Providing coverage of Alaska and northern Canada's oil and gas industry
May 2008

Vol. 13, No. 20 Week of May 18, 2008

Palin unveils $1.2B energy plan, $1,200 debit cards for Alaskans

Combining direct grants to utilities with subsidies for every Alaskan, Gov. Sarah Palin unveiled a $1.2 billion one-year plan on May 15 designed to use an unexpected budget surplus to offset sharp increases to the cost of energy around the state.

The plan calls for issuing $475 million to utilities across the state with the goal of seeing a 60 percent reduction in costs for consumers, businesses, schools and government buildings, while also rewarding utilities for reducing customer demand.

Next, the plan would issue $729 million in debit cards to every Alaskan to be used exclusively for energy-related products like gasoline, fuel oil, natural gas and electricity. The card would go to every qualifying permanent fund dividend applicant, including children, and would provide $100 per month for one year.

Insisting the plan is not an entitlement, Palin said the proposal would address a “crisis” in the state and serve as a bridge to broader and longer-term state efforts to lower energy costs in Alaska currently under way through the new energy coordinator position, as well as efforts to build a natural gas pipeline from the North Slope.

Palin said her staff considered many proposals, but looked for ways to minimize how much the federal government could collect through taxes. While the state believes the grants to utilities will not be taxable, the energy debit cards would be considered taxable income by the federal government.

High prices causing budget surplus

The need for the plan and the way the state expects to pay for it comes from the same place: the rising cost of the barrel of oil.

“We have the opportunity to return some of that surplus back to the people, the owners of the non-renewable resources that are making so much money for the state,” Palin said.

Because the fiscal year 2009 budget is based on oil prices in the high $80 range, the state is facing an unprecedented surplus over the coming year. The delivered price of Alaska North Slope crude oil closed at $124.12 on May 15.

Even if the price falls over the coming year to the levels projected in the budget, the state will bring in $2.7 billion more than originally forecasted, according to Revenue Commissioner Pat Galvin.

Applying crude oil futures prices on the New York Mercantile Exchange to state production would mean a $1.8 billion surplus for the state over just the first quarter of the year, Galvin said.

At the same time, energy costs have increased for Alaskan households between 2.5 and 10 percentage points over just the past seven months, depending on the region, according to figures from the Alaska Energy Authority.

Plan would likely require second special session

Funding for the plan would come from the unrestricted revenue of the general fund, and would therefore require legislative approval.

Palin said the energy plan could be rolled into the upcoming special session scheduled to begin June 3 in Juneau, but only if it did not “bog down consideration” of the natural gas pipeline discussion, the primary focus of the session.

Otherwise, lawmakers would meet in another special session.

During the regular session earlier in the year, lawmakers considered a proposal to give every Alaskan $500 to help offset rising energy costs, but the bill did not pass. However, lawmakers did approve public financing for weatherization and conservation grants, as well as energy subsidies for low-income households.

— Eric Lidji

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