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Good gas offer: Parnell's proposal offers a solid start

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Posted: Sunday, December 23, 2012 12:00 am | Updated: 4:15 pm, Fri Jan 25, 2013.

Fairbanks Daily News-Miner editorial

Gov. Sean Parnell’s proposed state grant for a natural gas system fell short of what some in Fairbanks were seeking, but the governor’s overall package still represents a potentially transformative contribution.

The combination of a $50 million grant and $275 million in low-interest loans in the governor’s proposal would put us firmly on the path toward cutting heating costs almost in half in the Interior by using gas trucked from the North Slope.

Clearly, if the state were to pay cash for a natural gas system, the cost to customers would be less by some percentage. Any system costs not covered by a cash grant from the state will have to be paid from customers’ monthly gas bills.

Of course, if the state of Alaska had unlimited money, it could pay everyone’s heating bills. Back here in reality, the governor doesn’t have bags of surplus cash to throw around. In that fiscal context, a $50 million state grant is a substantial commitment from the governor. It comes on top of at least $30 million the Legislature approved last year for gas storage tanks, an offer that is often described as a “tax credit” but in effect is a standing grant offer to those who would build such tanks.

If legislators approve the $50 million, or some other figure, we’ll have to decide what part of the gas system gets most or all of money. Finding the answer will take some detailed review, because it’s complicated and there is disagreement among informed observers.

Officials in the Parnell administration lean toward putting most of the money into a North Slope gas liquefaction plant. They see that as the place where the money could reduce gas customer costs the most. It’s also where they see the potential statewide benefits exist to justify a state expenditure.

They argue that the alternative — spending the $50 million cash on pipes in the ground for Fairbanks — wouldn’t have as much effect on customer rates. That’s because they expect any loans to build the local distribution pipes could be paid off on a much longer schedule than any loans for the North Slope plant.

However, advocates of greater state help for Fairbanks area aren’t convinced. They don’t think the pay-off period for the North Slope plant has to be significantly shorter than that for the local distribution system. And, given the cost uncertainties involved with a local distribution system, using grant money in the Fairbanks area could be needed to dramatically lower gas prices here.

This debate needs more exploration as the Legislature digs into the governor’s plan during the next few months.

In addition, we still could use more hard facts about whether a private company or the new municipal utility could offer the lowest-cost local distribution system.

If Interior legislators can boost the governor’s proposed $50 million grant during the coming legislative session, obviously the economic benefits of bringing North Slope gas to Fairbanks and other communities could be even greater. But we must be realistic about the state budget’s capacity and recognize that, even without an increase in that grant, Fairbanks and the rest of Alaska stand to gain greatly under the governor’s proposal.

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