Fairbanks accuses state of favoring Anchorage in sale

Mayor says Alaska failed to solicit best price for royalty gas

Posted: Sunday, July 06, 2008

FAIRBANKS - The Fairbanks North Star Borough could pursue legal action against the state for failing to solicit the best possible price for Cook Inlet royalty gas - a situation that borough Mayor Jim Whitaker claims favors Anchorage-area residents and could even be unconstitutional.

In a letter sent late Thursday to Attorney General Talis Colberg, Whitaker threatened future legal action unless the government is more equitable in addressing the energy needs of the entire state. Copies were sent to Gov. Sarah Palin, Department of Natural Resources Commissioner Tom Irwin, Department of Revenue Commissioner Patrick Galvin and state legislators.

Whitaker said Friday that the letter is not intended as a threat but as a response to actions the state has already taken. In it, he alleges the state has acted unconstitutionally by interfering in natural gas tariff and export issues in a manner that keeps prices low for Anchorage-area users. In contrast, state officials have repeatedly driven home the point that the state requires them to get the most revenue it can from Alaska's oil.

Any position the state takes that keeps rates lower for Anchorage-area residents could be considered unconstitutional, Whitaker claimed, because it favors one part of the state over another and neglects to elicit the best price possible for state minerals.

"Fairbanks residents are distinctly disadvantaged by the state's approach to Cook Inlet gas," the letter states. Unless that situation changes, Whitaker said, the borough will pursue legal remedies such as intervening in regulatory and export cases, challenging state positions as unconstitutional and more, all designed to maximize the state's financial return on royalty Cook Inlet gas.

Whitaker said that as an alternative to legal action, the borough would consider mitigation of the unfair practices through the establishment of a $20 billion fund to pay for alternative energy projects across Alaska, including the coal/biomass-to-liquids facility proposed by the borough and the Fairbanks Economic Development Corp. The facility would be located near Eielson Air Force Base.

The governor's office announced late Thursday afternoon that Palin would make an announcement about in-state natural gas at 1 p.m. Monday.

The governor's spokeswoman was unavailable for comment on Friday due to the holiday.

Whitaker said he can do little about the state's royalty gas prices but that he can "insist that we be treated the same as other communities." He said Fairbanks will draw partners from the bush and Southeast in the call for equitable energy solutions. All the state needs to agree to, he said, is to establish a fund from budget surpluses that every community in Alaska could access equally.

"It mitigates the damage we think is inherent in an unconstitutional policy," Whitaker said.

Whitaker and House Speaker John Harris, R-Valdez, recently announced a proposal that would add billions to a $250 million renewable energy fund lawmakers have promised. Also under their plan, projects involving synthetic fuels made from coal, biomass and natural gas would become eligible for funding.

The proposed Fairbanks plant would make liquid fuels from coal and biomass, Whitaker said. Construction costs could range from $500 million to $2 billion. Whitaker said he would only ask the state for an initial investment of around $150 million to get the project off the ground.

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