The Weekly Top 3
The Weekly Top 3
The Weekly Top 3 (11.24.2025)
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Welcome to The Weekly Top 3 — our look at the top 3 things on our mind here at Alaskans for Sustainable Budgets — for the week of November 24, 2025.
This week, our top 3 issues are these: 1) we catch up on some recent developments affecting the Cook Inlet gas market (2:00), 2) we catch up also on some recent developments related to North Slope oil (21:54), and 3) we explain the fatal disconnect which undermines what many think is Alaska’s “trickle down” economy — GDP growth followed by household income growth (38:39).
The Weekly Top 3 is a regular weekly segment on The Michael Dukes Show. The Show broadcasts on Facebook and YouTubeLive as well as via streaming audio from the Show’s website weekdays from 6–8am. We join Michael weekly in the first hour of Tuesday’s show, from 6:25–7am, for a discussion between the two of us about our three issues.
Hi, this is Brad Keithley, Managing Director of Alaskans for Sustainable Budgets. Welcome to the Weekly Top Three, the Top Three Things on Our Mind here at Alaskans for Sustainable Budgets for the week of November 24th, 2025. The Weekly Top Three is a regular segment on the Michael Duke Show. The show broadcasts on both Facebook Live and YouTube Live, as well as via streaming audio from the show's website weekdays from 6 to 8 a.m. I join Michael weekly in the first hour of Tuesday show from 6.10 to 7 a.m. for a discussion between the two of us about our three issues. We post the podcast of our discussion following the show on the Alaskans for Sustainable Budgets Facebook, YouTube, SoundCloud, Spotify, and Substack pages. Also on the Alaskans for Sustainable Budgets website, as well as the projects page on national blog site, medium.com. You can find past episodes of the weekly top three also at the same locations. Keep in mind that in addition to these podcasts, during the week, you can also follow and participate in the discussion with us of these and other issues affecting Alaska's fiscal and economic condition by following us on the Alaskans for Sustainable Budgets Facebook page and through our posts on Twitter. This week, our top three issues are these. First, we catch up on some recent developments affecting the Cook Inlet gas market. Second, we catch up on some recent developments related to North Slope oil. And third, we explain the fatal disconnect in what many think is Alaska's trickle-down economy. GDP growth followed by household income growth. It's not happening. And now let's join Michael.
SPEAKER_01:Let's get started here because this is this is some interesting stuff. I'm um was doing some of the reading last night and this morning, and um this whole gas thing is uh is just fascinating. The AKLNG project is worming its way into just about every aspect of our lives, whether we want it to or not. So let's catch up on uh LNG, Cook Inlet LNG, and uh give me give me your thoughts on what's what's going on here.
SPEAKER_02:Well, there's there's two aspects of cookinglet LNG. One is uh the LNG importation, the importation of LNG to fill the gap, the coming gap in uh uh traditional production from Cook Inlet gas supplies, and then the and then the the big line uh coming down from the North Slope. That's another that's referred to as Alaska LNG, that's another LNG aspect. So let's let's break them up into the two. The Cook Inlet LNG, the Cook Inlet LNG, which I think everybody, the the importation of LNG into Cook Inlet, which I think everybody, uh, I don't see any dissents from that anymore. Uh everybody has accepted as going to be some uh there's there's going to be importation of LNG at least for some period, if not for uh if not becoming a normal routine part of the cookinglet over time, um has has taken on some some fascinate fascinating pieces here in the past, in the past little bit. You can see it coming, but it's sort of coalescing into this into this interesting uh situation we have. There are two, notwithstanding the fact we don't need a lot for a fairly long period, because we still have cook inlet production, we will still have native cook inlet production uh uh for a fairly prolonged period. Notwithstanding we don't need a lot, we have two um uh cook inlet LNG importation projects. One is uh a collaboration, a uh uh a greenfield collaboration between NSTAR and Glenfarn to build a new LNG, a brand new spanking LNG importation plant, um uh at the location where the LNG export plant would be ultimately if the big line is built. Um and that is is something that's been championed and is and is and is underway as a collaboration between NSTAR and uh uh and Glenfarn. Um and then there's the second one is one that I've talked about since we started going down this hole of having a gap in cooking and supplies. The second one is the acquisition by Hillcorp of the old Kenai LNG facility, the old Conico Phillips, Phillips back in the day, uh LNG export facility to to use as a turner to turn it around and use as an import facility. And and that uh uh that was historically run by Phillips back in the day to use as an export facility. And then as we started hitting the the limits of cookinglet production, they shut that down. Um, and now it's been acquired by Hill Corp. It was owned by Marathon acquired it. Marathon, who owns the refinery next door, acquired it uh to use it uh for to import LNG for its own uses uh as a fuel at the plant, but never really did that. And so they have now sold it to Hillcorp to be turned into an importation, uh, an LNG import plant uh at some expense because you know you just don't flip a switch and it turns around. You got to make substantial investments, plus it's been shut down for a while uh to uh turn it into uh to an LNG import facility. And those are both proceeding apace. Um I think it's the general consensus. I'm sure there are people who would object to this, but I think it's the general consensus we don't need to. Uh the Kenai LNG facility has has some limitations on it, but it's scalable. You can you can construct additional uh additional import uh uh additional gasification regasification facilities and um uh additional uh uh facilities around that. Um probably easier than you can uh the greenfield facility that NSTAR is building. But but we have this divide going on. And Nat Hertz did an excellent column on this that's showing up in some of the state's papers is on Nat's uh website, uh Northern Journal. And here is here is sort of the nut of what's of why we have this divide, why we have two facilities going on. The announcement of the uh uh Hill Corp of Hillcorp's acquisition of the Kenai LNG plant from from Marathon, the announcement underscored an already tense relationship between NSTOR NSTAR and Hillcorp, the Harvest Affiliate. The two companies have been feuding in court over terms of an existing unrelated natural gas supply contract between NSTAR and Hillcorp. And and the dispute is what Hillcorp is obligated to deliver on any given day, on peak days, uh uh to NSTAR. And that's been the subject of a of a fairly intense dispute. Sims, John Sims, who's the head of NSTAR in Alaska, said has said publicly that his company is not interested in participating in a project that could further consolidate the position of Hillcorp, which is currently urban Alaska's dominant supplier to utilities of locally produced natural gas. And what that means is the biggest cook inlet, cookinglet producer uh by far. Right. Uh it's the biggest cook inlet producer. So Sims is saying he's not interested because in part, substantial part because of this dispute they have between NSTAR and Hillcorp. He's not interested in participating in this project by Hillcorp. I have problems with Hillcorp having acquired the Kenye LNG plant. The when you when you talk about consolidation of market or concentration in markets, you use something called the HHI index, the Hirschmann-Herfendahl Index. That's what you use to calculate the level to which a market is concentrated. And the HHIs, with with Hillcorp already in the dominant supplier position, the the HHIs go off the chart when Hillcorp acquires the Kenai LNG plan. I mean, they're higher than than any market concentration you would you would normally see. Um, and so I have concerns about Hillcorp acquiring, but the but there are ways to handle that concern. And I wrote a column about this a few months ago in the landmine. The way to handle that concern is through regulation, because essentially Hillcorp's becoming a monopoly. Uh, it will monopolize its position in the Cook Inlet in terms of in terms of gas supply uh with the acquisition of the LNG plant and using it for LNG supplies. And so the way you normally handle a monopoly like that is through regulation. And we have an agency, a regulatory agency that's skilled at doing that, the regulatory commission of Alaska, that that regulates natural energy monopolies, natural gas monopolies, electric monopolies in the state, but also natural gas monopolies in the state. And it wouldn't be that hard a deal, hard a thing for the RCA to take that to take that on and regulate that monopoly. So there are ways of handling handling this market concentration concern that's out there with respect to Hillcorp, um, short of building a second plant. I mean, competition's good, but you don't need to undertake, you know, building a second plant when you've got an existing plant that could that could serve the demand. So that's a that's a whole issue that I think is going to become more intense the farther we go. I mean, Hillcorp's sinking money or uh NSTAR is sinking money into its deal with Glenfarn. It's it's doing doing site uh uh uh uh preparation, it's doing uh work on on uh preparation for what that plant would look like. And so it's starting to sink money into that second plant. I think the RCA needs to and and and and at one point sim said that he would welcome in this article, he said he would welcome RCA intervention to try to bring some rationality to this. I think the RCA needs to step in and do that.
SPEAKER_01:Well, this is what struck me about this is and I understand the concerns about Hillcore being a uh you know being dominant and and and having a virtual monopoly, but you would think that these three utilities could work together to try and figure this out, but instead, Sims and he's and you just said it, Sims acknowledged as much, said he'd welcome intervention from regulators to encourage closer collaboration. Why would why do you have to have the regulators come in to let you guys collaborate together? That's the thing. I mean, it it just it makes no sense. Why would we build two half a billion dollar plants when we only need one? What just that they're just not playing together? That's it. I mean, they're just not getting along. What's happening?
SPEAKER_02:Well, I think I think part of it is sim says it later in the in the in the article that that he doesn't trust Hillcorp, basically, that he doesn't trust Hillcorp. They're not getting along with Hill Corp. Hill Corp's monopolization of the gas supply market would is of concern to him, and it should be. But but it shouldn't, the answer to it shouldn't be to build a second plant. The answer should be for the RCA, and if it needs additional legislation to do this, and it may, for the the RCA and the legislature to step in and say, look, we're it's great that Hillcorp wants to do this, it greats, it's great that Hillcorp has the expertise and feels it wants to step in and be the supplier, but we're creating a monopoly here, and and monopolies need to be addressed. I mean, we we can't let them run run riot. Um, and monopolies need to be addressed, and so we need to have RCA regulation of of the Hillcorp uh Kenai LNG plant. And and I think that step removes Sims' argument that we need this second plant because we can't trust Hill Corp. Um and the RCA is sort of at the center of this. The RCA would be the regulator of the LNG plant, of Hillcorp's LNG plant. The RCA is the regulator of both Chugach, who's pursuing this project with Hillcorp, and NSTARS regulates both of them. The RCA is the one who could knock heads and and force the two by just allowing costs. Knockheads force the two to come together and work on a joint project that achieves lower lower overall cost for uh for Cook Inlet uh uh residents. So it's it's the RCA is at the center of this. The legislature may need to become part of the solution by giving the RCA whatever powers it feels it's it lacks to be able to regulate Hillcorp, but that we should not be building two LNG import facilities for at least at least in the in the near future for the size, the size, the relatively small size of the gap uh that we're gonna have in the near future. One other piece Go ahead, go ahead.
SPEAKER_01:No, no, go ahead.
SPEAKER_02:I was gonna say one other piece of the of the Cook Inlet LNG situation is the is the L the AKLNG project and coming down from the slope. Um and we saw something something at a hearing last week that I knew was coming. Um and we've talked about on the show that it was coming. It just hadn't reared its head yet, but it did last week. And that is the the the Glen Farn and the proponents of the AKLNG project coming in and asking the legislature for various things that the legislature that they say the legislature needs to do to protect to solidify the AKLNG project. What they asked for last week was essentially in the industry what you call an offset provision. You have you have certain taxes or you have a certain fiscal structure that on which a project will be predicated. And in the international, you show you this shows up in the international uh uh sphere, some. In the international sphere, you if if a project is is very tight on its economics and you're building that project based upon a certain assumption about what the state take is going to be, what government take is going to be, you ask for an offset provision such that if the state would increase taxes, for example, property taxes on pipelines would increase taxes in a given area, the level of state take in a given area, that that the statute also provides that the governing statutes also provide an offset that you would reduce, the government would reduce its take in another area so that the economics of the of the project would remain the same across the board. It's essentially special treatment of a project that has marginal economics. Um and and I and I I could see this coming uh from uh from Glenn Farn uh that they're gonna start to ask for things like lower property taxes than the state's property tax rate, various provisions that will that will enable them to fix their economics, but at the expense of the government's flexibility uh going forward. And that's exactly what they what they did last week. So the Cook Inlet has has a lot of moving parts uh going on with it. We need to, we need to, we need to reduce and simplify the number of moving parts, certainly on the side of the import LNG projects, uh, and get them sort of focused on one that works as opposed to two that that will uh that will magnify costs. But we also need to be aware that that we're starting to see the AKLNG proponents ask for special favors from state government um uh going forward that will shift the burden of risk from from the project itself to um to uh to state government and shift the economics from from a from a risk economics on the part of the project over to a risk economics on the part of part of state government.
SPEAKER_01:And and this is part and parcel of the whole thing that Glenn Farn's been doing. They wanted a surety that if they spent the$50 million earlier that they get reimbursed from the state, and now they're looking for more surety on this, that if anything changes, not just not just taxes, but maybe regulatory things that the state may not have any control over, they want to be held harmless from that as well. And uh, I mean, it's it's a significant, it could be a significant problem.
SPEAKER_02:Uh it's it's a it's a water drop. I mean, essentially what they're doing, we've talked about this on the show before. They've announced all of these, you know, various uh uh letters of intent and and potential agreements with suppliers and and all those sorts of things to sort of build up expectation and and and excitement about the project. Now they're starting to drop in the things they want from the state, the economic certainty they want from the state uh as we go along. I I don't think that project goes, but it's something to certainly be aware of what the state may potentially be signing on to um as we as we go down the road.
SPEAKER_01:I mean, at least they've stopped dithering on whether or not they should import LNG, but now that now they're gonna have a tussle over two different. I mean, this makes no sense to me. I mean, it really doesn't. And and the fact that we didn't even talk about the fact that uh NSTAR has now asked the RCA to um allow them to bill customers for what$48 million or something,$50 million to bill customers ahead of time because they have to pay back Glen Farn for some of this other stuff. Um and so they're speculating and they want they want the RCA to sign off on them charging customers$50 million more to build this second facility. Um, I mean this just sounds like a jobs program for Glenfarn, quite honestly.
SPEAKER_02:Yeah, well, yeah the problem is we're seeing sort of the utility play out of of kids squabbling, right? I mean, n star doesn't like Hill Corp for decent reasons. I mean, Hill Corp is a fairly Hillcorp reads its contracts in ways different than other people do. Um Hillcorp is a is a fairly uh aggressive operator um in terms of its dealings with NSTAR, and NSTAR is reticent to you know put all of its eggs in the Hill Corp basket. I understand that. But I don't what I don't understand is that then branching off into two LNG import projects, um, sort of doubling the cost, if you will, of uh of LNG import projects. Because this isn't this isn't the way we're the track we're going on right now, this isn't a one or the other. This is both of them. NSTAR builds one, Hill Corp builds one for TruGatch, um, and and we and we end up with both of them. And so we need to we need the adult in the room to sort of get involved and and sort of shake this out. And the adult in the room, we've got an adult in the room, it's the RCA. We've set up a statutory scheme where the RCA is the adult in the room over the over over utilities that sort of looks over their shoulders and makes sure they're doing things right at the lowest reasonable cost for uh for ratepayers. The problem is the RCA hasn't quite stepped in. And the problem also is the RCA may not have all the authority it needs to be able to deal with Hillcorp. Um, and that's something the legislature needs to needs needs to address. Because I, you know, as I said, I understand, I understand Sims's position that he doesn't want to have to, you know, become subject to a monopolist in dealing in dealing with this gas supply. I understand that. But we've got solutions for that rather than building your own plant, your uh a second plant. And so we ought to be, we ought to be having hearings and we ought to be having legislation that addresses that situation as opposed to just letting it go ahead and fester. Because, you know, if if we don't address it in this legislature, we go another year, potentially another two years. Instar keeps spending money on that second project, they want the recovery of that money. That's the$40 million you're talking about. They want the recovery of that money. If it doesn't get solved in time, they may even start building the damn thing. Uh, and then we're really going down, we're really going down the wrong road. So it's something I think that the legislature needs to understand better from the RCA. The RCA needs to be more expressive about the situation it's in. And then the RCA needs to address it as well with the utilities.
SPEAKER_01:I mean, we've been talking about how the RCA's been kind of MIA on this whole thing, right? The the whole time. They need to they need to be stepping it up. And uh yeah, I I just don't see I just don't see how that's how that's gonna happen and why we would build a second facility for half a billion dollars and then expect the ratepayers to pay it. Uh, there was a comment, and I wasn't aware of this. There was a comment. Uh the parallel development efforts represent a significant split among uh urban Alaskans utilities, uh, which according to regulators and watchdogs also drove up costs for consumers by failing to coordinate when they spent$1.5 billion on new power plants and other infrastructure in recent years. Apparently they weren't talking to each other, so nobody knew. So they built duplicate stuff.
SPEAKER_02:Yeah, that was that was a split on the electric side between MEA who built uh an electric plant, uh generation plant for themselves and shoe gaps.
SPEAKER_01:So yeah, I mean I just I don't I don't understand the the competitiveness in that regard. It it makes no sense. Okay, we're continuing now, Brett. Keith Lee, Alaska's four sustainable budgets, number two of the weekly top three. We just got uh all uh kind of uh uh catching up with the the the AKLNG and the Cook Inlet Gas. Now it's time to catch up on the North Slope crude because we keep hearing new stories.
SPEAKER_00:Oh, it's gonna be great. They're gonna start pumping oil in March. It's gonna be fine.
SPEAKER_01:Oh, wait, we we don't get paid for 10 years? Never mind. Uh Brad, what's what's happening here?
SPEAKER_02:So a couple of things on the North Slope that we need to catch up on. One is the lease sale that just occurred that has made headlines in all the state's newspapers and is touted by the Dunleby administration as a continuing sign of the North Slope Renaissance. Um, and the second is uh the the startup of PICA and the stories uh Santos's PICA project and the stories that we're seeing about all the additional revenues we're gonna get out of out of uh out of PICA. The first one, the the the lease sale, lease sale was good. I mean, I I I'm not gonna knock the lease sale. We had a number of uh bids, we had a number of tracks sold, but at the end of the day, it's$17 million. I mean,$17 million is money, but when you look at a state deficit of$1.8 billion,$2 billion,$17 million sort of pales uh in comparison in terms of in terms of being a solution. What we had on the lease sale was a was a couple of things. Uh one was people are sort of as as as as people are becoming more familiar through Pika and through Willow and through some other exploration activities that are going on up there, as they're becoming more familiar with maybe the trends, the geologic trends that are that uh exist on the North Slope and where potential oil is, what you what you see in part is people filling in holes in their lease position around projects that and and in lease areas that potentially may be part of the new trends or potentially may hold uh sort of branch offs of the of uh of the new trends. And so there was quite a bit of that going on, people just sort of filling in holes, uh leases that that they're areas that hadn't been previously leased, but looked like they might be part of the trend. Some of it was sort of step out, you know, some of it was people looking at new areas um and the potential that new areas that you might have uh oil potential in new areas that really weren't part of the current trends. That was a much smaller part uh of the lease sale, but you had you have some of that uh in the lease sale. But you you have most of that is by small players, uh small LLCs that don't even have websites. I mean, I went to look for a couple of these new companies that I wasn't familiar with, and they don't even have websites uh up uh describing their company. So those those usually are our players trying to get in in front of a potential play, get themselves a lease position for a relatively low cost, and then they and then they're it they're hoping to be bought out uh if if it turns into something. They may try to finance an exploration well themselves, they may not, uh, but it's really just sort of a bet uh on the potential of new plays out there, and they're trying to position themselves to get something out of it. Think in the software industry, think of somebody who develops a new app, hoping to be bought out by Google or Microsoft or Apple. Um uh that you know they're just they're putting a little bit of money in to try to develop uh the new app, but they're hoping to be brought out bought out by a major player. That's sort of what's going on with uh with uh with part of this. The other thing noteworthy about the sale uh again is that it's it's focused, the the bids were focused primarily onshore uh on the on the North Slope. There were some bids in the North Slope foothills, um, but that's sort of the speculative players that are looking at uh potential new plays, extensions of existing plays in the North Slope or other new plays, not really major players looking at real real prospects, just sort of people speculating. And there was a couple of bids out in the on the state waters uh offshore, but again, that was speculative players, not really uh major players who have the financial capital behind them to be able to really pursue projects out there. They're just trying to just trying to position themselves to uh to go forward. So, you know,$17 million is$17 million, but it's only$17 million. And so, you know, a lot of people uh uh seem to be seem to have a lot of excitement about this. Oh, it's a new record, number of players, number of of leases sold. Yeah, okay. But it's but it's not really it's not huge in terms of, oh my gosh, somebody's identified something that nobody'd ever thought about, and there's a rush to get in on that, and there's a lot of money being put in on that.$17 million in the industry, uh particularly spread out over the number of lease tracks that we have here, is not is not that big a number. The other thing going on that's making the press that's going on on the North Slope that I think is worth talking about is we we're seeing uh a number of articles um about there was one in Must Read or not Must Read, the Alaska Story, the new must read, or the I'm sorry, I probably shouldn't even say that. Alaska story. Um uh there was an article about, oh, you know, uh we have we have uh uh uh Santos' PICA project about to start. That's going to produce so much uh revenue, it's gonna be it's gonna be great for the state. We need to keep in mind, yeah, yes, we're going to get royalty revenue, but we don't get production tax revenue until 19, until 2032 out of the PICA project. Even if the PICA project starts next year in 2026, we don't get production tax revenue because of the way SB21 operates. We don't get production tax revenue out of that project until 2032. Um, so yes, we're getting we're getting some revenue, and yes, some revenue is better than no revenue, uh, and yes, some royalty revenue is better than no royalty revenue. But but the standard we ought to be looking at here is are we achieving what the constitution requires, which is the maximum benefit from the states from the development of the state's resources, maximum benefit for the people from the development of the of the state's resources. And uh you and I have had this discussion before. We're going to continue to have this discussion over time. I don't think we are. I think I think we are falling short. The legislature is falling short, and the administration is falling short in not proposing to the legislature, um, and falling short in terms of not reforming oil production taxes to reflect to reflect the the the system that we've gone into now in the second decade of SB uh of SB, whatever the hell it was, SP21. Um not not not fully reflecting the economics of what's going on and and having a situation in which a major share of the initial between now and 2032, Pika is gonna is gonna ramp up in terms of production, it's gonna plateau for a while, and it's gonna be on the downside by 2032. So we're gonna the major share of initial PICA production is gonna go untaxed, uh, not paying, not paying production tax. So I think we have, I I uh, you know, people are all excited about the additional revenues, and and you know, there's a lot of praise of Pika uh and a lot of praise of Santos and the development, and all of that, all of that's deserved, but there's a shortfall, you know, in my view, between what we're gonna get out of that additional production, the substantial share of that additional production, what we're gonna get out of that, and the constitutional standard of maximum maximum benefit. And I don't see anybody in any of the articles um uh talking about you know measuring what we're getting out of Pico. In terms of the constitutional standard. Right. And looking at whether or not we're hitting the constitutional standard on what the state's share of that additional production should be.
SPEAKER_01:You've gone into this in detail, talking about how the production goes, you know, the curve is the production curve goes way up, but our income curve goes down because of those production taxes. And you, as an oil and gas guy, have said many times that we need to revisit this tax structure. But there is such a pushback from everybody involved. Nobody wants to talk about revisiting the tax structure. It's almost as bad as the idea of some kind of sales tax or something, because we just couldn't possibly do that, even though we have a finite resource that's not coming. I mean, we only have so much of it. And yet we're we're basically, you know, at this point giving away the farm, especially on the front end of the production, where all the you know the high production is by the time 2032, 2034 comes involved. As you said, now it's on the decline. We've already got a declining resource there. I mean, it it it that none of this makes sense to me.
SPEAKER_02:Yeah, it's um, I mean, I don't think I well, I was there at the beginning of uh of SB21. I was there uh in the arguments. And the arguments were uh we need to make an investment, the state needs to make an investment in terms of restructuring oil taxes, lowering the state's oil tax take in order to incentivize additional investment and additional production. And the key part of the disc of the of the argument, a key part of the argument, was that the back end, once we have this additional production, the state's gonna share in the benefits of the additional production by deriving additional revenues that the state otherwise would not get. And so it's a good deal for the state to give up money at the front end by reducing oil taxes. Good deal to make this investment, to attract additional investment, to bring additional production, and then the state's gonna share in the benefits at the end. That's not what's happening. What's happening is is at the back end, when we're supposed to be sharing in the benefits of this additional production, production is going up. Production rises over the last 10-year forecast, the spring uh uh revenue forecast, production rises something like 40%. But production tax revenues go down by 40%. And and and yes, royalties sort of stay the same along the way, but production taxes, which is a big part of the state's revenue share from oil, a big part of how we achieve the maximum benefit uh obligation under the Constitution. Production taxes actually go down as as as as production volumes are going up. That's not that's not how SB21 was sold. That's not the intent behind SB21. The intent was a sharing, a sharing of the sacrifice at the beginning in terms of the state reducing oil tax, the oil tax burden to incentivize additional investment and additional development, and then a sharing of the benefit at the back end to sort of compensate the state for taking this reduction at the front end, the sharing of the benefit at the back end didn't happen.
SPEAKER_01:I don't even know what to say to this, Brad, because again, we could see the problems, we could see where it's going. Uh, and even though Suzanne Downing makes a mention of this, um, there's really no, you know, she mentions the the she says because Pika developers can deduct billions in initial project costs, significant production production tax revenue is not expected until around 2034. Um, but royalties and pipeline efficiencies will provide immediate benefits. So she goes on to talk about the jobs and everything else. But the bot but the bottom line is is that they'll mention it and then they'll not mention to what extent that affects the state. That's the worst part. It's like they mention it and then they gloss over it and then move on to something else.
SPEAKER_02:Yeah, and there's something uh there's there's this what they're glossing over is something else. I mean, people say, okay, they ought to be able to, all companies ought to be able to recover their costs. And so the fact that they have all these costs they've built up in the development, and and that deduction is driving down the state take. Some people say, well, that's okay. That's that's that's you know, I mean, we ought we ought to let them recover their costs. Now, the problem is they're recovering their costs in a way that's sort of beyond industry standard out there in the world. They're recovering their costs in the first year after they make the expense, after they after they spend the money. The usual standard out in the world is an amortization over some period of time so that you recover a little bit of your cost every year. Um, and the other thing is the standard out of the world is mostly ring fencing so that you recover your cost against the production that that the investment's been made to produce. In Alaska, we let them recover the cost against any production. So Conaco Phillips, for example, which has a lot of existing production, has been able is able to reduce the taxes it's paying on other production in the state from the investment it's making, it's making in willow. So there's there's even a little bit of of of uh of things that we ought to be talking about with respect to recovery costs. But the big thing, the big thing that's driving uh the PICA, the not recovering money from PICA for several years, is an artificial thing that was put in SB21 called the gross value reduction provision. And the gross value reduction provision reduces the amount of revenue that's subject to tax for new developments outside of existing fields. And that's that was sort of a good thing at the time SB21 was done, but it's run amok in terms of the impact it's having on uh on production taxes. So it's it's not just what Suzanne mentions, which is the recovery of cost, it's the GVR uh provision, the gross value reduction provision, the artificial gross value reduction provision, that's sitting on top of those costs that's really driving down production tax revenues. Um Pika, for example, would be paying a 4% minimum tax from the first barrel of production. Um, the 4% minimum tax, even with all their costs, they'd be paying a 4% minimum tax from the first value of production, from the first barrel of production if it weren't for the G VR provision. It's the GVR provision that is delaying or or excusing any production taxes from between now, between 2026 and 2032. So we've done it to ourselves. It's not just the cost, just not recovery of costs. It is the G VR provision that's sitting on top of the recovery of costs that that is creating this tax holiday, this extended tax holiday for uh for uh for new production. That's that's resulting then then resulting in the in production tax revenues going down even as production volumes rise. And that's something we can go in. I mean, the the producers can say all day long, oh, we you know spent this money thinking that we're gonna be able to recover it. Okay, fine. We got we got very liberal provisions about here how you recover it, but let's set that aside for later discussion. Let's talk about the GVR provision and this art, the artificiality that the legislature introduced in SB21 with the G VR provision. And let's let's reform that so that at least you pay minimum tax uh from the first barrel. At least you don't excuse, get excused from any tax.
SPEAKER_01:And the G VR, the GVR change, of course, the legislature could make a simple change with that in and of itself in isolation and fix part of this problem, is what you're saying. Yep, yep, yep.
SPEAKER_02:Just go back to minimum tax. Just take the GV, take the take the tax holiday that GPR creates, take that hockey holiday off, and just make sure that every barrel at least pays a minimum tax. Right now we're not doing that. And that's and that's the big a big part of the effect of uh production volumes going up while production taxes are uh are going out. It's a big driver of production taxes going down.
SPEAKER_01:And why do you think nobody else is talking about this this uh this aberration here, Brad? Why, why quickly, why is nobody else talking about it?
SPEAKER_02:Oh, because it's complicated and you actually have to spend time figuring it out. Um, and you have to actually understand the industry a little bit to figure it out. And we don't have a lot of people in government who understand the industry. Um, we don't have a lot of legislators who understand the the the commercial the commercial aspects of the industry. So it's just complicated. You got to figure it out. And and the industry says, hey, you wrote rules, we relied on the rules, don't change the rules on us uh uh as we as we go forward with the production. And people go, oh, okay.
SPEAKER_01:Okay, all right. We'll just we'll just do what you say. We're continuing now, Brad Keithley, Alaskans for sustainable budgets and the weekly top three. We're ready to get into it. We're on to the uh number three, which is a discussion which I'm sure will make all of our eyes glaze over, but it is super important, right? I mean, Brad, I mean, this is I was just asking Brad, why don't why don't some of these things get fixed? And he's like, because it's complicated and everybody wants to, you know, basically everybody wants to talk in sound bites, nobody wants to do the homework and have to get down into it. But this is the stuff that we need to be talking about. All right, so Brad, inflation uh versus income. Uh, there's some real issues here. Uh Brad, just give it give it to me. I know I'm setting Brad up for some bad stuff here. Uh, give it to me, Brad.
SPEAKER_02:What are we what do we have the right words in there? You had inflation and income and real and you know, sort of all that stuff. So I've been I've been spending some time trying to better understand what's going on with Alaska income, with with income to Alaska families. And and the measure I've been using for that is real, real in the economic sense, which means after inflation. Uh you take inflation out. So it you can compare years better that way. Uh you're not you're not having inflated numbers as a result of it, as a result of inflation only. Um real uh uh median Alaska household income. And I use median. There's two measures of there's two measures of average Alaska household income. One is mean, which is the average, and the other is median, which is the midpoint. There's there's an equal number of of incomes above and and households above and households below. It's the median. And the reason you use median is because mean, the the average, the arithmetic average of mean is heavily influenced if you have a number of high-income uh families or a number of low-income families. It will pull the average up or down away from the median. The median is a much better measure of what's the average Alaska family experiencing. Mean is really distorted by by a cluster at the top or a cluster at the bottom. So median really is a much better reflection of what the average Alaska family is uh is is experiencing. And I've been and I've been looking at that um just sort of stunned, because the the real after inflation median Alaska household income uh has not changed virtually since since 1984. I mean it it it has gone up and down a little bit, but if you if you scale it on an on an index with 100 being what we had in 1984, it's not it's not changed real after inflation, it's not changed much in 20 in 2024. Over the 40 years, it hasn't changed much. Um and if I did another calculation starting in 2020, and it doesn't change much from 2020, it just stays. Other states have had an increase in their real median household income. Uh if you look at the states, the out-migration states that Alaskans are going to, if you look at Washington, Oregon, uh Texas, Florida, the states that Alaskans are out migrating to, all of those have had a have had an increase in their in their real income. Uh if you look at the northern tier states that Alaska is often uh uh measured against, Montana, the Dakotas, uh Idaho, all of those have had an increase in real median Alaska, real median household income. Alaska's just stayed stagnant. And then I've looked at GDP, uh, gross domestic product, which is the measure of the output of the economy and and and economic growth, what some people refer to as economic growth in the economy. And Alaska's GDP has gone up uh over that period. Uh, but real median Alaska house cold household income has stayed it has stayed uh relatively static. So it's a it's a fascinating. I've got a chart, uh Michael, if you if you can throw it up quickly, that looks at this since 2020. The dotted line is GDP, and as you can see, GDP has gone up. It went up to went up toward 2006, and then it's sort of stuck at that level. Uh, this is real again after inflation, but it's sort of stuck at that level since 2006, but it's but it's it's it's elevated significantly. It's gone up 50 percent over the uh over the 20 years between 2020, well, 24 years between 2020 and 2024. It's gone up uh 50% over that period of time. The solid line is real median Alaska household income. And you can see it's on an index, it starts at 100% uh at 100 on the index in uh uh in 20 uh 2000, and it's back to 100 in 2024. It hasn't changed. I mean, it's gone down sometimes when the cost of living, when inflation's been high, it's gone up sometimes uh uh for various reasons. But over the span of that 20 years, uh it hasn't, or 25 years, basically, it hasn't hasn't changed, even as GDP has gone up. So I there's some issues in here that that that we need to understand because Alaska used to have Alaska used to have a very strong household income compared to other states, used to be the strongest in the nation. And it's gradually deteriorating over time by just running in place as as other states have real growth and as as as Alaska GDP has grown. And we need to understand why that is because because the real measure of how Alaska is doing, how Alaska families are doing, is is household income and and whether the households in in Alaska are are growing, having having a growing share of income, a growing share of wealth. Um, and and we're not, even as our GDP, even as the overall state output, real GDP, inflation adjusted GDP, even as real GDP is growing. Why aren't Alaska families benefiting to the of some getting the benefit of some of that growth? Why aren't they growing in in the same time frame that GDP is growing? A lot of answers for that. Um, it's interesting to ask chat GDP or or any of the other AIs that question and see the answers you get. Uh, there's a lot of a lot of things that are going on. Part of it is the GDP growth is in oil, and that's really a capital-intensive growth, um, uh a growth based upon capital and investment. And so the returns, the benefits of that growth are going to capital. They're going to the people who invest the the equity owners, there it's going to the um uh going to the debt uh holders in terms of the repayment of debt, it's going back to the companies in terms of recovery of depreciation. It it's it's it's not flowing to Alaska families. Um, and so and so that's part of it, part of what's going on. There are other things going on. One thing, one thing that is that shows up consistently when you start studying this is the influence of the permanent fund dividend. And and the discussion is is that the permanent fund dividend is a sort of a unique way that Alaska found to tie GDP growth to capital, to income growth by distributing a portion of the benefits realized from GDP growth, or portion of the benefits realized from oil revenue growth, down to families. The the cut in the PFD is having an impact on keeping Alaska household income flat, even as we see the benefit of oil and revenues from oil and and the GDP generated by oil increasing. So something that's gonna I'm gonna be writing about a lot more, something I'm gonna be talking about a lot more, but this is sort of the the basics to begin the discussion about why we're have why we are having this diversion and why Alaska households are remaining static over time as the rest of the nation and as Alaska GDP and as overall uh GDP grows. Why are Alaska households remaining static over that period?
SPEAKER_01:And how much of this is also combined in the fact that we're paying more attention to the private sector or the public sector than we are the private sector, right? I mean, how big of a factor is that? 45 seconds here as you wrap up, right?
SPEAKER_02:Yeah, part of it is part of it is that because it's not the payments to the public sector or expenditures by the public sector are don't necessarily reflect how in household income. They reflect benefits generated toward households, but not in household income. So that's that's part of it, uh part of it as well. Yeah.
SPEAKER_01:Yeah, I mean you look at this and you can just see that money is not trickling down into household income. I mean, the money is stuck, and as you said, whether it's in repayment or uh you know capital-intensive things, or whether it's going into government spend and not being reflected in the direct income of the uh of the households, this is a this is a this is a another red flag right here.
SPEAKER_02:It is, and and it's I mean, Alaskans, uh generally speaking, I don't think Alaskans feel like they're making progress. Um I mean, some sectors do, those tied to the oil industry do, some tied to the government services industries do, they feel like they're making progress. But I the average Alaskan that I talk to really doesn't feel like they're making progress. And and so when I start looking at average household income as a way of trying to get at that issue, I see why they don't think they're making progress. Cost of living is is taking, I mean, if you look at non-inflation adjusted real uh non-inflation adjusted median household income, it's going up. But but the reason it's staying flat-lined on a real basis is because the cost of living increases are taking all of that all of that benefit out. So Alaskans are just treading water. The average Alaska family is just treading water over time. They see benefits in terms of they see headlines that say, hey, there's benefits in terms of additional oil development, there's benefits of it in terms of additional investment, but they're not seeing that in their pockets, they're not seeing that flow into the average Alaska household. And and I sense a lot of frustration about that. And and you know, you start looking at the numbers and you and you see why that is. I've got a I've got a chart that I'm gonna publish either this Friday or the next Friday that breaks this down by income bracket. Actually, actually, the low income, the low 20%, the lowest, the lowest quintile is losing on a real basis. Their income isn't going up enough even to offset inflation. They have a negative real growth. The the media, the the middle income brackets, the lower middle, the middle, middle middle, and the upper middle are sort of gaining a little bit against inflation, but not much. The top 20% is gaining a lot, and the top 5% is gaining a huge amount. So to the extent we have money flowing into Alaska household income or Alaska households, it's flowing mostly into increasing the income gap between the upper incomes and the and the middle and the and the lower income. So it's really it's a it's a fascinating subject once you start once you start digging into it and understanding the numbers that are that are that are reflecting what's going on with the Alaska Alaskans, the Alaska household economy.
SPEAKER_01:But wait, Frank says it's because of their spending choices, they're not seeing growth because of their spending choices. But if what? But if they're not even keeping up with inflation, what does the spending choices matter at that point, right? Uh and Corey and Corey says now we're being asked to pay additional taxes to offset what the what the government won't stop spending. And that's again another thing. They won't control what they're doing. So, I mean, we're we have to pony up even more.
SPEAKER_02:Yeah, but this is the income side. I mean, spending has nothing to do with this. Is the income side and and what Alaskans are receiving in income. You there's it's a whole different calculation when you start talking about disposable income and all that sort of stuff. But but this is just the basic income side, what Alaskans are receiving in income. And they're and their income isn't growing. Their real after cost of living, their real income isn't growing. What you're seeing, you know, what you see in the headlines is oh, the economy's growing, the GDP is growing, or you know, there's more, there's more industry jobs. Well, those are high, those are high paying jobs. And yes, you are seeing growth in the high-paying jobs. You're seeing their uh uh their trend line going going up, but the but the median Alaska household is not seeing any growth at all after cost of living. So it doesn't matter what they're spending it on, that has no impact. It's the income side. We're not seeing the income to the real median Alaska household going up.
SPEAKER_01:And that's a problem. Uh oh, Harold says you're finally on his side. I mean, you've been talking about refin you've talked been talking about reforming the oil uh taxes and giveaways since since SB21, but now you're finally on his side. I just wanted to let you know that in case you were worried about that. He's it's fine.
SPEAKER_02:That that actually bothers me.
SPEAKER_01:Yeah. Uh all right. Um uh I'm sorry, it does matter. Uh when we're paying utilities and groceries, the cost of living, additional taxes, impact. Yeah, and I understand that, Corey. I understand what you're saying there. Definitely, we're all feeling it. But what Brad's whole point here is that even just the base income, before we get to expenses or what you're spending or anything else, is that you know, we're we're not even keeping our head above water in that regard. And there's a problem there. And I think a part of it is again the oil taxation and the growth of and explosive growth of government over the last 20 years.
SPEAKER_02:Yeah, and oil and and and oil taxation is two parts. One is oil taxation, getting getting your fair share out of the oil industry, getting the maximum benefit that's required by the constitution out of the oil industry. But it's also how you it's also whether that shows up in Alaska household income. And that the only way, the only way we're really transferring the benefits of oil into the median Alaska household, into the average Alaska household, is through the PFD. So if you're cutting PFDs, even if you increase oil taxes, if you're cutting PFDs, you're that's not going to translate into the average Alaska household income. That's the mechanism where Alaska had genius uh over an extended period of its history, uh of its oil history, translating some of that economic growth in the in in GDP back into household income. And now we're losing that genius uh that genius by transferring by taking that income instead of putting it to households, putting it into government.
SPEAKER_01:Right, where it doesn't, again, doesn't show up uh for everybody. Brad Keithley, Alaska's four sustainable budgets, the weekly top three. Um, we'll see if we could talk Brad into hanging with us for a minute to uh talk about Thanksgiving uh because uh I feel good about that. We'll see what happens. Brad, thank you so much for coming on board and hitting the weekly top three with us. We appreciate it.
SPEAKER_02:Michael, as always, thanks for having me.
SPEAKER_01:Folks, we got to go. We're gonna be back with more of the Michael Duke Show.
SPEAKER_02:Well, that's a wrap for another week's edition of the weekly top three from Alaskans for Sustainable Budgets. Thank you for joining us. Remember that you can find past episodes on our YouTube, SoundCloud, Spotify, and Substack pages, and keep track of us during the week on Facebook and Twitter. This has been Brad Keithly, Managing Director of Alaskans for Sustainable Budgets. We look forward to you joining us again next week on the weekly top three.
