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University cuts could damage fisheries, Arctic research

A state fiscal crisis looms, and some of the Legislature’s budget cuts could send ripples into Alaska’s largest private employer and international political affairs. Rep. Tammie Wilson, R-North Pole, passed a series of university budget cuts out of her subcommittee on March 4 that would lop $50 million from the university budget, largely from research and outreach funding. The subcommittee ended up with a final university unrestricted general fund budget of $300 million, a $50 million cut from last year’s budget. The equivalent Senate subcommittee, chaired by Sen. Pete Kelly, R-Fairbanks, proposed a $325 million budget. The House and Senate will likely make amendments to the budget during a conference committee later in March. University of Alaska research functions reach far into trade and key political discussions. Alaska research plays a vital role in state and federal fisheries management as well as Arctic research, now in the political spotlight as the U.S. holds the chair of the eight-nation Arctic Council. Alaska Bering Sea Crabbers, an industry group that represents 70 percent of all crab harvested in the North Pacific, penned a letter to both the House subcommittee and the House Finance Committee urging legislators not to cut research funding. “If the proposed subcommittee recommendation is adopted,” the letter reads, “it will seriously jeopardize UA’s continued ability to support fisheries in Alaska. Everyone in the state will suffer as a result. Commercial, recreational, and subsistence users will have fewer harvest opportunities.” Mark Gleason, the organization’s director, calls the university research cuts a “one-two punch” combined with Alaska Department of Fish and Game budget reductions — proposed at 15 percent less than last year. Together, the cuts to fisheries management and research spitball into more conservative management, he said, resulting in lower fishing quotas in a time when Alaskans need income the most. Gleason said the cuts seem far too broadly focused, and didn’t solicit industry input. “I think the legislators pushing for this aren’t taking a targeted approach, they’re just slashing,” said Gleason. “No one’s talking about being creative. It’s just cut, cut, cut.” Fisheries management has private funding components; to partially fund the Alaska Seafood Marketing Institute, fishermen pay a voluntary landings tax. With general funding to ASMI cut and the state running a negative balance sheet for fisheries management, fishermen could consider what they can pay voluntarily to compensate for state reductions. Gleason, however, said he hesitates to go too far down that path, as science and industry politics make bad bedfellows.  “It would be somewhat problematic to do this,” said Gleason. “It’s important to have independent science. If the industry is funding scientists to be involved in the fisheries management process, at what point is that going to cease to be independent? When you start having industry fund scientists, you open up a can of worms. You don’t want the cure to be worse than the disease.” Federal matching funds in peril The University of Alaska Fairbanks School of Fisheries and Ocean Science is a leader in marine research, regularly ranked in the top three nationwide according to Gordon Kruse, director of the school’s fisheries division. As director, Kruse said most of his research concerns industry, not academics. “All of my work is focused on the commercial industry in Alaska,” said Kruse. “There’s nothing I do that isn’t related to them.” Most of the university’s research funding comes from Outside grants. A 2012 study by Juneau-based economics firm McDowell Group linked $1 billion in competitive grants to the University of Alaska system in the decade between fiscal years 2002 and 2011. Federal funds, however, require a direct state match. A drop off in state contributions could jeopardize them. “In (fiscal year) 2015, approximately $24.2 million was allocated from the state to UAF organized research,” reads a letter from UAF to the House subcommittee. “For every $1 of state general fund investment, UAF was able to leverage this investment and generate an additional $4.10 of external funding. This is a substantial return on investment. If state funds are not available for match, UA’s ability to receive external funding is severely limited.” Apart from the loss of programs themselves, Kruse is concerned about the potential impacts to staff and to research infrastructure. Faculty comes to the University of Alaska system in part because of the research opportunities, he said. As the line between academic work and research work gets drawn, Kruse anticipates that faculty will leave the university. “If they’re cutting state funding for research, that also cuts down on the amount of time researchers can write proposals,” said Kruse. “Without a doubt, we’d be losing people.” The university would not only use people, but necessary equipment those people use to carry out research. The University of Alaska uses the Sikuliaq, a marine research vessel, to perform field studies. One of the few ice capable research vessels in the nation, the 261-foot research Sikuliaq is owned by the National Science Foundation but under current use by the University of Alaska Fairbanks. Home-ported in Seward, it is in its first year of operations in the Arctic, including a test voyage to the ice regions of the Bering Sea and projects in the Aleutians and in the Beaufort and Chukchi seas. The Sikuliaq, Kruse said, falls into a “use it or lose it” scenario. As a prerequisite, he said, the university has to put down a $5,000 match on the vessel or else the National Science Foundation will accept bids from other parties looking to perform research. “There’s other universities that would snap that up,” he said. State and federal fisheries management Both state and federal fisheries managers rely on collaborations with university research faculty to craft regulations and set harvest quotas. Routine research functions play a large role in management for the Alaska Department of Fish and Game, which manages state fisheries up to three miles offshore, and for the North Pacific Fishery Management Council, which manages federal fisheries from three to 200 miles off the shore. ADFG and the council co-manage the crab stocks, with the federal Scientific and Statistical Committee creating models and adopting overfishing limits while ADFG ultimately sets the harvest quota. Virtually all management decisions on the North Pacific council depend on intensive quantitative studies. Economic and environmental impact analyses, stock assessments, and myriad biological studies all form the basis for the council’s regulatory scheme. The North Pacific council has two support groups, the Advisory Panel, or AP, and the Scientific and Statistical Committee, or SSC. Before either the Advisory Panel or the council even begin reviewing proposed regulations, the SSC vets each proposal to ensure it meets scientific muster. University of Alaska faculty comprises five members – a full third – of the SSC, two from Anchorage and three from Fairbanks, including Gordon Kruse. The council pays for travel, but university faculty look to research funding to foot the bill for their time. Kruse said cutting research funding could prevent university faculty from fulfilling their duties on the SSC, leaving the North Pacific council without any Alaskan scientists. “We would create a huge vacuum,” said Kruse. “Outside of us, there is a representative from ADFG. But all the others come out of state.” North Pacific council Executive Director Chris Oliver said he couldn’t guess how research cuts will affect the dozens of ongoing research projects the council is involved with. However, he said the potential impact to SSC membership alone is troublesome. “In this case there certainly are implications for our management,” said Oliver. “That would be a very direct and significant concern.” Like Kruse, Oliver is not only concerned with federal/university cross pollination, but that actual structure by which research is done. Many of the North Pacific council’s research projects depend on the Sikuliaq. Similarly, ADFG relies on university researchers for evaluations of quantitative studies. ADFG Deputy Commissioner Charlie Swanton said the department sends off for university assistance when it needs to review one of the many studies on which it bases management decisions. ADFG pays overhead costs for all its university research, so these collaborations would only be hindered by the department’s own substantial fiscal challenges. However, Swanton echoes Kruse’s concerns about research staff thinning out as budget cuts make the University of Alaska less attractive. “There’s levels of technical specificity that only they have,” said Swanton. “If you want a review of sonar program or a stock assessment, we go to the university and find the right person. If there’s not research dollars to support some of those functions, those researchers are going to go elsewhere.” Faculty and staff turnover translate to ADFG’s employment pool as well. The department’s Sportfish Division hires three university graduate students every year to study specific ADFG issues in collaboration — for credit — with the university. After they’ve completed the project, many come onto ADFG as full time staff, already having been trained during their graduate research. Arctic Council University cuts come at a bad moment for the Arctic, according to John Farrell, executive director of the U.S. Arctic Research Commission. “The timing is not good,” said Farrell. The Arctic Research Commission is an independent federal agency of presidential appointees that advises the White House and Congress on Arctic research matters and works with executive branch agencies to establish and execute a national Arctic research plan. The commission is an important gear of the international Arctic Council, an international study group of the eight countries that touch the Arctic Circle, founded by the Ottawa Declaration of 1996 to provide a means for its members to work on mutual Arctic-centric issues. The United States entered the chair position of the Arctic Council in April 2015, taking over for Canada. The chair position is held for two years before being taken by another of the eight member countries. The U.S. is a member thanks only to Alaska, along with the Russian Federation, Canada, the Kingdom of Denmark (including the Faroe Islands and Greenland), Iceland, Norway, Finland and Sweden. It makes no grants and builds no projects, focusing its efforts mostly on information gathering, sharing, and disseminating, both through collaborations among government bodies and working relationships with private advocacy groups, academic organizations, or any other organization who wants to contribute to Arctic study. In addition to leading fisheries and marine research, the University of Alaska Fairbanks has one of the premier Arctic research programs in the world. For Arctic research, no university is cited more that UAF. “The work of the Arctic Council is done largely by working groups and task forces. The working groups do assessments,” said Farrell.  “A fair bit of this is done in University of Alaska.” The U.S. is already a year into its Arctic Council chairmanship; Farrell said whatever research cuts eventually take place will not impact the current Arctic Council. Rather, Farrell worries how cuts will affect U.S. contributions later. “There’s a long lead time on science,” said Farrell. “It’s not going to be the end of the world for the U.S. chairmanship, but it could significantly diminish our contributions down the road.” Farrell said Alaska will have a high profile for the remainder of the U.S. Arctic Council chairmanship; up to a thousand scientists and government officials will attend a UAF Arctic meeting — actually dozens of meetings and workshops — over the university’s spring break in March. Among other meetings, Secretary of State John Kerry will be in Fairbanks for an Arctic Council meeting in 2017. With Alaska in the spotlight, Farrell said a lack of research capability could be bad optics. “The council has two pillars: sustainable development and conservation,” said Farrell. “What feeds those things is knowledge economy…those all link back to research. It would be an acute message to other member nations when they come here for research purposes and the locals have to say, ‘Well we really wish we could help you out but we’ve got no research funding.’” DJ Summers can be reached at [email protected]

IEP talks advance with Cook Inlet gas partner

The Interior Energy Project took a big step forward March 3 when the Alaska Industrial Development and Export Authority announced it is negotiating with a sole project partner to supply Cook Inlet natural gas to the Fairbanks area. IEP Manager Bob Shefchik said to the AIDEA board that the proposal by Salix Inc. to build a small natural gas liquefaction facility on Point MacKenzie in the Matanuska-Susitna Borough is the best option for the project as it faces viability challenges brought on by low oil prices. Salix is the last standing of 13 companies that offered 16 ideas to get an alternative space heating energy source to the Interior in response to a June 2015 request for proposals, or RFP, issued by the state authority. According to an analysis by the global consulting firm Arcadis Inc. of Salix’s proposal, the plan for a $68 million, 3 billion cubic feet per annum natural gas liquefaction plant should equate to gas delivered to Interior customers for $15.74 per thousand cubic feet, or mcf. That price would nearly meet the project’s stated goal of $15 per mcf, which is roughly the energy equivalent price of $2 per gallon fuel oil. Salix and Spectrum LNG, a small Oklahoma-based LNG company with a North Slope-sourced proposal, were the finalists in the RFP process started this past summer. Salix is a subsidiary of Avista Corp., a Spokane, Wash.-based utility company that operates electric and natural gas utilities in Idaho, Oregon and Washington. Avista also purchased Juneau’s Alaska Electric Light and Power Co. in 2014. Avista spokeswoman Jessie Wuerst said the company is very pleased to have been chosen as a partner to this point but declined to comment further because project negotiations are ongoing. The basic financing structure for the plant would start with a $30 million equity investment by AIDEA and a $28 million, long-term, low-interest loan from the state Sustainable Energy Transmission and Supply Fund. Salix would post a $10 million equity stake; requiring an 11.7 percent rate of return. Shefchik said the $3.24 per mcf tolling fee identified by Salix for the LNG plant  — the first major cost layered on the wholesale gas price to add up to the final “burner tip” cost of gas for consumers — could fall in negotiations. “As we work with Salix on both the term sheet and the financing, our effort is to push that $3.24 down to the $2 range and we believe that’s possible,” he told the AIDEA board. AIDEA’s first attempt at the project in 2014 was limited to North Slope gas by legislation passed in 2013 that funded the project with $332.5 million with primarily low-interest loan and bond authority, as well as a $57 million grant appropriation. Financing for the Salix plant would come from that pot of funding, as the legislation was amended last year to support a Cook Inlet-sourced Interior Energy Project. The ability for Cook Inlet producers to supply another market long-term was unclear in 2013, but the Inlet’s available gas reserves have grown since, as new companies have entered the market and Hilcorp Energy’s work on existing gas fields has also greatly improved the situation. Further buoying Salix’s proposal is a $6 per mcf Cook Inlet wholesale gas price, and the prospect of even lower-cost natural gas to feed the LNG plant, according to the project evaluation. Southcentral utilities have signed gas supply contracts in recent months for base demand in the $7.50 per mcf range, less than a current state-mandated price cap that expires at the end of 2017. Shefchik said in an interview the project team is negotiating with multiple producers for gas supply. He also noted the unavoidable reality of high capital costs on the Slope as a main reason for moving forward with Salix over Spectrum. That was evidenced in the first IEP go-round, which was scrapped by the authority just prior to making an investment decision because construction costs for a larger plant kept final projected gas prices in the $18 per mcf and higher range — too high to continue. Now, oil in the $30 per barrel range has pushed fuel oil down to the $2 per gallon range, challenging the IEP from any gas source, as potential customers are less likely to make upfront investments to convert to natural gas. However, Shefchik said the energy price reprieve has also given AIDEA the time to develop a project durable across a range of energy prices rather than rushing to complete a less optimal solution. Larger LNG trailers should also play directly into improving the final cost of gas in Fairbanks, Shefchik said. Pentex Alaska Natural Gas Co., the parent company to Fairbanks Natural Gas owned by AIDEA, has been testing a 13,000-gallon capacity LNG trailer for suitability along the route from Southcentral the Fairbanks. Positive results from those test runs means the larger LNG trailer could lower transportation costs by about 30 percent versus the 10,500-gallon capacity trailers currently used to supply Fairbanks Natural Gas from the small LNG plant on Point MacKenzie. Additionally, building the Salix plant on the same pad as the plant run by Pentex subsidiary Titan LNG could offer operational savings by running both plants with a single operator. Shefchik said the location the Salix plant isn’t yet settled but he hopes it can be built alongside the existing plant to minimize capital costs and maximize operational efficiencies. Besides the economic benefits of a potentially lower- and stable-cost energy supply, a successful Interior Energy Project would significantly improve the region’s winter air quality — some of the worst in the country due to low-level atmospheric inversion that occurs in the area and traps wood smoke and emissions from fuel oil furnaces. Detailed negotiations are with Salix are ongoing, according to Shefchik, and an official recommendation from the AIDEA board to continue is expected at its March 31 meeting. Fairbanks rates drop 10.4 percent Fairbanks Natural Gas President Dan Britton told the AIDEA board that changes to the utility’s pricing structure implemented Jan. 1 have largely been successful, resulting in ratepayers bills being lowered by an average of 10.4 percent during the first two months of the year. AIDEA took ownership of the utility last year through the authority’s $52 million purchase of FNG’s parent company Pentex. Transfer of the private, unregulated utility to a public entity allowed for lower rates of return and tax savings among other items that were first expected to result in 13 percent rate reductions for FNG customers. At the same time, Britton wrote in a brief operational report to the AIDEA board that the warm Interior winter and low fuel oil prices have combined in a gas sales volume that is 17 percent, or about $700,000 below budget for January and February. “We will be watching expenses very closely,” Britton said, adding capital projects may be deferred if the trend continues. He said in an interview that margins were already thin after the rate reduction but that the utility is still on solid financial footing. With the forecast showing no sign of a cold snap, Fairbanks seems to have escaped this winter without hitting minus-30 degrees Fahrenheit. Most winters the city sees more than 20 days colder than minus-30, Britton said, which simply means customers burn less natural gas. The number of heating degree days — a temperature-based metric for determining how much energy is required to heat a structure during cold weather — in Fairbanks has also been off 17 percent from FNG’s budget in the first to months of the year, according to the report to the board. Piling on the warm weather is cheaper fuel oil that has led some Fairbanks Natural Gas customers to revert back to the fuel the city has so badly wanted to get off of. At about $2 per gallon delivered, fuel oil is about 25 percent cheaper on an energy equivalent basis than FNG’s current price for natural gas, which is about $20 per mcf, according to Britton. He said 12 of the 14 school district buildings that the utility had budgeted to be on natural gas switched to fuel oil in January and February, along with the state’s Ruth Burnet Sport Fish Hatchery. Many of the utility’s large customers are interruptible, which allows FNG to supply them with gas when it is available. That also means interruptible customers must have a backup fuel source — and when the backup fuel is cheaper it is their prerogative to switch. Elwood Brehmer can be reached at [email protected]

Museum exhibit to celebrate century of Alaska banking

The Alaska Heritage Museum will feature exhibits and speakers on March 14 at Wells Fargo’s Northern Lights Boulevard headquarters to celebrate a century of banking in Alaska. Event speakers will include Ed Rasmuson, chairman of the Rasmuson Foundation, Terrence Cole, a professor of history from the University of Alaska Fairbanks, former Wells Fargo Alaska Regional President Richard Strutz, and current Wells Fargo Alaska Regional President Joe Everhart. The event will begin at 5:30 p.m. on the first floor of 301 Northern Lights Blvd. Museum manager Tom Bennett said the exhibit and speakers fall back on a rich history of financial institutions in Alaska that distills the patterns and attitudes of Western banks in the Lower 48, and marks the rise of the Rasmuson family, National Bank of Alaska and eventually Wells Fargo in the history of Alaska’s key developers. Wells Fargo traces its roots in the state back to the Gold Rush days, and National Bank of Alaska opened as the Bank of Alaska on March 20, 1916, in Skagway. Before the modern world of banking regulations, any frontiersman looking to earn extra cash could get into the business. “The banking history in Alaska is so complex it’s amazing,” said Bennett. “At the time of the gold rush, anybody could own a bank. If you were a barber, you could own a bank. You could just put a sign on your door that said, ‘I’m a bank.’” The territorial Legislature allowed branch banking, and the Bank of Alaska opened offices in Skagway, Wrangell and Anchorage. Edward “E.A.” Rasmuson moved to Skagway in 1916 after passing the bar and becoming an attorney in the then-territory, then took over Bank of Alaska in 1918 despite no banking experience. As World War I funneled resources towards the national war effort and shaky banks struggled even harder to stay afloat, Rasmuson bought up the boutique banks, enlarging the Bank of Alaska’s footprint. Wells Fargo at the time established itself as a transportation provider for the gold and furs coming from the Interior. When the federal government took over such transportation services at the onset of World War I, Wells Fargo shifted to a purely financial institution elsewhere. It wouldn’t resurface in Alaska until purchasing National Bank of Alaska in 2000. Wells Fargo is the largest bank in the state with 49 branches and 53 percent of total deposits totaling more than $6 billion according to the most recent FDIC reports. After passing away in 1949, E.A. Rasmuson left the bank to his son Elmer Rasmuson, and his widow Jenny Rasmuson established the foundation bearing the family name in 1955. Elmer Rasmuson eventually served as mayor of Anchorage and his interest in fisheries led him to the chair of the North Pacific Fishery Management Council, which governs the federal waters off Alaska’s coast. When Elmer Rasmuson passed away in 2000 not long after his son Ed negotiated the sale of National Bank to Wells Fargo, he left his personal fortune of some $400 million to charity and much of it to the family foundation. Until the 1960s, Alaska’s banks and its economy stood on shaky ground. Bennett said E.A. Rasmuson’s early lending practices foreshadowed his namesake foundation’s charity, signing loans on a handshake and even bartering goods and livestock for loans before statehood prohibited the practice. The spirit of Alaska solidarity, formed by mutual dependence in a harsh environment, remains in Alaska’s banking world today, Bennett said. “Even looking at other states, National Bank of Alaska and the Rasmuson family really stands out as extraordinary,” said Bennett. “Even if someone couldn’t afford a loan, they’d find a way to get them a loan. That bled its way into the whole banking industry.”

Fishing industry: Maximize existing rates before raising taxes

Gov. Bill Walker’s fisheries tax bill is still lingering in committee as fishermen and legislators try to stave off new taxes by turning the discussion to maximizing collections at existing rates. By this point, several of the state’s largest fishing industry trade groups — including the United Fishermen of Alaska, Alaska Salmon Alliance, and the Pacific Seafood Processors Association, or PSPA — sent letters to legislators supporting the concept of fishing taxes but calling the bill too simple and too rushed to not harm the fishing industry unfairly. The bill would raise taxes on all segments of the commercial fishing industry by 1 percent. During a House Fisheries Committee hearing on March 8, the conversation veered into existing tax territory, probing for more opportunities to increase existing tax revenues instead of raising rates. “It’s really a question of auditing,” said Department of Revenue Tax Division Director Ken Alper. “This is really one of those things where we don’t want to raise our existing taxes until we know we’re getting all the taxes we could have.” In particular, Specifically, offshore catcher processors harvesting yellowfin sole, Atka mackerel, and other groundfish are being taxed at the statewide average for those species instead of the market value specific to that vessel. “There is an offshore catcher processor fishery that catches yellowfin sole that right when they come out of the water that value is between 12-16 cents a pound (as opposed to the statewide average of 2 cents a pound),” said Vince O’Shea, vice president of the PSPA. “So the difference is potentially 14 cents a pound. In yellowfin sole, that overall tonnage is 298 million pounds. Another species, Atka mackerel, the statewide fish price is 10 cents a pound. But there’s estimates that the at sea is 32 cents a pound. That total tonnage there is 69 million pounds.” Nobody is gaming the system, O’Shea said. Instead, the state’s tax collection methodology creates such pockets of undervalued species. “It’s not an issue of underreporting,” said O’Shea. “The system is set up that the Department of Revenue operates off the statewide average price list. Let’s get everyone on a level playing field and get everyone paying the same rate.” PSPA’s notice is similar to an earlier Department of Revenue finding that a tax rate glitch let groundfish trawlers off the hook for more than $10 million of fishery taxes in the last half-decade. The fishery resource landing tax assesses groundfish based on ex-vessel price. Processors turn flatfish caught as bycatch into low-value fishmeal, so the only known ex-vessel price for certain flatfish species is artificially low. Nine species have this price uncertainty, but most flatfish volume comes from yellowfin sole and Atka mackerel. According to state research estimates, the state has lost out on $1.8 million to $2.5 million per year, or more than $10 million over the last five years. “That $2 million is serious money,” in an environment of nickel and dime tax raises elsewhere, Rep. Jonathon Kreiss Tomkins, D-Sitka, said. Alper said during the committee that the state is nearer to establishing a more reliable way tax rate for the offshore groundfish processing sector. Committee chair Rep. Louise Stutes, R-Kodiak, also questioned the practice of bonus or retroactive pay for fishermen part of a limited liability corporation or cooperative. “When they first deliver their fish, you get the minimum amount for your fish,” she said. Later when fish may have sold for a higher price, fishermen can receive retroactive pay for the difference. “That’s not a return on investment, that’s being paid for the fish,” Stutes said. “Call it whatever you want, those fish need to be accounted for tax dollar wise.” PSPA, along with Ocean Beauty Seafoods and Icicle Seafoods, proposed an equalization of taxes for each fishery sector by setting every sector’s tax rate to 4 percent. This would be a raise for some sectors but would lower the tax rate for others, including the floating processors and canned salmon sectors. The committee was lukewarm on the proposal; Alper insisted the administration’s intent was to support the bill as written. “I don’t see that there’s a need in this environment to cut those taxes,” said Alper. The bill’s next scheduled hearing on March 10 was canceled. It has not yet been scheduled for another. DJ Summers can be reached at [email protected]

Laukitis, Peterson nominated for North Pacific council

Gov. Bill Walker submitted nominations to fill two seats of the North Pacific Fishery Management Council on March 9. Walker has nominated Buck Laukitis and Theresa Peterson to replace Duncan Fields and David Long among the 11 voting members of the council, one of eight regional councils established by the 1976 Magnuson-Stevens Act to oversee federal fisheries from three to 200 miles off the coast. Fields has served his maximum of three, three-year terms, while Long has served just one. As alternates, Walker forwarded Eric Olson, Paul Gronholdt, Linda Behnken, and Art Nelson. “I am pleased to recommend Theresa Peterson, Buck Laukitis, and the four alternate nominees to the North Pacific Fishery Management Council,” said Walker in a release. “Each of these individuals provides balanced and insightful experience that will benefit the council, and contribute to fisheries management and conservation in the North Pacific region.” The U.S. Secretary of Commerce must confirm each nomination. Council seats are held for three years and may serve up to three terms. Of 11 voting members, six seats are reserved for Alaskans, including the commissioner of the Alaska Department of Fish and Game, currently held by Sam Cotten. The remaining seats are reserved for the fish and game officials from Washington and Oregon, as well as a designated seat for the National Marine Fisheries Service Alaska Region. Laukitis is a commercial fisherman from Homer and the owner of Magic Fish Company. While he has no previous fisheries management experience on either the Alaska Board of Fisheries or the council’s Advisory Panel, Laukitis said his experience dealing with proposals to the board and counci, and serving on various fisheries advisory groups has prepared him for the council membership. Laukitis holds permits for several fisheries, including salmon, halibut, and an inactive rockfish trawl license. “I’m pleased and happy and look forward to working with the other members of the council, particularly the other Alaska members,” said Laukitis. Laukitis said he views himself as a small boat Alaska fisherman first, and plans to lend that viewpoint to the council. Laukitis’ daughter and son-in-law both operate the family fisheries with him, and looking out for the next generation of fishermen will be paramount in his council actions. “I have the next generation right in my household who want to be a part of this, and so that’s always first and foremost in my mind how council decisions will affect them,” said Laukitis. Peterson, a Kodiak resident and commercial fisherman, currently serves on the council’s Advisory Panel. Peterson has been a vocal supporter of regulations that would directly benefit Alaska coastal communities and a critic of those she feels would damage them. Most recently, Peterson expressed opposition to a proposal to establish rationalization programs in the Gulf of Alaska groundfish fisheries she felt would impact Kodiak residents not tied to large-scale fishing operations. Instead, Peterson voted to have the council further examine a set of proposals that are universally unpopular with trawl industry representatives.

Western governors: Changes needed to Endangered Species Act

DENVER (AP) — The nation needs to change the way it protects endangered species because the current practice is bogged down in lawsuits and weakened by mistrust, the head of the Western Governors Association said March 9. Wyoming Gov. Matt Mead said March 9 the problem is nationwide and that he hopes to build bipartisan support for changes in the federal Endangered Species Act, the primary tool for protecting species on the brink of extinction. He stopped short of suggesting specific changes but said years-long legal battles frustrate landowners, local governments and industry and eat up resources that could be used to protect other other species. Mead, a Republican serving a one-year term as chairman of the Western Governors Association, said the problem is partly in the law itself and partly in the way it’s put into practice. Deciding whether to protect a species is nearly always a long, contentious struggle because federal intervention can result in rules that limit oil and gas drilling, mining, agriculture and other land uses. “I don’t think it’s collapsing, but I do think there’s definite chinks,” Mead said after speaking to wildlife managers, conservationists and business interests meeting in Denver to review how well the Endangered Species Act works. Mead directed the Western Governors Association to conduct the review. Mead’s initiative comes as southwestern states are battling the U.S. Fish and Wildlife Service over reintroducing endangered Mexican gray wolves in Arizona and New Mexico, and the federal government is attempting to lift protection from grizzly bears around Yellowstone National Park. Colorado Gov. John Hickenlooper, a Democrat, agreed that decisions about protecting individual species drag on too long with no definitive conclusion. “There’s got to be a point ... where we can declare victory,” he said. Hickenlooper, who also spoke at the gathering, declined to say whether the law needs major or minor changes. Eric Holst of the Environmental Defense Fund agreed the process of protecting species should be faster and less complicated, but he said changes could be made without rewriting the law. “We believe that the law has sufficient flexibility in it to solve some of the legitimate problems that folks in this forum (in Denver) have pointed out,” he said. Mead and Hickenlooper cited a sweeping conservation effort just getting underway to save the greater sage grouse as a model for how endangered species can be protected with support and guidance from a wide range of interest groups. The federal government decided in September not to list the ground-dwelling sage grouse under the Endangered Species Act, instead opting for new rules and land use policies for federal lands. The birds, known for their elaborate mating ritual, range across a 257,000-square-mile region spanning 11 states. Environmental groups, mining companies, ranchers and some state governments have filed multiple lawsuits challenging the conservation plan, arguing it either goes too far or not far enough. Mead said such protected legal battles threaten to leave residents and state and local officials disillusioned. Mead also argued that court challenges make it too difficult to remove a species from protection, even if it has recovered. Since the Endangered Species Act was passed in 1973, only 1.4 percent of the 2,200 protected species have been removed from the list because they have recovered, he said. He pointed to wolves, which were briefly removed from federal protection in Wyoming but then put then returned to protected status after environmental groups filed lawsuits challenging state management plans. “You have to have a way to reach the goal line,” Mead said.

Enstar to save $14M in first year of new gas deal with Hilcorp

The eventual return to a free Cook Inlet natural gas market is looking good for consumers as the latest round of gas supply contracts are signed by utilities. Enstar Natural Gas Co. has reached a deal with Hilcorp Energy to fuel the lone Southcentral gas utility through March 2023 at prices more favorable than those outlined under the Consent Decree that regulates Inlet gas contracts through 2017. Filed with the Regulatory Commission of Alaska Feb. 29, the gas sale and purchase agreement between Enstar and Hilcorp would kick in April 1, 2018, at an average price of $7.56 per thousand cubic feet, or mcf, for firm gas deliveries. That would amount to a 9.2 percent price decrease compared to contracts under Consent Decree terms that will expire at the end of March 2018 — an overall $14 million savings in the first year. Enstar Vice President and General Counsel Moira Smith said that savings will be passed on directly to utility’s customers. “It’s a nice discount off of Consent Decree prices,” Smith said in an interview. “We thought it was a big win for our customers.” The firm gas price at then end of the deal in 2023 is $8.19. The tentative agreement, which is subject to RCA approval, also calls for an annual 2 percent price increase, versus the 4 percent yearly escalation allowable under the Consent Decree. The Consent Decree is the deal reached by the Attorney General’s office and Hilcorp in late 2012 that set price caps for Inlet gas contracts from 2013 through 2017, thus allowing Hilcorp to purchase gas and oil interests from Marathon and Chevron and become the majority gas supplier in the basin. At more than 22 billion cubic feet, or bcf, per year, Hilcorp would supply about 70 percent of Enstar’s projected demand under the contract — a demand forecast that is flat at 33 bcf for the foreseeable future. Smith said Enstar’s customer base grows a little more than 1 percent a year, but increasingly energy efficient homes using less natural gas offsets new customer demand. Regional electric utilities that use natural gas as primary fuel source have made similar comments regarding their own demand forecasts. Last year Chugach Electric Association and Homer Electric Association signed gas supply contracts extending beyond 2017 at prices less than Consent Decree prices as well. Enstar was able to combine firm, base delivery and peak volume demand prices in the deal, which will cover for contacts of each type the utility had with Hilcorp that are expiring in 2018, according to Smith. Higher prices for peak demand purchases add about 15 cents to the average yearly gas price paid by Enstar under the agreement. Utilities typically hunt hard for the longest-term contracts they can to provide customers with security of fuel supply, but there were other factors that led to the five-year term. “Our goal was to get some stability and five years gives us some stability while simultaneously allowing other producers time to get on their feed and get some real production up and going and also allow room for a (pipe)line from the North Slope that we could purchase from,” Smith said. “It was not Hilcorp saying they did not want to negotiate for more than five years.” If seen to fruition on its current schedule, the Alaska LNG natural gas export project would begin shipping North Slope gas to Southcentral in late 2024 or 2025, but the state and its partners have announced they won’t have key agreements in place for approval by the Legislature this year, likely delaying the effort. As to the large share of the contract — filling upwards of 70 percent of Enstar’s total gas demand through one producer — Smith said frankly, “It’s because nobody else could do it.” While there is little doubt gas reserves in the basin could supply Southcentral for at least several decades, limited local demand continues to hinder the market for Inlet gas. Producers could develop the resource, but they would have no one to sell it to. Thus, the market has narrowed to one with a single, dominant producer in Hilcorp, despite having some of the highest wholesale natural gas prices the world currently. Hilcorp’s near exclusive control of Cook Inlet natural gas supply spurred the Consent Decree — a way for the state to limit the monopoly power over a critical commodity. Smith said the Consent Decree did its job in that it ended exorbitant high bidding for peak demand gas sales and added a “degree of functionality” to the market. For its part, Hilcorp has been a reliable partner and provided good service to its utility customers, she said. “Without engaging in hyperbole, (Hilcorp has) acted as very good stewards of the state resource to ensure stability for utilities,” Smith said. She added that Enstar would still like to see more players, on either side, in the market. Since Agrium Inc. shut down its Nikiski fertilizer plant in 2007, Enstar has become the major buyer, accounting for a third to half of all gas demand from the Inlet. Just three years ago Enstar resisted the idea of new Cook Inlet customers because the market was strained on the supply side, Smith said. Hilcorp’s work to improve supply from existing fields has flipped the market challenge. Now, the utility would prefer to be “noise” in a much larger gas market, Smith said, under the premise that a larger market would spur more production leading to better security of supply and price competition. Sporadic sales from ConocoPhillips’ Nikiski LNG export facility have increased gas demand slightly over the last couple years, but depressed worldwide LNG prices have put the immediate viability of future exports in question. Furie Operating Alaska LLC is finishing early development of its Kitchen Lights Unit and has one small contract in place with Homer Electric, under which gas sales are set to start in April. The base load gas price in that deal is $7.42 per mcf, according to RCA filings. Elwood Brehmer can be reached at [email protected]

GUEST COMMENTARY: Higher taxes on oil industry won’t fix fiscal gap

It was just 18 months ago that Alaskans voted for more oil production when they soundly rejected Ballot Measure 1, which sought to repeal Senate Bill 21, the More Alaska Production Act. That vote has paid big dividends to Alaska, with forecasts projecting an additional 50,000 barrels of new oil per day through the Trans-Alaska pipeline System by 2020, and stabilizing the flow rate this year for the first time in many years. In 2015, some 185.6 million barrels flowed through the pipeline, a mere 1 percent decline from 2014, and a sharp reversal of historic decline rates of 7 percent or more. North Slope production averaged 508,446 barrels per day, just 1 percent less than the year before. These are encouraging numbers, especially for an industry that has suffered record losses due to plummeting oil prices. North Slope oil now sells for less than it costs to produce, leading to huge losses and negative cash flows. In spite of these losses, the industry continues to invest heavily in Alaska. We must be very careful not to punish this investment behavior by raising taxes during these difficult times. The risks to Alaska of discouraging investment through increased taxes are extreme. The oil and gas industry still supports one-third of the entire state economy and has provided 88 percent of all state revenues since statehood. Even in these times of mounting losses, Alaska will collect 67 percent of its revenues from the oil industry through property taxes, income taxes, production taxes and royalties. And it’s important to remember that the State is collecting more under SB 21 than it would under ACES. We are already witnessing the negative impacts of $30 per barrel oil — a price that, when adjusted for inflation, is the lowest since the crash of the 1980s. While Alaska is still attracting investment today, most oil provinces are not. We are very fortunate to be living and working in Alaska than in oil locations elsewhere. Despite these sobering times, the industry has upheld the commitment it made when the Legislature passed — and Gov. Sean Parnell signed — SB 21, the More Alaska Production Act. It pledged to increase investment, and it did, to the tune of $5 billion. Legislation recently introduced dramatically changes the tax system established by SB 21 by raising the minimum tax by at least 25 percent for some fields and imposing a new tax for others. It also repeals and alters tax credits, many of which provide an investment in Alaska’s future and encourage exactly the type of private spending that keeps our Alaska economy strong. This legislation was introduced despite the fact that it will do little to solve our fiscal crisis but will greatly harm an industry that’s already on its knees. The legislation ignores the fact that the voters spoke loud and clear, as did Gov. Bill Walker, who said, “I do not intend to offer changes to SB 21”. This legislation would mark the sixth major tax change in 11 years. Attracting investment requires a fair and stable tax structure. Tax credit policy should not be a whipsaw for filling the budget deficit; it should be a thoughtful approach to a stable and growing economy. As Caelus warned last year, “Every time there is a cough in Alaska about changing the oil tax structure, that cold goes all the way to Manhattan.” Caelus, a Texas-based independent, is one of the North Slope’s most active explorers. We all know that taxes on our resource industries are politically easier than taxes on our residents. But our resource industries are the last place we should look for tax revenue today, as they are swimming in an ocean of red ink and unable to continue investment if we raise taxes while they are losing money. Our state is facing a massive fiscal crisis unseen in more than 30 years. We applaud the governor and legislators who are willing to put Alaska’s long-term economic future ahead of short-term politics. There is nothing more important for our state than to solve our budget deficit and build a sustainable economic future for our state, but we can’t do it on the backs of an ailing industry that already pays most of Alaska’s bills. Fortunately, we have the financial resources to not only survive, but prosper. What we need now is the courage to responsibly continue to drive down the cost of state government and utilize the Permanent Fund as intended: to fund state services. We may eventually need to pay taxes ourselves; however, the last place we should look for new revenue is to unfairly tax the very industries that drive our economic future. If we push them away, our economic future will be hopeless. This is a time for Alaskans to support responsible fiscal policy. Marc Langland and Jim Jansen are co-chairs of KEEP Alaska Competitive, a coalition of businesses and individuals who support a fair and competitive resource tax policy to increase investment, production and jobs to secure Alaska’s economic future. Langland is the founder and former CEO of Northrim Bank, and Jansen is the CEO of Lynden Inc.

FISH FACTOR: Arrowtooth flounder study focused on food competition

Fish stomachs could help solve the mystery of why Alaska halibut are so small for their age. Halibut weights are about one-third of what they were 30 years ago, meaning a halibut weighing 120 pounds in the late 1980s is closer to 40 pounds nowadays. One culprit could be arrowtooth flounders, whose numbers have increased 500 percent over the same time to outnumber the most abundant species in the Gulf: pollock. Fishermen for decades have claimed the toothy flounders, which grow to about three feet in length, are blanketing the bottom of the Gulf, and many believe they are out-competing halibut for food. A study being done by researchers in Southeast Alaska aims to find out. “People think that potentially arrowtooth is competing with halibut for space and/or prey which is limiting the growth of Pacific halibut,” said Cheryl Barnes, a PhD student at the University of Alaska Fairbanks who is working out of the National Oceanic and Atmospheric Administration’s Auke Bay lab in Juneau. Since last summer, Barnes and her adviser Dr. Anne Beaudreau have been studying spatial and dietary overlaps between the two species. Along with analyzing Gulf of Alaska bottom trawl data, the team is doing field studies in fishing areas around Juneau where no trawling occurs. Barnes said they are looking at two things: space use and the composition of prey within their stomachs to try and get answers using a concept called “resource partitioning.”  “The thought is that if you see areas where halibut and arrowtooth are overlapping in space, you might expect to see that they are not eating the same things as a way to alleviate competitive effects. They are partitioning their resources in that way,” she explained. “Whereas if they are in an area where there is not much spatial overlap between the two, they might be eating roughly the same things because they are part of the same niche and the goal is to eat those prey items that are more optimal for their growth. And they are more able to do that if both species are not found in the same location.” Barnes is studying the contents of over 1,000 halibut and arrowtooth stomachs collected last year from sport anglers, and she hopes to collect at least that many through September. She said her diet study dovetails with other others being done that focus on environmental factors and impacts of fishing.  “Especially size selective fishing — the idea that we have been removing the larger, faster growing individuals, and it just kind of brings that average size at age down,” she said. If the project proves that the two species are competing for food, it will fall to managers to find creative solutions. That could prove problematic in terms of increasing arrowtooth catches to leave more food for halibut. “One of the problems is that arrowtooth aren’t really marketable because when you heat them up the flesh turns into a mushy fish smoothie. The other is that there is a lot of bycatch associated with arrowtooth catches since they share the same habitat,” Barnes explained. Meanwhile, Barnes wants to get more donated stomachs of both species, either fresh or frozen, along with information that includes fish length, body weight, and where it was caught. While the project, which is funded by the Pollock Conservation Cooperative Research Center, now centers on fishing areas around Juneau, it could expand to other regions. “We are considering it a pilot project,” Barnes said, “and if we find that we are able to find some answers on the potential for competition around Juneau, there is opportunity to expand it to other areas of the Gulf of Alaska.” Got stomachs? Contact Barnes can be at (907) 957-4893 or [email protected] Salmon sales slump Salmon sales data from last year show what everyone already knows: lower prices across the board. The Alaska Department of Revenue’s Tax Division tracks sales of six different salmon product forms by region, including frozen, fresh, roe and cans. The latest report shows data from the busy sales season from September through December. Here’s a sampler: By far, the bulk of Alaska’s salmon goes to market in frozen, headed and gutted form. The average wholesale price for sockeye was $2.40 per pound, compared to $3.13 last year. For cohos, the price was $2.20 compared to $2.53 per pound; pinks averaged $1.07, down 26 cents, chums sold at $1.25, down 23 cents, and frozen chinook salmon averaged $3.85 a pound, compared to $4.28 at the same time last year. Fresh and frozen sockeye fillets wholesaled for $5.73 on average, down from $6.19 a pound. Pink salmon roe averaged $4.16 per pound, down from $6.95; chum roe at $10.30 was a drop of $2.50 per pound from 2014. Cases of 48 tall cans of sockeye took a huge nose dive to $126.53 per case, a drop of nearly $70. Cases of canned pinks were wholesaling at $76.86, down $4. The market could get some relief from less salmon being available to buyers this year. A toxic algae bloom continues to kill millions of farmed salmon from Chile, where production is pegged to fall way below expectations. “The upshot is that Chile’s production may fall by 40,000 to 50,000 tons, or 13 percent below what was expected from the inventory of fish in the water taken at the end of December,” said market expert John Sackton. Salmon catches on the West Coast also are projected to be down by half at Puget Sound and on the Columbia River due to low coho numbers. Likewise, chinook salmon populations along the coast are in even worse shape, and fishing will be severely restricted this year. Officials blame the overall declines on record warm ocean temperatures and poor river conditions following years of drought. Lower salmon numbers also are projected for several Alaska fisheries – notably, for pink salmon in Southeast and at Prince William Sound. Bristol Bay’s sockeye forecast calls for a catch just under 30 million fish, well below harvests of the past two years. Fish watch March means a couple thousand Alaska fishermen will start gearing up for halibut, which opens a bit later this year on the March 19. For the first time in decades the total coastwide catch increased by 2.3 percent to just under 30 million pounds. Alaska gets the lion’s share at about 21.5 million pounds, a boost of 200,000 pounds from last year. The year’s first roe herring fishery at Sitka Sound could kick off around the same time. A quota of nearly 14,941 tons is a 70 percent increase. Last year the Sitka fishery opened on March 18 and managers planned to begin surveys this week. Fishing for cod, pollock, flounders and other groundfish continues in the Bering Sea and Gulf of Alaska. Likewise for crab: Bering Sea snow crabbers have taken 70 percent of the 36.5 million pound quota with less than 11 million pounds left to go. Less than 3 million pounds remain in the Tanner crab quota of nearly 18 million pounds.  A new law requiring life rafts for fishing boats has been delayed. The new rules would have applied to any vessel operating more than three miles from shore, even small hand trollers or halibut skiffs. Currently, only boats 36 feet or larger, or those carrying four or more people, are required to have so called ‘buoyant apparatus.’ Word came after the Feb. 26 deadline that Congress chose to repeal the requirement, and opted instead to go through the formal rule making process before implementation. That could take at least a year, said Steve Ramp, a Coast Guard Commercial Fishing Vessel Examiner in Sitka. Laine Welch lives in Kodiak. Visit www.alaskafishradio.com or contact [email protected] for information.

EDITORIAL: University of Alaska isn’t to blame for state budget woes

Last week, the University of Alaska faced a barrage of skepticism from legislators unlike any the institution has seen in years. In hearings by the House Finance Committee’s subcommittee on the university budget, chairwoman Rep. Tammie Wilson put forth a mammoth cut that would have represented a loss of nearly a fifth of all state funding. She and other members of the majority told university officials to justify the state money being spent on all university functions outside of basic classroom instruction. Their explanation must not have been satisfactory, as the subcommittee voted to send forward a university budget with $50 million in cuts from last year’s funding level, an amount that would hit the institution like a sledgehammer as it enters its 100th year. In the hearings, Rep. Liz Vazquez said the university hadn’t done enough in its budgeting to prepare itself for the oil price collapse now hampering state revenues. But if legislators want an answer for why the university wasn’t better prepared for less funding, they need look no further than the nearest mirror. The governance of Alaska’s university has long been an arrangement causing friction in the halls of the Legislature. The Alaska Constitution established the Board of Regents as the governing body of the University of Alaska. But in practice, the Legislature holds considerable sway over the university’s direction, because it holds the purse strings for the state funding that makes up close to half the institution’s budget. What’s more, legislators have often included intent language in the university’s budget allocation in a bid to restrict or control how some funds can be used. The university has been forced to rely on state general funds far more than it should have in the decades since statehood, as legislative misadventures from 1959 onward resulted in the institution never receiving more than a fraction of the land grant that would help it be a self-sustaining organization. Even the land grant travesty and the Legislature’s control over a substantial chunk of the university budget would be far less problematic were it not for legislators’ tendency to micromanage the university’s mission. Certainly, oversight and direction can be beneficial. One example of this was the Legislature’s recognition in the mid-2000s that the state was in need of more nurses and engineers, when they directed the university to focus resources on producing more of each. Accordingly, the Fairbanks and Anchorage campuses expanded the pre-medical nursing program and engineering programs. The university was successful in attracting students to the programs, which — particularly in the case of engineering — highlighted the need for new and expanded facilities to provide a modern education. In pursuit of the goal of producing more engineering graduates, the Board of Regents planned for new engineering buildings in Fairbanks and Anchorage. The state’s burgeoning oil wealth and the concentration of legislators in Anchorage made the $78 million UAA engineering building a relatively easy sell — its construction began in 2013 and was finished two years later, complete with an enclosed skybridge to the adjacent Health Sciences building. The Fairbanks facility, however, was another matter. Legislators chose to allocate $109 million to an Anchorage sports center the Board of Regents didn’t see as needed or wanted — thanks to an existing deferred maintenance backlog of hundreds of millions of dollars, the regents were painfully aware of the ongoing operating costs a new building entailed. The Legislature opted for the sports arena anyway, fully funding it and providing piecemeal funding to the much-needed UAF engineering building. When the oil crash hit, construction of the half-finished engineering building stalled; the UAA arena was already complete. The Legislature has made no plan to provide funds to finish the engineering building, an asset that could help students immensely. Now, with budget pressure coming from all directions, some legislators are heaping scorn on the university for not being more prudent with its funds. The truth of the matter is that the Board of Regents’ priorities have been far more prudent than those of the legislators who now, in an ironic twist, are cutting university athletics funding, threatening to shutter the costly sports center that they so eagerly voted to fund only a few years prior. Legislators should know better than to give the university lectures on fiscal responsibility.

Alaska Communications posts positive net income to close 2015

Alaska Communications Systems Group Inc. posted strong final quarter for 2015 closing the year after the sale of Alaska Wireless Networks to General Communication Inc. in a move that reduced the company’s debt by $240 million and primed it to focus on increasing business revenues. Balance sheets still reflect the sale and the departure of wireless revenue. Total operating revenue for fourth quarter 2015 declined, from $77.5 million in 2014 to $56.6 million in 2015. For the year, operating revenue declined from $315 million to $233 million. Operationally, the divestiture of wireless expenses led to an income bump. Net income increased for the quarter compared to last year. In 2014, Alaska Communications had a $5.4 million loss, while fourth quarter 2015 produced a net income of $339,000. For the year, ACS had a net income of $13 million in 2015, rising above a $2.8 million loss in 2014. Since selling its one-third share of the Alaska Wireless Network, which combined the wireless infrastructure of Alaska Communications and GCI, the company made strides focusing on business broadband and managed IT services. Total broadband revenue reached $19.4 million from $17.5 million, up 10.4 percent. Business and wholesale service revenue grew to $32.2 million from $27.8 million, a 15.7 percent gain.  The company’s business services focus does come with a cost, as consumer revenues have dropped. Consumer revenue declined 6.3 percent and consumer broadband revenue declined 7.6 percent. Alaska Communications expected the dip in customer revenue, CEO Anand Vadapalli said. Consumer services – less than 20 percent of the total revenue – rely heavily on consumer broadband. More and more households cut traditional broadband and cable connections in favor of streaming directly from their wireless connections. Vadapalli said Alaska Communications’ consumer revenue drop comes in part from a service change. Rather than a host of packages, ACS now only offers one broadband package serving 10 megabytes per second, the fastest connection speed available. “We have dramatically simplified our product,” said Vadapalli. “We have one product, one price, the maximum speed you can use, and all the data you can use.” The trend of declining consumer revenue will continue in 2016, Vadapalli said, but he expects to stabilize in 2017. Vadapalli said Alaska Communications’ contract as broadband provider for ConocoPhillips, in partnership with wireline provider Quintillion, has yielded positive results since it began in 2015. Alaska’s market is unlike Lower 48 broadband markets in that it has only two major providers, ACS and General Communications Inc. Vadapalli said the company hopes to leverage this market scenario for a greater presence in oilfield and state government operations. DJ Summers can be reached at [email protected]

GCI posts record revenue, but net income loss, for 2015

General Communication Inc. finished the fourth quarter of 2015 strong, with record revenues but negative income, courtesy of the purchase of Alaska Wireless Network. GCI posted a $10 million net income loss for 2015, following a $7.6 million net income in 2014. Alaska Communications Systems Group Inc. sold its wireless subscriber business and its 33 percent share of the Alaska Wireless Network to General Communications Inc. for $300 million in cash in a deal finalized Feb. 2, 2015. In the second quarter of 2015, GCI folded the 87,000 acquired wireless subscribers into its coverage. The purchase has increased revenues, particularly in the consumer wireless segment in which GCI no longer competes for business with ACS. Total revenue increased from $910 million in 2014 to $979 million in 2015. Between 2014 and 2015, GCI wireless lines in operation increased from 149,600 to 227,800. The increase yielded expected results. Revenues for consumer wireless plans spiked in 2015 to $75.8 million, $45 million more than in 2014. Business wireless revenue increased $4 million from 2014 to $8.1 million in 2015. Wireless data plans for consumers also increased by $27 million, along with a $22 million bump in managed broadband data plans for businesses. During an earnings call, an investor asked whether GCI plans to use its existing TERRA fiber optic network to potentially increase presence on the North Slope now that ACS and Quintillion provide broadband services for ConocoPhillips. Chief Financial Officer Peter Pounds said GCI will continue to explore North Slope opportunities, and that GCI was not aware enough of Quintillion’s operations to comment. “The Slope, in spite of the low oil prices it’s still a very important region for us, both for wireless and for commercial customers,” said Pounds. “It’s one of the few places in the state where we have a non-redundant network, and much of our investment this year both on the TERRA Network and on the North Slope fiber designed to eliminate the remaining of pockets of single thread service.” CEO Ron Duncan, when asked about whether the state economy would eat into GCI’s bottom line, said he expected to see the economy contract quickly if the Legislature cuts too deeply into the state budget. “Right now the outlook for the industry is that it’s going to see some shrinkage in the economy,” said Duncan, who has co-founded the group Alaska’s Future to advocate for using Permanent Fund earnings to close the state’s massive budget deficit that’s nearing $4 billion for the current fiscal year. “This could be a very mild recession and we could have a reset and continue to build a core economy, or if the Legislature takes irresponsible actions and drives the budget off the cliff, you could see much more adverse results on the state economy probably before the end of this year.” DJ Summers can be reached at [email protected]

Plan for Southeast alternative fuel revived with propane

Alaska has a love affair with natural gas, but Frank Avezac says rural areas of the state should at least consider a date with its little sister, propane. Avezac is CEO of Alaska Intrastate Gas Co., a startup utility that March 4 announced plans to provide 17 coastal communities — from Kodiak to Metlakatla — with propane as an alternative to fuel oil with construction starting as soon as this year. The aggressive proposal by Alaska Intrastate Gas Co. would start in Cordova with infrastructure buildout in 2016 and then move to Juneau, Valdez and Ketchikan. Residents of the communities planned for gas development could see fuel cost savings of up to 30 percent from a switch from fuel oil to propane for space heat, according to Alaska Intrastate Gas Co. The full list of communities Alaska Intrastate Gas hopes to serve includes Kodiak, Valdez, Cordova, Yakutat, Klukwan, Haines, Skagway, Juneau, Angoon, Sitka, Kake, Petersburg, Wrangell, Klawock, Craig, Ketchikan and Metlakatla. Larry Head, vice president of power and energy for Alaska Intrastate Gas’ global engineering partner AECOM, said both the physical and market characteristics of propane make it a better option for remote Alaska communities. “The capital cost for producing, shipping and storing LNG is many times higher than that of propane,” Head said. Propane is a byproduct of sorts in natural gas reserves. It is typically separated from the methane that is pure natural gas. Cook Inlet’s natural gas is “clean” or “dry” gas, meaning it is almost pure methane, while North Slope natural gas is “dirty,” with a host of vapor fuels and carbon dioxide that must be pulled off before the gas can be shipped and sold. The project would buy Canadian propane and barge it from Prince Rupert to the coastal towns at a delivered price of about $1.10 per gallon to $1.30 per gallon, up to 50 percent cheaper than delivered LNG, according to Head. At that point, the vaporized propane would be mixed with air to produce a blended gas known as syngas, which has virtually the same burn characteristics as natural gas, he said, meaning the two can be used interchangeably in distribution pipes and appliances. The advantages of propane over LNG for small-scale use “go on and on,” Head said. Natural gas has to be chilled below minus-260 degrees Fahrenheit to make it LNG for ease of transport. When done on a small scale, the liquefaction process can add $2-$3 per gallon to the cost of LNG. Propane, on the other hand, liquefies at minus-44 degrees and can be kept liquid at warmer ambient temperatures for transport with relatively little compression. It has also historically been cheaper than diesel, or fuel oil, on an energy equivalent basis, Head said, and likely always will be because there just aren’t enough backyard grills to use it all. Delivered fuel oil is selling in small quantities for about $2.60 per gallon in Cordova, according to vendors. “Right now there’s a major glut of propane and there’s going to be a major glut for many years ahead because there’s not outlets for its use,” he said. Cordova was chosen as the starting point for the project because its fish processing facilities can act as market anchor tenants to supply the base demand needed to make the development of propane and propane accessories economically viable from the get-go, according to Head. “Our analysis shows we don’t need heavy adoption, we simply need the anchor clients to sign up and then residential clients will be provided, based on their interest in having a change-over (from fuel oil),” he said. Commitments to convert from a majority of residents and small businesses will likely be needed in the smallest communities without large anchor market tenants, Head added. Changing home heating systems from fuel oil to propane or natural gas can cost as little as $1,000 to $1,500 for newer boilers, in which just the burner must be replaced, or up to nearly $10,000 for a complete replacement boiler. The project has tentative agreements with fish processors in Cordova to buy gas that should be finalized soon, Head said. The first step is getting the infrastructure in place. “Right now, all we want to do is get pipe in the ground, because without pipe getting in the ground you’re never going to bring any type of gas to anybody,” Avezac said in an interview. Outgoing Cordova Mayor Jim Kasch said Alaska Intrastate Gas first came to Cordova with a plan to supply LNG nearly 10 years ago when energy prices in Alaska were at record highs. At that time, the claim was natural gas for half the cost of fuel oil, he said. The Cordova City Council approved a land sale to the utility for a landing facility, but the deal was rejected in a public vote. Kasch was on the city council when the people of Cordova rejected the deal. This time, Kasch said he was first made aware of the revived plan March 7 and sees it as a “cart before the horse scenario,” because Alaska Intrastate Gas and AECOM have yet to apply for permits to build the necessary storage, vaporization and distribution infrastructure while wanting to start building this year. “If they can do something to mitigate (high energy costs) and reduce the cost of daily life here in rural Alaska, boy, I’m all for it but they need to sell themselves to the communities where they plan on doing this and I’ve yet to see that,” Kasch said. Avezac said the holdup on the land sale years ago was opposition to filling in tidelands, which Alaska Intrastate Gas doesn’t intend to do this time around, not an opposition to the overall plan. “We’ve never met anybody that doesn’t want gas, ever,” he said. As for working with the city, Head said, Alaska Intrastate Gas has certificates of public necessity and convenience that give the utility access to right-of-ways for piping, and while permit applications have not been filed, discussions have been had and he sees no issues in getting the paperwork squared away. He said further information about project financing and detailed construction timelines would be made public soon. Elwood Brehmer can be reached at [email protected]

The Bookworm Sez: Simple steps to success for newbies

Your to-do list doubled overnight. That seems to happen once or twice a week, and it never gets any better. Tasks are finished and something else replaces them, which is what you’re told happens when you’re an entrepreneur — but if you read “The 100” by Tom Salonek, it might help you keep the list to a manageable status. If only your business grew as quickly as your to-do list, right? When you’re running a new company, there’s always something to remember, which is where Tom Salonek can help: since starting his Minneapolis business in 1991, he’s been keeping track of things that work to make a business operate successfully. At the top of the list is happiness. While you’re undoubtedly putting in a lot of hours now, it’s important to have a work-life balance that makes you happy. Step away occasionally to reassess yourself, and be sure to offer the same happiness opportunities to those who work for you. Learn the power of doing less, which is really just a method of time management. This book can help you have more effective meetings, and it can help you with employee retention. Two keys to the latter are knowing the difference between engagement and silly perqs, and giving employees a bit of scheduling autonomy. Use this book to know exactly how to get new hires up to speed faster. Then, show them the way to strong job satisfaction through encouragement, guidance, and praise for a job well done. Hire smart, hire slow, but fire fast when you need to. That goes for employees, as well as for vendors. Once you’ve got your best team, ask them for input on the important aspects of your business. Hold internal town-hall sessions, and determine your business’ core values, so you can help your employees to fully embrace them. Finally, relax. Use each point of this book individually, piecemeal, slowly. You’re in this for the long haul. Take your time to get there. “The 100,” I have to say, is a little rough around the edges. Author and Intertech owner Tom Salonek jumps into his list with no fanfare, save but a quick introduction that doesn’t really help set the tone of what’s to come and causing not just a little confusion. There’s a lot of repetition here, a lot of too-enthusiastic U-Rah-Rah-ing, plenty of commonsensical advice, and many things that will make established businesspeople roll their eyes. But that’s okay. This book doesn’t seem to be for them anyhow. The real appeal here, I think, is for business newbies who need bullet-points to guide them through the storminess of start-up. “The 100” is very methodical, it covers lots of steps in small bites, the final chapter consists of a list of helpful websites, and it’s relatively quick to read. That all adds up to a book that seasoned businesspeople will probably find redundant in their work lives, but that entrepreneurs may need to live by for awhile. And if you lean toward that second category, then put “The 100” on your growing to-do list. Terri Schlichenmeyer is the author of The Bookworm Sez, which is published in more than 200 newspapers and 50 magazines throughout the U.S. and Canada. Schlichenmeyer may be reached at [email protected]

Movers and Shakers 3/13/16

Anna Kohler has been promoted to sales executive in USI’s Commercial Insurance Division at its Anchorage office. In her new capacity, Kohler will consult organizations on risk and insurance programs and will advise them as to the best coverage for potential risks unique to their business. Kohler has been with USI as an account manager since 2014. Kohler’s background includes more than more than six years of experience in insurance and risk management, with extensive knowledge of both health and property/casualty insurance. Kohler is a graduate of Baylor University. Denali Federal Credit Union has hired Gracia O’Connell as assistant vice president of Call Center Operations and eServices. In this role she is responsible for developing a positive sales and service environment through call center transactions, new account openings and member problem resolution, and creating effective remote access channels for members. Prior to joining Denali FCU, O’Connell worked at Alaska USA for more than 14 years, starting in their Telephone Loan Center and progressing through Consumer Lending and Compliance positions within the credit union. O’Connell is working on a bachelor’s degree in psychology at Alaska Pacific University. Eklutna Inc., the Alaska Native village corporation for the Anchorage, Chugiak-Eagle River, and Mat-Su has announced three promotions. In January, Mary Duncan became the chief administrative officer of Eklutna. Duncan joined Eklutna in September 2004 as the accounting and office manager. In October 2007, she became the chief financial officer. Nick Francis was promoted to chief operating officer. He joined Eklutna in January 2013 as the director of Construction, Contracting & Government Affairs and oversaw Eklutna’s construction subsidiary Eklutna Services LLC. Before joining Eklutna, Inc. Francis was the senior project manager for the Norton Sound Regional Hospital in Nome for DOWL Engineers. While working at Eklutna, Francis successfully completed the MBA program with Purdue. In January, Noel Aspiras was promoted as the Real Estate and Land specialist for Eklutna’s Land and Real Estate departments. Aspiras joined Eklutna in April 2014 as a project intern for Eklutna’s construction subsidiary Eklutna Services LLC while finishing his construction management degree at University of Alaska Anchorage. Karen Mansfield, commander of the Alaska Air National Guard and assistant adjutant general, was promoted from colonel to the rank of brigadier general at a ceremony March 6. Mansfield served in the Alaska Air National Guard from 2000 to 2010, and returned last year for her current assignment. As the commander, she ensures the training and equipping of more than 2,000 Alaska citizen Airmen here; and at Eielson Air Force Base and Clear Air Force Station, both near Fairbanks. Mansfield is the second female member of the Alaska Air National Guard to be promoted to the rank of general. The Arctic Slope Native Association announced Dr. Barbara Medlin has been named chief of staff for Physician Services at Simmonds Memorial Hospital for the second year in a row. Over the 25 years of her practice career, she has provided general medical care as a family practitioner, delivered more than 500 babies, provided hospital care and nursing home care, and worked in emergency rooms and urgent care clinics. Dr. Alanna Small has been named deputy chief of staff for Physician Services. Small began her employment at SSMH in 2015 as an internal medicine physician and has been integral in expanding SSMH inpatient services. After having completed her residency training and chief resident year at the Tulane School of Medicine Internal Medicine program in Louisiana, Small joined the Internal Medicine Hospitalist department at the Alaska Native Medical Center in Anchorage.

Week 7 in Juneau: budget discussions quicken pace

JUNEAU—The Legislature passed its halfway mark this week, Day 45 on Thursday, and the pace of work is quickening. Budget subcommittees in the state House finished their work on agency budgets last week. The House Finance Committee folded those into a draft operating budget bill. Final amendments to that will be made in the committee. A final budget is set to go to the floor of the House by Wednesday, and then to the Senate by Friday. Meanwhile the Senate’s own budget subcommittees are at work. The target date to have the House-passed and Senate-passed budgets in a conference committee is March 15, legislative leaders say. It will then sit there, pending final action, as lawmakers turn their attention to proposed revenues to ease a huge budget deficit. It’s still unclear how much the Legislature will cut the state budget. After the House budget subcommittees concluded their work the total Undesignated General Fund expenditure was $4.093 billion for FY 2017, almost half a billion dollars down from $4.511 billion in the governor’s amended budget for the upcoming year, and almost a billion dollars down from the $5.07 billion UGF expenditure in the current year, FY 2016. However, there may have to be some funds added back in by the full House Finance Committee. Money for the state’s share of expenditures on the Alaska LNG Project was taken out by a budget subcommittee, for example, but will be added back by the full committee. Also, the Senate will have its own ideas on the operating budget. Some of the House reductions may be restored or, in some cases, the Senate may cut more deeply. The final outcome won’t be known until the budgets are passed by both bodies and the budget conference committee finishes its work, which will likely be near the session adjournment date. The 90th day, April 17 this year, is when state law says the Legislature must complete its work but there are provisions that allow for extensions if more time is needed, as happened last year. The final weeks of the session will be consumed with deliberation over revenue options, the most likely some use of Permanent Fund earnings to help pay for the budget, the first time that will have been done. There are essentially two approaches to using earnings from the Fund before lawmakers. One, proposed by the governor, would be a fixed annual draw of $3.3 billion for the state general fund, an amount that would allow the fund to still be sustained, and even grow over the long run. The second is an endowment model proposed by Sen. Lesil McGuire, R-Anchorage and Rep. Mike Hawker, R-Anchorage, that would have a percent of the Fund’s total market value appropriated to the state general fund. In all cases the appropriation would actually come from the Permanent Fund’s earnings reserve account, where income from the Fund is deposited. The earnings of the Fund can be legally appropriated by the Legislature, but funds from the principle of the Fund cannot be spent. Walker is also offering up a slate of tax increases on business as well as a motor fuel tax increase and reestablishment of a state personal income tax, but none of those measures are expected to pass this year with the possible exception of the fuel tax increase. Versions of Walker’s fuel tax increase have moved out of both the House Transportation Committee and Senate Transportation Committee and are now in the Finance committees of both bodies. Both committees tempered the governor’s proposal, which is to increase the state’s current 8 cents per gallon tax on motor fuel to 16 cents per gallon, by voiding the increase if crude oil prices return to $85 per barrel. The present 8 cents per gallon tax is the lowest in the nation and has been unchanged since 1960. Many business groups, such as the Associated General Contractors’ Alaska Chapter, are supporting the increase because it would help make money available for road maintenance and because it would strengthen the state’s arguments in defending generous provisions for Alaska in federal transportation safety programs. While most of the Legislature’s attention is focused on fiscal matters there is a lot of work being done on proposed changes to the state’s Medicaid program, a state-federal health service program for low income Alaskans, in criminal justice reform and in revamping the state’s oil and gas exploration and development incentive program. Sens. Pete Kelly, R-Fairbanks, and Anna MacKinnon, R-Eagle River, are leading the Medicaid reform, while the criminal justice reform effort is being led by Sen. John Coghill, R-Fairbanks. Both initiatives have fiscal implications because they would save the state a lot of money over time. The Medicaid reform bill, Senate Bill 74, was introduced by Kelly last year and further developed in extensive work sessions in a subcommittee, and is now in the full Senate Finance Committee. Kelly and MacKinnon are co chairs of the Senate Finance Committee. In the House, the Health and Social Services Committee, chaired by Rep. Paul Seaton, R-Homer, has been working on its own version of Medicaid reform, with a bill, HB 227, sponsored by Seaton. Medicaid is a big-ticket cost for the state, estimated at $603 million for the state share in FY 2017. Medicaid is a joint federal and state program. The two governments split costs about 50-50. Action on reforming the oil and gas incentives is in the House, for now. Extensive hearings, chaired by Rep. Ben Nageak, D-Barrow, have been underway in the House Resources Committee. More of those are planned this week, Nageak said Thursday in a briefing by House leaders. Nageak is co chair of the Resources committee and is in charge of oil and gas bills. Unless the oil tax credit program is changed, it will impose a $500 million burden on the state’s general fund in FY 2017, according to projections by the House Finance Committee. The bill in committee is HB 247, sponsored by the governor, and is intended to restructure a complex system of tax credits that has grown more intricate over time, and which has become very expensive for the state. A “companion” bill, also by the governor, is in the Senate, but Senate Resources chair Sen. Cathy Giessel, R-Anch., is letting the House take the lead. Giessel likely has her own ideas about reforming the incentives – she chaired a working group that met several times over the summer – but is keeping her thoughts to herself, for now, and will wait for the House to send over the bill, if it does. What has the oil and gas industry stirred up, as well as the industry’s support contractors and service companies, is that HB 247 does a lot more than restructure the tax code. It also imposes a tax hike on producing companies by raising the minimum production tax from four percent of gross revenues to five percent. “That may not sound like much, a one percent increase, but for companies now paying the minimum tax it’s a 25 percent tax increase,” said Kara Moriarty, executive director of the Alaska Oil and Gas Association, the industry trade group. It’s made worse by the fact that producing companies on the North Slope are operating deeply in the red with oil prices at about $30 per barrel. Moriarty told the House committee last week that the average per-barrel cost of producing oil on the slope and moving it to market is about $54 per barrel, which means that the companies are losing about $25 for every barrel they produce. The cost figures are from the Department of Revenue’s fall 2015 revenue forecast, which contains production and cost data. In separate projections, the Department of Revenue has estimated that if oil prices remain in the $30 per barrel range for an extended period the slope producers’ loss could reach $1.8 billion this year. Industry tax experts also told the House committee last week that there are obscure provisions in HB 247 that amount to hidden tax increases. One example, cited by ExxonMobil tax manager Dan Seckers, is a section that changes the tax calculation from an annual to a monthly basis. This has the effect of exaggerating the impacts of short-term volatility and swings in crude oil prices in ways that drive up the tax obligation (the tax is paid as a percent of oil value, which is determined by the price) as compared to an annual reporting which tends to smooth out the swings in prices. There are other problems in the complex bill, according to companies presenting remarks to the committee. A provision softening strict confidentiality rules around taxpayer reporting so the public can obtain at least some information about tax breaks specific companies are getting, may be drafted too broadly. Unless the language is tightened the provision could have the effect of making other kinds of confidential taxpayer data public, it was argued. Despite those issues, and the increase in the minimum tax is the biggest for industry, the overall intent of the bill is to tighten up and simplify a state tax incentive bill that has become so complex that it is easily “gamed” by companies, revenue officials have said. There are several types of tax credit incentives in the current law and in certain circumstances companies can “stack” them, one atop another, so that as much as 75 percent of the cost of an exploration project is paid for by the state. In many cases this is actually represents a cash expenditure because companies can turn in tax credit certificates and be refunded by the state. One effect of HB 247 would be to reduce this, for example putting an annual limit on the amount of cash refund that can go to a company. One of the biggest changes in the bill would be to complete a reform in the tax credit program that was started in Senate Bill 21 for the North Slope, but not done for Cook Inlet. This was a 25 percent capital investment tax credit that allowed firms to credit one fourth of all capital investments against state production tax liability.  Since all types of capital investments, for example roads, bridges, airfields, were included in this along with investments targeted at finding more oil, such as new drilling, the cost to the state was becoming prohibitive. Had SB 21 not been enacted the state would have paid out a billion dollars in refunds or foregone revenues in Fiscal 2014. As it happened, however, the capital investment tax credit was repealed for the North Slope in SB 21 but not in Cook Inlet. One of the goals of HB 247 is to complete that process by repealing it in Cook Inlet as well. This change alone would have a major impact in reducing state obligations under the incentive program.

Bleeding cash, still exploring on the North Slope

It might not be a great time to be an oil company, but independents across Alaska are saying “the show must go on” through their exploration and development work this winter. One of the newest players on the North Slope, Australia-based junior 88 Energy Ltd. announced Feb. 29 that positive results from its first well Icewine No. 1 have led the company to start a two-dimensional seismic survey this month. 88 Energy plans to drill a second, horizontal exploration well, Icewine No. 2H, this year on its leases south of Prudhoe Bay, according to a company release. 88 Energy Managing Director Dave Wall said in a statement the results from Icewine No. 1 met and exceeded expectations. The well was spudded Oct. 15. “As a consequence of these continued good results, we have tailored our seismic acquisition to focus on mitigating risk for the next well,” Wall said. The company is focused on shale plays in the Icewine prospect. It is estimated to hold a mean unconventional resource of 492 million barrels, according to investor reports. Anchorage-based Great Bear Petroleum is also exploring shale prospects just north of Icewine. 88 Energy and its minority partner Burgundy Xploration of Houston began acquiring leases on the central North Slope in November 2014. The partnership will hold more than 270,000 acres of state leases about 35 miles south of Prudhoe once its 2015 lease sale awards are final, 88 Energy states. An existing gravel road off the Dalton Highway makes the area accessible for year-round work. The lease position is also bisected by the trans-Alaska Pipeline System, providing easy access to markets should Icewine be seen through to production. 88 and Burgundy are working under the joint venture Accumulate Energy. Wall said the 2-D seismic program will give a broader picture of the acreage and should identify any large conventional features that would be economic at lower oil prices. 88 Energy had first planned for a 3-D seismic program to follow drilling of Icewine No. 1. While Alaska North Slope crude is currently selling for just more than $30 per barrel, it is costing producers about $46 per barrel to extract and ship to market, according to the state Department of Revenue. The cost for Icewine No. 1 came in on budget at $16.1 million, according to 88 Energy, and was drilled by Kuukpik Drilling’s Rig 5. Overall, the budget for both wells and the seismic program is projected at $60 million to $75 million. The State of Alaska is expected to cover upwards of 75 percent of the exploration costs through its refundable tax credit incentive program, according to 88 Energy. To the north, Dallas-based Caelus Energy is digging into the remote Smith Bay prospect, which holds “true billion-barrel potential,” according to the company. Smith Bay is about 150 miles northwest of Prudhoe, far west of the developed areas of the Slope. Alaska Division of Oil and Gas Director Corri Feige said in a Feb. 24 House Resources Committee hearing that Caelus has shifted attention from its Nuna development this winter and is currently drilling the second of two exploration wells at Smith Bay from a grounded, shallow water ice pad. Caelus’ Nuna project is progressing on schedule to meet an October 2017 deadline for first oil agreed to in a royalty modification deal with the state, Feige said. At its adjacent producing Oooguruk Unit, development is continuing. “Caelus has done a lot of work recently to optimizing the frack and to optimize their recovery and increase production from those wells,” Feige said. All of Caelus’ work on the Slope is using fracking techniques. Oooguruk has produced about 23 million barrels since 2008. Arctic Slope Regional Corp.’s exploration subsidiary AEX also spudded the Placer No. 3 well in late January, Feige said. The Placer Unit just west of the large Kuparuk Field. Placer No. 3 will delineate a reservoir first explored with Placer No. 1 and No. 2 wells drilled by other companies in 2004, according to an ASRC release. Feige said the exploration work by a range of small and mid-sized independents, on top of continued infill drilling being done by the “big three” producers reveals the strength companies still see in Slope prospects. “I think fundamentally what this tells us is that the industry still views the resource endowment (on the Slope) and the environment of investing in Alaska as being a good place to be,” she said. To the large producers, Feige said BP continues to be “very aggressive” at expanding and maintaining production from Prudhoe Bay, while ConocoPhillips is in the midst of drilling eight new wells at its CD5 development this year. Production from the $1.1 billion CD5 development started ahead of schedule in October. ConocoPhillips spokeswoman Natalie Lowman said early production has met expectations, while the reservoir quality beneath part of the development exceeded expectations. Peak production from CD5 is estimated at 16,000 barrels per day. The $4 billion Point Thomson natural gas development led by ExxonMobil is also on schedule to meet its mid-May production deadline, Feige said. Natural gas liquids should begin flowing from the eastern Slope project to TAPS in early May, she said. BP is a minority owner in the large Point Thomson gas field, which is a lynchpin to the Alaska LNG Project. Elwood Brehmer can be reached at [email protected]

DOD to spend $325M on Clear missile defense radar

Another big chunk of the roughly $1 billion the Defense Department is spending to upgrade the country’s missile defense system is headed to Alaska. Missile Defense Agency Director Vice Admiral James Syring said Feb. 23 to during a presentation to the Fairbanks Chamber of Commerce that more than $325 million will be spent at Clear Air Force Station over the next six years to install a new power plant and missile detection radar. Clear Air Force Station is a radar base located near Nenana along the Parks Highway southwest of Fairbanks. Much of the construction spending will begin in 2017, Syring said, when $155 million of work on the mission control facility and related infrastructure is started. In 2019, another $150 million will be spent on the station’s new power plant and fuel storage facilities. This year, the Missile Defense Agency plans to spend about $25 million building a 350-person man camp and decommissioning the Ballistic Missile Early Warning System, among other things, Syring said. That work will be contracted through the Alaska District of the U.S. Army Corps of Engineers. Syring said he expects much of it will be done by local contractors. Long Range Discrimination Radar, or LRDR, being developed by Lockheed Martin in New Jersey, will replace the early warning system. The LRDR will then be shipped to Alaska and installed at Clear. Syring said the man camp will be used from 2017 to 2021, with peak occupancy in 2019. Clear Air Force Station is on the electrical grid; however, the upgraded power plant is a backup facility that will be protected against electromagnetic pulse weapons that could be used to render electrical systems useless, Syring explained. “Everything we are doing here in Alaska is to expand our defense against that North Korea threat,” he said. Early in 2013 the Pentagon announced plans to add 14 interceptors to the 26 currently installed at Fort Greely near Delta Junction by 2017. Those interceptors are the country’s main defense against the intercontinental ballistic missile (ICBM) threats primarily coming from North Korea and Iran, according to Syring. He said the impetus for adding interceptors to Greely was a rocket launched into orbit by North Korea in 2012. A similar test several weeks ago demonstrated the temperamental country still has the capability to reach orbit and is still pursuing an ICBM feet. Repeating nearly every Defense official who references Alaska, Syring noted the state’s global position as key to its role in the missile defense program. “Why we are here is (Alaska’s) strategic and geographic location and there’s no two ways about it,” he said. Army Chief of Staff General Mark Milley said to Sen. Lisa Murkowski in testimony before a Senate committee Feb. 24 that he wants to delay a force reduction from Joint Base Elmendorf-Richardson planned for 2017 by at least a year because of increasing threats — North Korea included — in the North Pacific. Milley cited the ability of Alaska forces to reach East Asia within hours of deployment as a primary reason for keeping strong military resources in the state. Elwood Brehmer can be reached at [email protected]

Slashed spending by drillers could lead to price spike by 2020

HOUSTON (AP) — Oil prices will more than double by 2020 as current low prices lead drillers to cut investment in new production and gradually reduce the glut of crude, the head of a group of oil-importing countries said Feb. 22. Fatih Birol, executive director of the International Energy Agency, said oil would rise gradually to about $80 a barrel. Oil prices shot to more than $100 a barrel in mid-2014 before a long slide sent them crashing below $30 last month. “There was a rise, there will be a fall, and soon there will be a rise again,” Birol said on the opening day of a huge energy-industry conference that featured addresses by the oil minister of Saudi Arabia, the secretary-general of OPEC, the president of Mexico, and U.S. Energy Secretary Ernest Moniz. Birol’s group issued a fresh outlook on energy markets. It forecast that 4.1 million barrels a day will be added to the global oil supply between 2015 and 2021, down sharply from growth of 11 million barrels a day between 2009 and 2015. A year ago, the Paris-based IEA, an organization of 29 major oil-importing nations including the United States, had forecast a relatively swift recovery in oil prices, but the decline continued, with the price for a barrel of crude hitting levels last seen in 2003. Experts underestimated the ability of shale-oil producers in the United States to withstand falling prices — for a time — which, combined with OPEC refusing to cut production, led to a glut. The same experts now think that U.S. production, along with new supplies from Iran, which has been freed from international sanctions, will blunt what otherwise might be a sharper run-up in prices. Nobody saw the shale-oil boom coming, and it has changed the market, said Neil Atkinson, who edited the IEA report released Feb. 22. “Producers everywhere around the world are having to accept that $100 a barrel is not something that is likely to return soon,” Atkinson said. He and Birol declined to blame low oil prices on OPEC’s decision to keep pumping away to preserve market share in the face of rising competition from the U.S. and elsewhere. Now, IEA says, investment in future oil exploration and production is declining for a second straight year — the first back-to-back downturn in 30 years. U.S. shale oil production will fall in 2016 and 2017 before recovering with higher prices, the group predicted. Meanwhile, Saudi Arabia, Russia, Venezuela and Qatar have discussed freezing production if other oil countries go along with a strategy to boost prices. On Monday at IHS CERAWeek, an annual energy-industry conference in Houston, OPEC Secretary General Abdalla Salem El-Badri called a potential freeze “a first step” that, if it sticks, could be followed by other measures, which he did not specify. Oil prices have tumbled 70 percent since mid-2014, and gasoline prices have followed. The U.S. Energy Information Agency expects an average price of $1.98 per gallon nationwide this year. The last time gasoline averaged less than $2 for a full year was 2004. Low oil prices have had devastating effects on communities that rely on the energy industry. Home sales have fallen sharply in North Dakota and the West Texas cities of Midland and Odessa, and more recently in Houston.

Report: More imported gasoline drives up in-state price

The market for Alaska’s refineries is becoming even tougher with reduced demand and increased pressure to compete with imported fuels. Though the state’s refineries are closer to markets in Alaska, reducing transportation costs, competitive pricing from refiners in Asia and the U.S. West Coast may challenge their businesses, according to a December 2015 report prepared for the Alaska Department of Natural Resources. California-based Econ One Research, Inc., completed the report in response to a request from the Alaska Senate Finance Committee. The state is down to three commercial refineries after Flint Hills’ North Pole refinery ceased operations in 2014: Petro Star’s refineries in Fairbanks and Valdez and Tesoro’s refinery in Nikiski. Petro Star mostly produces jet fuel while the Tesoro refinery mostly produces gasoline and exports the remaining heavy oil to other markets. Alaska’s refineries are smaller and simpler than other operations, and in Tesoro’s case, the distance from other markets that insulates it from competition may also make it difficult to export other products. Tesoro exports about 30 percent of each barrel in the form of fuel oil, for which there is no market in Alaska, because the facility in Nikiski is limited by its technology and cannot convert it to lighter fuel oils. The refineries on the West Coast can convert up to 90 percent of a barrel, making it harder for Tesoro to compete, according to the report. About 70 percent to 80 percent of total demand for petroleum products comes from in-state refineries, while the rest comes from the Pacific Northwest or Asia. In-state refiners supply most of the demand in Southcentral and Interior Alaska, according to the report. Exports from Alaska have been gradually decreasing. Before 2008, Alaska was a net exporter of refined petroleum product; after 2009, the state became a net importer. Imports represented 22 percent of Alaska’s supply in 2013, according to the report. “Alaska’s refineries supply the majority of demand for refined product in the State, though their contribution has declined over the past decade as imports have claimed an increasingly larger percentage of Alaska’s product demand,” the report states. Diane Hunt, the special projects and external relations coordinator for the Alaska Division of Oil & Gas, said the report was requested by Sen. Anna MacKinnon, R-Eagle River, in the wake of the Flint Hills refinery closure and had been sent to the senate roughly the same time as the Department of Natural Resources. The report also shed a little more light on refined petroleum product prices in Alaska. Prices are generally higher than they are in the rest of the U.S., although it is not consistent across products — the biggest difference is seen in gasoline and diesel, while the least difference is seen in jet fuel. Tesoro is now the only gasoline and diesel producer in Alaska, and concerned about a monopoly, some have called for an investigation into the company’s practices because Alaska’s gas prices are consistently much higher than other states’. The Alaska Department of Law has looked into the higher cost of gas in Alaska several times over the past few decades. The latest was in 2008, when an investigation concluded that there was no evidence of collusion between the state’s refiners. Price gouging itself is not illegal, but collusion between companies to raise prices is illegal, according to the investigation. The renewed call came from Sen. Bill Wielechowski, D-Anchorage, who sought to block Tesoro Alaska’s proposed purchase of several Flint Hills assets to expand distribution in the Interior region. “The already delicately balanced retail gas market in Alaska will be dominated by the company should this sale be approved, keeping further competition from the state and hiking prices for customers,” Wielechowski wrote in a January letter to Alaska Attorney General Craig Richards. The report puts forth an alternative explanation for higher gas prices in the state. Essentially, the authors suggested large buyers of gasoline secured purchases at prices similar to what the cost of importing would be, called “import parity.” “While gasoline is generally not imported into the Southcentral or Interior of the State, imports are a potential alternative to local supply,” the report states. “Large buyers of gasoline and diesel, including the State, have been able to purchase gasoline and diesel at prices that generally reflect the cost of importing product … from the Pacific Northwest.” Reach Elizabeth Earl at [email protected]

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