JUNEAU — State administrators will not leave diesel-dependent communities like Fairbanks behind as they implement energy policy amid high prices, Gov. Sean Parnell said Wednesday.

The governor said his administration takes a big-picture approach toward application of legislative energy directives. It looks at statewide needs, he said, as it administers policy in a jurisdiction with significant geographic disparities in energy supplies and costs.

A sustained spike in oil prices this year has aggravated that disparity, increasing the cost of living in Interior and rural Alaska faster than in southcentral Alaska. Fairbanks mayors have suggested the situation cripples any chance at economic development.

But Parnell told the Daily News-Miner he and the Legislature are sticking to the same comprehensive approach toward energy costs that he proposed this winter, when he released tentative annual spending plans. That budget included an energy-specific package that lawmakers more than doubled in size, to more than $400 million, as energy prices grew during the legislative session.

Parnell suggested the expansion could mean budget vetoes in the coming weeks. But he said he’s not forgetting parts of the state are facing the prospect of high, sustained energy costs.

“It’s a priority for this administration,” he said of addressing those high costs.

Most of the state’s population powers its homes and businesses with Cook Inlet natural gas. Those prices have held relatively constant through the roller-coaster ride experienced by oil prices, a ride that has seen North Slope crude hold well above $100 per barrel for almost three straight months. Heating fuel, at roughly $4 per gallon in Fairbanks, is around 60 percent more expensive than it was five years ago. Compare that to retail natural gas in Anchorage, which, according to Enstar, will fall beneath $6 (per thousand cubic feet) in July. It averaged just more than $5 in 2006. 

Compounding that difference is the length of Interior winters. Rural Alaska, also heavily dependent on diesel, experiences even higher fuel prices, sometimes twice as high as in Fairbanks.

Natural gas

Parnell said he sees near-term options for the Interior, among them the prospect of an intrastate natural gas pipeline. A team of state officials is almost done with its review of that proposal, and Parnell said he used an early-May trip to Texas to urge executives at Anadarko Petroleum Corp. to invest in exploration and development in the oil- and gas-rich Alaska Range foothills.

Those hills include the nearby Gubik natural gas fields. Development could significantly help the prospects for a so-called “bullet” natural gas pipeline. That line, as envisioned, would connect northern Alaska natural gas fields — including “clean” gas from Gubik that would need little to no conditioning and could therefore mean low delivery costs — to central Alaska’s road system.

Parnell said he also supports the Legislature’s decision to quarantine $200 million in government savings to help build such a pipeline.

“I think that gas is a shorter-term solution for the Interior,” he said.

Municipal leaders in Fairbanks have pushed for more state help. Estimates suggest space heating represents two-thirds of the average Fairbanks business’ or household’s total energy costs, and local mayors and assembly members have lobbied for state assistance on a number of fronts. In 2008, borough officials said apparent inequities in implementation of state energy policy between Anchorage and Fairbanks could justify a court challenge. Last year, the Borough Assembly said it would fight any intrastate gas pipeline that doesn’t pass through Fairbanks.

But Parnell said his administration is calling things fairly. He said the Legislature’s huge comprehensive energy package — with money for new hydroelectric projects, village wind turbines, energy-efficiency subsidies, a Healy wind farm and a natural gas study for Fairbanks — might be far bigger than his proposal. But he said it includes many of the same ingredients he pitched this winter.

“I proposed a comprehensive energy package,” he said. “The Legislature greatly enhanced that as well, and I’ve got some decisions to make, obviously, with the budget.”

Regional planning

Parnell also pointed to his January call for lower and simpler oil taxes, aimed at expanding oil production, as another step toward addressing energy costs. He said it’s relevant to requests for more attention to supply-side policy options. 

Parnell has sought a rewrite of and cut to state oil taxes and has asked the state’s congressional delegation to make increased production in Alaska — up to one million barrels per day through the trans-Alaska oil pipeline within 10 years — a formal national policy.

He said more oil production means, even without a tax change, more “royalty” share for the state, which then expands options as public officials consider alternatives.

As for those options, Parnell said the Alaska Energy Authority would take the lead role and a long-term view in implementing state energy policy. He said the agency is preparing to distribute a fourth round of renewable energy program grants. He also said he expects region-by-region integrated energy planning to cross the state, suggesting a dose of patience is justified as that work advances.

“We’re not going to drive something top down for a region that does not have community support,” he said. 

Parnell said a number of smaller initiatives are needed to help lower long-term energy costs in the Interior and rural parts of the state.

“Is there a silver bullet that’s going to solve Fairbanks energy woes in the next two weeks? The answer is no. Can we deal with it in the mid-term and long-term? Absolutely, yes,” he said.

Contact staff writer Christopher Eshleman at 459-7582.