My pastor once told me, “There is no right way to do a wrong thing.” Right now, the Alaska Legislature is doing a wrong thing. We are putting at risk the energy our kids and grandkids will need to stay here. If we can’t provide reliable heat and power, young families will move somewhere that can.

It doesn’t much matter why legislators are doing it. Some don’t like the governor. Fine. But do they dislike Alaska’s young families too? Some think Hilcorp should pay more taxes. Great. Bring that bill next session. Some want a better deal for their community. Also, great. Have that fight before final investment decision. Just don’t kill an energy project, in the middle of an energy crisis, to settle arguments that can wait.

I sat in the Anchorage Legislative Information Office on August 6 and listened to more than two hours of testimony before the Gasline Caucus. Fully one third of the entire Legislature was in the room or on the line. Hundreds of Alaskans were watching. Here is what we heard.

John Sims runs ENSTAR Natural Gas. He told us that if Cook Inlet deliveries keep coming at the rate ENSTAR is getting them now, the utility will be three billion cubic feet (BCF) short this winter. Then he put it in plain English. The loss of three BCF means there will be 18 winter days when ENSTAR cannot serve its customers. If deliveries improve to what was originally promised, the shortage drops to about one BCF. Six days, in normal weather.

Listen to Mr. Sims’ testimony here.

Sims knows people will call this fear mongering. But ENSTAR is one of the only parties in this whole debate with a legal duty to serve. Producers can decide not to drill. Investors can put their money in Texas. Legislators can go home. ENSTAR still has to find the gas.

What bothered me most was his plan for this winter. They are hoping for an El Niño (warmer winter). He didn’t dodge it. “Right now, we are hoping for an El Niño. That is the situation we’re in.”

I do not believe hope is a great business strategy for an Alaska utility where heat and electricity equal survival.

Sims also told us there is $6.9 billion in planned federal investment at JBER. Someone from that base came to ENSTAR about gas for a new 60,000-square-foot building. Sims’ answer was short: “I don’t have gas for them.”

Seems we have reached the point where Alaska can’t fuel new construction at one of the most strategic military bases in the country, so I have to ask:

What in the hell are we doing?

Tony Izzo, CEO of Matanuska Electric Association, explained how we got here. MEA serves about 150,000 Alaskans and burns roughly six BCF of gas a year to make 85 percent of its power. ENSTAR’s possible shortage is half of MEA’s annual supply. Izzo has 46 years in this business, and he watched Alaska build this problem with its own hands.

Listen to Mr. Izzo’s testimony here.

In 1999, Cook Inlet gas sold for about 25 cents. MEA pays around $9 today, and that’s a good price. The pattern is always the same. We invite investment, then we change the rules.

Utilities once fought LNG exports to save Cook Inlet gas for Alaskans. They lost, and then they were denied recovery of their legal costs. Later, Marathon signed a long-term contract with ENSTAR tied to Henry Hub prices. State officials objected. In 2006 the Regulatory Commission killed it on a 3-2 vote. Marathon, Conoco and another producer told Izzo that Alaska was closed for business and they were leaving.

They left.

The Legislature saw the damage and passed the Cook Inlet Recovery Act. It worked. Izzo counted 19 new companies coming into the basin. Utilities were signing 10-year contracts for gas at about $5.

They were literally signing those contracts when the phone rang. It was ING, the lender, saying goodbye. Governor Bill Walker had just line-item vetoed $200 million of the state’s $700 million obligation for those tax credits. The credits were still written in law. The money simply wasn’t going to come. Banks had lent against those credits because the state had paid them in full every single year. Walker vetoed another $430 million the next year. Two vetoes that arguably did more to create the situation we are in than anything else.

Izzo says he can’t recall a single one of those 19 companies still being here.

Sims previously told us that that Hilcorp came in afterward and spent about $1.5 billion drilling 192 wells. Now, in the middle of a shortage, some legislators want to reopen Hilcorp’s taxes inside the gasline bill. Izzo asked the obvious question: “Who created the situation that required an S-corp to come in and bail us out? We did.”

Yes, there is still gas under Cook Inlet. Izzo knows it better than anyone. He helped commission a Department of Energy study years ago that confirmed trillions of cubic feet. But gas in the ground doesn’t heat a house. “If I can’t get it under contract, it might as well not exist.” There is no X on a map where a utility goes to pick up the gas it needs.

Renewables are part of the answer. MEA is already about 15% renewable and wants more. But the Bradley Lake expansion, one of the few big projects actually moving, offsets about 1.5 BCF against roughly 70 BCF of Cook Inlet demand. Izzo said that even if MEA somehow hit 80% renewable, it would still need about three BCF of gas every year. Wind and solar save fuel when they’re running. But there are no renewable projects under development right now. And, in any case, they can’t keep the lights on during a windless January night at 40 below.

MEA has firm gas under contract for two years and seven months. That’s it. Izzo summed the whole thing up in one line: “What’s the enemy of energy security? Uncertainty is.”

Uncertainty is exactly what we produce in Juneau.

Rebecca Logan of The Alliance represents 575 companies employing about 35,000 Alaskans. Roughly 500 businesses and individuals have signed on in support of AK LNG, and more than 300 left comments – 300!

Listen to Ms. Logan’s testimony here.

She pointed out that while legislators argued over whether a resolution should say the project “will create jobs” or “may create jobs,” Wells Fargo put $250,000 into the Fairbanks pipeline training center to train the people who would build it.

Logan urged legislators to talk to the Alaskans who work in business development. She said the message they keep hearing from investors is the same one: We are going to wait and see what your Legislature does.

Capital doesn’t have to come here. Investors have choices, and they are watching to see whether the rules we agree to today are still the rules tomorrow.

Matt Kissinger of AGDC answered the question I hear most often. Why not build a smaller pipeline?

Listen to Mr. Kissinger’s testimony here.

Because only about 10 percent of the pipeline’s cost is the pipe itself. The rest is moving dirt, equipment, people and pipe across Alaska. Shrinking the phase one pipe saves far less than people assume. What it does cut is export volume, and export volume is exactly what spreads the cost across more gas and brings the price down for Alaskans. The 42-inch line is sized to serve Alaska and export markets both, and it is already permitted.

The alternative is importing LNG. Kissinger said imported LNG is already north of $20 before you ship it and turn it back into gas, which adds about $7 more. That price moves with every war and shipping crisis on earth.

Then there’s the billion dollars in property taxes we’re supposedly giving away. We aren’t. Under the current structure the project could owe roughly another billion a year, but as Kissinger put it: “There is no billion, because the pipeline just doesn’t get built unless we get these barriers out of the way.”

You cannot tax a project that doesn’t exist. A billion a year from a pipeline nobody will finance is zero dollars a year. Ten percent of something still beats a hundred percent of nothing.

Adam Prestidge of Glenfarne told the caucus the property tax bill was on the one-yard line. Today, in my opinion, it’s close to dead.

The other side of the argument is this: If we lock in a tax structure now and the project still falls apart, we gave up leverage and got nothing for it. That’s a real risk, and the people making that argument aren’t fools.

I just don’t think it’s the bigger risk. ENSTAR may be 18 days short this winter. MEA has two years and seven months of firm gas. JBER is being told we don’t have any. Investors are waiting to see what we do. Do we really want to put our children, and their children, in the same situation we are in?

A shortage doesn’t wait for a better deal.

This bill isn’t a subsidy or a giveaway. It restructures the tax on a permitted project, so private investors have a reason to finance it. Want to change Hilcorp’s taxes? Bring the bill next session. Want a different revenue split for your community? Have that discussion before final investment decision. Want to fight the governor? There will be plenty of chances. None of that requires using Alaska’s energy future as the weapon.

My pastor was right. There is no right way to do a wrong thing. Killing a project that could give us generations of energy security, while the utilities responsible for keeping Alaskans warm are telling us they’re running out of gas, is the wrong thing.

The wrong thing doesn’t become right just because we had a good reason.

The views expressed here are those of the author.

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