Wednesday's Drive By Shoutings

                  Quick thoughts about recent news...

One too many...again

Alaska is no stranger to the ills of alcohol. In fact we're at the top of the list in a number of the most costly and personally damaging health categories as they relate to substance abuse.

Half way into September's National Recovery Month, which promotes the societal benefits of treatment for substance use and mental disorders, we've seen another example of how the abuse of alcohol knows no boundaries.

Over the last few decades, Alaska's history is replete with examples of lawmakers being cited for DUI's or reckless public behavior while under the influence of alcohol. Most of these cases received significant news coverage due to the violators being those in a position of public trust who are tasked with solving the problem of substance abuse, not contributing to it.         

It's safe to say that the latest edition of "Public Policy Makers Gone Wild" has to be one for the books.

While on a government sponsored trip last month, Steve Menard, a Wasilla City Councilman, destroyed a Sitka hotel room after a drunken binge. What is so shocking about his escapade is the amount of destruction he was able to accomplish in such a small space.

Anybody who has stayed at the Westmark Hotel in Sitka knows the rooms are fairly small. So how in the world did Menard manage to destroy most of the room by primarily refusing to use an ash tray and the bathroom? In comparison, the destruction done during Menard's drunken stupor in Sitka, made the classic 1970's fraternity movie "Animal House" look more like the "Teletubbies." 

He is now facing a potential recall effort by his constituents.

The sheer amount of senseless damage and his personal history of past problems with alcohol shows Menard needs serious professional treatment. Let's hope he gets it quick.

Do as I say, not as I do...

Every year the public can count on at least one news story making the rounds; reports of state lawmakers taking trips on the public's dime.

This year is no different as a recent article in the Anchorage Daily News highlighted the travel patterns of state lawmakers. What is surprising though, is that two lawmakers who attended a conference in New Orleans last month seemed to have maybe, possibly, found religion, albeit too little too late.

Both State Senator Fred Dyson (R-Eagle River) and State Representative Wes Keller (R-Wasilla) attended a conference sponsored by an organization that promotes private sector solutions to public policy issues.

After the conference, Sen. Dyson returned home to pen an op/ed in the ADN about how the private sector is best suited to address Alaska's long term energy needs. 

"State government should not hamper private-sector solutions, and we should have all options objectively analyzed by competent consultants to advise us on the best long-term solution with a rigorous selection process," Dyson wrote in his August 13 opinion piece.

Wow, this is quite a reversal from a guy who not only strongly supported AGIA, the state's most heavy handed attempt by government to strong arm the private sector ever, but also supported the largest tax increase on the private sector in the state's history just a few months later.

On April 5, 2007 here is what Dyson said about state government's attempt to force Alaska's oil & gas industry to roll over and build a $40 billion natural gas pipeline, regardless of economics.

"I think what the governor has put forth is near genius," said Dyson, R-Eagle River. "I don't believe that the majors are going to be able to face their stockholders and say we walked away from being able to book $8.6 or $8.7 billion of oil equivalency and get away with it."

Near genius?

Today Alaska is stuck knee deep with AGIA, all due to the support of lawmakers like Dyson who blindly backed state government's attempt to radically overreach into the private sector.  

In fact both Dyson and his travel partner Keller supported AGIA despite the overwhelming evidence that government dictates would never work. Four years later they're singing the praises of the private sectors critical importance in making energy projects viable in Alaska. 

Who knew that New Orleans, a town best known for the French Quarter and Mardi Gras, would help Dyson find religion. Normally I'd say better late than never, but the damage has already been done.

Pipelines, pressed sheets and prayers

A small but important news story concerning Alaska's energy future, was published in the Fairbanks Daily News Miner last month. The article received little or no attention from the Anchorage press.

In the Associated Press story dated August 24, Becky Bohrer writes about how Governor Sean Parnell is frustrated at the lack of progress on getting Alaska's natural gas to market. 

His patience waning, Parnell has called for the different pipeline projects to merge. Not to be Donnie Downer, but how do you merge all of the projects together when none of them currently make economic sense?

The governor's suggestion reminds me of the old business model that's been tried unsuccessfully by so many; I'll lose money every transaction, but I'll make it up in volume.

In the AP article, the governor said his message to the oil & gas industry is clear; Alaskans want their gas developed and moved to market.

Certainly there is enough history on this issue to compare the governor with Messrs. Dyson and Keller on the hypocrisy scale. In 2007 when lawmakers tripped over themselves to approve AGIA, Parnell helped make the bed as Lt. Governor, he is now forced to sleep in as Governor.

He endorsed AGIA, he defended AGIA and he assured Alaskans this was the only way to get Alaska's gas to market. Then he tried to frame AGIA as the solution that would turn the private sector loose to get Alaska's gas to market.

In an April 30, 2007 op/ed promoting the benefits of AGIA in the Juneau Empire, Parnell wrote, "Government doesn't make private sector projects happen, the private sector does."

While on the surface his comments sound eminently reasonable, one has to ask; why did Parnell's government attempt to force a $40 billion private sector project into being, with strong arm tactics on the private sector including flawed economic analysis and baseless threats of litigation?

The answer is why four years later, Parnell is having trouble sleeping in the bed he made for himself and Alaska's energy future.

However, much to his credit, the governor was right about one thing; the private sector does make private sector projects happen. The only thing government can make happen is permitting and taxes.

Reading between the lines...

Mark Twain once lamented the average man is destitute of independence of opinion. He is not interested in contriving an opinion of his own, by study and reflection, but is only anxious to find out what his neighbor's opinion is and slavishly adopt it."

In today's debate over Alaska's energy future, the lack of critical thinking and robust questioning is doing more damage to progress than ever before.

Last month, All-Alaska gasline supporter and former GOP gubernatorial candidate Bill Walker, once again appeared on the editorial pages promoting the economic viability of a gas pipeline to Valdez.

Walker was hanging his hat on a recent study conducted by the highly respected firm of Wood MacKenzie that analyzed the potential for an LNG line to Valdez with an export component.

Almost instantly, loyal LNG line supporters from Anchorage to Fairbanks began slavishly adopting Walker's thumb nail sketch of the report, without studying and reflecting on the major caveats that the report admittedly failed to examine.

First, the generous revenue stream to the state's treasury outlined in the report is based on the current production tax rate that "starts at" 25% along with the state's 12.5% royalty share. These numbers are pure fiction.

Back in 2007, during the legislative debates over AGIA, Commissioner of Revenue Pat Galvin (no friend of the oil & gas industry) testified in committee that the state's current gas tax rate was too high and not competitive.

“Our level of confidence in the current tax rate is relatively low,” Galvin told lawmakers. And just a quick reminder; Galvin made that comment when the gas production tax was only 22.5%. Months later under ACES, the legislature raised the gas tax rate to 25%.

So if there was a recognition that 22.5% was too high at a time when market gas prices were double what they are today, Wood MacKenzie's revenue assumptions based on a state take rate of 25% going forward, aren't credible.

Second, as Wood MacKenzie clearly points out -twice I might add -  there are critical variables in play that were not factored into their final conclusions. "While we do not address them, there are a number of commercial challenges associated with all liquefaction projects," they write.

The report goes on to say "economics are important, but commercial issues such as the scale of the value chain requirements (pipes, storage, etc.), buyer risk tolerance, financing arrangements, etc. are critical."

The takeaway is that Wood MacKenzie's report highlights the upsides of the proposed LNG line, which supporters are parroting, but fails to highlight - in their own words - the "critical" commercial issues.

Ignoring critical commercial issues? Sounds like AGIA 2.0

Valdez: The hospitable host?
 

As long as people have been talking about an in-state natural gas pipeline, there has been a widely accepted assumption that Valdez would be the terminus of such a pipeline.

Hold that thought.

While today's proponents of the All-Alaska line cite Valdez as the heir apparent destination, some of the folks who would guarantee the financing, if such a line was built, might be saying not so fast.

The historical relationship between the City of Valdez and the oil industry surrounding the existing TAPS facility and its operations have been less than cordial.

Not only has the city consistently appealed for higher property taxes on the current oil pipeline infrastructure, but in 2000 they passed a tax on oil tankers arriving and departing from the Valdez port to help pay for the cost of local government. It took seven years and millions in legal fees before the United States Supreme Court ruled the tax was unconstitutional.

Memories are long and they're not very fond in many cases.

If such a pipeline is ever built, don't be so sure the more likely terminus won't be Nikiski.    

The age old jobs debate

The legislative hearing last week regarding hiring practices on Alaska's North Slope by the oil & gas industry, provided some insight as well as raised some questions about what has been a thirty year debate.

Lawmakers quizzed the major oil producers about what their companies are doing to hire more Alaskans. According to statistics from the Department of Labor and Work Force Development (DOLWD), roughly 30% of employees on the slope are non-residents.

Lets put this number into perspective; 7 out of 10 employees in Alaska's oil & gas industry -one the state's highest paid industries - are Alaskans.

Even so, producers listed a litany of Alaska training programs they are currently supporting and touted their efforts to encourage sub-contractors to hire Alaskans. BP's Claire Fitzpatrick testified that her company was looking at unbundling work contracts to possibly provide more opportunities to Alaskans, including an ongoing dialog with local unions.

Some critics of the industry are quick to propose passing legislation to limit out of state hire (unconstitutional) or charge out of state workers an income tax (also unconstitutional) or to adopt a state income tax to garner a contribution from non-residents. Talk about cutting your nose off to spite your face.

If an income tax were levied, only ten percent of the revenue would come from non-resident workers. Sorry, but the majority of non-resident workers drive tour buses, clean rooms and serve burgers and brews.

There are a couple of important factors to point out in this debate.

Historically, the percentage of non-resident workers has ranged from twenty six to thirty percent over the last decade. Not a huge swing, especially considering the increase in the skilled labor pool nationwide due to the economy. Couple the increased availability of skilled industry workers and attractive wages due to the harsh climate of Prudhoe Bay, with the lack of skilled workers in Alaska and you have a recipe for non-resident workers.

Scott Woodham at the Alaska Dispatch put it succinctly in his recent column on the issue. "It has always been this way when it comes to major industry in Alaska. There simply aren't enough people in the state to satisfy big labor needs," he wrote.

What is interesting is according to the 2009 DOLWD statistics, the 30% non-resident hire figure would put the oil & gas industry twelfth as a percentage of hiring non-Alaskans. This would put them behind such industries as seafood processing and tourism.

Even State Senator Cathy Giesel (R-Anchorage) pointed out that 24% of some of the highest paid positions employed by the Alaska Marine Highway System (state employees) are out of staters. 

The debate is dominated by a lot of anecdotes and incorrect assumptions.

During testimony, local labor leader Vince Beltrami asserted that the number of out of state residents was so great that a concessionaire at the Anchorage International Airport opened up a lounge for oil & gas industry commuters. Not true. The respite lounge is designed for all travelers and families who want a quiet place, away from the crowds.   

Later during his testimony he questioned BP's explanation that some out of state hires are necessary due to the complexity of the work they provide. When I hear they're hiring outsiders to do seal coating on the pipeline I think what's the big deal, it's painting, Beltrami said.

Yeah...why didn't they think of that? Instead of paying a premium for a team of specialist who travel the world doing this complex task, why don't the producers just hire a bunch of locals to slap on some Benjamin Moore?

What is the most mind bending about the recent iteration of this discussion is that the State of Alaska is raking in the cash from high oil prices generated by some of the highest marginal tax rates in the world. Now they raise questions about a small fraction of the workforce hired by an industry that pays 90% of the state's budget? 

Please indulge this writer for a moment as he amends the words of Col. Nathan Jessup from the movie "A Few Good Men."

"I have neither the time nor the inclination to explain myself to the people who rise and sleep under the blanket of economic freedom that I provide and then question the manner in which I provide it. I would rather you just said "thank you" and went on your way."

Expiration date cometh

Over three years into the state's expensive and futile attempt to prop up the Valley Creamery, the state has now jumped in with both feet.

Last month during the Board of Agriculture meeting, the board awarded $500,000 to local dairy farmers Bob & Jean Havemeister to start their own dairy. Their daughter, Franci Havemeister, is the Director of Agriculture.

This will take supply away from the Valley Creamery and will almost certainly spell the end of the ill fated dairy which is almost one million dollars in debt to the state, and has yet to repay any of its loans from the last three years.

The Valley Creamery has received a number extensions and loan restructuring over the years and it was just a matter of time before old fashion economics caught up with them. However, while it appears the end is near for the Valley Creamery, the state has simply exchanged one financial black hole for another.