Alaska editorial: Panning for fuel subsidy ideas for rural Alaskans

Posted: Sunday, February 08, 2009

Bethel Sen. Lyman Hoffman thinks the state should open its checkbook so Alaskans don't have to pay more than $3 a gallon for heating fuel during the heart of winter. This is a spectacularly bad idea.

It would be a blank check that invites widespread price gouging.

It would saddle the state with a horrendously expensive new program, just as low oil prices are wreaking havoc on state finances.

It will discourage investments in energy conservation.

In some communities, it would encourage people to cut back on heating with wood, a local, renewable fuel that is a hassle to use, and fire up their much more convenient oil stoves and furnaces.

It is a great example of how not to relieve the pain of high energy prices.

No question, there is an energy cost crisis in the Bush this winter. The need is real. Alaska's remote villages had to buy a winter's worth of fuel when prices spiked well past $100 a barrel.

The subsequent collapse in oil prices brings no relief to Bush Alaska. The state's $1,200 a person "resource rebate," handed out to every Alaskan this fall, has been a huge help, but Bush energy prices rose so high, the one-time payment hasn't quelled this year's crisis.

Sen. Hoffman's proposal is far more generous than the state's subsidy for home electricity use. That program, known as Power Cost Equalization, has much better cost controls and retains some incentives for energy conservation.

It is run through local electric utilities, many of which are subject to state regulation - oversight that protects against price gouging. And the electricity subsidies are not a blank check. The state aid covers 95 percent of the electricity price above a certain trigger level, with a price cap where the subsidy stops.

In other words, some subsidies are better designed than others.

Think about it this way. In Anchorage many people complain (with good reason) that the price of gasoline is too high, compared with the Lower 48. What do you think would happen at Anchorage gas stations if the state said OK, we'll pay 100 percent of the cost above, say, $2 a gallon?

Prices would shoot through the roof, people would burn more gasoline, and the state would be saddled with enormous new costs. Money would go flying out of the state treasury like it was bonus payment day on Wall Street.

Well the same thing will happen if the Legislature approves this disastrous subsidy for rural heating fuel.

This situation cries out for leadership from Gov. Sarah Palin. Rural Alaskans have been hit especially hard by this year's fuel price crisis, but she has yet to offer any meaningful extra help targeted to them. In that vacuum, desperate residents and their elected leaders turn to terrible ideas like capping fuel prices at $3 a gallon. Palin should get working on a more responsible alternative.

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