Elwood Brehmer

BP reports $916 million Alaska profit in ‘18

BP saw improved results in 2018 as increasing oil prices helped boost the producer’s bottom line both in Alaska and worldwide. In Alaska, the London-based major netted $916 million last year from its North Slope operations, according to the company’s 2018 annual report. Those profits came on the back of more than $4.3 billion in total revenue. Comparatively, BP generated an $830 million profit from $3.3 billion in revenue in 2017. Worldwide the company netted nearly $9.4 billion in profits in 2018 versus nearly $3.4 billion the year prior. “Our teams have delivered strong results across the business and we are well positioned to continue to deliver value as we play our part in the dual challenge of delivering more energy with fewer emissions,” BP Chairman Helge Lund said regarding the 2018 results in a letter to shareholders. Company officials in Alaska said higher oil prices were a primary driver for the improved margins. BP’s Brent indexed crude — which Alaska North Slope oil follows closely — sold for an average of $71.31 per barrel last year, roughly a 25 percent increase versus the 2017 average price of $54.19 per barrel. BP Exploration Inc., the company’s upstream Alaska business, paid $804 million in production, property and corporate taxes and royalties to the State of Alaska last year, BP Alaska controller David Knapp said. The company also invested $370 million in capital projects in Alaska in 2018, according to Knapp. BP operates the mature, iconic Prudhoe Bay oil field and has interests in the producing Milne Point and Point Thomson units on the North Slope as well. The company is required to report its upstream Alaska business in its annual report and accompanying “20-F” financial report. BP Alaska officials have touted their ability to generally hold oil production from Prudhoe and its satellite fields steady at roughly 280,000 barrels per day since 2016 despite cost reductions. The company is also conducting a 3-D seismic data shoot over the entire Prudhoe field this spring. While BP made $916 million on the Slope last year, the company’s Alaska leaders insist a $531 million profit figure is more accurate, as it captures the costs for all of its operations in the state, which include the Trans-Alaska Pipeline System and marine oil transport from the Valdez oil terminal. They note the $531 million Alaska profit figure is more representative of BP’s total Alaska business because it also accounts for the property taxes paid on the midstream infrastructure. However, those costs of getting the oil to market are also deductible from the state’s production tax. BP owns 48.4 percent of the Trans-Alaska Pipeline System, the largest single share of the oil transport network. The company also has oil tankers dedicated to its Alaska operations and has supported the Alaska Gasline Development Corp. with predevelopment work on the $43 billion Alaska LNG Project. BP pulled the Alaska-class tanker Frontier from service in September, according to the annual report, leaving it with three oil tankers dedicated to operations in the state. “With the reduction in volume over time, as well as new efficiencies identified in the shipping programme, Frontier has been removed from service and its carrying value impaired accordingly,” the report states. In 2018, BP also sold its 39 percent stake in the large Kuparuk oil field ConocoPhillips as part of a neutral value swap with the Houston-based producer that included BP acquiring an additional 16 percent interest in the Clair field in the North Sea. BP spent approximately $1.7 billion related to acquiring the Clair field interests in the deal, according to the report. Elwood Brehmer can be reached at [email protected]

Legislators turn to dividend spend to plug deficit

Budget negotiations at the end of the legislative session typically focus on one or two sticking points. In recent years of tight budgets those negotiations between caucuses in both chambers have centered on oil tax credits and funding the state’s education and ferry systems; this year, it appears, it will all be about the PFD. Gov. Michael J. Dunleavy largely campaigned on returning to the statutory Permanent Fund dividend formula after three years of lawmakers deviating from it while the state was mired in multibillion-dollar budget deficits. Dunleavy emphasized on the campaign trail that improved oil prices could support current levels of state spending as long as future budget growth was mostly limited to match inflation. It wasn’t until the very end of the campaign and more so after the election — when oil prices fell from near $80 per barrel to eventually stabilize in the mid-$60 range, and expected state revenue dropped in concert — that talk began of major budget cuts to pay for a $3,000 PFD this year. While the newly-elected governor has subsequently chosen to start budgeting by paying a full PFD and proposing major budget cuts to resolve the $1.6 billion deficit at current spending levels using the remaining revenue from all sources, legislative leaders are taking a much different approach. A full, statutorily calculated PFD for the upcoming 2020 state fiscal year is expected to cost about $1.9 billion. House Finance Committee co-chair Rep. Neal Foster, D-Nome, said during a March 28 press briefing that the bipartisan House majority caucus would focus on the budget first and address the dividend with the remaining funding available. “We’re working in House Finance to construct a budget that is fiscally responsible and at the same time funds the things that Alaskans are asking for,” Foster said. He and his fellow Finance co-chair North Pole Republican Rep. Tammie Wilson said they’re looking to make gradual budget cuts over several years to allow government agencies and the businesses that work with them time to react to reductions. Foster suggested legislators could appropriate this year’s PFD in a new, drastically amended version of the governor’s bills to repay forgone dividend amounts, which don’t appear likely to pass as the administration has proposed. The first version of the House budget — also subject to several rounds of amendments — calls for $45 million in cuts to General Fund spending but is more than $1 billion less than the current 2019 budget mostly because it does not include the PFD appropriation that has generally been in the operating budget bill. “I think one of the things we realized is we have to do business different,” Wilson said. “We can’t just keep cutting; we have to change” state government operations to maintain some services at lower spending levels. House Speaker Bryce Edgmon, I-Dillingham, said the eight community meetings representatives held across the state in late March drew an overwhelming response in opposition to Dunleavy’s budget plan. Specifically, individuals testifying against the governor’s budget cuts outweighed those in favor of them by a five-to-one margin, according to Edgmon. The number of Alaskans who testified in community and Finance meetings in support of generally reducing the PFD to pay for government services also outweighed those opposed to PFD cuts by three-to-one based on a tally kept by the majority caucus. “A lot of Alaskans, not all, but a lot of Alaskans are willing to take a reduced PFD in order to protect schools and public safety and road services and other essential items,” Edgmon described. Senate ponders new PFD plan Elsewhere in the Capitol, senators are discussing the prospect of changing the PFD to better match the state’s new fiscal situation. Senate Finance co-chairs Natasha von Imhof, R-Anchorage, and Bert Stedman, R-Sitka, said March 27 that they are working on a new dividend formula that would better fit within the framework of the Permanent Fund percent of market value, or POMV, draw legislation passed last year. The POMV law calls for drawing 5.25 percent of the five-year average Permanent Fund value from the $64-billion fund’s Earnings Reserve Account, which this year amounts to a $2.9 billion draw to pay dividends and support government services. In an interview, von Imhof said the PFD bill would make the dividend a portion of the overall POMV draw on the fund. The current formula is based on a portion of the annual average income the fund produces and changing it to split the POMV would align the currently incongruent statutes, she said. It would also stabilize future dividend amounts, the senators noted. What exactly the proposed split will be is unclear at this point, but it doesn’t appear likely it will be weighted towards dividends. A 50-50 split of the POMV draw would lead to a roughly $2,300 PFD this year, but also leave a deficit of $861 million, according to Senate Finance calculations. Of the budget cuts to expect in the Legislature’s final 2020 budget, Stedman said, “We can’t get to $861 million in reductions; that I can virtually assure you.” Sen. Lyman Hoffman, D-Bethel, said he agrees that the size of the dividend should be debated. However, he and others from both parties contend the PFD should be enshrined in the Alaska Constitution for the simple reason that otherwise it will continue to be a political talking point since the Legislature and former Gov. Bill Walker set the precedent of diverging from the historical formula the past three years. “If we do not resolve the issue on a permanent basis and let the people of Alaska decide what (the PFD) might be we are setting ourselves up for decades to come of making the dividend a political discussion for everyone’s election,” Hoffman said. Wilson said House members also heard in their community meetings that many Alaskans were frustrated not so much by the concept that the PFD formula could change, but that it seemed to be “picked out of the sky” of late. Anchorage Democrat Sen. Bill Wielechowski, who unsuccessfully sued Walker for his 2016 partial veto of the PFD appropriation, emphasized that until the PFD statue is changed the Legislature needs to work within the confines of the existing law. “The reason the dividend was set up was because you had a system where the rich and powerful and the politically connected would come in and take an inordinate share of the government’s wealth and the Permanent Fund dividend program was set up so it was shared equally,” said Wielechowski, who advocates for changes to the state’s oil tax system to generate more revenue. He has also sponsored resolutions to put the PFD in the Constitution, a concept von Imhof rejects. She argues that no allocations were included in the Alaska Constitution because those who wrote it had the foresight to not bind future lawmakers to obligations they might not be able to fulfill. “We have no idea what the future holds. We must be able respond to any set of unknown circumstances that might occur. You have emergencies; you have economic expansion projects; debt service, et cetera,” von Imhof said. “As a strong fiscal conservative I believe that the annual budget needs to be reflective of the times. We need to be able to have some flexibility and we can’t give the individual dividend checks a priority over everything else.” In the committee hearing she described the concept of putting the PFD in the Constitution as valuing the “individual over the community”. Elwood Brehmer can be reached at [email protected]

Production issues prevent Furie from meeting gas supply contracts

One of Southcentral Alaska’s few natural gas producers has not been able to meet its contracted supply requirements for more than two months. Furie Operating Alaska stopped supplying natural gas to Enstar Natural Gas Co. Jan. 25, according to Enstar spokeswoman Lindsay Hobson. The small Texas-based producer operates the offshore Kitchen Lights natural gas field in central Cook Inlet and also has a firm contract to supply Homer Electric Association with feedstock gas for its power plants. Hobson wrote via email April 1 that Furie had resumed delivering gas to Enstar in recent days but at volumes below what the utility had contracted for. HEA has not received gas from Furie since about Feb. 25, the Kenai Peninsula electric utility’s Manager of Fuel Supply and Renewable Energy Mikel Salzetti said April 1. The utilities have avoided service disruptions by purchasing spot market gas and drawing on purchased reserves stored in the Cook Inlet Natural Gas Storage Alaska facility commonly known as CINGSA. The gas storage is in a depleted Kenai-area gas field and has 11 billion cubic feet, or bcf, of capacity for Southcentral utilities to store gas reserves, which are usually built up in summer. It was finished early in 2012 at a time when there were widespread concerns that declining natural gas reserves in the Cook Inlet basin could result in gas shortages. Enstar’s parent company SEMCO Energy Inc. is a majority owner of CINGSA. Hobson said the warmer-than-normal late winter and early spring across Alaska has helped keep Enstar from needing to purchase additional gas; HEA, on the other hand, has been forced to purchase gas to fill the void in addition to drawing on its CINGSA reserves, according to Salzetti. He said Furie is the electric utility’s only current firm supplier, which meant the utility had to backfill all of its gas needs of approximately 12.4 million cubic feet per day. A previously scheduled overhaul to a nine-mile section of the transmission intertie that connects the Kenai Peninsula power grid to Anchorage added to the headache caused by the gas supply disruption, Salzetti said. The transmission work in the Turnagain Pass area took the intertie offline for about two months, according to Julie Hasquet, a spokeswoman for Chugach Electric Association, which owns that portion of the intertie. Hasquet said the work was done March 20 and the transmission system is back online. The intertie outage meant HEA had to run additional power generation units in Soldotna to provide its own backup, or spinning reserve, power in case its Nikiski plant or the Bradley Lake hydro power plant went down. Normally, HEA runs its more efficient combined-cycle Nikiski power plant and uses the transmission intertie, and the access it affords to Anchorage-area power — as its spinning reserve, Salzetti said. Furie is one of the newer entrants to Cook Inlet that were supposed to ease Southcentral gas supply concerns by developing new fields and adding competition to the market. In 2015 the company installed the Julius R platform at Kitchen Lights, which was the first new production platform built in Cook Inlet in decades. In September 2015 Furie and HEA agreed to a supply contract that began April 1, 2016, at prices lower than previous contracts. Enstar then signed a contract with Furie in early 2016 for gas deliveries beginning in April 2018 and running through March 2021. The initial Enstar-Furie contract was for 18.6 bcf of gas, or about 20 percent of Enstar’s total expected demand for the period. Furie leaders did not respond to multiple requests for comment in time for this story. However, a Feb. 11 letter from Enstar and Alaska Pipeline Co. President John Sims to Furie leaders and investors contends “Furie has had a difficult time meeting required milestones under the (gas supply agreement) from the time the ink was dry on the GSA.” Alaska Pipeline Co. is a sister company to Enstar under SEMCO Energy. According to the letter, Furie has had problems proving up its gas reserves to meet its contract with Enstar and has had operational problems with its wells. The producer asked for a delayed delivery of more than half of its firm supply commitment to Enstar on Jan. 17 as it worked on issues at its facility, the letter states. Hobson said Enstar understands the supply disruptions are due to a Furie pipeline that froze during a cold stretch of January weather. Alaska Pipeline-Enstar agreed to defer the full deliveries until March 31, according to the letter. Salzetti said Furie has been in regular contact with HEA during the ordeal and has given utility officials a verbal estimate as to when gas deliveries will resume but he declined to elaborate further on the discussions. Furie officials said in 2017 they planned to work on developing oil prospects in the Kitchen Lights gas field, but those plans have largely been scuttled because of the state’s delay in repaying millions of dollars in oil and gas tax credits the company earned for its previous work, according to the 2019 Kitchen Lights Plan of Development filed last October with the state Division of Oil and Gas. In late 2017, former Natural Resources Commissioner Andy Mack issued a default notice to Furie for allegedly not conducting the work the company claimed it would in prior development plans. Furie’s work in 2018 was sufficient to resolve the default, according to Oil and Gas records. Officials at the Regulatory Commission of Alaska, which approved the gas contracts, said the commission is aware of the situation but it doesn’t typically act on such matters until a formal complaint is filed, which hasn’t happened. Salzetti said that while HEA put all its stock in Furie for feedstock gas, the utility’s contingency plans have worked. He noted that some other utilities in the region rely on a single source of gas as well. “We evaluate lots of criteria when we negotiate gas supply contracts and obviously we knew that a single supplier operating a single field is somewhat of a risk and at the time it was a risk we were willing to take for the price we received for that gas,” he said. With overall gas demand lower in spring and summer there is usually more supply available at better short-term prices, Salzetti added, which leads him to believe HEA could get through the rest of the year without Furie’s supply. HEA’s contract with Furie is through the end of 2019, he said. ^ Elwood Brehmer can be reached at [email protected]

Federal judge rejects deal for road through Izembek National Wildlife Refuge

A federal judge on Friday morning vacated a land swap deal between the Interior Department and an Alaska Native corporation that set the stage for building a long-sought road between Alaska Peninsula communities of King Cove and Cold Bay. U.S. District Court of Alaska Judge Sharon Gleason ordered the January 2018 land exchange agreement signed by former Interior Secretary Ryan Zinke and King Cove Corp. leaders invalidated because Zinke failed to explain the reasoning behind the department’s policy reversal, according to Gleason’s 31-page ruling. The land exchange was meant to facilitate construction of an 11-mile gravel road through a portion of the Izembek National Wildlife Refuge currently designated as wilderness. King Cove leaders and Alaska lawmakers have long petitioned federal officials to approve the road; they see it as an essential link for emergency services when bad weather prevents flights out of King Cove or boat travel across Cold Bay. In late 2013, then-Interior Secretary Sally Jewell rejected land swap deal passed by Congress in 2009 after a U.S. Fish and Wildlife Service environmental review determined the road would irreparably damage critical waterfowl habitat in the 315,000-acre Izembek Refuge. In summer, the refuge is home to 98 percent of the world’s population of Pacific black brant, a goose that breeds there, according to the Interior Department, as well as other sensitive wildlife and waterfowl. With a paved runway longer than 10,000 feet, Cold Bay’s airport has one of the longest civilian runways in the state and is the area’s main link to Anchorage 600 miles away. The old military post was built during World War II. King Cove’s airport has a 3,500-foot gravel runway for the community with roughly 950 year-round residents. Over the years 18 people have died in plane crashes or waiting to get medevac service out of King Cove, according to the Interior Department. However, no one has died trying to leave since 1994. According to Sen. Lisa Murkowski, there have been 98 medevacs from King Cove since 2014 with 21 conducted by the U.S. Coast Guard.  A coalition of Alaska and national environmental organizations sued Interior shortly after the swap was announced contending, among other things, that the agency did not follow specific procedures for such deals in the 1980 Alaska National Interest Lands Conservation Act, which also established the Izembek Refuge. Judge Gleason found that Zinke failed to provide rationale for the reversal from Interior’s 2013 decision and thus violated federal Administrative Procedures Act. While federal attorneys argued in court filings that Zinke understood the potential impacts to wildlife the road could have and instead “came to a more humane conclusion,” the 2013 decision is not addressed in the eight-page agreement with King Cove Corp, according to Gleason. “The Exchange Agreement does not explain the agency’s ‘reversal of course arising out of concern about economic and social hardships’; moreover, there is no language in the Exchange agreement suggesting the Secretary’s reversal is the product of his rebalancing of the facts in light of new policy goals,” Gleason wrote, citing previous federal court decisions. “While a court should ‘uphold a decision of less than ideal clarity if the agency’s path may reasonably be discerned,’ a court may not ‘supply a reasoned basis for the agency’s action that the agency itself has not given.’” Zinke said in a formal statement when the equal-value land exchange was announced that it fulfills the federal government’s duty to keep Americans safe. “Previous administrations prioritized birds over human lives, and that’s just wrong,” Zinke said in 2018. “The people of King Cove have been stewarding the land and wildlife for thousands of years and I am confident that working together we will be able to continue responsible stewardship while also saving precious lives.” The now-defunct agreement called for an equal-value land swap between King Cove Corp. and Interior in which neither side was to give up more than 500 acres. The land swap rejected in 2013 would have traded 206 acres of Izembek land and 1,600 federal acres outside the refuge for about 56,000 acres of state and King Cove Corp. land. Opponents of the swap said Gleason’s ruling illustrates the arbitrary manner in which Interior has handled public lands issues under President Donald Trump. “The court’s decision today provides an important and essential check on Interior’s public land giveaway. The agency’s attempt to skirt the law to benefit private or commercial interests disregards the intention of Congress and the purpose of the refuge itself,” said Katie Strong, an attorney for the environmental nonprofit law firm Trustees for Alaska, which filed the suit on behalf of the nine conservation groups. Others have argued authorizing the road would set a dangerous precedent for allowing development in areas designated as wilderness and could be used by seafood companies instead of just for emergency purposes as proponents have claimed. Alaska Native groups from the Yukon-Kuskowkim Delta have fought against the road over concerns it would impact populations of geese they hunt for subsistence and use the refuge. A spokeswoman for Interior said the department could not comment on ongoing litigation. King Cove Corp. spokeswoman Della Trumble said in a prepared statement that it’s disappointing the court found process flaws in the agreement, but “the King Cove group will never give up our fight for this land exchange. It is so crucial for safeguarding the lives of our families. This access is truly a matter of life and death for us,” Trumble said. House Speaker Bryce Edgmon, I-Dillingham, who represents King Cove and Cold Bay, echoed that sentiment in a statement Friday. “The people of King Cove deserve reliable access to healthcare, and the fight to build a simple gravel road affording them that basic right has taken far too long. Today’s U.S. (District) Court decision to invalidate the plan to allow a land exchange between the Interior Department and King Cove Corp. is disappointing and presents an unnecessary setback,” Edgmon said.   Elwood Brehmer can be reached at [email protected]

Officials explain how state would cut Medicaid budget

Department of Health and Social Services leaders believe they can cut about $100 million out of the state’s Medicaid budget quickly while getting to the remainder of Gov. Michael J. Dunleavy’s goal of $225 million in state Medicaid cuts will be more complex. The Dunleavy administration is planning a 5 percent cut to many, but not all, provider payment rates as well as changes to payment methodologies and administrative consolidations to save roughly $100 million; much of the proposed cuts can which can be done without legislative approval but do require permission from the federal Center for Medicaid Services, or CMS. Administration officials have stressed in media calls and legislative hearings that the spending cuts have been developed in ways that will protect primary care access, small hospitals and general access to services while aligning payment levels with other public payer entities. Dunleavy has pledged to eliminate the state’s $1.6 billion budget deficit without new taxes while restoring Permanent Fund dividend payments to their statutory calculation. DHSS leaders said in a media briefing ahead of the initial March 19 House Finance subcommittee meeting on the department’s budget that the changes were expected to result in $94.6 million of savings to the state’s General Fund; the department’s presentation from the hearing stated $102.9 million of savings are expected. They acknowledged that the goal of $225 million in cuts — other budget documents indicate upwards of $270 million in General Fund reductions — to Medicaid services was a directive from the Office of Management and Budget that the department was subsequently tasked with meeting. “Our division directors have truly been scrubbing all areas, working together, collaboratively, to try to find a variety of ways we can meet that $225 million objective,” DHSS Deputy Commissioner Donna Steward told the House subcommittee. As of February, there were about 214,400 recipients in Alaska’s Medicaid program, according to DHSS. A 5 percent provider rate cut and withholding inflation adjustments is expected to save $24.3 million in the fiscal year 2020 budget. However, the lower reimbursement levels will not apply to primary care providers, federally qualified health centers or at least 11 small hospitals across the state deemed to offer critical access to basic care in their respective areas of the state. That means the state will primarily be counting on Alaska’s large hospitals to absorb the rate reductions without corresponding cuts to offered care. Former Gov. Bill Walker’s administration implemented a 5 percent across-the-board rate cut last year, but it has since been restored to 2017 levels, Steward said. DHSS officials are also planning a shift to hospital diagnosis-related group, or DRG, payment schedules, which are intended to encourage cost-containment by making a single payment that covers all charges associated with an in-patient stay for a given condition. The shift to DRGs is expected to save the state $4.5 million per year. Health and Social Services Committee co-chair Rep. Ivy Spohnholz, D-Anchorage, was critical of much of the Medicaid plan but said she’s excited to hear of the move to DRG billing for hospitals as it is “incremental steps towards value-based compensation” and more transparency. Other changes to a cost-based methodology for late-stage renal disease treatment and more frequent amendments to the state’s preferred pharmaceuticals list would result in smaller savings, according to Steward. “Right now we are not able to change the drug list quick enough to take advantage of a reduction in drug prices that happen on the national level,” she said, adding that the state has been amending its list about twice per year, while the federal list usually changes quarterly. The pharmacy pricing adjustments are expected to net savings of $2.1 million per year. The leaders of some of Alaska’s largest hospitals have been highly critical of Dunleavy’s plan to cut Medicaid spending; they insist that provider rate cuts will simply push more physicians and clinics to stop accepting Medicaid. Alaska State Hospital and Nursing Home Association CEO Becky Hultberg said in a formal statement that the administration’s plan “is not well thought out, realistic or achievable. It is simply a blunt instrument developed in response to the mathematical exercise required by the Office of Management and Budget.” Steward noted that any provider rate changes must be approved by the federal CMS and monitored over three years to see how the change impacts providers or access to care. She also said the rate adjustments will only last through 2020 as the administration identifies longer term cost savings in the second phase of its Medicaid overhaul. What exactly the second round of changes will consist of is unclear, as it will require multiple approvals and possible waivers from CMS, according to DHSS officials. Hultberg wrote in testimony to the House subcommittee that the Hospital and Nursing Home Association conducted its own analysis of options for capturing Medicaid savings in 2017 and a consultant concluded that a provider tax and moving to DRGs for large hospitals could help and be further evaluated for implementation in 2021. A former commissioner of Administration under former Gov. Sean Parnell, Hultberg also wrote to lawmakers that few quick and simple cuts to state government spending remain after five years of budget reductions without significantly disrupting the larger economy. After drafting a report for the Hospital and Nursing Home Association on the economic impacts of Medicaid, longtime Alaska economist Jonathan King concluded that the proposed cuts would likely result in at least 8,000 job losses in the state. Dunleavy’s proposed cuts to state Medicaid spending would also forgo upwards of $465 million of federal money in 2020, according to Steward. Medicaid spending has helped insulate the health care sector from Alaska’s ongoing recession that has touched nearly every other industry in the state. And while overall Medicaid spending in Alaska continues to rise, the state’s part of that bill is shrinking. According to the Legislative Finance Division, overall spending on Medicaid in Alaska has increased from $1.7 billion to more than $2.3 billion since fiscal year 2015, but the state’s portion of that has actually gone down from $724 million in 2015 to $677 million, which includes a $15 million supplemental budget request, in the current fiscal year. Medicaid expansion, approved by Walker in 2015, has increased the federal government’s share of Medicaid payments and the Legislature has in recent years taken measures to capture all available federal Medicaid funding. The House subcommittee rejected Dunleavy’s proposed budget cuts by a 5-3 vote that split along party lines, with majority member and Finance Committee vice chair Jennifer Johnston voting with minority member Republicans. The cuts could become part of the budget later in the process or the governor could still veto a portion of the state’s Medicaid appropriation. Administrative savings, dental care Additional savings are expected from a host of smaller Medicaid program changes, including halving the time providers have to file claims. Steward said a proposal to cut the period that providers and others have to file a claim after performing a service from 12 months to six months should help reduce the number of “aberrant” claims the department deals with. Illegitimate Medicaid claims sometimes arise when a provider retires or leaves Alaska but doesn’t notify the state about the change. She noted that much of the $10 million in savings expected from time reduction would likely be a one-time benefit as some late claim filers will miss out on payments only once before changing their habits. The department is also anticipating $500,000 in savings from implementing a nurse hotline to help guide individuals in making their medical care decisions. The hotline plan was generally well received by the subcommittee members. To the contrary, a plan to cut about $27 million in Medicaid adult dental coverage — $8.2 million state savings and $18.7 million federal reduction — was not well received by Democrats on the House panel. General adult dental coverage is an optional Medicaid service. Steward acknowledged that no analysis was done when it was decided that adult dental coverage would be cut from Medicaid but added that emergency dental procedures will still be covered and provide a “backstop” for patients. Alaska Dental Society Executive Director David Logan wrote to the subcommittee that cutting preventative adult dental care would inevitably lead to more costly emergency room visits, which can only provide temporary relief. “In most situations in health we want to push people towards the preventative care and not the emergency phase of care but in this instance, for example, we’re doing the exact opposite,” Rep. Geran Tarr, D-Anchorage, said. “We’re saying forgo the preventative care that’s less costly that will prevent more significant health problems.” Elwood Brehmer can be reached at [email protected]

Gov: Budget reset needed to save economy

Gov. Michael J. Dunleavy’s underlying message about the State of Alaska budget deficit is much the same as his predecessor’s, but his plan to address it is vastly different. Dunleavy stressed throughout a nearly two-hour talk in Anchorage March 26 that without major, durable spending reductions to close the $1.6 billion deficit the Permanent Fund dividend will disappear within three years. He and members of his administration presented their budget plan alongside members of the conservative political group Americans for Prosperity, which sponsored and hosted the event at the 49th State Brewing Co. Former Gov. Bill Walker’s message, starting in late 2015 when he unveiled his long-term fiscal plan, was that the dividend formula needed to be adjusted along with spending cuts and various taxes to preserve the payouts in some form. The current governor campaigned largely on restoring the PFD to its statutory payment calculation, which if followed is expected to generate dividends in the $3,000 per person range this year. That money, he insists, is best spent individual Alaskans rather than using part or most of it to close the budget gap. He also emphasized that long-term reductions to state spending would not dramatically harm Alaska’s currently fragile economy, which many of the state’s economists have said is ready to come out of a nearly four-year recession late this year barring major unforeseen events. Numerous economists have said the nearly $3 billion of cuts that have been made since 2014, largely from reducing the capital budget to little more than enough to generate federal matching funds, have deepened and extended the recession that was triggered by the sustained fall of oil prices late that year. The majority of jobs lost in the past four years have been in the oil and gas and construction industries. Dunleavy noted that Alaska already has the highest unemployment rate in the country even with current state spending levels. “We feel, for the sake of the private economy, to get that back on its feet and growing, what we need to do is reduce the government side of the economy, so that’s why you have our budget before you,” he said, adding that his budget plan would cost Alaska 600 to 700 jobs. The Office of Management and Budget has calculated that Dunleavy’s budget proposal would eliminate 714 state positions. However, economists routinely stress that Alaska’s economy is largely supported by government spending whether it comes from state or federal sources, which is common for relatively young economies. The Anchorage Economic Development Corp. estimates that about 20 percent of the jobs in Alaska’s largest city are tied to government. Economists for the University of Alaska Anchorage Institute of Social and Economic Research project the administration’s budget would result in roughly 7,000 additional jobs lost across employment sectors; those losses would be on top of the 12,300 jobs Alaska has lost since 2015, according to the state Labor Department. Other economists have calculated that the plan to cut more than $700 million from the state’s Medicaid program would result in 8,000 job losses alone . The administration’s chief economist Ed King testified to the Legislature in early March that the budget plan would likely mean about 5,000 fewer jobs statewide, but he said the losses would reset the state’s economy to a sustainable level. Dunleavy echoed that sentiment March 26, saying that government money had inflated the size of the state’s economy. “We get this budget under control, we’ll get more investment and we’ll get more revenue,” he said. Walker often pointed to the fact that without a statewide tax, which Dunleavy rejects, economic growth is a drain on state services if it does not come in the form of oil revenue to state coffers. OMB Director Donna Arduin said the administration is focused on cutting spending this year and reforming the state departments and programs hardest hit by budget cuts — K-12 education, the University of Alaska, Medicaid and the state ferry system — in the future. She specifically said omnibus education reform legislation would be introduced in the coming weeks. The governor acknowledged that reaching his goals would be challenging, adding that his three proposed constitutional amendments are needed to make it effective long-term. The amendments are to adjust the current spending cap, which Attorney General Kevin Clarkson said would be $10 billion this year, enshrine the PFD as a transfer payment rather than an appropriation, and require public votes for tax increases. Adding those items to the state Constitution would give Alaskans a stronger voice in such major policy decisions, he said. “I have a lot more faith in the people of Alaska than some of the special interests that don’t want you near a constitutional amendment,” Dunleavy said at the event. Elwood Brehmer can be reached at [email protected]

Anchorage Assembly seeks fresh look at port cost estimate

The Anchorage Assembly is seeking help to determine once and for all if it really needs to spend roughly $1.9 billion to rebuild the city’s deteriorating port. Assembly member Christopher Constant, who has started a reexamination of the Anchorage Port modernization program as co-chair of the Assembly’s Enterprise and Utility Oversight Committee, summed up reaction to the potential price of the port project at a March 21 Assembly committee meeting. “We need to look closely to figure out if there’s cost savings. Sticker shock doesn’t even get near the level of shock,” Constant said of the $1.9 billion estimate to replace and upgrade the port’s cargo, petroleum, cement terminals and other facilities. Modernizing the Anchorage port — officially renamed the Port of Alaska by the Anchorage Assembly in 2017 to highlight the statewide importance of the city-owned infrastructure — was initially pegged at just less than $500 million in 2014. That cost estimate grew to more than $700 million in 2017 and was updated to approximately $1.9 billion earlier this year. There is no questioning of the need to substantially rehabilitate the Anchorage port, which is the primary hub for goods entering Alaska. Some sections of the pile-supported docks have been in place since 1961 and have far exceeded their initial 35-year design life as the saltwater they stand in has gradually taken its toll and badly corroded the steel support pilings. The Assembly on March 19 unanimously approved spending up to $100,000 from the port’s operating funds to hire experts to evaluate the overall cost of the current plan as well as whether or not the remaining development from the first, failed port project is usable. Constant said the money could be split into two or more contracts to satisfy the economic and engineering aspects of the review. He also noted the Assembly could approve additional funding for the consulting work if $100,000 isn’t enough. The Assembly specifically wants to know why the expected construction costs have nearly quadrupled over five years; ways the work can be modified or sequenced to lower costs; what facilities and equipment long-term port users truly need and are willing to pay for; and what are the best avenues for funding the project, whatever the final price ends up being among other aspects of the project. A key caveat is that any firm hired to perform the consulting work will not be eligible for future work on the large port construction project. CH2M, recently purchased by Jacobs Engineering Group, evaluated the design for the original port expansion project and determined — in addition to problematic construction techniques — the underlying engineering of the proprietary Open Cell Sheet Pile dock design did not meet the challenging seismic stability requirements for the port. CH2M detailed its findings in a lengthy report released in early 2013. Officials in former Mayor Dan Sullivan’s administration then recommended to the Assembly in early 2014 that CH2M lead management of the next iteration of the port overhaul given the company’s knowledge of the situation. The Assembly in 2014 approved CH2M to manage the downsized port modernization project, which calls for using more traditional pile-supported docks. However, some current Assembly members have expressed frustration over the fact that a firm first hired to conduct an independent analysis of the construction issues at the port was subsequently offered additional work based on the findings in its report. A large part of the new consulting work would be evaluating CH2M’s findings. Representatives from PND Engineers Inc., the Anchorage-based company that designed the sheet pile dock, have contended for years that the first port project failed because of faulty construction and not problems with its proprietary dock design that has been installed elsewhere in the state at ports in Kodiak and Dutch Harbor. PND President Jim Campbell told the Assembly committee in late February that he believes two new cargo terminals could be built off of the remaining sheet pile for a little more than $300 million versus the roughly $1.4 billion CH2M estimates it will cost to remove the sheet pile and much of the land behind it before building new cargo terminals. Port officials have generally said increased foreign steel tariffs; building to high seismic criteria with a 75-year working life; the logistical complexities of keeping the port open during construction; and removing much of the 30 acres of fill that created a large area of backlands at the north end of the port during the expansion project have added to the project’s costs. CH2M project manager Jeff Bool said March 21 that any firm hired to analyze the current project should also have experience with federal permitting requirements, specifically those for the National Marine Fisheries Service, as marine mammal protections related to endangered Cook Inlet Beluga whales add significantly to construction costs. With the prospect of state funding uncertain as lawmakers continue grappling with resolving the state’s large budget deficits and federal support unlikely at least until the city’s lawsuit against the federal Maritime Administration over management of the first construction is closed, city officials have said raising import tariffs at the port is one of few remaining ways Anchorage can pay to rebuild the aging docks. The municipality is contemplating increasing fees on fuel and cement to finance the reconstruction of the terminal that handles those goods using revenue bonds. However, the port customers and many other observers worry the five-fold or more tariff increases that would be needed for Anchorage to self-fund the work would drive business away from the port and raise the cost of basic goods such as fuel and groceries to the point that Alaska’s overall economy could suffer as a result. Elwood Brehmer can be reached at [email protected]

Anchorage airport officials pursue cargo transfer development

Officials at Ted Stevens Anchorage International Airport are angling for help to maximize the benefits of the unique freedom from some trade laws the airport offers. Anchorage is one of very few airports in the world where a foreign cargo can be transferred from one aircraft to another without being subject to customs and other trade requirements. Anchorage Airport Manager Jim Szczesniak said cargo transfers are being done on a small scale and he believes part of the reason it hasn’t grown is there isn’t a good place for it. As a result, airport leaders are looking to help someone develop a large cargo transfer facility there. “People aren’t going to come up here and leave a couple pallets of iPads sitting on the ramp waiting for another plane to show up,” Szczesniak said. “If they have a facility where they can take fish, fruits, electronics, engine machinery — high-value stuff — and securely store it out of the weather they can wait for that flight that goes (to the proper city) and get things there more directly.” The airport is already the fifth-busiest cargo hub on Earth at a volume of roughly 2.8 million tons of freight per year, but that’s mostly due to its geography that makes it an advantageous refueling stop for cargo flights between Asia and the North America. The Anchorage Economic Development Corp. estimates the airport generates 1 out of 10 jobs in the city. Few cargo companies have regularly utilized the unusual but potentially significant opportunity — particularly given Anchorage’s geographic location — that in theory could make their operations more efficient. For example, a foreign-flagged carrier could deliver cargo from Asia to Anchorage on a Boeing 747 and transfer it directly to smaller aircraft destined for multiple cities across the Lower 48. Additionally, domestic freight forwarders can purchase space on flights and act as the domestic carrier because they “own” the cargo. Almost all of the dedicated cargo traffic headed to the Lower 48 through Anchorage is destined for another major cargo hub such as Chicago, New York City or Los Angeles. From there, the goods are sent out by land in a web of distribution networks. The same options are available at the Fairbanks airport; however, Anchorage has more capacity to handle large aircraft. Airport officials and general Alaska trade advocates have said the open shipping options have not attracted business in part because shippers are often skeptical they’re actually allowed; in most places such cargo transfer would be cabatoge, a federal crime. Airport officials surveyed cargo carriers last fall to gauge the interest in a potential cargo transfer facility and the response was positive enough to investigate the idea further. Szczesniak added that produce going from Latin America to Asia and e-commerce shipments have increased of late alongside the traditional cargo going from Asian manufacturing centers to North American consumers, so the facility could offer more than simple warehouse space if it is requested. “We’re also trying to maximize the airport’s ability to process Alaskan goods. We’ve got high demand for live king crab, obviously salmon, and peony flowers are quite popular,” Szczesniak said. He noted the project, likely in the tens of millions of dollars, could also be phased to best match demand from carriers or forwarder companies. A large parcel on the northern part of the airport adjacent to FedEx’s hangar has been identified as the best location for the facility. While the project would rely on a private developer, the state-owned airport would collect lease revenue; more cargo flights would also mean more landing and other fees for the airport, which generates all of its own revenue. Total revenue from all sources was about $147 million in the 2018 fiscal year. Szczesniak said the plan is to issue a request for qualifications to potential developers in late spring and if the RFQ generates interest, a formal request for proposals, or RFP, could follow in late summer or fall. “We want to make sure that we maximize the airport’s ability to attract business and it’s beneficial to the airport, too, because if we have the facilities that help cargo customers keep their planes full that keeps them at our airport,” Szczesniak said. Elwood Brehmer can be reached at [email protected]

Alaska LNG Project economic review underway

Alaska’s new gasline team expects to have the analyses that will determine the path of the estimated $43 billion Alaska LNG Project complete in the next two months. Gov. Michael J. Dunleavy’s senior policy advisor Brett Huber said March 14 that the Alaska Gasline Development Corp. should know in about 60 days whether or not the state should continue actively pursuing the large LNG export plan based on the project’s economics. Dunleavy and several members of his administration held a conference call with reporters while attending the CERAWeek oil and gas industry conference in Houston. The governor subsequently downplayed the prospects of Alaska LNG, saying there generally appeared to be little interest in the project from potential investors also attending the conference. He said talks about Alaska were instead primarily focused on the state’s conventional oil plays, which he highlighted in a speech at the conference. AGDC officials offered more detail on the Alaska LNG review in background discussions. The project review is being done from two angles. First, AGDC engineers are attempting to determine what advancements in LNG technology, such as modular construction, might have occurred over the last three years that could bring the $43 billion Alaska LNG cost estimate down. In 2016, the international energy consulting firm Wood Mackenzie concluded the Alaska LNG Project likely wasn’t economic if developed by Alaska’s major producers, as first envisioned, in part because of the high internal return requirements oil companies typically have. However, a state-led project with federal tax exemptions could be viable, Wood Mackenzie said at the time. Secondly, the state corporation is conducting an all-in, long-term economic modeling exercise for the project that includes construction expenses, financing rates, operations and management costs under multiple ownership and investment structures. That economic modeling, which is being done in conjunction with the Department of Revenue, will ultimately forecast rates of return for potential investors based on the project’s structure; those returns will largely determine the path forward, officials said. If the expected investment returns from the project are favorable — in the 10 percent to 15 percent range — AGDC is likely to begin seeking investors with experience in the LNG realm. If the range of returns comes in lower, the Dunleavy administration, the corporation’s board of directors and legislators will have to decide how much further they want to take the project at this point. AGDC leaders are also planning to meet with BP and ExxonMobil representatives in Houston to review the modeling with them when it is complete. The companies signed agreements announced in early March to assist the state corporation in finding ways to improve the project’s economics. Regardless of the outcome of the economic modeling, AGDC will almost certainly continue seeking a favorable record of decision for the project from the Federal Energy Regulatory Commission. In February, FERC pushed back the Alaska LNG environmental impact statement schedule several months; the first draft of the EIS is now expected in June, with a final EIS set for March 2020 and a decision on the broad federal authorization coming in the months after the final draft. AGDC officials and other industry observers have emphasized the value of securing the authorization whether or not the project is advanced immediately afterwards. It is seen as a major step in de-risking the project, which could attract investors at lower return thresholds or allow the state to quickly resume the project if LNG market conditions improve. Those big decisions aren’t likely to be made until the EIS is complete. On the commercial side, a dialogue between AGDC and potential LNG buyers continues but the sides are no longer actively negotiating. Corporation leaders said they are continuing the relationship they have with the three Chinese companies — Sinopec, Bank of China and the China Investment Corp. — that signed a nonbinding joint development agreement with AGDC in November 2017 with monthly phone calls and will meet with them in Shanghai at the LNG2019 conference in early April. Elwood Brehmer can be reached at [email protected]

Denver company taking a fresh look at old seismic data

Although the first new oil is yet to flow, the apparent recent successes of several companies exploring on the North Slope has at least a few people looking for new clues in old geologic information that covers a large swath of the oil and gas basin. Geologist Bill Enyart and his Denver-based company Seismic Strategies have applied modern processing techniques to approximately 1,000 miles of the roughly 15,000 miles of two-dimensional seismic data shot across the National Petroleum Reserve-Alaska. The 23 million-acre federal NPR-A covers nearly the entire western half of the North Slope. The eastern portion of the reserve nearest to existing oil infrastructure is a focal point for Slope oil exploration after Torok and Nanushuk formation discoveries by ConocoPhillips in the NPR-A and Armstrong Energy and Caelus Energy on adjacent state acreage. ConocoPhillips’ Willow prospect, announced in early 2017, has the potential to produce upwards of 100,000 barrels per day, according to the company, as does Armstrong’s original Nanushuk discovery in the Pikka Unit on state lands just to the east of the reserve. Both of those finds centered on the shallow, conventional Nanushuk formation, are being permitted for development. Oil Search, an Australian producer, took over operations of the Pikka Unit last year after a $400 million deal with Armstrong announced in fall 2017. Caelus’ similarly large Smith Bay prospect in state waters on the northern edge of the NPR-A is focused on the Torok formation, which is geologically related to the Nanushuk. Those discoveries also led the U.S. Geological Survey to drastically increase its oil resource estimate for the reserve and nearby state lands in late 2017 to more than 8.8 billion recoverable barrels. Enyart said the NPR-A 2D seismic data was shot by federal agencies, including the Navy, in the 1970s and 80s. The NPR-A was first established as a Naval Petroleum Reserve in 1923 and was later transferred from the Navy to BLM. He described the original seismic as “a very good data set” that would be difficult to duplicate today, primarily because of cost and environmental considerations. Given that, the mere fact that it exists makes the old information valuable today, he said. “The signal’s there but since that data was acquired we have seismic data processing routines that can extract additional information and those routines just weren’t available 40 years ago,” Enyart said. Very simply, when geologic seismic data is shot, sound waves are sent into the depths of the Earth and when those waves return — in a basic sonar process — they provide information about the type and formation of rocks beneath the surface as well as the possibility of hydrocarbon deposits. New seismic reprocessing technology provides higher resolution images and can better organize old sound signals that were disrupted by permafrost, which can scramble seismic signals. “The original process was just broad-brush processing looking deep into the section. Historically, a lot of the production was coming from older, deeper formations, so we put a lot of effort looking into the (often shallower) Cretaceous rocks, that would be the Nanushuk and Torok formations,” Enyart said, adding that he’s not aware of anyone else doing this work on the NPR-A data. While the Slope is generally considered a vastly underexplored oil and gas basin, such reprocessing can help identify previously overlooked prospects even in heavily covered areas such as the Gulf Coast, according to Enyart. He acknowledged that most oil companies today won’t commit to drilling an exploration well — which on the Slope can cost $20 million or more depending on the remoteness of the location — without first seeing modern 3D seismic data of the target, but said an updated version of the publicly available 2D data is a good starting point for companies interested in Alaska. “The downside to 3D is it’s an expensive means of acquiring seismic data and 2D is a good reconnaissance project,” Enyart described. “You go into an area the size of the NPR-A and shoot 15,000 miles of 2D seismic — that gives you clues as to the broad geology. It gives you an idea of what it looks like below the surface in kind of a gross or coarser sense and then that allows you to zero in on choice areas and go out and acquire 3D for finer prospecting.” Similar reprocessing could be done on “tax credit” seismic data shot on state lands that is becoming publicly available because it was shot with the financial help of the state’s former refundable oil and gas tax credit program, according to Enyart. Companies that use the seismic tax credit program were able to get state support for the work in exchange for agreeing to make the data public after 10 years. Alaska Division of Oil and Gas geophysicist Holly Fair said reprocessing old seismic is a basic way to add value to what is already publicly available. Geologist Kevin Frank, head of the Oil and Gas Resource Evaluation Section, added that seismic shoots on the North Slope must be done when the tundra is frozen, which limits the ability to acquire the data. A planned 3D seismic shoot over the newly-opened for exploration portion of the Arctic National Wildlife Refuge had to be scratched this winter after the government shutdown delayed permitting for the work, Frank noted. “If you just cannot get — even if you’re indifferent to cost — you cannot get new data, you work the old data to your benefit,” he said. Some seismic was shot on the ANWR coastal plain by a consortium of companies in the mid-1980s, but it generally remains proprietary information. Elwood Brehmer can be reached at [email protected]

30 years after Exxon Valdez, vigilance still No. 1 priority

This March 24 marks 30 years since one of the darkest days in Alaska’s history. It was the day when the industry largely credited with affording Alaska the ability to become a state wounded the marine ecosystem to the point where it still hasn’t fully recovered. For that reason and others, leaders of the Prince William Sound Regional Citizens’ Advisory Council make it a point to acknowledge the anniversary of the Exxon Valdez oil spill while trying to avoid reliving the events. “You recognize, you commemorate it, but certainly there are a lot of communities in Prince William Sound that are still very much suffering or feeling the effects of the oil spill. It’s not a happy anniversary at all,” PWSRCAC Executive Director Donna Schantz said in an interview. The council’s approach instead has been to evaluate the changes in Prince William Sound oil tanker operations since 1989 and highlight the improvements made to safety and environmental protection as well as areas where work could still be done. That evaluation makes up the council’s Then and Now report, which is updated every five years. The 30-year edition of Then and Now was released March 19. Schantz called Alaska’s largest oil tanker operation and the spill prevention and response efforts that surround it “a world class system,” but one that could still be better, according to the council. “Our message really is:’ Hey, we’re doing really well, we haven’t had another major oil spill in 30 years; we must be doing something right,’” she said. “Let’s not let complacency creep back in. We need to remain vigilant.” Congress concluded complacency contributed to the spill and subsequently established the citizens’ advisory councils in the 1990 Oil Pollution Act, Schantz noted. A sister council was also created for Cook Inlet. The law was a major overhaul of spill prevention and response capabilities. It established the requirement to develop spill contingency plans for oil shippers and storage facilities and the federal Oil Spill Liability Trust Fund, which can provide up to $1 billion to respond to an oil discharge. Cleanup during 1989 of the Exxon Valdez cost more than $1.8 billion, according to the National Transportation Safety Board. The requirement for two tugs to escort each laden tanker out of Prince William Sound not only provides immediate response capabilities in the event of an incident, it also adds redundancy in fighting the “human factor,” according to Schantz, who cited statistics indicating the vast majority of oil spills, including the Valdez disaster caused by the tanker grounding on Bligh Reef, are the result of human error, not equipment failure. There are simply more people observing the entire operation with two more vessel crews involved. “It’s a lot harder to have something like the Exxon Valdez happen with all those extra sets of eyes watching and maintaining protection. The two escort tugs really are one of the biggest oil spill prevention efforts in place,” Schantz said. Last summer, Edison Chouest Offshore took over the escort responsibilities and many other prevention and response duties at the Alyeska Marine Terminal from Crowley Maritime. Crowley held the Ship Escort/Response Vessel System, or SERVS, contract since 1990. There were questions from advisory council members and other observers after the contract was announced in mid-2016 about whether Edison Chouest would be able to take over the role in the relatively short time, given the company was to build many of the 10 new tugs and 8 purpose-built response barges at its Gulf Coast shipyards. The company also brought in employees who were not familiar with Alaska operating conditions. After two minor incidents in early summer 2018 around the time Edison Chouest took over the SERVS work, the company has performed well, Schantz acknowledged. “Edison Chouest has really good people and they’ve worked really hard. This winter we were very concerned because it was a steep learning curve coming into a new environment, a new operating system,” she said. The council has also recently focused its attention on more closely matching condition requirements for some escort and response training exercises with what are deemed acceptable operating conditions for laden tankers. Currently, tankers are permitted to travel through the sound in weather and water conditions of up to 45-knot winds or 15-foot seas at Hinchinbrook Entrance near the open Gulf of Alaska. Council officials note the tanker and tug crews do not train in such adverse conditions, which they contend could leave the mariners less than fully prepared for the situations they might encounter on some working days. The council’s position is that it could be safer for the crews to work in controlled conditions and to better understand the limits of safe operations, Schantz said, adding that if conditions are deemed unsafe to train in the operating maximums might need to lowered. She further noted that oil recovery becomes exceedingly difficult in rough seas. Alyeska Pipeline Service Co. leaders see it differently. They contend current training regimens with more than 200 drills annually, which are not usually predicated on sea conditions, and the stronger, more advanced Edison Chouest tugs offer robust spill protection while not putting crews at unnecessary risk. Alyeska spokeswoman Michelle Egan said the company is proud of the escort system and is committed to continually ensuring it’s the best it can be. “It’s a professional disagreement about what is the right balance between demonstrating what we can do and protecting human life and the environment because there’s certain environmental risks associated with going out in those (rough) conditions,” Egan said. “We’ve worked with our regulators on that and we’re comfortable that we’ll be able to respond. But it’s really about prevention; that’s our focus.” The Alaska Department of Environmental Conservation directed Edison Chouest to train in certain unfavorable conditions in preparation for taking over the SERVS contract, but Schantz noted that will not be a regular requirement going forward. One of the things they agree on is that the contracted fleet of roughly 400 fishing vessels and 1,600 crew members trained in spill response across Southcentral Alaska provide a massive response force should prevention efforts ever fail. Schantz, who’s been with the council for 20 years, said she’s confident its oversight has helped retain high standards around oil transport in Prince William Sound. The council regularly reviews operating permits, contingency plans and recommends improvements or flags potential changes deemed to potentially degrade spill defenses. “We want to make sure that all the protections put in place after the Exxon Valdez oil spill, that we maintain those, because it’s easy to say, ‘well, we haven’t had another major oil spill, maybe we don’t need all of this,’” Schantz described. Our position is, ‘hey, we haven’t had another major oil spill. Let’s not dismantle a system that’s working well.’ We can’t weaken it; we can’t go backwards.” ^ Elwood Brehmer can be reached at [email protected]

Users say fuel tariff hikes would impact cargo operations at airport

Anchorage port customers on March 15 affirmed the possibility that self-funding a rebuild of the critical but badly corroded infrastructure they use might drive ultimately business away from the port and Anchorage in general. Municipal and port officials are once again in the midst of an analysis to determine exactly is needed how to pay for it at what is arguably Alaska’s most critical piece of infrastructure. The ongoing Anchorage Port Modernization Program would mostly replace the existing docks with a few additions. While scaled back from the failed port expansion project of the late 2000s, the current work is expected to cost upwards of $1.9 billion to complete, according to the project management firm CH2M, which was recently purchased by Jacobs Engineering Group. That price has been met with varying levels of sticker shock; it also includes more than $500 million for risk contingencies and cost escalations as the current schedule calls for work through 2028. Increased foreign steel tariffs; building to high seismic criteria with a 75-year working life; the logistical complexities of keeping the port open during construction; and removing much of the 30 acres of fill that created a large area of backlands at the north end of the port during the expansion project further add to the cost. First in line for replacement is the petroleum and cement terminal, or PCT, which is scheduled to be replaced over the next two years at a cost of $223 million. The PCT is on the oldest section of the docks and must be done first to free up space for when the adjacent cargo docks are rebuilt, according to port officials. Some sections of the pile-supported docks have been in place since 1961 and have far exceeded their initial 35-year design life. Studies indicate the pile maintenance program can keep the docks open for about another nine years before pervasive corrosion from seawater will start forcing closures. The PCT work is being partially funded with unspent money from the first project and court settlements, but absent state or federal funding, city officials in February proposed drastic increases to the port’s fuel and cement import tariffs to cover the cost of borrowing up to $200 million through revenue bonds for the remainder of the work. Representatives from port user companies said at a March 15 Anchorage Assembly Enterprise and Utility Oversight Committee meeting — the second in a series of meetings examining port reconstruction — that increasing the port’s fuel tariff by more than 500 percent would likely increase the cost of fuel and goods across the state. It’s estimated that up to 90 percent of the goods destined for delivery across mainland Alaska arrive across the port’s docks. In 2017, the Anchorage Assembly renamed it the Port of Alaska in an attempt to highlight its importance statewide and hopefully drum up support for its rebuild. Few state leaders deny the necessity of the port work, but the prospect of meaningful levels of state assistance is bleak as lawmakers continue to wrestle with how to close large state budget deficits. Specifically, the proposed fuel tariff change would incrementally increase the current 0.38 cents per gallon to 2.4 cents per gallon in 2023, which would be sufficient to cover the debt service on bonds to pay for a new PCT when combined with cement tariff hikes. While just about 2 cents per gallon in nominal terms, the impacts of the higher petroleum tariffs could be much larger in practice, according to shippers and others. Fuel economy Bert Mattingly, a manager with Anchorage Fuel and Service Co., said any tariff increase would force the international cargo carriers that support a large portion of the business at Ted Stevens Anchorage International Airport to reexamine their operations. Anchorage Fuel and Service doesn’t buy fuel. Rather, it is a consortium of 18 primarily cargo airlines that own fuel facilities at the airport and handles the fuel purchased by the individual carriers. Roughly half of the 616 million gallons of jet fuel the company received in 2018 came through the port, according to Mattingly. Anchorage Fuel and Service also owns the pipeline that carries jet fuel from the port to the airport, he said. The Anchorage airport is the fifth busiest cargo hub in the world mainly because of its position between manufacturers in east Asia and consumers in North America, and that cargo business is a large reason the airport supports 10 percent of the jobs in the city, according to the Anchorage Economic Development Corp. Refueling in Anchorage allows carriers to fill aircraft with more cargo instead of carrying the added fuel that would be needed to reach refueling hubs or destinations to the south and east. However, the economics of the cargo business model rely on a difference of pennies per gallon between hauling more fuel or hauling more cargo, industry experts note. As a result, any tariff change at the port could impact international business at the airport, Mattingly said, adding that newer, more fuel efficient jumbo jets have already begun to challenge the model of an Anchorage stopover. “We’re in a good place physically for heavy cargo to come through but on the return flight (cargo carriers) have a lot more options” for refueling locations, he said. Petro Star Vice President Mark John characterized the Alaska fuel business as an “incredibly competitive” market where changes as seemingly minor as “fractions of a penny” can influence decisions. Petro Star operates small refineries in North Pole and Valdez as well as fuel terminals across much of the state. The company also purchased a 200,000-barrel storage facility at the Anchorage port in 2017. “While we agree that the port is vital to the state’s commercial and public interests, an increase of over 500 percent in port user tariffs would ripple through the fuel market in Alaska and cause irreparable harm,” John told the Assembly members. “Once those customers leave they won’t return.” John said in response to questions about other funding alternatives that Petro Star’s parent company, Arctic Slope Regional Corp., is aware of the situation at the port and is also active in state lobbying efforts for its businesses. Committee co-chair Assemblyman Christopher Constant commented that the tariff proposal is the first thing the city has done regarding the port project that has garnered attention from outside Anchorage. “As scary as it might sound that this could happen it might be the first time we can actually educate people outside of Anchorage that this is their port,” Constant said. The situation for cement could be similar to fuel if the tariffs are enacted, according to Ryan Zins of Alaska Basic Industries, which imports cement at the PCT. Cement tariffs would go from $1.61 per ton eventually to $8.30 per ton under the city’s proposal. Anchorage Municipal Manager Bill Falsey has said city officials believe the current market price for cement is about $155 per ton. “If we look at it from a tariff standpoint, what I hear is lost jobs,” Zins said. He acknowledged the market can absorb some cost increases on cement but the proposed tariffs would equate to $750,000 to $1 million either coming out of Alaska Basic Industries’ bottom line or its customers pockets. The company is in the fourth year of a recession in its business, Zins said, adding that the tariffs could curtail some work in an already fragile construction sector. However, the worries about the basic commodity tariffs don’t even consider what it would cost for Anchorage to self-fund the port’s general cargo docks used by TOTE Maritime and Matson Inc., which provide consumer goods to Alaska. City leaders estimate another roughly $200 million per year would need to be generated to cover the debt service for building new, permanent cargo terminals and the backlands removal and stabilization. All in, that work is pegged at nearly $1.5 billion. Up to $200 million in new charges equates to about $2,000 per container delivered from Tacoma, according to Marion Davis, a Matson consultant, who called the company, “the grocery guys.” “I don’t know what (costs) we could pass on but it wouldn’t be $200 million a year,” Davis said. And while some shipments could possibly be routed to Seward or Whittier, he said that isn’t likely on a large scale. Whittier, tucked against the Chugach Mountains, doesn’t have much extra space; using the railroad isn’t feasible for time-sensitive produce, according to Davis; and adding large volumes of truck traffic to the Seward Highway from either alternative port is untenable. The most likely alternative is that more groceries would likely come north via the Alaska Highway, he said. Davis also clarified that TOTE and Matson need to use the port on the same days — Sundays and Tuesdays, necessitating two cargo docks — because supermarkets want fresh produce early in the week. Also, staggering the shipping schedules would put some ships back in Tacoma during weekends, when there is no freight to load, amongst other logistical challenges. After hearing the concerns of those most directly impacted by changes at the port, Falsey emphasized that city officials along with the Assembly are conducting a detailed review of every aspect of the modernization plan approved in late 2014. “We’re not interested in building a port that will cause business to flight from the airport. We’re not interested in building a port that will cause volumes to spiral down so that the port can no longer pay for the infrastructure that it just created,” Falsey said, while noting that something needs to be done soon. “Our goal remains to build the cheapest port that serves our needs and we’re all in this together.” Funding alternative While Anchorage leaders have struggled for years to drum up support for state and federal funding or the port project, a new possibility emerged from one of the country’s largest labor unions at the March 15 Assembly meeting. Alaska AFL-CIO President Vince Beltrami said the building trades union has a large Building Investment Trust that it could utilize to leverage other funds and help with the Port of Alaska rebuild. The roughly $7 billion AFL-CIO Building Investment Trust supports the union’s pension plans and invests in projects its laborers can work on, according to spokesman Bob Struckman. As a concept, the trust would likely sell bonds to fund a large part of the project but would not become a part owner of the port, explained Struckman, who added the investment could be “in the range of hundreds of millions” of dollars or more. “We would enter into an agreement with Anchorage to service whatever investment that we put in. The terms are very good because we’re not Wall Street. I think we’re a lot better partner than a lot of sources of funding and it can be easier than self-financing,” he said. Beltrami said any such agreement would come with the expectation that AFL-CIO affiliated laborers would do the work and Constant noted the city would hire union contractors for a project the size of the port regardless of funding arrangements. Struckman said he’s very optimistic the union’s fund managers would be interested in the Anchorage port and he’s looking to get investors to Alaska soon to review the project. Elwood Brehmer can be reached at [email protected]

Economists struggle to calculate impacts of cuts to budget vs. PFD

While economics is so far from perfect science it’s often referred to as an art, lawmakers are still asking leading state economists to quantify the economic effects of Gov. Michael J. Dunleavy’s budget proposal. One thing is clear: Filling Alaska’s $1.6 billion budget deficit without new taxes and at the same time paying each Alaskan a Permanent Fund dividend of roughly $3,000 adds up to a net negative for the state’s economy. University of Alaska Anchorage Institute of Social and Economic Research Economist Mouhcine Guettabi said in testimony to the Senate Finance Committee that the administration’s plan to cut approximately $1.2 billion of state agency and program spending and divert another $440 million in historically local tax revenue to state coffers would extend the current recession and result in a net loss of more than 7,100 jobs statewide. According to Guettabi’s calculations, the spending reductions would cost Alaska approximately 16,900 jobs. Those losses, equating to about 5 percent of Alaska’s current workforce, would be partially offset by a temporary employment boost of nearly 9,800 jobs stemming from a larger 2019 PFD and the eventual payback of forgone PFD amounts over several years. “How communities respond to these cuts will determine the actual size of the job losses,” he said, adding that if local governments raise taxes to offset the loss of current revenue the impacts to the workforce could be mitigated somewhat. He also noted that the North Slope Borough, for example, would have to impose taxes in excess of $30,000 per resident per year to fully recoup the gap left by shifting about $370 million in annual borough oil and gas property tax revenue to the state. Longtime Alaska economist Jonathan King said in February he believes the combined state and federal funding cut of approximately $750 million proposed for the state’s Medicaid program would result in 8,000 jobs lost across the state. Guettabi and other economists have said they believe the current recession — three years and running — is likely to end late this year absent complicating factors such as significant government spending cuts. Overall, Alaska has lost about 12,300 jobs since 2015, according to the state Labor Department. Office of Management and Budget Chief Economist Ed King testified the budget proposal would likely result in about a 5,000-job reduction statewide, but he emphasized that Alaska’s economy is more resilient than at any time in the state’s history and any solution to the state’s budget troubles is going to be felt at some level. “There’s going to be a negative impact regardless of how you solve this problem. That impact is either going to be an impact on the current economy or it’s going to be a negative impact on future generations, but there’s going to be an impact,” King told the senators March 7. “At some point we need to pay the piper and the economy needs to adjust to the new normal.” He suggested that private sector entities could backfill some of the direct cuts to state and local government positions. The administration’s budget would directly eliminate 714 State of Alaska positions, according Office of Management and Budget. Finance Committee members from both parties contended King, who downplayed Guettabi’s job loss projections, tried to avoid their questions about specific impacts of the governor’s proposals. He said the best way to analyze the health of the state’s economy is not to focus on job numbers but rather to track the money circulating through it. Many politicians in recent years have lamented the fact that Alaska’s unemployment rate has been the highest in the nation — largely due to a highly seasonal workforce — while the Lower 48 economy has been booming. At the same time, according to Labor Department figures, Alaskans’ personal income has generally increased despite the job losses throughout the recession, with the exception of 2016. Alaskans earned or received a total of $42.3 billion in 2017, the latest full-year data available. “The whole picture that somehow we’re on the precipice of economic calamity is just not consistent with the demographics of the state,” King insisted. Sen. Peter Micciche, R-Soldotna, insisted the administration’s stance that the private sector will step in to fill the void left by a major reduction in government spending is largely a myth because there is no corresponding benefit, such as a tax cuts for private industry or individuals. The structure of Alaska’s economy generally prohibits the benefits of the traditional conservative “trickle down” economy theory, Micciche said. Guettabi said in an interview that because the budget cuts would not be accompanied by a corresponding cut to state corporate or personal taxes — the latter of which does not exist — there is no “counteracting effect” that would be likely in other states where government spending is tied to taxes. “If you’re saying the money has to come from somewhere and I’m taking it from person A and giving to government then obviously the impact is going to be smaller, because that person potentially would have spent it better or at least spent some of it,” Guettabi said to describe the typical relationship between taxes and government spending in other states. “The Alaska economy is fairly diversified; its revenue sources are not,” he said to the committee. As is often the case, regardless of the issue, Alaska is different. According to the Fall 2018 Revenue Sources Book published by the Department of Revenue, just $867 million, or 14 percent, of the more than $6 billion in spendable revenue the state is expected to collect in fiscal year 2019 will come from non-petroleum or investment sources, mostly in the form of various industry-specific taxes. That means the vast majority of the State of Alaska’s funding, whether from resource extraction or Permanent Fund investment returns, is additive to the economy as opposed to recycled tax revenue. “On the state level we are an ownership state and the resources that we partner with industry to develop through the lease structures that we have in place, the royalty share that we take and then the taxes that we take are in effect new money injected into our economy,” Anchorage Economic Development Corp. CEO Bill Popp said in an interview. For that reason and others, the large AEDC board of directors, comprised mostly of the city’s business leaders, does not support Dunleavy’s budget plan, according to Popp. As has been the case for several years, the AEDC board is advocating for “a balance of measured, targeted cuts, identifying new income streams to fund government and to include the Permanent Fund as part of the solution,” he said. “We’re focusing on the Legislature as being where a balance of different aspects of a long-term fiscal plan can be developed that will not take our state backwards.” In addition to the state budget reductions, the administration’s proposal would forgo approximately $730 million in federal revenue, much of which would be cut from the Department of Health and Social Services Medicaid program budget. King in a follow-up interview agreed with the premise that government spending in Alaska has been an economic stimulant — at least since the income tax was repealed in 1980 — but going forward, “the revenue’s not there,” he said. The alternatives to cutting the budget, such as taxes or PFD reductions, would have the negative corresponding economic impacts Alaska has avoided for nearly four decades, King noted. He added that spending Permanent Fund investment revenue could alleviate the budget problem without immediate negative consequences, but those consequences are then put on future Alaskans in the form of reduced dividends. “The governor is very focused on that balancing act between supporting the current economy and protecting future Alaskans and the proposal he put forward best solves that problem,” King said. ISER economists have said a broad-based tax would have a less negative impact on the economy than direct budget cuts because, whether a sales or income tax, it would capture revenue from nonresident workers or visitors. ‘PFD jobs’ Senators also questioned the economists on how they believe the PFD impacts the economy and how changes to it compare to other budget-solving options. Guettabi said his estimate that the large PFD payments would induce nearly 9,800 jobs is based on an impact analysis done in 2016 when the debate about how to solve the state’s budget problems ramped up. He acknowledged it is a fairly “generic” analysis given no firm solutions have been implemented. At the time, he suggested Alaska would give up 558 to 892 jobs for every $100 million in cumulative PFD reductions. The range indicates an open question as to how much of each Alaskan’s PFD is spent in the state economy, how much is saved, and how much is spent elsewhere. For comparison, Guettabi forecasts broad-based state spending cuts would result in losses of 980 to 1,260 jobs for every $100 million reduction. Economists have generally said determining how Alaskans use their PFDs is an extremely challenging exercise. He said in an interview that a recent causal analysis he and other ISER economists did regarding PFD spending found that about 2,700 temporary jobs are generated for every $1,000 in per person PFD payments in the three months immediately following the distribution. “The way I think about the jobs that are created is that they are ‘demand induced’ jobs, meaning retailers or people that are in businesses that depend on household spending basically make short-term hires in order to deal with the rush or increase in demand,” Guettabi explained. The months immediately following the early October PFD distribution are also the prime holiday shopping period, which is a boon for retailers Outside as well. While King attempted to rebut Guettabi’s estimates in regards to job losses, he asserted in his presentation that injecting money into the economy would spur more spending and create additional labor demand to the tune of 14,272 jobs — a figure based on the high-end of Guettabi’s PFD jobs projection. However, Micciche — while emphasizing that it is appropriate to advocate for the PFD as a policy matter —noted that King discounted the impacts the dividend has on Alaska’s economy when he was a private economist. King wrote in an article published on the website for his firm King Economics Group last September that his study of the issue concluded that up to 90 percent of PFD income bypasses Alaska’s economy. “I was surprised to find that there is no statistically significant relationship between PFD payments and changes in jobs,” King wrote. “Not even if I try to find one by lagging the time periods.” Most PFD money goes towards college savings accounts, vacations, federal taxes and other non-stimulating sources, according to King. Micciche acknowledged that King is now in the very different role of advocating for Dunleavy’s policy priorities. For his part, King told the Finance Committee that while the PFD may not have a big influence on Alaska’s economy as a whole, it is a big deal to many individuals in the state. “When you look at what the PFD does, it doesn’t just create jobs, it also creates value to people. It allows them to improve the quality of their life. It allows people to buy fuel for the winter, or food for their kids, or send their kids to college or take a vacation or whatever it is they want to do,” he said. “Those PFDs have a much bigger impact on people’s individual lives than the job numbers indicate.” Elwood Brehmer can be reached at [email protected]

ADFG advances logbook repeal; OMB takes director salaries

Alaska Department of Fish and Game officials want input on a proposal to repeal rules requiring sport fish guides to report their clients’ catch. ADFG issued a public notice March 7 requesting public comments on eliminating the Freshwater Sport Fish Guide Logbook program. The department currently mandates all fishing guides and charter operators to complete detailed summaries of each fishing trip they run in logbooks provided by the department. Freshwater guides are required to record the time and location of each trip; the number of each species caught and harvested or released; as well as the sport fishing license number of each guide and client that participated in a given outing. Those logbooks must then be turned in to the department each week during the fishing season. Saltwater fishing guides would still be required to record their trips in the state logbooks. While ADFG monitors fish stocks in many popular commercial and sport fisheries across the state with fish weirs, sonar, and various other survey methods, many other fisheries, even on large, heavily used waters, are not tracked. The logbooks offer fisheries managers a frame of reference for how fisheries typically not actively managed in-season are performing by tracking catch rates and angler effort. Logbook data can also be used in gathering other harvest information as well. The popular Kenai River coho fishery, for example, largely occurs after the sonar focused on enumerating the river’s sockeye run is pulled in mid-August. Questions about the reasons behind repealing specifically the freshwater logbook requirement were referred to the Office of Management and Budget despite being a regulatory proposal and were not answered in time for this story. Acting Fish and Game Administrative Services Director Samantha Gatton told the House Fish and Game budget subcommittee March 5 that repealing the program would save approximately $100,000. Gatton previously said the overall saltwater and freshwater logbook program costs the state $650,000 to $690,000 per year. Overall, the department is facing a $4.5 million cut from a roughly $200 million budget under the Dunleavy administration’s proposal. Incoming Kenai River Sportfishing Association Executive Director Ben Mohr said the group is fairly ambivalent about the proposal to repeal it. The freshwater logbook program is scheduled to sunset in October and, according to Mohr, has not been used for in-season management as much as intended. On March 12 ADFG Commissioner Doug Vincent-Lang also clarified in response to questions from legislators on the House budget subcommittee that the department is cutting the Habitat and Subsistence Division director positions so the PCNs, or position control numbers, can be transferred to the Office of Management and Budget for director-level positions there. He stressed that the department will continue to operate the Habitat and Subsistence aspects of its work as it has done; the difference will be that division operations managers leading each area will report to a deputy commissioner. The Habitat and Subsistence director positions are vacant and not required by statute, according to Vincent-Lang. “I’d rather not lose two permitters; I’d rather lose a vacant director and figure out how to oversee that division by a deputy commissioner,” he told the committee. Rep. Geran Tarr, D-Anchorage, questioned the plan for putting science-based permitting decisions on an appointee-level position. Rep. Jonathan Kreiss-Tomkins, D-Sitka, said OMB needs to explain the rationale behind transferring the positions out of Fish and Game. Elwood Brehmer can be reached at [email protected]

Premera uses AI to identify customers at risk of high-cost care

Premera Blue Cross is betting that new technology can predict future health problems, thereby giving patients and medical providers the ability to react before potential issues become severe. The large Seattle-based health insurer in February announced a partnership with Cardinal Analytx Solutions to use Cardinal’s Cost Bloom predictive modeling program to identify Premera members with the highest probability of needing high-cost health care over the coming year. It’s generally understood in the health insurance industry that a small portion of any population accounts for the vast majority of health care costs associated with that population. According to a Premera paper on the program, research at Stanford University found that approximately 10 percent of an insured population typically accounts for 70 percent of the costs. The challenge is in predicting who will be in that 10 percent pool in a given year, Premera Data and Analytics Director Colt Courtright said in an interview. That’s because, according to Cardinal Analytx, 60 percent of the high-cost pool changes year-to-year, and most analytics programs focus on identifying and providing managed care to only the 40 percent long-term portion of the high-cost pool. Cardinal Analytx Solutions is a Palo Alto, Cali.-based data analytics firm. “Really, what we’re trying to do is help people avoid those (high health care) costs in the first place. The challenge using classical statistics is that it was impossible to find a large portion of that 10 percent and be able to predict who they might be, so you couldn’t really intervene,” Courtright said. “You couldn’t offer support programs; you couldn’t perform outreach; you couldn’t encourage provider visits.” The key to the program is employing artificial intelligence with the ability to parse out much more subtle indicators of future high-cost health care users. When a potential high-cost individual is flagged, Premera can then notify that person and suggest preventative or early treatment methods. The artificial intelligence can identify patterns in members’ use of medications, or a constellation of health conditions and discern if a social support program, for instance, could improve the condition before a major procedure or other intensive care is required, Courtright said. Cardinal Analytx estimates the Cost Bloom program can result in 15 percent savings across an insured group over two years. The condition forecasting is an addition to Premera’s existing clinical care management and care coordination programs and when a member is identified as someone who is likely to need high-cost care in the next year a case manager can reach out through those programs, according to Courtright. He also said the predictive modeling works using data insurance companies have traditionally gathered; however, the artificial intelligence analysis of that data is driven by the interaction of more than 50,000 data points or variables processed through a predictive algorithm, according to Premera. “It’s less about a specific data point as these are attributes that are often combined across data points,” Courtright said. Premera Blue Cross Blue Shield Alaska is the lone insurer in Alaska’s individual health insurance market. A reinsurance program first started by the State of Alaska in 2016 and then approved by the federal Centers for Medicare and Medicaid Services in 2017 has allowed Premera to reduce its individual market insurance rates by 26 percent in 2018 and 6.5 percent in 2019. The Alaska Reinsurance Program is in the middle of receiving $332 million in CMS grants over five years to support the program. Premera returned $25 million in reinsurance money to the State of Alaska in late 2017 after the company determined there had been a significant reduction in the use of medical services by members in the individual market. Elwood Brehmer can be reached at [email protected]

AGDC scales back as it moves project forward

Alaska’s new gasline leaders offered some insight Wednesday into their plans to continue building on the progress that has been made on the $43 billion Alaska LNG Project while at the same time reevaluating its viability and doing so at a lower cost to the state. Interim AGDC President Joe Dubler told the corporation’s board of directors that a primary emphasis is returning to the “stage gate” process used by the producer companies to advance Alaska LNG before the state took it over in late 2016. BP, ConocoPhillips and ExxonMobil and the State of Alaska collectively spent roughly $600 million in the 2013-16 timeframe to get the megaproject through the preliminary front-end engineering and design, or pre-FEED, stage. At that point, with depressed oil and LNG markets, the companies offered to either hand the project over to the state or slow it down until global energy markets improved. Narrowing the Alaska LNG Project cost from a $45 billion to $65 billion range down to the current estimated $43 billion was a primary product of the pre-FEED work. Gov. Bill Walker chose for the state to continue the effort and under former AGDC President Keith Meyer — who was hired in June 2016 and fired by the board this January — work was focused on selling to project to LNG customers and investors while also initiating the federal permitting process to get approvals for early construction in 2020. AGDC will now focus on determining whether or not it’s worth advancing to the up to $2 billion FEED stage gate, which would get the Alaska LNG Project to about a 40 percent design level and is necessary to make a subsequent final investment decision, according to Dubler. Given that, he said a 2020 start to construction is not realistic. A desire to reinstitute the stage gate approach and get the producers directly involved in Alaska LNG again were priorities of Gov. Michael J. Dunleavy during his campaign. “What’s needed to make a final investment decision — we don’t have everything in place at this time. We think it will probably be two years or so but we haven’t worked the schedule all the way out,” Dubler said. “If you’re going to fail on a project you want to fail when you only have $500 million or a billion dollars into the project and not $4 to $5 billion into the project, so you stop at each gate and make a decision.” Dubler said during a Feb. 27 legislative hearing on AGDC’s budget that corporation leaders are prepared to shut down operations if the Alaska LNG Project is not determined to be economically viable. Under the previous approach, AGDC planned to hire one or more large firms to develop the project under an engineering, procurement and construction, or EPC, contract and that included the final technical development. The corporation will also go through a new economic analysis of the project, according to Dubler, who noted the last time the project’s economics were assessed was in 2016. That evaluation, done by the international energy economics firm Wood Mackenzie, concluded low global LNG prices challenged the viability of a producer-led Alaska LNG Project and suggested state control could benefit it’s economics but did not draw firm conclusions on the viability of the current project structure. Dubler said he doesn’t believe the changes will deter the potential LNG customers and investors AGDC has preliminary agreements with, adding that the corporation has sent letters to them explaining the changes and corporation officials will meet with several of them at the large LNG2019 conference in Shanghai in early April. However, he did say the nonbinding joint development agreement framework AGDC has with three nationalized Chinese companies to finance up to 75 percent of the project costs in exchange for purchasing up to 75 percent of its LNG production capacity puts too much control in one place. “We’re looking to diversify into more companies — get more people involved. We’re just looking to expand participation by investors and offtakers,” Dubler said. AGDC officials have previously said the corporation has formal letters of interest from 15 potential customers entities; but those documents are confidential. Commercial and Economics Vice President Leiza Wilcox said feedback from prospective customers remains positive because of Alaska’s location in relation to Asian LNG buyers. On the investor side, she said indications are the initial Alaska LNG investors would likely require returns “in the mid-double digits.” “Somewhere between 12 to 15 percent, that would be my feeling,” Wilcox told the board of directors. “For a long-term infrastructure project the expected rate of return can be lower and in the long-term the project can be put into the hands of infrastructure investors that expect a lower rate of return. It’s just a matter of who invests up front and who invests for the long-term; that’s part of the structuring of the financing package.” Securing those infrastructure investors, such as pension funds, with lower return hurdles was a cornerstone of the approach AGDC took to the Alaska LNG Project under Meyer, who often cited the higher return requirements of the major oil producers as an impediment for developing the project based on their investments. As for AGDC’s internal finances, Dubler said the corporation could complete its mission on a smaller budget to do its part to close the state’s $1.6 billion budget deficit. The corporation has already cut $5 million out of its current year budget — mostly by cutting its contractor and legal expenses — and is downsizing its Anchorage offices. The Dunleavy administration’s fiscal year 2019 supplemental budget request includes transferring that $5 million back to the General Fund. “We’re right-sizing for the narrower marketing focus and we’re advancing the FERC (permitting) process,” Dubler said. However, he went on to say that with the $5 million reduction, AGDC expects to have roughly $15 million at the end of the current, 2019 fiscal year, but expects to need about $29 million in 2020 to complete the Alaska LNG environmental statement and keep the reduced scope of commercial work ongoing. Agency officials are working on a resolution to the funding issue, Dubler said. “I’m not sure we can reduce enough to get there but we’re going to see what we can do,” he added. House Resources Committee co-chair Rep. Geran Tarr, D-Anchorage, said in a statement offered to the Journal that she was pleased to hear AGDC is continuing with the Federal Energy Regulatory Commission environmental impact statement process started in 2017 under the Walker administration. “This is the right decision. The state has invested hundreds of millions of dollars, and that investment must be maximized by achieving this critical regulatory approval,” said Tarr, who added that she’s looking forward to “closely evaluating any new proposals to change the ownership model to ensure the state’s strong position is maintained.” There is a general consensus among industry experts and Alaska LNG observers that completing the project’s EIS would be beneficial in the long-term even if the project is not sanctioned in the coming years. To date, AGDC has spent more than $260 million on the Alaska LNG Project. AGDC leaders are scheduled to present to legislators March 22 in a joint House and Senate Resources Committee meeting. Outside help AGDC on Friday announced new partnerships with BP and ExxonMobil in which the companies will help the quasi-state corporation “identify ways to improve the project’s competitiveness and progress the Federal Energy Regulatory Commission authorization to construct the project,” according to a statement from the corporation. Last year BP and ExxonMobil signed binding term sheets, which include pricing terms, to sell their respective shares of North Slope natural gas into the Alaska LNG Project. “BP and ExxonMobil possess world-class LNG expertise which may help AGDC responsibly advance this project with maximum efficiency for the benefit of Alaskans, and I welcome their collaboration,” Dubler said in a formal statement. BP previously supplied AGDC with technical assistance under an agreement from late 2016. According to AGDC officials, the latest agreements ostensibly provide free volunteer help from the companies on value engineering and answering federal agency questions for the Alaska LNG environmental impact statement. FERC officials said Feb. 28 that issuance of the draft Alaska LNG EIS would be pushed back about four months to June of this year due, in part, to responses the federal regulators still need to get from AGDC, according to FERC documents. Additionally, Dubler said during the Wednesday board meeting that AGDC would seek third-party help from “quality, experienced LNG project owners and operators to build, own, and operate the project” if it reaches that point. “We realize this is not something the state does. The state’s very good at some things; running integrated LNG projects is not one of them,” he added. Former AGDC head Meyer often noted that AGDC would likely hire a firm to operate the project while it remained under state ownership. That state ownership has been recognized by many, including Dubler, as a crucial economic benefit because it would likely exempt Alaska LNG operations from federal income taxes based on a 2016 ruling from the Internal Revenue Service. Elwood Brehmer can be reached at [email protected]

Slope production forecast coming up short

Alaska is facing a projected $1.6 billion budget deficit next year, but the financial picture for the current fiscal year could get a little worse if North Slope oil production figures don’t increase soon. North Slope crude oil and natural gas liquids production for fiscal year 2019 averaged 496,197 barrels per day through February, according to the state Department of Revenue. That is 5.8 percent below the average daily production forecast produced by the Department of Natural Resources of 526,800 barrels for all of fiscal 2019, which began last July 1. The delta between actual and forecasted production is notable because overall 2019 North Slope production was supposed to increase from the final fiscal 2018 average of 521,398 barrels per day. Instead, the 496,197 barrels per day of production since the start of July is also well below the year-to-date average for 2018, which was 516,870 barrels per day at the end of February 2018. Overall, the state was expected to draw roughly $700 million from savings when the fiscal 2019 budget was passed last June. Actual North Slope production in February averaged 517,227 barrels per day, while state officials calculated that production for the month would have to be about 582,000 barrels per day to stay on pace for the 526,800 barrels per day forecast for the year. It’s worth noting that the monthly calculation is largely based on historical production averages prorated by month — production peaks in winter months —as opposed to strictly being based on year-to-year situations, according to state officials. Oil taxes and royalties were expected to generate more than $2.2 billion in unrestricted revenue for the State of Alaska in the current fiscal year, according to the annual Revenue Sources Book the Department of Revenue publishes each December. The revenue projection is based on the combination of the department’s oil price forecast for the year as well as DNR’s production estimate. The price side of the equation is currently a slight but dwindling positive for Alaska’s finances, as higher than expected prices through late summer and fall have the average price for a barrel of Alaska North Slope crude at $69.85 per barrel, or about 2.8 percent more than the $67.96 per barrel forecast. However, the average realized price has gradually been falling since Alaska oil prices fell back to sub-$70 per barrel range in November. Another roughly 11,000 barrels per day of oil is produced from Cook Inlet oil fields, but Cook Inlet oil provides minimal production tax revenue and the volume doesn’t compare with North Slope production. Division of Oil and Gas Commercial Analyst Pascal Umekwe said the Revenue Department’s annual spring update to the fall forecast will likely show “a slight downward revision” for the production forecast based on the numbers from the first seven months of the fiscal year. The spring forecast is usually published in mid-March. State officials last year attributed actual production not meeting the fall forecast to unusually warm North Slope temperatures, which degrades the efficiency of production facilities designed to run most efficiently at very cold temperatures. The natural gas compressors that help reinject gas at many wells to enhance oil production are not as effective at warmer ambient temperatures — which is the primary reason for less summer production each year — and can lead producing companies to focus on extracting oil from wells that have a lower gas-to-oil ratio when things warm up. Last winter North Slope temperatures were about 14 degrees above the long-term average. This year, February temperatures at Utqiagvik averaged 4.5 degrees Fahrenheit, or 18.7 degrees above normal. The high in Utqiagvik hit 34 degrees on Feb. 28. January temperatures were still high but more in line with historical norms at 4.6 degrees above normal, according to the National Weather Service. Umekwe emphasized that production from the large, mature North Slope fields typically declines each year unless companies put significant work into turning it around. That work can come in the form of improving production facilities, “workovers” to existing wells or drilling new wells. The timing of that work can also impact oil production. He also noted that state analysts who prepare the production forecast are typically able to have just one or two meetings with company representatives to gather information prior to releasing the forecast each fall. Subsequent information for the spring update comes from publicly available data. Changes to companies’ maintenance and drilling schedules after their meetings with state officials could then play into the variance between forecasted and actual production volumes, according to Umekwe. “It is the scheduling of work, in terms of turnaround activities that were done in the summer and how production responds after that work is done. That would be a key factor as well as how temperatures in a given February compare with temperatures in a previous February,” he said. “Work being done at a production facility that dips down production for a longer period of time would be very different than work done in a similar period the previous year that wasn’t that extensive — so both the intensity of the work and the schedule of the work. When I talk about intensity, it’s intensity of the impact of that work on production.” Industry representatives noted that Eni, which operates the small Nikaitchuq field, had problems with its production facilities in late fall, which slowed production from the field. An Eni spokesman did not respond to questions in time for this story.

St. Paul ready for takeoff with Sabrewing partnership

Small communities aren’t often able to attract investments in groundbreaking technologies. It’s even more rare when it happens to an ultra-remote island village near the edge of the Arctic; but thanks to the foresight of community leaders, the unique opportunities that isolation provides, and a little luck, St. Paul, Alaska, is on its way to becoming the center of field research for large commercial unmanned aircraft. Earlier this year, the Aleut Community of St. Paul Island, the Tribal government of St. Paul, inked a deal worth up to $43 million with Sabrewing Aircraft Co. to test, develop and ultimately purchase the company’s unmanned cargo aircraft. The partnership, officially announced Feb. 27, first calls for the Tribal government to establish the St. Paul Experimental Test Range Complex for testing Sabrewing’s Rhaegal and Wyvern vertical takeoff and landing prototype cargo aircraft. Eventually, the Tribe plans to buy up to 10 Sabrewing aircraft and form a joint-venture company with the manufacturer offering large unmanned aircraft pilot training, maintenance, leasing and other services. Sabrewing co-founder and CEO Ed De Reyes said the partnership with the tribe of St. Paul has pushed company leaders to expedite their plans. De Reyes said in a June 2018 interview with the Journal that the company was working toward completing the 4,500-mile trans-oceanic Pacific Drone Challenge this year. However, Sabrewing has since “set the Pacific Drone Challenge to the side” given the opportunity came sooner than expected to commercialize its aircraft. “In St. Paul I don’t think I’ve ever seen a place that has such a variety of capabilities (for unmanned aircraft) in one location. It sounds so weird because you never think you’d find this in the middle of the Bering Sea but it’s amazing. It is there,” De Reyes said. St. Paul is the largest of the Pribilof Islands, and sits roughly 250 miles north of the Aleutian chain in the Bering Sea. Patrick Baker, executive director of the Tribal Government of St. Paul, said the Tribe has a for-profit subsidiary that operates small unmanned aircraft — referred to as Part 107 aircraft in Federal Aviation Administration parlance — and wanted to expand that work but was not thinking about hosting a large unmanned aircraft system, or UAS, test range. Much of that work has been on small contracts with companies, universities and government agencies doing mapping and various types of environmental research. Historically, the village’s economy has revolved around Bering Sea crab and halibut fisheries. “We’re a community that’s a very resource-based community around fishing as the Tribal government. We’ve seen the trend of resource depletion, overfishing. The trend has been in decline so we’ve been looking for opportunities around diversification that also kind of fit with our mission,” Baker said. “With St. Paul and most of Alaska being challenged with logistics, we were looking to get ahead of technology, find tomorrow’s industry and we started with Part 107, training pilots, then training instructors. “We’ve found some opportunities around the 107-class aircraft but nothing quite on the same scale as the fishery resource. We feel this larger platform is the future. We feel we’re ahead — getting in at the right time; kind of building on that unique geography of St. Paul in the center of the Bering Sea.” St. Paul’s population has fallen from about 600 residents to a little more than 400 along with declines in the fisheries, he noted, as residents seek employment elsewhere. Stars align St. Paul Tribal Council President Amos Philemonoff described the last eight months as “pushing a snowball down a mountain,” adding that, “everything has just lined up perfectly. You just couldn’t ask for a better alignment of the stars.” The courtship with Sabrewing started after a Tribal government representative read a June 2018 story in the Journal profiling Sabrewing and the company’s plans to manufacture its aircraft in Anchorage. Cargo deliveries to remote communities is Sabrewing’s target market, and without the ability to legally fly its aircraft to Alaska with all the state’s opportunities in that market, Anchorage is a natural home for manufacturing its aircraft. “The more time that goes on the more sense it makes for us to be located in Anchorage,” De Reyes said in June. “I can’t think of any other place in the United States that has that unique — not only position in the aircraft industry — but that unique place in unmanned cargo (aircraft). It makes more sense than any other location that I can think of.” Sabrewing is also an associate member of the Alaska Air Carriers Association. Currently based in Camarillo, Calif., the company is focused on developing the Rhaegal first: a mid-sized aircraft with a cargo capacity of 800 pounds, a range of 360 nautical miles and a maximum altitude of 22,000 feet. Sabrewing’s aircraft are built on a composite airframe with a gas-electric hybrid power system that drives four electric motors, each turning a variable-position fan. While a hybrid system, the Sabrewing powertrain does not alternate between power sources in the way the popular Toyota Prius hybrid car does. Instead, a light, super-quick response rotary engine generates the power that is converted into electricity by the four motors in real-time. De Reyes said he believes the costs to operate and maintain a Rhaegal will be about half of what it takes to fly a traditional small cargo plane such as a Cessna Caravan, and those cost savings could translate directly into a lower cost of living in remote communities. The larger Wyvern, with a 4,400-pound payload and a 1,600-mile range, will come later, according to De Reyes. Eyeing Anchorage Company leaders are shopping for industrial space in Anchorage and hope to start putting the first Rhaegals together early next year. De Reyes said Anchorage will be more of an assembly facility as opposed to true manufacturing. The aircraft’s five major segments and other small components will be developed elsewhere and put together here. On the regulatory side, the FAA is close to approving an initial certificate of authorization, or COA, for the test range. The first COA is likely to be for a small area immediately surrounding St. Paul Island. It could be expanded soon after Sabrewing demonstrates it can operate the Rhaegal safely, De Reyes said. Ultimately, St. Paul offers approximately 126,000 square miles of relatively empty unrestricted airspace underneath the large jet traffic that starts at 27,000 feet, according to De Reyes. He and others have credited the FAA for being open to ideas for testing emerging technologies, such as unmanned aircraft, in recent years while still following the strict “safety first” mandate. FAA officials said they have been impressed in talks with St. Paul and Sabrewing leaders with their proactive approach to address regulatory issues. John “Nevada” Nevadomsky, a former director of the University of Alaska Fairbanks’ Pan-Pacific UAS Test Range Complex and Sabrewing’s new research and development director, also noted that the FAA Reauthorization bill passed by Congress last fall allows for Tribal governments to set up test ranges. UAS test ranges had previously been limited mostly to research institutions. The abundance of available airspace and inclement weather conditions afforded by the Bering Sea will help Sabrewing prove its mettle in all types of conditions, De Reyes said. The remote location also keeps the testing of proprietary technologies a safe distance away from those who aren’t supposed to see it, added De Reyes, who has worked extensively as a test pilot for numerous aircraft manufacturers. “I can’t tell you the number of projects we’ve worked on before where you’ll sit here and go, ‘Holy smokes, nobody was supposed to know about this,’ but yet, it’s in somebody’s magazine and they have data on how fast it flies and how high it flies right down to the nitty gritty,” he said. “But that’s one thing about St. Paul; when you get off the plane they know what you’re there for and if they don’t somebody’s going to find out. If you’re there to snoop it’s the wrong place to be because you’ll be invited to leave very quickly.” Education investment pays off Finally, the St. Paul Tribe’s forethought helped seal the deal from Sabrewing’s perspective. According to Baker, the Tribe has invested upwards of $1.6 million per year in profits from its businesses into STEM education materials and equipment at the community’s K-12 school to broaden students’ opportunities. De Reyes said he noticed parallels between the small south Texas town he grew up in — but had to leave to pursue his dreams in aviation — and St. Paul. “As I grow older I realize how much I miss the little town I grew up in. It’s still there but it’s not the little town I grew up in,” he described. “St. Paul, I think, will always have that same kind of community that it has now; they’re just moving forward but really recognizing this: If we put the mechanism in place to teach them here, to provide them with jobs and a meaningful living wage here in St. Paul, they’ll stay in St. Paul.” The Sabrewing partnership has brought a “buzz” to St. Paul, according to Council president Philemonoff. The excitement reaches down to the community’s youth, he said while describing a presentation Sabrewing and tribal leaders gave to the entire St. Paul student body. “Man, these kids, you could just see their faces light up — their arms shooting in the air. All we did was answer questions for a couple hours,” Philemonoff recalled. “There was this kid in front of me; he must have mouthed off 10 or 12 questions and I’ve never seen him talk before. Just amazing.” ^ Elwood Brehmer can be reached at [email protected]

AGDC ready to disband if Alaska LNG a ‘no-go’

New Alaska gasline officials are prepared to break up the band if an internal review concludes the current iteration of the $43 billion Alaska LNG Project doesn’t pencil out. Alaska Gasline Development Corp. President Joe Dubler told legislators during a Feb. 27 Senate Finance subcommittee meeting that the quasi-state corporation holding Alaska’s longtime hopes for a large natural gas pipeline project is in the process of scaling back while evaluating the technical and commercial viability Alaska LNG. Dubler, who officially took the helm at AGDC Feb. 1, emphasized that Gov. Michael J. Dunleavy replaced four board members and hired him to “refocus the corporation.” “What (Dunleavy) wanted us to focus on was the Alaska LNG Project to determine if the larger project with the export capacity could meet economic hurdles without undue execution risk,” Dubler said to members of the Senate subcommittee for the Department of Commerce, Community and Economic Development budget, which AGDC falls under. “If it is (viable) we’re going to solicit world-class partners for FEED, which is front-end engineering and design and completion of regulatory efforts,” he continued. “If we do all of our work and we determine that the project does not look like it’s going to be viable we will wind the project down, close the corporation up and return all the current funds that remain to the General Fund.” The message is a sharp contrast to what former AGDC President Keith Meyer — whom Dubler replaced after leading the corporation since June 2016 — often stressed. Meyer and former Gov. Bill Walker emphasized the state would only go forward with an LNG pipeline and export plan if it was economical, but there was never an indication the corporation would give up on finding a path forward for Alaska LNG if the current plan ultimately didn’t work. Dunleavy was highly critical of Walker’s state-led gasline plan while he was in the Senate and while campaigning for governor. He has said he wants to bring Alaska’s major oil producers back into the project if the administration ultimately decides to keep it moving forward. Dubler added that AGDC has closed its office in Houston and is in the process of consolidating its main Midtown Anchorage office by nearly half. A small, one-person office in Tokyo remains open, according to Dubler. He said the corporation’s $10.1 million budget proposed in Dunleavy’s fiscal year 2020 budget should be sufficient to complete the Alaska LNG Project environmental impact statement. AGDC spokesman Tim Fitzpatrick said after Dubler’s comments that it continues to be “business as usual” at the corporation. Fitzpatrick highlighted that there is no internal timeline to complete the Alaska LNG review; it will take as long as it takes, he said. While the $10.1 million covers corporate operations such as payroll and office leases, AGDC spends additional money on the project from the Alaska LNG fund, which held $34.1 million at the end of January, according to corporation officials. That spending is largely for technical contractors hired to gather information for project permitting. To date, AGDC has spent more than $260 million on the Alaska LNG Project. Also, while the governor could veto appropriations to AGDC, disbanding it and transferring remaining Alaska LNG funds to the General Fund would require legislative approval. Corporation officials are still in commercial negotiations with several parties that signed preliminary agreements to purchase LNG, Fitzpatrick said, including the three Chinese companies that signed a joint development agreement with AGDC in November 2017 to be potential anchor customers and financiers of the project. The Federal Energy Regulatory Commission, which is writing the Alaska LNG EIS, was expected to publish a draft of the document in February; however, the agency on Thursday revised that schedule for a June release. It’s generally believed the extended partial government shutdown affected FERC’s ability to meet the original schedule in addition to having many technical questions for which AGDC is still providing answers; FERC historically has been one of the best federal agencies in terms of meeting its self-imposed permitting schedules. The revised Alaska LNG schedule calls for a final EIS to be published in March 2020 with a record of decision coming shortly thereafter. Sen. Chris Birch, R-Anchorage, who chairs the Resources Committee and the subcommittee Dubler testified to, said in a brief interview there is a general consensus among legislators that AGDC should complete its current Alaska LNG permitting effort regardless of whether or not other aspects of the project are advanced. “You might be back asking (FERC) for another LNG license down the road,” Birch said, noting that he will be interested in seeing AGDC’s updated spending plan during a presentation to the joint House and Senate Resources Committees set for March 22. On March 4, AGDC received the joint record of decision on its original, smaller Alaska Standalone Pipeline, or ASAP, project from the Army Corps of Engineers and the Bureau of Land Management. The ASAP project, estimated at roughly $10 billion, is a smaller gas pipeline plan to get natural gas off of the North Slope strictly for in-state use. ASAP includes a 733-mile long natural gas pipeline system from Prudhoe Bay to the Enstar Natural Gas Co. distribution system near Big Lake, and a 30-mile long lateral line to Fairbanks. It does not include the large LNG plant needed for gas exports, which accounts for about half of the $43 billion Alaska LNG price, but experts also doubt the economics of any trans-Alaska natural gas pipeline without the LNG export component. The ASAP decision was likely also delayed because of the government shutdown that ended in January. ^ Elwood Brehmer can be reached at [email protected]

Corps releases draft EIS for Pebble

Alaskans interested in the future of the Pebble mine project should get their reading glasses ready. The U.S. Army Corps of Engineers is asking for feedback on its approximately 1,400-page draft environmental impact statement, or EIS, released Feb. 20 for the Pebble project. A 90-day public comment period begins March 1. Opponents of the mine contend the Corps limited its focus to environmental impacts at the mine site and ignored potential downstream effects, particularly to fisheries. To the contrary, Pebble Limited Partnership CEO Tom Collier said the company didn’t identify any major data gaps or substantive impacts that couldn’t be addressed in the draft document. “We see no significant environmental challenges that would preclude the project from getting a permit and this shows Alaska stakeholders that there is a clear path forward for this project that could potentially generate significant economic activity, tax revenue and thousands of jobs,” Collier said in a formal statement. Pebble estimates the project will generate about 2,000 jobs during its four-year construction and about 850 full-time positions over its 20-year life. “We have stated that the project must coexist with the important salmon fishery in the region and we believe we will not harm the fish and water resources in Bristol Bay. Now we have a science-based, objective assessment of the project that affirms our work,” Collier continued. The draft EIS examines Pebble’s proposed project submitted to the Army Corps of Engineers in December 2017. The Corps adjudicates Clean Water Act Section 404 wetlands fill permit applications on behalf of the Environmental Protection Agency and the size of the Pebble project triggered a full EIS review under the National Environmental Policy Act. While the plan is scaled back from previous mine concepts, the overall project would still stretch 187 miles from the mine site north of Iliamna Lake to the edge of the Sterling Highway on the southern Kenai Peninsula. In between would be a natural gas pipeline up to 12 inches wide traversing the Cook Inlet sea floor for 95 miles from the Anchor Point area to a deepwater port at Amakdedori west of Augustine Island. From there, a two-lane, private road would run 35 miles northwest to a ferry terminal on the south shore of Iliamna Lake. An ice-breaking ferry would then shuttle materials 18 miles across roughly the midpoint of the large Iliamna Lake. Another 30 miles of industrial road would connect the north ferry terminal near the village of Newhalen with the mine site. The gas pipeline would follow the rest of the transportation corridor to the mine. According to the EIS, the 8,086-acre Pebble mine site would permanently displace 3,458 acres of wetlands and 73 miles of streams. The site would consist of a large bulk tailings dam and storage facility, a pyritic tailings storage facility, a 270-megawatt power plant, multiple water management ponds and plants and a 608-acre open pit, among other facilities. It would all support processing of about 1.4 billion tons of mine material during the 20 years of production based on Pebble’s initial plans. Roughly 100 acres of wetlands would be lost in development of the transportation corridor, according to the EIS. There would be indirect impacts from fugitive dust and partial dewatering to another approximately 1,900 to 2,100 acres of wetlands depending on which development alternatives are chosen for the final project, according to the document. Alternative construction options beyond Pebble’s proposal include a more northerly ferry and pipeline route across Iliamna to Pile Bay at the far east end of the lake with a corresponding deepwater port at Diamond Point near Williamsport instead of Amakdedori to the south. Summer-only ferry operations are also considered and would require additional storage at the mine for metal concentrates, fuel and general goods. Residents around the lake have raised concerns that a year-round ferry could disrupt winter travel across the lake ice. Another transportation alternative would eliminate the ferry altogether and instead calls for an 82-mile road around the north and east portions of Iliamna to the Diamond Point port. Pedro Bay Corp., which owns much of the land north and east of Iliamna Lake, issued a statement Feb. 22 saying the Native village corporation continues to oppose Pebble and recently rejected a right-of-way agreement for a transportation corridor across its land. Additionally, Bristol Bay Native Corp. owns subsurface rights to lands owned by area village corporations and executives have told the Journal the regional corporation may use its subsurface title to try and prevent Pebble from burying a pipeline or developing gravel quarries to build roads across village corporation lands. Alaska Peninsula Corp. owns lands south of Iliamna Lake and has a surface access agreement with Pebble. Shane McCoy, the Corps’ manager for the Pebble EIS, said in a conference call with reporters that the EPA suggested a concentrate pipeline along the north road right-of-way. The pipeline would eliminate copper-gold concentrate trucking, but 18 round trips per day between the mine and port would still be needed to haul molybdenum concentrate, fuel and other goods. The pipeline alternative also considers a second pipeline to send concentrate slurry water back to the mine for reuse. McCoy said he is not aware of other specific mines that employ lengthy concentrate pipelines but he was told the concept is in use elsewhere. The only significant change considered at the mine site is constructing a bulk tailings dam with the downstream buttress method, which is generally considered to be more stable and requires more material than the common centerline method Pebble has proposed. Corps officials note the state Department of Natural Resources is in charge of reviewing Pebble’s dam designs when the company applies for its state permits. Dry stack tailings storage — which would eliminate the risk of a bulk tailings dam failure — was discounted early in the evaluation because Pebble’s proposed mining operation would be about four times larger than the largest mine using the dry stack tailings method. It involves filtering water out of the bulk tailings until the material is 75 to 85 percent solid and “soil-like,” according to an appendix of the EIS. “(The dry stack) option would greatly complicate the logistics of the milling operation to include frequent clogging of filters, the need for an emergency storage (tailings storage facility) when the filter plant is down for maintenance, and the large number of personnel and equipment needed to transport and place the filtered tails. The option is not practicable,” the document states. Time to comment Critics of the Corps’ process contend the agency is rushing its evaluation of Pebble to fall within the four-year timeframe — starting in May 2017 — before the EPA can revisit its authority to “veto” the project. Those were the main parameters of a 2017 settlement between Pebble and the EPA that resolved a lawsuit the company filed against the agency in 2014. Former EPA Administrator Scott Pruitt declined to finalize rescinding the proposed Pebble “veto” in January 2018; it’s an outstanding issue that must be resolved before the Corps can issue Pebble a Section 404 permit, if it decides to do so. Jason Metrokin, CEO of Bristol Bay Native Corp., which has led opposition to the project, said in a statement provided to the Journal that the 90-day comment period should be much longer. “A 270-day comment period on the (draft) EIS is the first — and necessary — step in holding PLP accountable during the permitting process. Bristol Bay cannot become a laboratory to test unproven and unprecedented mining practices,” Metrokin said. McCoy noted the 90-day comment period is twice the statutorily required 45 days and the Corps released the draft EIS to the public a week before the comment period begins to give interested individuals a head start on reading it. He said Corps Alaska District officials are discussing the possibility of extending the comment period. Pebble advocates argue many who are insisting on a longer comment period simply want to delay the EIS process in any way possible. Metrokin and leaders for Bristol Bay Native Association and Bristol Bay Economic Development Corp. wrote to Army Corps officials Feb. 5 requesting a 270-day draft EIS comment period. They stressed that Pebble has proposed to increase the amount of material it would mine by 25 percent since first applying for its wetlands permit and “some of the aspects of (Pebble’s) proposal appear to us to be unprecedented in the world of hard rock mining.” Sen. Dan Sullivan told reporters shortly after the EIS was published that he would likely be making a formal request to the Corps for a longer comment period given the scope and significance of the document. Sullivan has previously said he would generally like to reform and streamline the NEPA process to prevent unnecessary delays for development projects. Sen. Lisa Murkowski told the Journal in a Feb. 22 interview that her initial reaction was that the comment period should also be longer than 90 days for similar reasons but she couldn’t specify exactly how long would be appropriate because the EIS had just been released two days prior. She encouraged Alaskans to take the comment period seriously and said she will meet with Corps officials after having a chance to review the draft EIS herself. “The expectation of Alaskans and certainly my expectation is that this process that (the Corps of Engineers) is going through has to be rigorous; it has to be thorough; it has to be robust; and anything less than that is just not right and in fairness is just not acceptable,” Murkowski said of the Pebble EIS. Elwood Brehmer can be reached at [email protected]

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