

(Seattle - December 26, 2012) General Biodiesel, in south Seattle, will pay a penalty for failing to report their hazardous chemicals in violation of federal emergency planning laws, according to a consent agreement with the U.S. Environmental Protection Agency.

General Biodiesel converts used cooking oils, fish oil, vegetable oil, and animal fats into biodiesel fuel and glycerol in a process that uses hazardous chemicals including methanol, sodium methoxide, and sulfuric acid. In 2009 and 2010, General Biodiesel failed to submit Emergency and Hazardous Chemical Inventory forms to the Seattle fire department, King County ... and Washington's ... Commission.

"When a company fails to report their hazardous chemicals to emergency planners and responders, they put their employees and the community at risk," said Kelly McFadden, EPA's Pesticides and Toxics Unit Manager in Seattle. "This information is critical to alert federal, state, and local officials to prevent injuries or deaths to emergency responders, workers, and the local community."

Failure to report large amounts of hazardous chemicals to appropriate agencies is a violation of the federal Emergency Planning and Community Right-to-Know Act.

General Biodiesel agreed to pay a $62,985 penalty and fully comply with federal emergency planning rules to protect their workers, emergency responders, and the local community.

For information on the Emergency Planning and Community Right to Know Act, visit: http://www.epa.gov/compliance/civil/epcra/epcraenfstatreq.html

More information on the Emergency Planning and Community Right to Know Act in Washington is available at: http://www.ecy.wa.gov/epcra/index.html

All I Want For Christmas

A Christmas Eve Editorial Written 13 Years Ago Today!

by

Dave Harbour

12-24-2001 (Christmas Eve):  Gas pipeline news this week is light as all gas pipeline stakeholder thoughts turn to home.  Before news afresh begins breaking after the holidays, perhaps it would be well to spend a quality moment or two reflecting on where we've been this year and where we wish to be in 2002.  After all, our millions of individual decisions in the coming year will produce some grand, cosmic formula revealing the future of northern gas pipelines.  -dh   "All I Want for Christmas"   Dear Santa:   I'd like an Alaska gas pipeline for Christmas.    It should be in place, producing money by 2004, please, in time to supply 1/4 of Alaska's $1 billion+ budget deficit; and let our politicians balance the rest without increasing my taxes or reducing my services.    I'd like the pipeline to be 'diversified', too.  It should go to a Fairbanks 'HUB' (where I'd like a new petrochemical industry established by someone for some market).  I'd also like someone to link an inexpensive gas distribution system to every home in Fairbanks.    Fairbanks News Miner.  Governor Sean Parnell (NGP Photo) on Friday announced a $355 million mixture of (loans/tax credits/grants) to help bring North Slope natural gas to the Interior and other parts of Alaska.  The money...would be used ... on a North Slope natural gas liquefaction plant and ... private or municipal natural gas distribution systems in the Fairbanks area. To be fair, I'd like someone to take propane from the HUB and ship it to 230 Alaska villages at a reasonable cost, somehow.    Then, I'd like someone to build a line from the HUB on down to Valdez and arrange for Tokyo Gas to sign a 20 year, "take or pay"  contract at a price high enough to pay for the pipeline as well as another petrochemical facility in Valdez.    To take care of my Southeast Alaska associates, I'd like propane and maybe LNG to be provided by barges or small cryogenic tankers to all our coastal citizens at a reasonable price, by someone.    Since Southcentral Alaska may be running short of Cook Inlet gas, I'd like someone to build a branch of the pipeline from the Fairbanks HUB down to Anchorage.  See, that would displace enough gas that the Kenai Peninsula would retain adequate supplies for its residential / industrial users for another 20 years.    Lastly, I would like for most of the gas to move from the HUB on down the Alaska Highway to make sure that the folks in the Lower 48 have plenty, but I'd want to make sure there were enough liquid gasses in the high pressure line that we could profitably supply Alberta with some of the petrochemical feedstock she needs to be supportive.    Oh, and I almost forgot, please make the price of gas high enough so we can afford subsidies, generous rights-of-way payments to 10,000 landowners, and still have plenty of money for our state government and please build a separate Mackenzie Valley Pipeline for Canada.    And, I'd rather not have the gas produced at all unless it's done my way.    Sincerely,   "Wishing"   P.S.  If you have money left over, could we have some to invest as equity in the gas pipeline and would you please make sure we get at least a 12-15% return on our money?   Dear Wishing (Santa's Reply):   All fathers, including Father Santa, instinctively want their children to have all that they wish for.  However, one responsibility a father has is to lovingly tell his children that we don't always get everything we wish for at Christmas.  Sometimes, you get a present you think you'd rather not have and it turns out the be the best one after all.  (See P.S., below.)  I don't know if that will be the case this year, but on this Christmas Eve, I can now divulge your gifts:   1.  You will be blessed--more than most--with another year of freedom and life in the wondrous North.   2.  You will be given intelligence, courage, friends, armaments and vast resources.   3.  You will be given the freedom to break your own trail, to direct your own future path in the wonderful frontier before you.   4.  You will be blessed with the politicians that you, yourself, choose to help lead the quest.   5.  The above, basic gifts will enable you through your own wisdom, ingenuity and integrity to successfully confront your challenges.    Success, the greatest gift, will be highly savored for you will have earned it and you will pass this knowledge to your heirs.  Your failure, also shouldered by your children, will only come with misuse of the gifts.   My greatest hope for you is that you embrace the true spirit of Christmas, use well what you have been given, make good decisions, treat everyone with respect, teach your own children well, and endeavor toward 'endless progress'.  Obtained as you have so presumptuously wished, the presents you requested would not delight you, would not eliminate the fundamental budget problems you have created, would shackle free enterprise and deliver the generations following you into debt and misery.  They represent a child's irrational thinking, depending as they do on the imprudent acts of others and requiring no effort or risk on your part.   Lovingly, Santa   P.S.  (Author's note) One Christmas long, long ago, I asked for a new bicycle and a 410 shotgun.  Being a poor 11-year-old did not prevent the dreaming.  After a humble family service around our Nativity scene, wise Father gave me a snow shovel and a box of shotgun shells, my only presents.  I did not appreciate these gifts at the time, but by spring I had earned enough from the neighbors to buy a new bike and a used shotgun.  To this day, I love my Father as much as I respect him; and, he has never worried that I would ever confront a reasonable challenge I could not overcome.  That year I emerged into the real world, began absorbing the true Christmas message and took the first small steps toward a lifelong appreciation for free enterprise.  (Additional reference: Voice of the Times, by William J. Tobin-NGP Photo, In Memoriam.)  -dh     (See related news of last week.  Photos: Sharing 2001 Christmas and Summer outside author's Anchorage office.)

Consumer Energy Alliance President David Holt (NGP Photo) reminds us in this video that America does not have a robust energy policy -- which is especially evident during such energy emergencies such as those posed by Hurricane Sandy.

Petroleum News by Eric Lidji.  Although the details remain as yet unknown, Fairbanks Natural Gas LLC claims to have reached a settlement with the parties seeking to reinstate rate regulation on the utility.  The local distribution company for Fairbanks recently asked the Regulatory Commission of Alaska to vacate the hearing schedule arranged for the case, saying the parties met “informally” on Dec. 10 and “reached an agreement to amicably settle this docket.” The Attorney General and the Fairbanks North Star Borough are the other parties in the case.

Sell Alaska?

Washington Post by Steve Mufson.   ...  Put the entire state — from Juneau to Deadhorse, from the Bering Strait to the Beaufort Sea — on the auction block.  Absurd? No more absurd than the spectacle taking place right now as we skid closer to the “fiscal cliff.”  Selling real estate at top dollar is all about timing, and now’s a great time to unload the 49th state. The federal government,which owns 69 percent of Alaska, could cash in on the vast, resource-rich state at a time when oil prices are high and wild salmon is flying off the shelves at Whole....  

Commentary on "Selling Alaska"

by

Dave Harbour 

We are grateful to NGP Reader Kaye Laughlin (NGP Photo) for bringing this Washington Post story to our attention.  And we are grateful to author Steve Mufson for educating readers about the wealth of Alaska.  Indeed, reasonably and safely developed, the 49th state could save the economy of a well-managed country just as selling it might produce untold hundreds-of-billions in cash.

Read the Examiner's thoughtful essay on how the 'Fiscal Cliff' could affect Alaska.

Alaska Revenue Forecast Commentary

By

Dave Harbour

Today, we link to the Alaska Department of Revenue's 2012 Revenue Forecast.  

We begin by praising the cover photos provided by Rick Boots and John Tichotsky.  

Some readers may associate the Brown Bear cover photo with what looks like an unsustainable, bear market approaching every Alaska neighborhood.  Bears in the neighborhood appear when food is scarce.  Bear markets can appear when government revenue and spending don't match.  This eventually leads to a 'hard economic landing' characterized by huge cuts in government spending, large layoffs of employees condensed into a short period of time.  In Alaska, this unhappy era is likely to be accompanied by oil industry layoffs, spending cuts and investment climate lethargy.   Alaska's coming Bear market will be exacerbated by the Federal government's obstruction of natural resource development.

This year's revenue report verifies the declining production of Alaska oil which it also notes provides 93% of the state operating budget revenue.  While the report focuses on 'revenue', our readers have observed history: Alaska's unsustainable budget has not so far resulted in significant legislative spending discipline or gubernatorial vetoes of wasteful spending.   

Some have counseled over the ages that 'Hope is not a strategy'.  While the state does not officially 'hope' for adequate oil-based revenue to successfully fund a state with declining production, its official position is a stated goal: "...to stem and eventually turn around the decline in production, which the state currently supports by participating in the oil industry’s investment in exploration and development through tax credits."  

Tax credits are one time incentives.  They do nothing to provide long term investment climate stability and investor comfort, like a reliable, reasonable tax base would do.  What is discovered with subsidy may not be producible under a harsh tax regime.  We believe that is why the Administration has been so dedicated to reforming the predatory production tax.  Our readers may be a little perplexed that the Revenue Forecast did not say instead that the State's goal is: "...to stem and reverse production declines by continuing to provide incentive tax credits, and, more importantly, to seek reform of Alaska's uncompetitive suite of oil taxes, particulary the predatory and progressive production tax."  

Since focus on Alaska's unfriendly tax policy missed prominent mention in the Executive Summary, we wonder if tax reform will be a subject of discussion in this year's legislative session, or not.

What should Alaskans who own real estate or raise children in the State be paying attention to?  

For starters, citizens could carefully observe how decision makers resolve state tax revenue and spending policies, and restrictive Federal natural resource policies, as if our way of life depended on it.

-dh

Comment: Today, we are pleased to note Representative Charisse Millett's (NGP Photo-R) letter encouraging approval of the Keystone XL Pipeline.  Friday, we were pleased to note Senator Cathy Giessel's (NGP Photo-L) defense of Alaska's economy against continuing EPA aggression.

We continue to urge Governors, Members of all State Legislatures and all other elected officials to defend Alaska and the national economy against overreaching federal jurisdiction and unreasonable obstruction of energy projects that are the backbone of America's economy.  Our provincial brothers and sisters in Canada have a similar problem requiring similar actions.  -dh

Energy and Capital by Jeff Siegel.  After six long years and about $5 billion dollars, Shell's Arctic drilling program was once again temporarily thwarted.  That's not to say they won't be back next year...  They will. There's too much at stake at this point.  Still, it's not going to be easy. In fact, less than three months after a containment dome failed, causing yet another setback for the company, we're now getting word that it was much worse than initially reported.

Brad Keithley

Alaska Fiscal Policy| Hmm ... "According to Parnell’s office, the core of the plan involves proposed legislation which would permit up to $275 million in Alaska Industrial Development and Export Authority bonding authorization and loans. Parnell also wants to commit $50 million in general fund dollars to the projects, as well as $30 million in existing gas storage tax credits."

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Parnell Proposes $355M for North Slope LNG Plant, Fairbanks Links

www.ktuu.com

Gov. Sean Parnell took a major step toward making a proposed North Slope natural gas liquefaction plant a reality Friday, announcing a $355 million package to support its construction as well as an utility and a private-sector natural gas distribution system in the Fairbanks area.

CBC/AP.  It's a decision U.S. President Barack Obama put off during this year's election campaign, but now that he's won a second term, his next move on the proposed oil pipeline between Alberta and Texas may signal how he will deal with climate and energy issues in the four years ahead.  (Comment: Note the stacked, unused TransCanada pipe on the right, as Obama appeared in Cushing, Ok., during the campaign.  In the early 1970s Trans Alaska Pipeline System (TAPS) pipe rested for several years, stacked and waiting for Congressional authorization.  That authorization passed the Senate by one tie-breaking vote, cast by Vice President Agnew in 1973.  In this case, the Obama administration will make a political determination on future of the XL Pipeline after weighing the economic benefit it could bring a depressed economy against environmental pressures to stop the project.   Like the earlier Alaska case, the present pipeline decision will likely turn on one man's decision.   -dh) 

Hastings to Continue Service as Natural Resources Committee Chairman - On Tuesday, Congressman Doc Hastings (NGP Photo), arguably the most important member of the House of Representatives to Alaska, accepted the post of House Natural Resources Committee Chairman for the 113th Congress. Of particular importance to the Pacific Northwest, the Committee has jurisdiction over the Bonneville Power Administration, Bureau of Reclamation irrigation projects (including the Columbia Basin Project and the Yakima River Basin projects), endangered species policies, federal hydropower projects, Payment-In-Lieu-Of-Taxes (PILT) payments and firefighting on federal lands. Hastings began his service as the top Republican on the Committee in the 111th Congress prior to being selected Chairman of the House Natural Resources Committee for the 112th Congress.

ADN by Kyle Hopkins.  A mysterious blob of frozen soil, rocks and trees is creeping toward the Dalton Highway, threatening to block the haul road that serves as a lifeline for Alaska's oil and gas industry. It could happen as soon as end of the decade.   (Note:  We would also observe that when policy makers begin discussing the movement of a fleet of LNG truck tankers down the Dalton Highway from the Alaska North Slope to Fairbanks, the various traffic and road impacts have yet to be very well vetted.  -dh)

Huffington Post Canada/CP.  Joe Oliver pressed a room of business people in Vancouver on Wednesday to recognize their companies must play a key role in convincing the public their projects are advantageous not just to them, but to everyone.  He said future development of resources relies on public confidence, so business must make its case using messaging that is believable.

Decision Makers Should Listen to Keithley and Marks

Commentary by

Dave Harbour

Brad Keithley (NGP Photo-L) recently described in his blog, five recommended characteristics of oil tax reform.  We'll focus on the first one today.  He liberally quoted from the good works of Alaska oil and gas economist, Roger Marks (NGP Photo).  We commend the combined thinking of these analysts to our readers.  While both have put thought into the additional issues we raise below, we would repeat and rephrase them from our earlier editorial pieces, here and here.

*     *     *

If effective Alaska oil tax reform is to come, we believe it should have Keithley's first recommended characteristic of competitiveness, as further described by Marks.  But we also believe that decision makers should further discount Alaska's investment climate by quantifying to the extent it can be done, other critical yet often ignored liabilities of America's 49th State.  While oil and gas competing regimes may offer lower marginal rates, most are also located at tidewater, not needing 800 mile pipelines to move crude oil to a shipping point.  Most are located in temperate zones where climate related costs are lower.  Most are not as remote, providing lower costs of logistical support.  Most are closer to their markets, providing an array of lower costs.  Most competitors offer lower labor costs than Alaska.  Norway has a high government 'take' but offers much more regulatory, judicial and tax certainty (i.e. "A deal is a deal").  

Not to single him out, we once asked this of one of the State's oil and gas consultants: "Have your studies or others put much effort in discounting Alaska's investment climate based on proximity to markets, labor rates, climate, logistics and Alaska's track record of instability and unpredictability."  He said his own studies did not include that calculus and neither did he believe other studies devoted much if any attention to those cost factors.  "Do you think studies should include those factors," we asked.  He said, "Yes, I do."

We agree that for Alaska to be competitive it must quickly reform its oil tax/royalty burden.  That burden consists of the highly predatory ACES (i.e. Alaska's Clear and Equitable Share) production tax we address today, the State Oil & Gas Income Tax, the State Oil and Gas Property Tax and the Royalty payment.  That burden might reasonably be found somewhere in the median of tax/royalty burdens imposed by our competitors.  To the extent that decision makers maintain a tax/royalty regime that is higher than median will investment decisions be deflected to more competitive areas.  Alaska's rapid production decline and the years required to remobilize investment enthusiasm for Alaska require quick action.

One could logically argue that Alaska's tax/royalty burden should be further discounted to 'low median' based on the above factors and Alaska's track record as a producing province that, 1) changes the rules of the game after investments are made, and 2) is not the least bit embarrassed about doing so retroactively.

We finally suggest to the Administration and Legislature that while Alaska studied the effect of ACES (Alaska's 2007, retroactive production tax) hardly at all before putting it into effect, it has spent far too many years avoiding reform.  It has avoided decisive action by skillfully creating study after study to consider and further consider the infinite economic impacts that unexpectedly erupt when politicians seek to manipulate the private sector, too much.  

As tax reform delay continues, someday the window of opportunity for change will pass by and it will be too late.

Ref.  KPMG ACES Analysis; Governor's Review of the Effects of Depleting Production