Elwood Brehmer

Anchorage, railroad have ties that bind

Editor’s note: This is the third in a series of 10 articles by the Journal of Commerce recognizing the Anchorage Centennial and examining the events and the industries that have shaped Alaska’s largest city. The series will be released as a single special edition of the Journal in time for the Solstice celebrations June 20 and will be available at centennial events throughout the summer. The Alaska Railroad is the tie that binds the state together. It is the reason for Anchorage. It exemplifies Alaska. “To a large degree the railroad has mirrored, or led, depending on your perspective, the ups and downs of the state of Alaska. Everything from the impact of the 1964 earthquake to the tremendous growth when the pipeline came to pass, to even being a big part of the big drivers in Anchorage today,” Alaska Railroad Corp. CEO Bill O’Leary said. “A lot of the (Anchorage) airport’s growth was, pardon the pun, fueled by the ability of the railroad to move all that jet fuel down from the refinery in Fairbanks. It’s been a key participant in most of the larger events of the state.” The Alaska Railroad’s story begins in earnest 101 years ago, a year before the founding of Anchorage. President Woodrow Wilson signed the Alaska Railroad Act on March 12, 1914, which allowed him to task a group of engineers to investigate the prospect of building a rail line from Southcentral to the Interior. Those engineers mare up the Alaska Engineering Commission. The act also approved $35 million for construction, a dollar figure that ballooned with inflation induced by World War I, according to Alaska Railroad historian Jim Blasingame, but was still 60 percent more than the State of Alaska paid for the railroad seven decades later. There were two spur lines the commission could’ve chose to build off of in 1914: the Alaska Syndicate railroad in Cordova and Seward’s 71-mile Alaska Northern Railway. Seward was chosen because of politics and the “other” black gold, Blasingame said. The Alaska Syndicate was owned by the Guggenheims and J.P. Morgan, who also controlled the nearby Kennecott copper mine. They did not like idea of the government building a railroad in their territory and Wilson didn’t like them, he said. “It took the federal government — with the U.S. Treasury — to put together the money to build the railroad because the private sector, all of them that were attempting to do it, were doing it to make a profit, which was difficult to do.” Blasingame said. “Congress was savvy enough to realize they needed to build a rail line to develop the territory. At the time that they decided to act their goal was to go for the black gold, which was coal.” Blasingame retired from the Alaska Railroad Corp. in 2009 after a career that spanned five decades. He is currently researching a book detailing the complex history of the railroad’s transfer from the feds to the State of Alaska. Despite the robust copper industry on the other end of Prince William Sound, the Alaska Engineering Commission ultimately recommended a route north from Seward because of the ability to reach coal near Healy and in the Matanuska Valley. When construction began, so did Anchorage. The July 10, 1915, Anchorage townsite auction formalized the tent city that formed at the mouth of Ship Creek, the area that remains the headquarters of the Alaska Railroad. By the end of the year Anchorage had grown to 1,500 people and the rail stretched to Eagle River. By the time President Warren Harding drove the Golden Spike near Nenana that completed construction on July 15, 1923, nearly $72 million had been spent building the Alaska Railroad, about 10 percent of the annual federal budget at that time. The first sitting president to visit Alaska, Harding died from food poisoning Aug. 2 during a stop in San Francisco on his trip back from the territory. After construction the railroad fell under the jurisdiction of the Department of the Interior. Tourism, war, a great quake and oil A marketing campaign promoting “African safari-like” adventures in Alaska via the railroad was quickly developed to drive business to the fledgling railroad, Blasingame said. Brochures printed during the depths of the Great Depression touted the territories rugged scenery and untapped hunting and fishing opportunities. The Alaska Railroad first turned a profit in 1938. In 1943, two tunnels were blasted through the Chugach Mountains allowing rail access to Whittier, a military port during World War II. For decades, the Downtown Anchorage Railroad Depot not only served as the executive offices for the railroad, but also housed the city’s phone system and morgue. Competition from the brand new Seward Highway caused the railroad to cancel passenger service to Seward in 1953. The growth of the tourism industry ultimately led to the railroad reestablishing that service. Barge service began out of Whittier in 1962, which allows the railroad to transport loaded railcars north from Seattle. It constitutes the longest rail line in America stretching from Fairbanks to Florida. These days, the rail-barge service helps the railroad support North Slope oil and gas work by moving large quantities of pipe and other bulky construction modules as efficiently as possible, by rail. The 1964 Good Friday Earthquake hit the Alaska Railroad with $30 million of damage, cut passenger service to Fairbanks for two weeks and freight service to Whittier for three. The discovery of oil at Prudhoe Bay four years later was a boon to Alaska and the railroad was not left out. During construction of the trans-Alaska Pipeline System the railroad’s workforce grew to more than 1,300 in the mid-1970s, according to former employees. It has about 590 full-time employees today. Blasingame said federal procedures during the time of rapid expansion hinted at the need for a change of ownership. “We were going like gangbusters and we couldn’t hire any permanent employees. We could hire temporaries, so we had probably 250 or so temps, but we would have to let them go before the last two weeks of the end of the calendar year and then hire them back after the first of the year,” he said. “So we had to go through the federal policy exercise of terminating these temporary employees and then in another two weeks go through the federal process of hiring them back. It was all this paperwork; it was just unreal.” Further, the Alaska Railroad had to keep federally adequate financial books because Congress appropriated its budget every year, while keeping a separate set of financials that met industry standards, according to Blasingame. “Everything we did took twice as long,” he remarked. Sale to the State When it came time for the federal government to sell the Alaska Railroad, late Sen. Ted Stevens led they way. Stevens first tried to give the State of Alaska the railroad through legislation in 1980. At the same time the state was issuing the first Permanent Fund Dividend checks. The act of philanthropy didn’t sit well with some in Congress. “It was Sen. Howard Metzenbaum from Ohio that stood up on the floor of the U.S. Senate and said ‘If the State of Alaska can afford to give each of its citizens a $1,000 check then they can afford to pay for the railroad at market rate, whatever that is,’” Blasingame said. “Stevens called him a ‘pain in the ass’ on the Senate floor and its part of the Congressional record.” A backlog of safety hazards and deferred maintenance cost the feds big time. According to Blasingame, the fire-sale $22.3 million purchase price arrived at in 1983 came only after assessors deducted work that needed to be done to the railroad’s infrastructure and cut the market value of the Alaska Railroad from an initial estimate in the $250 million range. Under federal ownership, which in 1967 shifted to the Department of Transportation, the Operational Safety and Health Administration had no jurisdiction over the Alaska Railroad and it showed. When the State of Alaska officially took ownership on Jan. 5, 1985, it had plenty of work to do to bring its new toy up to code. “At the time of transfer the federally-owned railroad had over 2,500 OSHA violations. Under the state we had five years to correct all that,” Blasingame said. Since transitioning to a state corporation, the Alaska Railroad Corp. has operated as a for-profit business, a quasi-government entity that asks for money only when federal regulations require new and expensive equipment. As its CEO Bill O’Leary said, the Alaska Railroad helped lay the foundation for business growth at Ted Stevens Anchorage International Airport, another government enterprise that supports 1 in 10 city jobs. The railroad’s ability to cheaply ship jet fuel from the Flint Hills North Pole refinery to Anchorage helped support the logistical benefits inherent in Anchorage’s location and make the little city’s airport one of the busiest cargo hubs in the world. Ultimately, the cost to run the refinery, which grew with oil prices, made it cheaper for airlines to buy their fuel elsewhere and have it shipped in to Anchorage and was the demise of the operation. However, at its peak, the Flint Hills Anchorage fuel terminal received 12,000 railcars per year, according to the company. Last full-service railroad Providing both freight and rail service under one roof is unique. The Alaska Railroad is the last full-service railroad in the United States. The railroad’s place in mainland Anchorage’s tourism industry has only grown over the years. Since rebounding from the Great Recession, which hit the state’s tourist-centric businesses hard from 2009-11, the Alaska Railroad has hauled nearly 500,000 Alaskans and Outsiders annually. “I don’t believe there is any other railroad in the country that has the same impact on its state as the Alaska Railroad,” O’Leary said. “We’re many things to many people here.” Visit Anchorage President and CEO Julie Saupe said the railroad offers a simple, but important alternative to the Southcentral’s limited road system. “If we didn’t have the railroad I’m not sure we’d be able to manage all the visitors that we currently get,” Saupe said. It’s estimated each tourist spends more than $900 once they get to Alaska. Saupe said the shorter itineraries the railroad now offers also give tourists easy options to see Alaska, and stay a night or two longer. When Saupe talks of the benefit cruise ships have on Anchorage, she talks about ships docking in Seward and Whittier as well, because the cruisers will almost invariably make it to Anchorage on rail. “The whole idea of the cruise tour was made more tangible in visitors’ eyes with the option of riding the railroad all the way into the Interior. For more than 30 years, the railroad has partnered with the Anchorage School District’s King Career Center to train high school juniors and seniors for summer tour jobs. “They have to learn the history of the railroad; they have to learn the history of Alaska; they have to know the flora, the fauna,” Blasingame said. “It’s a wildly popular program.” The program started in the last years of federal ownership and hesitation over hiring additional temporary employees forced the state Legislature to fund it for the first two years, according to Blasingame. He said “Thank Yous” in the form of baked goods are periodically sent to the railroad’s offices — responses to the experiences passengers have had with their young tour guides. Holland America Princess is one of the companies that offer cruise tour trips with the railroad. HAP currently manages 20 cars that are run by the railroad, 10 of which are the largest domed passenger cars in the world, according to the company. HAP’s rail maintenance superintendent John Crews has worked on the fleet for more than 20 years. He said there have been frustrations stemming from differing operating styles on both sides of the relationship, but open lines of communication have kept the partnership healthy. Employees regularly change jobs between HAP and the railroad, he said. While HAP’s passengers book a ticket with the tour company, Crews said it’s understood why they visit Alaska. “People want to come to Alaska and ride the historic Alaska Railroad,” he said. “They don’t come up here to ride the Holland America railroad or the Princess railroad. People ask us all the time about the Alaska Railroad.” “We’re just providing the vessel for them to ride on the Alaska Railroad.” Elwood Brehmer can be reached at [email protected]

Changes may be looming for SBA 8(a) Native contractors

Proposed changes to the Small Business Administration’s Business Development Program have gotten the attention of Alaska Native business groups. The changes to the 8(a) program are small, but could impact Native corporations in multiple ways, according to Chenega Corp. Vice President of Government Relations Kristina Woolston. An SBA proposal to allow the administration to change a firm’s North American Industry Classification System, or NAICS, code without consent is cause for concern, she said. A change could be made arbitrarily if a company’s revenue source does not match its code based on data in the Federal Procurement Data System, or FPDS. It could also impact a firm’s qualification for the 8(a) preferential contracting program. “Really, there’s incomplete data in FPDS and that’s one of the challenges that we have with this proposed rule,” Woolston said at the Alaska Native Village Corporation Association annual conference. Woolston also chairs the Native American Contractors Association board, a trade group that supports Native contracting with the federal government. Specifically to Alaska, she said the SBA should draft a new consultation policy to clarify how government agencies work with Alaska Native corporations, or ANCs. “There is a need to codify legal obligation with ANCs on the same basis as Tribes and that’s a current deficit in the way that the SBA engages with ANCs,” Woolston said. The 8(a) Business Development program offers assistance to firms under majority control by socially or economically disadvantaged individuals. The U.S. Government Accountability Office is currently compiling a report on how the SBA implements and oversees the program, particularly as it relates to Alaska Native businesses. Woolston said that report should be out this summer and is another cause for concern because it appears the GAO is looking into specific contracts. She urged anyone contacted by the office to seek advice from an appropriate village or regional corporation association. In an effort to respond to program participants, the SBA is also looking at shortening its seven-page program benefits report to two pages, which Woolston said could actually be too short in some instances. Chenega voluntarily submits annual 50-page reports to the SBA on each of its 8(a) subsidiaries, she said. “It’s really a narrative of the benefits we provide to our communities in a fairly comprehensive manner,” Woolston said. “We think it’s a good reflection of the complexity of what our native communities require in receiving these benefits from the work that we do.” A two-page reporting system would not allow companies like Chenega, which draws 95 percent of its revenue from 8(a) contracts, to report all the positive impacts its work has on regional communities, she said. She encouraged Native government contractors to provide additional feedback beyond the minimum requirements and said industry groups have discussed other ways to provide that feedback in a more structured manner. The Native American Contractors Association held meetings with roughly two dozen members of Congress at its 2015 outreach summit to discuss the impact of limitations to the 8(a) program and assure the SBA gets appropriate funding to continue it, she said. “Our NACA members fly in for this and it’s a terrific time to highlight and represent a national interest in our Native-owned community enterprises,” Woolston said. A positive change could be coming to the mentor-protégé assistance program that is part of the larger 8(a) work, according to Woolston. The proposal would allow any small business to be a protégé in the program, even those that have graduated from 8(a). “While it does take away some of the desire of having a Native 8(a) as the protégé, it will then allow us to be a protégé outside of the 8(a) program,” she said. Businesses can participate in the program for up to nine years. As a mentor, a business can provide assistance to an 8(a) participant on non-program contracts so the protégé can develop its competitive capabilities, according to the SBA. Mentors can also enter into joint ventures with protégés to help them on certain government contracts. Elwood Brehmer can be reached at [email protected]

Pentex purchase could cut ratepayers' bills immediately

Fairbanks Natural Gas customers could see their heating bills drop immediately if the utility is sold to the Alaska Industrial Development and Export Authority. “We do believe through the financing tools that AIDEA has, we could reduce the (gas) rate in Fairbanks right away by approximately 14 percent,” former AIDEA director Ted Leonard said at the authority’s April 30 board meeting. “Rationalizing” the two gas distribution systems being developed by Fairbanks Natural Gas and the Interior Gas Utility and forming one system could provide significant capital and operating cost savings, he said. Leonard retired as AIDEA executive director earlier this year but has continued to work on the Interior Energy Project because of his extensive experience with the earlier North Slope work. Further savings to ratepayers would come from the different business models — moving away from the inherent cost and return requirements in a privately-owned utility structure. Mark Gardiner, a financial consultant who is working closely with AIDEA on the proposed deal, said that the current rate of $23.35 per thousand cubic feet, or mcf, of gas FNG customers are paying could be $20 next year if the sale goes through. The savings would be even greater if FNG’s pending rate case before the Regulatory Commission of $24.96 per mcf is accepted. The potential cost savings from the purchase are separate from whether or not the Interior Energy Project moves forward. However, an early projection of $16.80 per mcf in 2020 for all customers of a blended utility was presented to the board. That estimate assumes liquefied natural gas can be delivered to Fairbanks for the equivalent of $11 per mcf, a midstream price the Interior Energy Project will have to come close to in order to meet the stated goal of the project. Leonard said North Slope gas trucking project models came in with a comparable price in the $13 to $13.50 per mcf range. AIDEA projects full buildout of a consolidated Fairbanks gas utility to cost $223 million. To date, the authority has issued $52.8 million in loans for gas distribution from the $332.5 million Interior Energy Project state financing package. AIDEA announced a preliminary agreement to purchase the parent company to Fairbanks Natural Gas, Pentex Alaska Natural Gas Co., in late January. That announcement was met with resistance from some Alaska legislators who questioned the premise of the state purchasing outright a private business and how the AIDEA-Pentex sale would affect an earlier agreement for a Hilcorp subsidiary to purchase Titan Alaska LNG — Pentex’s LNG trucks and small Southcentral liquefaction facility. The 10-year LNG supply agreement Harvest has with Pentex, as part of the Titan sale would remain as well. That agreement is to fuel existing gas customers and does not expand Interior’s natural gas supply. It’s currently believed the two deals can coexist; AIDEA would purchase Pentex for $54 million and then sell Titan to Harvest Alaska (Hilcorp) for $15.1 million, which is the price Pentex and Harvest originally agreed to. The AIDEA deal is set to close July 31. The Titan sale is being reviewed by the RCA and Attorney General Craig Richards and has a Sept. 31 financial close date. If the Titan sale is denied or otherwise fails AIDEA would retain those assets. Leonard and Gardiner said it is the authority’s intent to sell or otherwise transfer control of Fairbanks Natural Gas within two years to a local entity, most likely IGU, which is owned by the Fairbanks North Star Borough. Fairbanks Natural Gas President and CEO Dan Britton, who is also a minority shareholder in Pentex, said in an interview that IGU leaders have generally been kept abreast of the negotiations with AIDEA and are supportive of the overall plan. Fairbanks Natural Gas petitioned the RCA for IGU’s service area and Britton has said two operating gas utilities makes little sense for the small customer base that is the greater Fairbanks area. IEP gets moving Now that a bill has passed allowing Cook Inlet gas to be used as a possible supply, it’s full steam ahead for the Interior Energy Project, its manager Bob Shefchik said April 30. The project team had meetings scheduled the week of May 4 with 15 to 18 parties that have expressed interest in partnering on the Interior Energy Project, Shefchik said. “Because it’s been such a long process we want to bring them in, talk to them about where we’re headed, what we expect to be in the solicitation and get some feedback,” he told the AIDEA board. A request for proposal, or RFP, for a private partner to expand Southcentral gas liquefaction capacity should be issued by AIDEA by mid-May and stay open for 30 days, according to Shefchik. Proposals for a small gas pipeline and propane solutions will also be accepted. He said the board could expect the results of the RFP at its June 25 meeting. Concurrently, the state Commerce Department along with the Revenue and Natural Resource departments are working on a gas supply solicitation. Shefchik, a former Interior Gas Utility chair, said the Fairbanks utilities have agreed to participate in the RFP selection process and a range of acceptable gas prices will be worked out earlier than it was during the North Slope supply efforts to keep the utilities on board. “The thing that has to be avoided is (price) being the last thing decided,” he said. Elwood Brehmer can be reached at [email protected]

Alaska Air continues run with $149M record quarter

Growth, efficient operations and lower fuel prices helped Alaska Air Group Inc. turn a record profit of $149 million in the first quarter, the company announced April 23. The strong early 2015 results mark the 11th record quarter of the last 12 for the Seattle-based parent company of Alaska Airlines and its regional carrier Horizon Air. In January, Alaska Air Group reported its fifth consecutive record-breaking year with a total 2014 profit of $571 million. “We’re performing as well on many fronts, and our people are as focused on providing great service to our customers as I’ve ever seen,” Air Group CEO Brad Tilden said in a call with investors. “Thanks to their efforts, we’re off to a great start this year and this should set us up very well for the rest of 2015.” The $149 million net income is a 58 percent increase over a year ago. It came on 4 percent operating revenue growth to $1.27 billion. Alaska Airlines managed 6 percent revenue growth while Horizon’s revenue remained flat for the quarter, according to the financial report. The earnings equate to $1.13 per share. An intense share repurchase program — 1.2 percent of outstanding shares worth $102 million during the quarter — helped grow the earnings-per-share value by 75 percent year-over-year, Tilden said. The company has repurchased 31 percent of its outstanding shares since 2007, he said. Alaska Air Group stock traded for $68.30 at the close of business April 24. The stock price has risen about 45 percent since a June two-for-one stock split. It began 2015 at about $60 per share. Company-wide capacity was up 10.8 percent compared with the first part of 2014, according to its March operational results. Tilden said 40 percent of company’s revenue and profit over the last 12 months has come from markets it didn’t serve in 2000. Chief Revenue Officer Andrew Harrison said Alaska Airlines continues to add capacity to its home Seattle market to give “customers more utility and maintain schedule superiority versus the competition.” Increased competition for the Pacific Northwest market over the past two years has come primarily from its longtime partner Delta Air Lines. Overall capacity growth is currently planned at 12 percent in the second quarter and 7 percent in the third quarter, Harrison said. Pre-tax operating income was up 69 percent on the back of $123 million in fuel savings, despite a 13 percent increase in personnel costs. Part of the added wage cost includes a new agreement with Alaska Airlines flight attendants, company Chief Financial Officer Brandon Pedersen noted. Alaska Air Group hedges fuel through call options; Pedersen said company executives feel it provides the best balance between mitigating the impact of price spikes and realizing low fuel price savings. The company’s economic fuel price per gallon was $1.98 for the quarter, down more than 40 percent year-over-year. The benefits of lower oil prices have not been exclusive to Alaska Air Group’s carriers. Industry giants American Airlines and United Airlines also had record profits in quarter one despite slight dips in revenue. The Associated Press reported April 24 that those airlines each saved more than $1 billion on fuel versus 2014. Pedersen also referred to Alaska Airlines’ fleet transition from away from Boeing 737-400s to more efficient 737-800s and -900s as a “permanent hedge.” Alaska improved its fuel burn-to-capacity ratio by 3 percent during the quarter, he said. A 20.1 percent 12-month return on invested capital, or ROIC, was about 12 higher than Air Group’s cost of capital and an 18.9 percent pretax margin was a 7 percent improvement on the first quarter of 2014. Underlying its historically strong financial run is Alaska Air Group’s emphasis on reducing debt. Its debt-to-capitalization ratio stood at 29 percent at the end of the quarter, down from more than 60 percent less than four years ago. As a result, operational cash flow totaled about $500 million for the first quarter, roughly equivalent to all of 2010, according to Pedersen. Alaska Airlines was once again the top on-time performer among major domestic carriers with an 85 percent on-time rate during the quarter, according to the U.S. Department of Transportation. However, its on-time performance was down 2.1 percent from 2014. Alaska Air Group was also named as one of Forbes magazine’s top 100 domestic employers in April. Air Group was 93 on the list and third among major airlines behind Southwest Airlines and JetBlue Airways. Elwood Brehmer can be reached at [email protected]

Capital budget slashed; IEP bill approved

The capital budget passed April 27 was little more than a formality this year. Nearly 70 percent of the $108.3 million in unrestricted general fund appropriations made by the Legislature for fiscal year 2016 will be used to match federal receipts. A mere $7.7 million of unrestricted general fund money was approved for optional spending statewide. That amounts to virtually a complete cut in state capital spending from the comparative appropriations of $444.2 million in 2015 and $627.6 million in 2014. It is even a significant reduction in spending from the $150.3 million Gov. Bill Walker proposed in January. Senate Finance co-chair Anna MacKinnon, R-Anchorage, who led the capital budget construction, said April 27 that committee members were consulted during the process and ultimately agreed to no discretionary spending in the capital budget. “There were many requests that have been unmet on the capital side,” MacKinnon said. Her staffers compiled a list of roughly $3 billion worth of capital requests that were sent to the committee, she noted. With the state facing a budget deficit approaching $4 billion in fiscal 2016, the Legislature is prepared to accept more than $1.27 billion from the federal government, a $130 million increase from 2015 and $330 million more than 2014. MacKinnon said leveraging as much federal money as possible should help minimize the impact of state cuts. Still, the overall $1.49 billion capital budget is down about 30 percent from last year. The only significant appropriation is $43.2 million to fund construction of a new school in the Northwest village of Kivalina. It is the state’s last remaining obligation from the settlement the state reached in 2011 in the lawsuit known as the Kasayulie education suit, which claimed Alaska’s rural schools were not funded on par with urban districts. In the settlement, former Gov. Sean Parnell agreed the state would contribute $146 million over four years to fund five rural school projects. The money for the Kivalina school will not come from the general fund, however. The Legislature decided to pull the $43.2 million from the Alaska Capital Income Fund, a savings account of sorts, for returns on investments made by the Revenue Department. Walker’s capital budget included $7.1 million to design the school and early work for an access road to the school site. Also pulled from the governor’s proposal was $3 million for the Alaska Housing Finance Corp. Home Energy Rebate Program, a popular program that for several years reimbursed homeowners for energy efficiency improvements made to their homes. At the same time, funding for AHFC’s weatherization program for low- and middle-income residents increased from $6.6 million to $7.1 million. Of that, $5.6 million is set to come out of the general fund. The Legislature also halved funding for the Cold Climate Housing Research Center from $1 million to $500,000. The Legislature’s appropriation is on par with what the research-focused nonprofit has received in recent years. Left out in the cold was the University of Alaska. Legislators cut an $8 million appropriation in Walker’s budget to fund ongoing construction of the University of Alaska Fairbanks’ engineering building. UA President Pat Gamble had told the Senate Finance Committee that $8 million would extend construction from August to January and allow for about a quarter of the building to completed and used by students. The cut came despite public testimony to Senate Finance that greatly supported keeping the UAF construction funding in the budget. The governor’s $8 million proposal for deferred maintenance work on UA facilities was cut to $3 million. The governor can cut or trim line items from the budget but cannot add in any appropriations back in. Walker said April 27 that he would look closely at ways to reduce the capital budget further. “There’s not a huge amount of room in the capital budget but if there’s ways of tightening it up, we will. We have to look at everything at this point,” Walker said. The budget included $45.3 million in future federal receipt authority for the Knik Arm Crossing — authority added in during House Finance hearings. An administrative order issued by Walker in December halting work on six “mega projects,” including the Knik Arm Crossing, across the state as they are evaluated by the administration is still in effect, according to a Walker spokeswoman. Interior Energy Project Legislation allowing the managers of the Interior Energy Project to spend money on a Cook Inlet-generated plan also passed the Legislature April 27 without requiring further legislative approval of a project. The subject of unforeseen debate and amendments in the House Resources and Finance committees, House Bill 105 ultimately came out looking fairly similar to the version submitted by Walker. “The economic future of the Interior depends on low-cost energy being delivered to its residents. At the end of the day, conditions in Fairbanks have not changed, and relief in the form of clean, affordable energy is needed now,” Walker said in a release. “HB 105 provides a clear path to accomplish that.” The original intent of the bill was to allow the Alaska Industrial Development and Export Authority to use much of a $332.5 million financing package passed in 2013 to get natural gas to the Interior from anywhere, not just the North Slope, as earlier legislation required. The authority to investigate and possibly construct a small pipeline system from Cook Inlet or shift the project’s focus to propane was added in the Senate. Several House Republicans from Anchorage supported language in the Resources version of HB 105 restricting AIDEA from spending money on a plan without legislative approval. Those amendments would have delayed the project’s 2016 goal to deliver gas to the Interior by at least a year, IEP managers said. They were removed in House Finance hearings. However, HB 105 does restrict the authority’s ability to enter into a gas supply contract for the Interior market unless the primary customer utility is owned by AIDEA, which is evaluating the purchase of Fairbanks Natural Gas and its sister companies. It also limits the amount of money the authority can loan for capital investments to the Interior Energy Project. Removed from the last version of the bill was $240 million of bonding authority for AIDEA to finance Southcentral electric transmission line overhauls. AIDEA’s monthly board meeting was scheduled for April 30. Elwood Brehmer can be reached at [email protected]

Bringing 100 years of Anchorage to life

Editor’s note: The Journal of Commerce is recognizing the Anchorage Centennial with a series of articles over the next 10 weeks examining the events and the industries that have shaped Alaska’s largest city. The stories will be released as a single special edition of the Journal in time for the Solstice celebrations June 20 and will be available at centennial events throughout the summer. The task: tell the century-long story of Anchorage in 124 pages. The man to do it: 50-year Anchorage resident Charles Wohlforth. “From the Shores of Ship Creek” recounts Anchorage’s first 100 years through the stories of its residents. Each of the 14 chapters is a time capsule of the city’s history. “I really wanted it to be a character-based book because characters are the fundamental building blocks of stories, and stories are what make history interesting and meaningful,” Wohlforth said during an interview at an Anchorage café. However, it is not simply a compilation of recycled tales from best-known names. The final characters were chosen only after Anchorage itself gave thorough input. Wohlforth chose the periods based on his extensive historical knowledge of the city — he’s authored several books on Alaska and told the stories of some of the state’s most influential people — and held public forums to get ideas for the characters. He had never heard of Nellie Brown (chapter four) until a participant of one such meeting suggested the early Anchorageite. “(Brown) turned out to be the most interesting person in the entire book,” he said. Writing the piece was a “big honor and quite a challenge,” he said, particularly because it could’ve easily turned into an oppressive, academic history. It’s not. Abundant photos tell the story of the city without reading a line of copy. Flip Todd, the Anchorage publisher who worked with Wohlforth on “From the Shores of Ship Creek” said the book illuminates early Anchorage while still detailing its transition to a modern, multicultural city. Anchorage Mayor Dan Sullivan said the book should be enjoyable for both those new to the city and lifelong residents such as himself. “’From the Shores of Ship Creek’ captures so many details about Anchorage’s history in a truly personal and unique way,” Sullivan said. Wohlforth said he understood from the beginning that if it was going to be inviting read there would be substantial amounts of worthy history that just wouldn’t make the cut. An Alaskan since the age of three, Wohlforth’s family moved from New York City to Anchorage’s Turnagain neighborhood in 1966. His father is an attorney specializing in government finance and helped Alaska’s state and local governments rebuild after the 1964 earthquake. “Of course, like everybody, they said they were only going to be here for three years; (they) didn’t sell their house back east for many years,” Wohlforth remarked. Because the chapters in the book are distinct stories, they read as well on their own as they do as part of the larger work. He said that achieved one of the goals he had when he began the project: the standalone essays can be pulled out and used in classrooms as part of a unit lesson on the given time period. For that reason and others, “From the Shores of Ship Creek” is an attractive history lesson, but not an advertisement. “From the Shores of Ship Creek” is available at Title Wave Books, Barnes and Noble, Once In a Blue Moose, Mosquito Books (at Ted Stevens Anchorage International Airport), the Alaska Native Heritage Center, Anchorage Museum, Cabin Fever, and other Downtown Anchorage gift shops. The paper retails for $20 and the hardcover is $30. A second run will be available in June after the limited initial release in stores now.  Author Charles Wohlforth is scheduled to hold a book signing event May 8 from 6-8 p.m., at the Barnes and Noble between Benson and Northern Lights boulevards. “Part of my pitch was that I was going to write a serious book that took on the issues having to do with Anchorage development, address them head-on and not sugarcoat things,” Wohlforth said. Going in, he attempted to examine three themes of the Anchorage’s life: the role of the federal government; the struggle to become a permanent city; and whether Alaska’s largest city is a true representation of the state. As much as Alaskans take pride in their contempt for Washington, D.C., the epicenter of their state is completely a creation of the federal government, Wohlforth said. The tent city that became Anchorage was 100 percent a railroad town at its inception; it was a construction and maintenance camp, first and foremost. Its economy was based completely on the Alaska Railroad’s payroll. The headquarters of the railroad moved from Seward to Anchorage as the makeshift city first formed along Ship Creek in 1915. That was after the feds agreed to spend $35 million in 1914 to extend the short rail line out of Seward all the way to Fairbanks. Wohlforth said the early residents refused to form a city until the federal government threatened to shut down the fire station. “Maybe we’re still teenagers, because who’s more hostile towards their parents than teenagers, right?” he quipped. For more than 60 years, Anchorage remained an incredibly young and transient city, always dependent on its maternal government. In the 1960s, the average age of an Anchorage resident was 23, Wohlforth said. When the railroad was complete the military moved in to fight World War II, and then the Cold War. The boom and bust theme spurred for years by shifting military forces only magnified as oil took over the scene. It all came to a crashing halt in 1985 when declining oil prices killed state budgets and sent nearly a third of Anchorage residents packing. The economic collapse forced more than a dozen banks to close, ruined the real estate market, and “flushed out” the transient portion of the population, Wohlforth said. “Anybody who stayed after that really wanted to be here and that’s what we’ve built on from there to the present,” he said. In a sudden and remarkable shift over the last third of its history, Anchorage’s steady and reliable growth since would be envy of any city in the country. “Now we’re really a stable, middle-American city,” Wohlforth said. The battle over the identity of Anchorage began almost immediately in 1915 and has flared long into the city’s history, according to Wohlforth. Early residents of the city proper wanted it to be an outpost of the Lower 48, while those living on the periphery of the Bowl saw their home as Alaska first, U.S. second. “It’s a very interesting lens that fits every era and every set of controversies,” he said. It’s most recognizable today in the areas of the municipality that are plumbed for city sewer, a direct result of the unification of the Greater Anchorage Area Borough and the City of Anchorage in 1975. The old Alaska adage, “Anchorage isn’t Alaska but you can see Alaska from there,” may be cliché, but it holds water, Wohlforth said. Anchorage is a classic American economic center with box stores and too many chain restaurants to count. He described it as a dichotomy that can’t be defined. “In what other city in the country do you run into moose all the time? Or where can you go cross-country skiing from your house — or half an hour from a five-star restaurant be on the top of a mountain? These are really unique things and you have to be here a really long time to forget how unique this place is,” Wohlforth said. These days the tug-of-war has subsided and even sworn political adversaries have found common ground. “If you talk with (Anchorage Mayor) Dan Sullivan and (former Mayor) Mark Begich — in the last chapter of the book — their visions for the city are almost indistinguishable,” he said. The multicultural feel Anchorage enjoys today is a direct result of the boom-bust and distinct lack of organized development of yesterday, Wohlforth said. Also, the fact that 10 percent of the city’s population “turns over” every year means fresh faces with varying backgrounds are still common, even in the more stable version of Anchorage. “The sort of silver lining to poor community planning is — in a lot of community planning there was a sub-layer of racism — it didn’t work here,” he said. “Here, largely because of terrible community planning and rapid growth, we don’t have any of that. So you go near West High School and you have some of the most affluent people in town living across the street from some of the poorest people in town. You end up with one of the most diverse high schools in the country.” Depending on which study is cited, Anchorage’s Mountain View, East, West and Bartlett high schools are all among the most integrated in the nation. The Anchorage School District notes on its website that its students speak 93 different languages at home. The lack of social tiers among a collection of transients that built the city is now part of its culture, Wohlforth believes. Anchorage’s tomorrow will likely be more challenging, at least economically, than the last 25 years have been, he predicts. The city’s business base is often touted as being more ready to handle a downturn in oil prices, but the volatile commodity still rules many of its employers as well as state government. Wohlforth said he hopes residents will “be more mature about the ‘build it and they will come’” mentality that has dominated the city from the start. And like it or not, decisions made in D.C. are still felt in Anchorage. “We’re kind of at the mercy of the Pentagon. As an economy we can’t give up oil and military at the same time,” he said. “That would really turn out the lights.” Elwood Brehmer can be reached at [email protected]

Ferry cuts may displace thousands of tourists

The full impact of proposed ferry system budget cuts could go well beyond the initial service cuts, according to state Transportation officials. The state operating budget in conference committee April 15 would reduce the overall Alaska Marine Highway System budget by slightly more than $11 million, but the final tally is likely to be much more, DOT Deputy Commissioner Mike Neussl said. Potential revenue lost from canceled sailings could end up setting the ferry system back nearly $25 million, when combined with the subsidy cut, Neussl told the Marine Transportation Advisory Board April 8. Further complicating the problem is the large number of trips already booked on sailings subject to change with a smaller AMHS budget. The ferry system releases its upcoming summer schedule each October, and through the end of March, Neussl said tickets for 9,261 passengers and 2,472 vehicles with a retail value of more than $1 million had been purchased for service that could be cut. Neussl noted that the state was in a much different fiscal situation when the schedule was built. About 30 percent of the itineraries were booked by Alaskans, meaning thousands of Outside tourists could be displaced by the budget reductions. Southeast Conference Executive Director Shelly Wright said that would cut directly to the core of the biggest business in many of the regions small communities. “The independent tourist is really the money side of tourism in Southeast Alaska,” Wright said. A McDowell Group report done for the Commerce Department estimates each visitor to Alaska spends an average of $930 once in the state. “The ramifications of this are far and wide and I’m not sure we understand them all right now,” Neussl said. A revised sailing schedule has been drafted that would cut summer service by 15 percent to 20 percent. It would be the lowest level of service the ferry system has provided since 2004, when the current 11-vessel fleet was established, he said in an interview. That schedule would go into effect July 1 to coincide with the start of the 2016 state fiscal year. Revenue generated by the system goes into the Marine Highway designated general fund, which is controlled by the Legislature. If the operational losses are great enough it could mean the ferry system would ultimately need a larger subsidy next year, Neussl said. The Alaska Marine Highway System generated about $50 million in fiscal year 2014. It has operated on a budget in the $160 million-plus range in recent years. Beyond the tangible impact, Neussl and AMHS General Manager Capt. John Falvey told the MTAB board there is a fear changing the schedule could hurt the system’s image with prospective travelers and tour operators. Neussl said the ferry system is not liable for additional travel expenses incurred by displaced customers because of “fine print” language on the back of each AMHS ticket. However, he said it’s important for the Legislature to know that tour companies booking trips for clients on the system do not have the same “out” and could take business elsewhere if they’re unsure about the reliability of the ferry schedule in the future. “It’s going to be a very massive disruption to the schedule and not good for our business practices of sailing a schedule that we published back in October,” he said in an interview. Neussl said Gov. Bill Walker restored some funding to the ferry system to the original draft of the operating budget when he was notified of the potential hit to future business, but that money has since been removed by the Legislature. DOT and AMHS are waiting to implement the schedule change on the slim hope some funding is restored. Falvey said the revised schedule is queued up in the online reservation system and would go live as soon as the budget is final, if funding is not restored. The whole online system would be locked for several weeks while AMHS ticket agents attempted to contact each person who booked an affected trip in the order the reservations were made, he said. “We would be overwhelmed with trying to rebook everything and trying to create new bookings via calling in the call center where everyone’s reservations are going to be,” Falvey said to the board. Over the past year the ferry system has closed all bars and gift shops aboard its vessels to save money, and is prepared to cut 31 positions — seasonal to high-level shore side jobs — to minimize impacts service. Late last fall DOT announced 4.5 percent rate increases for most ferry routes beginning May 1. Reducing service is also the last resort because vessels cost money whether they are active or not, Neussl said. There are fuel savings but each ferry is required to have a crew onboard while it is laid up and there are mooring fees if the vessel isn’t tied to a state-owned dock. It all adds up to a conundrum for the Alaska Marine Highway System and its parent agency DOT, according to Neussl. Cutting winter service, which is primarily used by residents, means deviating from the mission of providing transportation to Alaskans. Further, about half the fleet runs during the winter on a normal year and more service cuts would result in some communities being cut off completely, an unacceptable outcome, Neussl said. However, reducing summer service means killing some of the system’s most profitable routes, he said. Neussl added that about 75 percent of summer ferry riders are Outside customers. “I would argue that providing tourism in Alaska helps all Alaskans,” he said. Wright, of the Southeast Conference, said her organization generally supports raising rates to help fund the ferries, but she emphasized that the ferry system is part of the national highway system and that no highway pays for itself. “The ferry system touches every industry and every person and every business in Southeast Alaska. Small businesses use the Marine Highway for their commerce,” Wright said. “This is like closing the Glenn Highway three days a week.” Elwood Brehmer can be reached at [email protected]

Interior Energy Project progress is muddled

The Interior Energy Project briefly took center stage in the state House when an Anchorage legislator’s proposals raised the ire of Interior leadership. Rep. Mike Hawker, R-Anchorage, added amendments to project legislation that would require the Alaska Industrial Development and Export Authority to get the Legislature’s approval of a project plan before moving forward. House Bill 105, Gov. Bill Walker’s bill intended to lift the North Slope project restriction on AIDEA’s financing authority for the work, narrowly moved out of the House Resources Committee April 10 with Hawker’s four amendments attached. Interior Energy Project manager Bob Shefchik said the stipulation for legislative approval of a new plan would push first gas to Fairbanks back at least a year because the project would have to essentially sit idle until next session. The Resources version of HB 105 would also dampen his ability to attract private partners to Interior Energy Project because it strips AIDEA’s authority to move forward, Shefchik said. AIDEA’s goal has long been to get natural gas to Fairbanks by the end of 2016. When the numbers didn’t crunch on a North Slope plan, the IEP team began looking to Cook Inlet, with its resurgence of available gas, which has much lower construction and transportation costs. Shefchik said he hopes to have a plan and private project partner in place this summer. Other amendments introduced by Hawker would restrict AIDEA from purchasing gas reserves and require the Fairbanks-area gas utilities to be rate regulated. State law allows public utilities to choose if they want to be regulated by the Regulatory Commission of Alaska. The private utility Fairbanks Natural Gas Co. has a pending agreement to be sold to the AIDEA and also has a rate case before the RCA, while the Fairbanks North Star Borough controls the Interior Gas Utility. RCA regulation could limit the flexibility of the of the financing AIDEA could use on the project to keep natural gas prices down as early demand grows, according to Shefchik. FNSB Mayor Luke Hopkins, Fairbanks Mayor John Eberhart and North Pole Mayor Bryce Ward wrote a letter to Hawker dated April 10 asking him to “cease and desist from any further attempts to delay, halt or in any other way obstruct the progress of the Interior Energy Project. The Interior mayors noted that their constituents pay some of the highest energy prices in the country when compared to similar-sized areas with some of the worst air quality in the world while Hawker’s constituents rely on state-subsidized Cook Inlet gas production. “It is difficult for us to see these efforts as anything other than an attempt to maintain a state-funded monopoly on Alaska’s gas — for the sole benefit of the residents of Southcentral Alaska,” they wrote. Removing the “on the North Slope” restriction from the IEP financing appeared to be little more than a formality at the start of the session, as Rep. Steve Thompson, R-Fairbanks, noted in a Finance Committee meeting April 14. Hawker said in an interview that he wants to know how the project would impact the “very fragile” gas marketplace in Cook Inlet and the availability of producers to deliver gas to utilities already reliant on natural gas. He also said he would expect a special session to be called by the governor to approve a plan without delaying the Interior Energy Project. “I certainly don’t think Mr. Shefchik is in position to determine what the ultimate effect on the timing and outcome of the project is because that’s a complete unknowable,” Hawker said. “The Legislature and I certainly don’t feel comfortable writing a blank check without knowing first of all what we are writing the check for and secondly how many more checks we’re going to have to write after the first one. Mr. Shefchik testified in committee that the funding AIDEA is attempting to access is just the beginning of the overall amount of government subsidy that is going to be required to make whatever their overall project plan is going to be. I would like to know what their plan is before writing that check.” Shefchik has said the Fairbanks North Star Borough could possibly provide “backstop” protection for private loans to residents who need to finance heating system conversion costs that could exceed $10,000. Hawker’s amendment requiring legislative approval of a project plan was stripped from the version of HB 105 that passed House Finance April 14. The Finance version of HB 105 passed the House late April 15 on a 37-2 vote. Hawker voted for the bill. It had been moved to the Senate Finance Committee as of April 16. The mirror bill in the other body, Senate Bill 50, has moved slower but with much less controversy. Hawker has been vocal about his concern regarding AIDEA’s intent to purchase the parent company to Fairbanks Natural Gas since the deal was announced in late January. He said he’s not comfortable with the state competing with multiple private sector groups trying to get gas to the Interior. Private firms have said they could deliver gas to residents at a final price of about $20 per thousand cubic feet, or mcf, of gas. The Interior Energy Project’s target is $15 per mcf. From the start, project officials have said AIDEA would use its state-backed financing authority to help lower the cost of privately delivered gas. AIDEA leaders say the utility purchase would help drive down the final cost of Interior gas through efficiencies found by combining the utility networks. Hawker also said in an interview that he tried to discuss his concerns about the project with those in the know, but couldn’t because they weren’t allowed to talk to him. “I have heard the administration directed some senior members of the Department of Commerce and the AIDEA board and denied them their ability to communicate with me,” Hawker said. Deputy Commerce Commissioner Fred Parady serves on the AIDEA board in the stead of Commerce Commissioner Chris Hladick and is working closely on the Interior Energy Project. Shefchik said Hawker is “unequivocally” incorrect and any directive regarding the project would go through him. Walker spokeswoman Katie Marquette said no communications restriction have been put on anyone in his administration about the Interior Energy Project; rather, officials have been encouraged to reach out to anyone with questions. “There have been no handcuffs, no restrictions, no limits on anything other than judgments on ascribing things that are actually happening,” Shefchik said. A majority of the $332.5 million Interior Energy Project package passed in 2013 is low-interest state loan and bond authority. AIDEA has issued $52.7 million in loans for gas distribution buildout to the utilities and spent $12.4 million of a $57.5 million direct appropriation, primarily on engineering and early construction work for the North Slope plan. To the availability of Cook Inlet gas for everyone, the full annual Interior gas demand of about 9.5 billion cubic feet, or bcf, per year would be about 10 percent of the draw on Inlet reserves last year, according to AIDEA The House passed legislation to offer tax credits to encourage the restart of the Agrium Inc. fertilizer plant in Nikiski April 13. When fully running, the Agrium plant requires 60 bcf of Cook Inlet gas per year. Hawker voted for the tax credits in House Bill 100. Capital reappropriation The Senate passed its version of the capital budget April 11, which moved the remaining $45 million from the Legislature’s 2013 direct Interior Energy Project appropriation to the Alaska Housing Capital Corp. What that means for AIDEA’s ability to access the money remains to be seen. Shefchik said he would likely use at least part of the cash to buy into a Southcentral gas liquefaction facility this year if that is the chosen plan; with AIDEA invested as an equity partner the LNG processing could be made cheaper. He also said he doesn’t know if AIDEA can spend the money from what is essentially a temporary savings account. Initial demand could be met with a total $60 million investment in additional Southcentral LNG processing capacity, according to some working on the project. Senate Finance co-chair Sen. Anna MacKinnon said in a press briefing April 14 the reappropriation is a way to make sure the money isn’t “swept up” from the general fund during a time of deficit spending. However, Legislative Finance Division Director David Teal said AIDEA would not be able to access the funds without further legislative approval. How and when the Legislature will get the spending authority back to AIDEA remains to be seen. The capital budget was in House Finance as of April 15. Elwood Brehmer can be reached at [email protected]

Morrissey retires after career spanning half of rail's history

Karen Morrissey has had too many careers to count during her 48 years in Alaska, all with the Alaska Railroad. She moved to Alaska, as so many young people have over the state’s history, because of the military. Her husband received orders to Elmendorf Air Force Base and the newlywed couple moved north from Illinois in the fall of 1967. “We were only going to be here for two or three years,” Morrissey said nearly five decades later. She retired from the Alaska Railroad Corp. director of real estate position April 1 after 19 years in the real estate division. Soon after the couple settled in Anchorage, she took a federal service test to be eligible for government employment. However, First National Bank Alaska came calling first. With a little experience in Allstate Insurance’s legal department back in Illinois and an associate’s degree in her back pocket, Morrissey hired on with the financial institution. She was there less than a week before a railroad employee knocked on her apartment door and asked if she wanted a new job. “I was working at the bank but the railroad really wanted me,” she recalled. Money talked; the bank couldn’t compete with the $3.97 per hour the federally owned railroad was offering. Morrissey was hired virtually on the spot to be a parts clerk in the heavy equipment shop in the “back alleys of Anchorage.” She remembered being nervous as she drove there the first time past signs informing drivers on no uncertain terms to steer clear of nearby Elmendorf. The shop had an oily concrete floor, gray walls and gray desks; but Morrissey was happy about the IBM Selectric typewriter issued to her after getting over some initial hesitation. “I told my husband I really wasn’t sure if I wanted to work there because there were 30 dirty old men there, literally and figuratively,” she said. Morrissey was in the shop for three years ordering parts to the tune of 3,000 orders each year and tracking oil changes for the off-track equipment on a large chart on the wall near her desk. Ultimately, “those guys treated me like gold,” she said. She took a secretary position in the executive office above the depot when the couple decided they would stay in Alaska long term. She said the state has an unknowable attraction — that same feeling countless temporary-turned-lifelong Alaskans attempt to describe. “To me it was an adventure.” Morrissey said. “So many of the military wives either loved it or hated it and if they hated it they made it miserable for their poor husbands.” The job in the main office also began her tenure as the railroad’s Jane of All Trades. “My job descriptions never really described what I did,” she said. Through the mid- and late-1970s Morrissey wrote and edited the Alaska Railroad’s monthly report. One issue won Best Railroad Newsletter from a national trade association. “What I think happened is I was the only one who submitted anything,” Morrissey quipped. For a time she managed the railroad’s vehicle fleet, hand-me-downs leased from the General Services Administration. At the same time she was the in-house technology expert, tasked with training staff on the early computer systems of the time. Despite 10 years of late nights fixing glitches Morrissey said she reveled in the challenge. “I enjoyed the reward I got seeing someone learn something,” she said. When the mainframe computer was moved to another building some time after the State of Alaska took ownership the railroad in 1985, “it was like they took my baby away,” Morrissey said. She said her fascination with the growth of Alaska and how closely it’s tied to the railroad kept her with one employer. Spend just a few minutes with Morrissey and it’s clear she is a preeminent Alaska historian. When she first started in the equipment shop the railroad was still recovering from the 1964 Good Friday Earthquake. Morrissey remembers the mechanics talk of sleeping in equipment outside the shop overnight in the months after the quake to keep repairs moving as quickly as possible. A few years later the birth of the Trans-Alaska Pipeline System ballooned the railroad’s workforce to more than 1,300. It employs 585 full-time employees today and is still critically tied to North Slope oil and gas operations. The City of Anchorage’s phone switchboard was in the First Avenue railroad depot communications room into the early ‘70s. Morrissey said the antiquated system, with manuals from the 1920s, would not allow calls to be transferred. When in doubt, Anchorage put it in the railroad building. “The original City of Anchorage morgue is in the basement of the depot. They used to keep all of our records there and I used to have to go down there and it was chilled,” she said. Before the state bought the railroad for $22 million, money was hard to come by. “We didn’t even have our own bank account,” Morrissey recalled. “The railroad’s money went into the U.S. Treasury, so the money that came out had to be in our budget. Trying to justify to the Senate Transportation Committee what the Alaska Railroad needed up here — it was foreign to them.” State ownership transformed the railroad from a government agency to a business, she said. While it is owned by the state, the Alaska Railroad is a self-sustaining enterprise corporation. In 1988, with the odd hours of the IT business behind her, Morrissey enrolled at Alaska Pacific University and took classes year-round. In 1993, the same year her son graduated high school, she completed her MBA. “I was hitting the books pretty hard and I though I would be a good influence on my kids but they kept tell me, ‘Mom, you work too hard.’ I think they understand now,” Morrissey said. A few years later she began her first of multiple positions in the real estate division, the “permanent fund” of the railroad, as Morrissey describes it. About half of the railroad’s 36,000 acres statewide are available for lease — a high-income, low-expense business. Being a lead player of such an important piece to the railroad’s health was particularly enjoyable, she said. She couldn’t leave all at once, though. Morrissey is working part-time as a contracted employee to help install a new real estate database. However, she and her husband have a month in Europe planned for the fall, a chance to really take a deep breath. Morrissey will continue serving as a volunteer director on Denali Alaskan Federal Credit Union’s board, a post she has held since the credit union formed nearly 30 years ago. Denali Alaskan CEO Bob Teachworth has worked alongside Morrissey that entire time. He said he has the utmost respect for her and particularly commended her knowledge of Alaska business and her drive to continue to serve on the board. “(The directors) put up with all the trials and tribulations of a modern credit union and they don’t get paid for it,” Teachworth said. “She’s been a loyal, hardworking board member for a long time.” Morrissey began her service on the Alaska Railroad Credit Union in 1983. Denali Alaskan was born when it merged with the Teamsters Credit Union in 1986 to form roughly a $30 million operation. Teachworth noted that Morrissey has overseen 20-fold growth to $600 million. It’s all meant a busy schedule for Morrissey, so she had April 2 planned long ago. “I’m going to the gym in the morning, and going to go out with my husband during the day and have a massage that night and then go out to dinner,” she said in March. It’s been confirmed she followed through. Elwood Brehmer can be reached at [email protected]

Walker to review AK LNG

Gov. Bill Walker has ordered a 45-day review of the state’s participation in the Alaska LNG Project with an eye toward possible changes in the partnership with North Slope producing companies and TransCanada Corp. In a speech April 1 to Commonwealth North, an Anchorage business group, Walker said he had received the consent of the industry partners for the review, which would be done under terms of confidentiality. The governor acknowleged he did get some pushback, however. “There were more discussions with one company than the two others,” among the producing companies, he said, but did not say which one. BP, ConocoPhillips and ExxonMobil are partners in the deal along with pipeline company TransCanada, with ExxonMobil acting as project manager in the preliminary front-end engineering and design, or pre-FEED, effort now underway. Company officials were cautious in their responses to the governor’s announcement. ExxonMobil spokeswoman Kim Jordan said, “We have spoken with the governor but we do not comment on our discussions with public officials.” BP spokeswoman Dawn Patience said, “We’ve always supported the state being involved in this on an equal basis,” but would not comment on the governor’s review of the project. One company official, asking not to be identified as he is not authorized to make official statements, said the governor is entitled to review project details at any time because the state is a full partner in the gas project as a 25 percent owner of the gas to be shipped through the pipeline. “We have no problem with this as long as the participants sign the appropriate confidentiality agreements,” the official said. The concern is what changes the governor may ask for after the review, he said. In his speech Walker said, “I want our team to look deep into the details of the project. After that, we will determine what to do.” The governor is assembling a group of advisors to do the review, but he did not identify who he would ask to participate. Grace Jang, Walker’s press secretary, said the team participants are being chosen based on their experience with large projects. They will be paid for their work, she said. “We expect to begin soon, before the end of the legislative session,” which is April 19, the governor said. Larry Persily, former federal gas coordinator for Alaska and now an oil and gas advisor to the Kenai Peninsula Borough, said he is concerned that uncertainties raised by Walker’s 45-day review could upset the timeline for the current negotiations. “It’s April now, so if we do this review he (the governor) would get the conclusions in mid-May. With that delay it’s hard imagine the negotiating teams wrapping things up in time for a special session in the fall,” Persily said. Legislators have discussed a special session this fall to ratify several agreements for the project. “This isn’t fatal but these delays can be cumulative,” Persily said. “We all have our eyes on the target of a decision to move to FEED in 2016 and if we can still do that (with the added 45-day review) there should be no problem.”  However, if the governor seeks substantial changes to the partnership deal it could cause more delays, Persily said. The current schedule has the partners, including the state, making the decision to move to full Front-End Engineering and Design in mid-2016, but the partnership agreement allows the decision on FEED to be made anytime in 2016. However, another pending decision is a December deadline for the state to sign a long-term contract with TransCanada Corp. to move state-owned gas, which is 25 percent of the total production, through TransCanada’s share of the pipeline and Gas Conditioning Plant on the North Slope. The schedule now calls for a final investment decision to come in 2018, which would allow the project to be constructed and operating by 2024. The governor’s announcement of a review of the project comes amid a heated dispute with the state Legislature about the governor’s instructions to the state gas corporation, the Alaska Gasline Development Corp., to scale up a smaller state-led North Slope gas pipeline that is planned as an alternative to supply gas to Alaska communities in case the large Alaska LNG Project fails. The governor has asked AGDC to develop a plan for a pipeline that would move up to 2.6 billion cubic feet per day of gas from its current design of 500 million cubic feet per day. While the two decisions — the scale-up of the small state-led gas project and the new review of the large industry-led partnership — appear not to be connected, legislators who are criticizing the governor for scaling up the state pipeline say the timing of the decisions appear more than coincidental. Legislators argue that the scaled-up state pipeline plan could be viewed by industry partners in the large project as the state veering off to a competing project. In his speech to Commonwealth North, Walker said he has assured the large project partners he won’t pursue a competing project and that he remained committed to the joint-venture. “They seemed to understand,” the governor said. The intent is to do planning and engineering for a scale-up and then let things sit until the industry partners and the state agree in 2016 whether or not to take the large project to the FEED stage, Walker said in his speech. However, House Speaker Mike Chenault and Senate President Kevin Meyer had asked Walked to hold off spending money on the new engineering for a year until the FEED decision. The state gas corporation has $180 million available to do the work. Walker told Chenault and Meyer “no,” that he didn’t want to lose a year of doing no work on the fallback project. In response to that, the Senate passed House Bill 132, approved earlier by the House, blocking the governor from spending any of the the $180 million on the backup project. In his speech April 1 Walker said he would veto the bill, which he had said earlier, but he acknowledged the possibility that Chenault and Meyer may secure the votes to override a veto. “I hope they don’t override my veto. I would hate to veto the first bill from the Legislature to reach my desk. It’s not a good way to start a relationship with the Legislature,” the governor said in his speech. In a talk to an Anchorage radio talk-show April 1, Chenault said he expects to get the needed votes. The Legislature is scheduled to adjourn April 19 and a veto override action would likely come before then, if the bill is vetoed. Forty votes out of 60 members of the House and Senate are needed for an override. HB 132 passed the 40-member state House by 24-14 with two members absent and by 13-7 in the 20-member Senate. Legislators voting for the bill totaled 37, so the Speaker and Senate President need to garner three votes to get the required 40. Walker is defending the plan to scale-up the state-led pipeline. “I’m not comfortable going into negotiations (with industry partners) without a more viable backup plan,” meaning a larger, more viable state project, he said. “The industry partners have options for other projects and so should we.” The political dustup is viewed by many as arm-wrestling between Walker, a political independent who took office in December, and the Republican-led Legislature, but the effects are rattling industry partners in the gas project who are unsure of the governor’s intentions. The controversy also comes at a time when the Alaska gas project is reaching a critical point. Basic terms of the partnership among industry partners and the state were agreed last year, to the point that the industry partners and the state agreed to undertake the $500 million in pre-FEED work. The pre-FEED will also update cost estimates, which are now estimated at between $45 billion and $65 billion. As now designed the project would produce 15 million to 18 million tons of LNG per year for export markets. However, key elements of the partnership with the state are still to be negotiated, including an agreement between the producing companies and the state on fiscal terms on gas production covering tax and royalty administration. That negotiation is expected to be completed this summer. Separately, the state needs to sign a contract with TransCanada later this year for the pipeline company to ship state-owned royalty gas, about 25 percent of the total production, through TransCanada’s share of the 42-inch pipeline. The Legislature will have to approve both the contract on fiscal terms and the shipping contract with TransCanada and a special session of lawmakers is tentatively planned for later this year to do that. Walker’s actions may change that, however. Walker said in his speech that he still supports the larger Alaska LNG Project and wants to keep it on schedule.

Walker declares a Dalton disaster

Flooding and ice over the Dalton Highway forced Gov. Bill Walker to declare a state disaster late Tuesday at the request of the Department of Transportation and Public Facilities. Ice overflow from the Sag River has forced officials to close the road twice in the past week, with the latest closure currently in effect since Sunday, said DOT spokeswoman Meadow Bailey. Crews from the state Transportation Department have been fighting the overflow on the northern end of the highway since March 13, according to a release from Walker’s office. The flooding and subsequent freezing has formed ice up to 30 inches thick in some areas between mileposts 390 and 405 of the Dalton. “This declaration will enable the (DOT) to call upon the additional resources that are necessary. The gravity of the situation requires the state move quickly and restore this essential economic corridor,” Walker said in a formal statement. With a disaster declared the state’s public assistance funds reserved for such instances become available. A pair of severe storms reduced visibility and pushed crews off the road, which forced the closures, according to Bailey. “There are truckers that have been in Prudhoe Bay since Sunday,” she said midday Wednesday. Bailey said crews are now back out on the road working to clear the ice and channel water away from the road, but it’s unclear when the Dalton will reopen. Major field operators BP and ConocoPhillips are taking the situation in stride. "Seasonal transportation interruptions are normal this time of year, so we plan for it. This includes a stockpile of regular supplies and making alternative arrangements for transportation of goods, such as cargo flights," BP spokeswoman Dawn Patience said. Natalie Lowman, spokeswoman for ConocoPhillips, said there have been no problems for her company. It's a different story for some smaller companies, though. Bart Armfield, chief operating officer of Brooks Range Petroleum, said, "We have tubulars and construction equipment stuck on the wrong side (of the closure) but we've been able to beg and borrow what we need, for now. We find that when things are tight people find ways to work together. Fuel is a problem, though. "This is unprecedented. In my 20 years of experience on the Slope I've never seen an extended closure at this time of year." Caelus Energy spokesman Casey Sullivan said the situation has been tight for his company, which operates the small Oooguruk field. Repsol spokeswoman Trish Baker said her company, which has three rigs on exploration drilling in the Colville River delta, is concerned about the situation but that there are no disruptions. Updates on the Dalton Highway closing is available by calling 511 or visiting the department’s road conditions website, 511.alaska.gov. Specific inquiries can be made by calling DOT at (907) 451-2206. Elwood Brehmer can be reached at [email protected] 

AIDEA to solicit partners for Interior gas

Fragmented at the start of 2015, the group leading the Interior Energy Project hopes to have a new plan in place by the middle of the year. Bob Shefchik, project manager for the Alaska Industrial Development and Export Authority, said during a March 26 board of directors meeting that key solicitations for potential project partners will be advertised in about a month. Requests for information, or RFIs, for both a gas supply agreement and natural gas liquefaction capacity will be issued at the same time to allow for flexibility in plans, according to Shefchik. While they are separate processes, getting the requests out for review together should allow for the maximum range of project partners to be considered. “It’s not a done deal that it will be a separate gas supply and separate liquefaction; we’re offering the opportunity for vendors to bundle that,” he said. The work on a gas supply agreement is being led by the Commerce Department, while specifics such as long-term gas availability and sourcing are being vetted by the Department of Natural Resources, Shefchik said. Fairbanks Natural Gas Co. has such a bundled wholesale gas, liquefaction and supply chain contract in place with Harvest Alaska, a Hilcorp subsidiary, pending regulatory approval. That deal is to supply the utility’s existing customers and would deliver LNG to the “city gate” at the equivalent of $15 per thousand cubic feet, or mcf, of vaporized natural gas. In an interview, Shefchik said the Interior Energy Project team is still investigating options to get North Slope gas south, but that would involve pushing the goal for first delivered gas back at least a year from late 2016. Getting additional Cook Inlet gas north within a year-and-a-half is not the big challenge — doing it within the constraints of the $15 per mcf project goal is. Reaching the $15 per mcf “burner tip” goal is not only key to getting residents to switch from fuel oil to gas, but it is also important for getting residents to switch from wood heat, Shefchik said. The market rate for a cord of wood is roughly the price as the energy equivalent of natural gas at $15 per mcf. Inefficient wood stoves are considered a major contributor to downright dangerous winter air quality conditions North Pole and Fairbanks. There is a June 30 target to have winnowed down project proposals to one or two project partners, depending on the plans submitted. Shefchik said that would coincide with AIDEA’s “go or no-go” decision whether or not to purchase Pentex Alaska Natural Gas Co., the parent of Fairbanks Natural Gas and its supply chain sister companies. The letter of intent outlining the sale signed by Pentex and AIDEA leadership in late January calls for a closing date before July 31. “The end result will be a partner, not a study,” Shefchik told the AIDEA board. At that time the project team would need access to the remaining $280 million from the Sustainable Energy Transmission Supply Fund low-interest financing and grant package the Legislature previously dedicated to the North Slope iteration of the Interior Energy Project. A large portion of the money would fund continued distribution buildout in Fairbanks and North Pole and other chunks of funds would likely go towards driving down the cost of liquefaction capacity and the corralling of an LNG trailer fleet. Expanding the annual capacity of the existing Titan LNG plant at Point MacKenzie from 1 billion cubic feet, or bcf, of gas per year to more than 6 bcf — meeting demand after five years — would cost about $60 million, according to Fairbanks Natural Gas President Dan Britton. “Our goal is to leverage the AIDEA assets into the infrastructure such that it creates transparency in the pricing and buys down the cost in a long-term infrastructure base, rather than a (power cost equalization) type approach” of subsidies for high energy costs, Shefchik said. Regardless of what the final plan looks like, getting the North Slope stipulation nixed for the SETS funding so it can be used on a Southcentral project is paramount to keeping on the Interior Energy Project on track. The Senate Energy Committee, chaired by Sen. Peter Micciche, R-Soldotna, amended legislation that would free the funds for broader work to include the possibility of a gas pipeline March 26. Gov. Bill Walker introduced parallel legislation earlier in the session — House Bill 105 and Senate Bill 50 — that would allow AIDEA to spend the SETS money on a Cook Inlet gas project. Micciche’s proposal for a small, flexible gas pipeline from Southcentral is projected at $300 million to $400 million, according to estimates from Enstar Natural Gas Co. and pipe suppliers. “I want to make sure that we’re not applying a band-aid,” Micciche said in the committee. A small pipeline would cost more up front but would eliminate continual transportation and liquefaction costs — expenses associated with an LNG trucking operation that challenge the project. However, Shefchik said in an interview the capacity of a low-pressure pipeline with one compressor is about 19 million cubic feet per day, when maximum winter demand at full distribution buildout is projected at about 100 million cubic feet per day. Upping the capacity could require multiple compressors along the pipe and bundling multiple eight-inch pipes. GVEA tests propane market Golden Valley Electric Association has always been seen as a vital anchor tenant for the Interior Energy Project, but the electric utility is looking into burning propane at least until the kinks in the gas project are worked out. Golden Valley Vice President of Power Supply Lynn Thompson said a favorable propane market could mean barging the fuel up from British Columbia and shipping it via rail from Southcentral is a viable means of getting off fuel oil. Thompson said there is no commitment to propane now. If that decision is made it would take up to a year to develop the supply chain and $15 million to $20 million in storage and generator modifications to make it happen. “Golden Valley is always looking at how to minimize dependence on oil,” he said. Current low oil prices have lessened the immediate cost burden of generating electricity with fuel oils, but finding a more cost-stable and cleaner fuel source is the goal, according to Thompson. He said wholesale propane is selling for $1 per gallon or less, which equates roughly to the equivalent of fuel oil at $1.50 per gallon. The utility has only one local oil supplier, the North Pole Petro Star Inc. refinery, since Flint Hills’ refinery was mothballed last year. Golden Valley leadership has continually said it could commit to taking 2 bcf of gas per year from the Interior Energy Project, which would be about 40 percent of new demand after five years. That added demand would help lower the final cost of gas for residential consumers. Shefchik said the Golden Valley board of directors asked him if a year delay in the utility’s purchase of gas would kill the economics of the project.  He said it would come down to “working out a cashflow issue,” but that could be overcome. As to other customers, Shefchik told the AIDEA board the likelihood of them coming on board before gas is available is slim. However, once a market is established, communities and even military establishments along the road system will be in play. “Anybody with a cogeneration of heat and power or a strong demand of oil for generating electricity will be a potential customer and will look hard at this,” he predicted. Elwood Brehmer can be reached at [email protected]

Southeast communities prepare for sharp drop in SRS funding

The loss of millions in federal assistance could leave Southeast Alaska communities in a major financial bind. The U.S. Forest Service’s Secure Rural Schools, or SRS, program, which paid Alaska communities $14.3 million in April 2014, went the way of the wooly mammoth this year when Congress quit funding the program. Since federal fiscal year 2010, the payments to Alaska have fallen steadily from $18.8 million. In 2001, the state received about $9.1 million from the SRS program. Nationwide, the SRS program has paid out between $298 million and $415 million in recent years. The program was devised in 2000 as a way to boost dwindling revenue from Forest Service timber sale receipts for local communities. Before 2000, cities and towns surrounded by national forest lands were paid 25 percent of local timber receipts — an offset for the property tax revenue the local governments could not generate from federal land. Alaska is set to receive about $535,000 this year with the Forest Service being forced to go back to the timber receipt formula. In a release from her office, Sen. Lisa Murkowski placed the blame for the funding cuts on the Forest Service for not maintaining a viable timber industry in Alaska and other states. She said the program was originally set up as a “temporary bridge for timber-dependent economies” that has been extended over the years. “The reversion to the old system of paying communities 25 percent of local timber receipts would be OK if the Forest Service followed prudent management practices and actually allowed trees to be harvested, but that hasn’t been the case for decades,” Murkowski said. “This is, unfortunately, a rude awakening for those communities who have been forced to rely on alternative assistance from the federal government to fund local services.” The House of Representatives passed a two-year reauthorization of the Secure Rural Schools and Community Self-Determination Act March 26; it is attached to Medicare legislation. Murkowski spokesman Robert Dillon said the Senate would likely take up the bill this spring. Congress is on recess until April 12 and the annual SRS payments are issued this month. As the name of the program implies, the funds are intended for school and road upkeep along with other maintenance needs. Unincorporated communities must budget 93 percent of their SRS receipts to schools and 7 percent to roads, while more established local governments have more discretion over how the money is spent. In the realm of the federal budget the SRS figures for Alaska are small, but they carry a lot of weight in Southeast towns in the midst of 17 million acres of Tongass National Forest. In federal fiscal year 2013 the Petersburg Borough received $1.47 million in SRS funds and the City and Borough of Wrangell tallied $1.31 million. The neighboring communities got the largest chunks of funding for Alaska; the Ketchikan Gateway Borough was next on the list with $1.23 million. In fiscal year 2013, 11 local governments in the state received SRS payments; eight were in the Tongass. The Chugach National Forest does not have a significant timber sale program. Payments to numerous unincorporated communities totaled $6.92 million. With populations of less than 3,000 residents and annual budgets in the $10 million to $15 million range, the federal contributions are significant in Petersburg and Wrangell. Jeff Jabusch, Wrangell borough manager, said his community has kept the 93-7 funding allocation since it incorporated in 2008 and has managed to bank some of the SRS money. Wrangell’s current budget shows more than $3.9 million in a Secure Schools Fund, with about $850,000 going to the school district this fiscal year. That money will be divvied up for operations and capital expenses, Jabusch said. The borough took about $900,000 from the SRS pot and about $650,000 from city taxes for its share of the district budget in fiscal year 2014. “We certainly rely on (SRS funding),” he said. Wrangell generates about $1.6 million in property taxes annually, according to Jabusch. Saving as much of the money as possible will help the borough “ease into the transition” of no SRS funding if that is ultimately the future, he said. Petersburg has had similar foresight. “Kind of like (Wrangell’s) situation, we’ve got anywhere from three to four years if the school doesn’t use any of the money for capital projects to fund it fully on the operating side,” Petersburg Borough Manager Stephen Giesbrecht said. Regardless of whether the program is extended this year, the future of SRS money is tenuous at best, he said. “I’ve spoken to our delegation in (Washington, D.C.) and I think the across the board feeling is that this program is on its last leg,” Giesbrecht said. He hopes to a budget plan for cutting costs generating new local revenue in front of the public by June 2016 so Petersburg can be prepared to pick up the school’s tab itself before its reserves run out. Any tax changes would have to go to the public for a vote, which could then be done during local elections in October, he said. Petersburg has a sales tax with numerous exemptions that could be on the negotiating table, according to Giesbrecht. The community budget discussion is about coming up with options and letting the public decide what’s important, he said. Jabusch said he would prefer to have a restored timber industry in Southeast, but it’s hard to see that happening with timber sales tied to the whims of changing presidential administrations, he said. “Who knows long-term where the (SRS) program will go but short-term the Southeast communities would be hit pretty hard if they just did away with the program altogether,” he said. Giesbrecht said he talked with leaders of small communities across the country that while on a recent trip to Washington, D.C. who said they would be in even a bigger bind than Petersburg or Wrangell if SRS funding goes away. “You’ve got places in the Lower 48 that went so far as borrowing against future receipts to fund their schools, so it’s not just an Alaska issue,” Giesbrecht said. Elwood Brehmer can be reached at [email protected]

DOT unveils options for $250M-plus Cooper Landing Bypass

The Alaska Department of Transportation and Public Facilities wants feedback on plans to move the Sterling Highway around Cooper Landing. DOT released a draft supplemental environmental impact statement March 29 with four alternatives to improve traffic flow and increase road capacity on a 13-mile stretch of the Sterling Highway. Cost estimates for the road construction options range from $250 million to $304 million. Cooper Landing is a Southcentral recreation mecca for Alaskans and tourists alike each summer. Significant amounts of additional traffic traveling between Anchorage and the southern portion of the Kenai Peninsula pass through the community as well. The project area encompasses the entire portion of the Sterling Highway in the Upper Kenai River valley — where it begins to follow the Kenai Lake shoreline near milepost 44 to its eastern intersection with Skilak Lake Road at milepost 58. That section of the highway contains numerous campground and trailhead turnoffs, driveways and side roads. It also includes the extremely popular salmon and trout fishing area at the mouth of the Russian River. The engineering services and consulting firm HDR Inc. prepared the environmental impact statement, or EIS, for the state. Three of the alternatives deviate from the current highway near milepost 46, a couple miles east of the Kenai Lake bridge. The “G South,” “Juneau Creek” and “Juneau Creek Variant” options would move the highway north of Cooper Landing and the Kenai River. The G South option would require a new bridge over the Kenai between miles 51 and 52. It would follow the current right-of-way through the rest of the corridor. The Juneau Creek plans keep the highway completely on the north side of the river through the project area and reconnect with the current road between miles 55 and 56. The “Cooper Creek” alternative is the only proposal that expands the highway to the south and uses the Kenai Lake bridge. It would relocate the Sterling farther south than its current path from mile 48 to mile 51 and from there it would follow the current right-of-way. A record of decision would likely come next year and construction would run for five years beginning 2018, based on the current project timeline. Cooper Landing Bypass alternative cost breakdown • Cooper Creek: $236.2 million for construction and $54.5 million in associated expenses for a total project cost of about $291 million. • G South: $250.4 million for construction and $53.1 million in associated expenses for a total project cost of $304 million (includes a new Kenai River bridge). • Juneau Creek: $205.4 million for construction and $44.2 million in associated expenses for a total project cost of $250 million. • Juneau Creek Variant: $211.6 million for construction and $45.4 in associated expenses for a total project cost of $257 million. (Associated expenses include permitting, design, utility relocations and right-of-way acquisition through private property.) Federal highway program funds would pay for the majority of the project, which would require a state match. The revamped stretch of highway would have 12-foot lanes, eight-foot shoulder sections, passing lanes and left-turn lanes — features the stretch of highway currently lacks. The Sterling Highway through Cooper Landing does not adequately meet DOT safety standards for a main thoroughfare as it is constructed. It is one of the only segments of the Sterling still in its original right-of-way from construction in 1950. Despite a winding, narrow roadway squeezed between mountains and river in several stretches, the Cooper Landing Bypass area has a crash rate 4.6 percent lower than the state average for similarly classified rural primary highways. From 2000 through 2009, the Sterling Highway has a crash rate of 1.72 crashes for every 1 million vehicle miles traveled per highway mile, while the state average was 1.80 crashes for the period. The winter crash rate was nearly four times higher than the summer even though average winter daily traffic through the corridor was 1,635 vehicles, compared with an average of 4,353 vehicles in summer. DOT spokeswoman Shannon McCarthy said crash rates increase on either side of the project area as drivers “jockey for position” on highway stretches with speed limits of 55 miles per hour. Much of the subject corridor is posted at 35 and 45 miles per hour and traffic often backs up as vehicles wait to turn off the highway. Signs put up by residents along the roadway through Cooper Landing encourage travelers to follow posted speeds and hold the slogan “We Drive 35.” Summer traffic volumes are expected to increase more than 80 percent from current levels over the next 30 years based on historical 20-year trends, according to the EIS. DOT has looked at upgrading the highway numerous times since the 1980s. The current EIS is a revision of a project proposed in 1994 that looked at revamping the Sterling Highway milepost 37-60. The eight-mile segment beginning at milepost 37 was ultimately redone and completed in 2001. Cooper Landing Chamber of Commerce President Stephanie Ferry said the project has been brought up so many times area residents are skeptical it will ever happen. Cheryle James, a Cooper Landing Chamber member and owner of Wildman’s general store at milepost 47, said she believes the money that would go the Sterling Highway project would be better spent on road work in more permanently congested areas such as Anchorage and the Mat-Su valleys. “Traffic is only busy here two or three months of the year,” she said. James suggested improving the existing roadway and expanding 35 miles per hour speed limit areas. She noted that the alternatives already include improving different segments of the current highway. The EIS states that some confined areas of the right-of-way would be difficult and costly to improve because of environmental concerns and loose soils on some slopes along the road. She added that the project would undoubtedly hurt local businesses, particularly those that are open year-round. Wildman’s is one of four shops in Cooper Landing open in winter, she said. Pulling traffic away from Wildman’s would likely cause her to cut her permanent staff of eight, according to James. She is one of the residents that isn’t convinced the project will ever happen because of the repeat work that surfaces every few years, James said. “We spent a lot of money on environmental impact statements over the past 30 years that basically told us the same thing,” she said. DOT is accepting public comments on the EIS through May 26. Comments can be submitted through the project’s website, www.sterlinghighway.net, or at libraries in Anchorage, Kenai, Soldotna, Cooper Landing and Juneau. Elwood Brehmer can be reached at [email protected]

UAF plant estimate $50M over budget

The University of Alaska Fairbanks will likely have to wait a year longer to get its new heat and power plant up and running. Cost estimates available in February came in more than $50 million over budget for the coal-fired combined heat and power, or CHP, plant, according to university spokeswoman Marmian Grimes. University of Alaska President Pat Gamble told Senate Finance Committee members March 17 that the school “put the brakes on the project” and is now looking for ways to value-engineer the cost down. “We made the decision we could not come back to the Legislature and as for more money,” Gamble said to the committee. Revamping the design of the plant will push its completion date back from late fall 2018 to the last quarter of 2019, Grimes said. Last year, the Legislature approved a financing package to cover the cost of a new $245 million UAF plant, but the preliminary estimate for the new plant was around $300 million. The 2015 fiscal year financing included a $24.5 million direct general fund appropriation and significant bonding authority together totaling $182 million. University officials have said they could afford to bond debt up to about $50 million to help pay for the more efficient CHP plant on the back of annual fuel savings projected in the $4 million to $5 million range compared to current costs. The Atkinson Heat and Power Plant began service in 1964, meaning its two coal-fired boilers are already beyond expected 50-year operational life. Its two auxiliary boilers — one oil-fired and one compatible with both oil and natural gas — will be kept as backup for the new coal CHP plant. UAF demands a plant capable of producing about 17 megawatts of power and enough steam to heat the more than 3.1 million square feet of facilities that make up its main campus. Grimes said the plant design and construction team is focusing its efforts on cost savings derived from going from two circulating fluidized bed boilers to one large unit. The global engineering firm Stanley Consultants is leading design work and a joint team of Haskell Corp. and Davis Construction will handle construction duties. UAF chose the construction manager at risk, or CMAR, project management method for the plant as opposed to the more traditional design-bid-build, Grimes said. The university paid for a preliminary design upfront, where the $245 million estimate came from. Then the construction team was brought on for the detailed design phase so specific costs could be itemized as opposed to having one large bid and potential cost overruns. “It actually worked the way it was supposed to,” Grimes said. While the firms are fairly confident the needed savings can be realized, she said, going from two to one boiler has operational drawbacks. The university would have to completely switch to oil or gas when maintenance is done to the coal boiler, rather than being able to keep one coal boiler running, which would add somewhat to fuel costs. The boilers dictate the design of the rest of the plant; everything else is built up around them, Grimes has said. This year will probably be spent prepping the site for construction, when original plans called for pouring concrete, she said. UAF hopes to request approval for site work at the April UA Board of Regents meeting and have a new design ready by June, according to Grimes. The immediate delay is only a few months, but that will almost certainly result in a year delay for the overall project because of Alaska’s short construction season. Grimes added that the university is taking another look at adding natural gas-fired capacity as part of the redesign. However, early indications are that the availability and fuel cost issues that forced the idea to be nixed when UAF first looked at new CHP plant options are still there, despite a gas plant being cheaper to build, she said. Engineering building UAF’s capital request for construction of its piecemealed engineering building would allow the school to open about 25 percent of the facility, UA President Gamble told Senate Finance. “We could put part of the building to use if the total amount was $8 million applied to the building,” he said. Gamble said the $10 million the Legislature appropriated last year would last through about mid-August. Another $8 million would keep work going through mid-January and let the school open two classrooms, a lab and required associated amenities, such as restrooms at that time. The 119,000 square-foot facility is enclosed and warm, which allowed interior construction to continue during the winter, according to a UAF project update dated March 11. As it stands without that $8 million, UAF needs $31.3 million to finish the $108.6 million project, Gamble said. Gov. Bill Walker included an $8 million appropriation for the building in his capital budget, one of the few projects statewide that got a line item in the slim $150 million proposal. The Legislature fully-funded Anchorage’s $123.2 million engineering facility and parking garage with a $45.6 million appropriation last year. When asked about bonding for construction funds, he said the university bonded last year and is at capacity to repay the debt service. University capital fund Senator Pete Kelly, R-Fairbanks, introduced a bill March 20 that would allow the UA System to pay for capital projects by skimming from future state resource royalties in lieu of getting land the state schools are owed. Established as a land grant university, attempts in 1959 and 2009 to transfer up to 1 million acres of state land to the University of Alaska have been shot down by the Alaska Supreme Court as violations of the state Constitution. Kelly’s Senate Bill 81 would allow the state system to take 0.5 percent of state proceeds from land and mineral leases, royalties and federal mineral revenue sharing on leases, sales and contracts entered into after Jan. 1 2016. The University of Alaska currently owns approximately 147,000 acres across the state. Elwood Brehmer can be reached at [email protected]

New design kickstarts transformation at KPB Architects

With views of the Chugach Mountains to the right and Cook Inlet and Mount Spurr to the left, one step inside the KPB Architects Anchorage office immediately comes with a unique feel. The bright, open room lends itself more to a large studio apartment than a professional home — probably fitting given it is in a building of condominiums. The walls that remain are sectioned glass and can be drawn back like a curtain. KPB employees moved into the L Street locale last October after designing the new office to be a stark contrast from their old, traditional workplace. Settling on a plan took months. “We were our own worst client,” KPB President Mike Prozeralik said. He and firm partner and KPB founder Jeff Koonce left the task of creating the new office to their staff of 18 designers and architects. KPB’s old G Street home was a classic segmented office. When that didn’t match the workspace Prozeralik needed, he began tearing down his cubicle walls — before assuming a lead role with the firm — and his colleagues followed suit. “There was no conversation; there was no collaboration. Everyone kind of did their own thing,” he said. Now, the words “family,” “comfortable,” and “inviting” are heard when KPB employees talk of their office. A kitchenette and island bar that seats the whole KPB crew is a comfortable place for lunch meetings and encourages employees to engage each other once again, rather than eating a solitary lunch at their desks, Project Designer Andy Weiss said. Many of the concerns often raised regarding an open office space have fixed themselves or are actually a benefit given the nature of work an architectural firm does, Prozeralik said. He described the layout as one that facilitates “learning through osmosis.” “For us, being in the design field, collaboration is essential,” he said. “It helps promote learning.” Weiss said there were worries the clustered desks would lead to untenable volume, when in fact, just the opposite has happened. Koonce likened the volume level to a busy library — everybody respects each other’s ability to focus. Employees seeking privacy can still work in a small conference room with the amenities of an office. When phone conversations are overheard there is a value in that, too, Weiss said. “Nobody works in a vacuum, so even if you’re not working on a project you might be asked to provide input. Things seem to be more efficient than they were in the past,” Weiss said. As Koonce put it: “We are able to communicate on all levels all the time.” Quick impromptu meetings have become commonplace, he said. KPB encourages its clients to consider similar designs. NANA Regional Corp.’s new Downtown Anchorage office, a KPB design, is filled with glass walls to maximize natural light while still meeting the company’s specific office needs. It’s hard to find a place inside the NANA building where one can’t see outside. “Mike and Jeff put a lot of trust in us when we were working on the space and designing the space — to sort of take it and run with it and do something different,” Weiss said. “This is what we try to get our clients to do so we should do it ourselves.” Two other characteristics soon become apparent with a quick tour of the KPB office: a distinct lack of chairs and incongruent desk heights. They go hand-in-hand. The desks easily adjust to the height of their owner, providing a simple but underrated workstation option. Nearly all of KPB’s employees have chosen to forgo their chairs in favor of their feet, Prozeralik said. “It’s amazing when people have that option, that opportunity, a lot of people will spend most of their day standing up at their desk working,” he said. Founder of Studio One Pilates in Anchorage Paul Van Alstine said standing at a desk is usually less stressful than sitting, among other benefits. The simple act of standing requires slight but constant motion — a kind of relief from the tension built up after sitting for long periods, he said. It’s not unlike the pent up feeling a road trip can induce. “We’re not really designed to sit,” Van Alstine said. He compared it to how a sedentary office worker can feel exhausted after a day of work, but have seemingly boundless energy to do more physically demanding activities each weekend. It’s the mix of posture and movement that’s key, he said. “From a corporate standpoint, when employees leave for the evening feeling refreshed they’re going to look forward to coming to work,” Van Alstine said. Everyone around the office, according to Prozeralik, has already noticed the boost in productivity. Koonce noted that a seemingly innocuous move away from carpet prevents the office floor from holding dirt. At the same time the absence of corners in an open office prevents dust bunnies from hiding. A clean office is a healthy office, he said. It all leads to less down time and employees can only be productive when they’re at work and at their best, Prozeralik added. Chair of the Anchorage Economic Development Corp. board and one of the minds behind AEDC’s “Live.Work.Play.” initiative for the city, Prozeralik said the new office is just a part of KPB’s version of a wellness program. He is anxious to take advantage of the nearby Tony Knowles Coastal Trail for “walking meetings” when the grass greens, he said, a simple way to get office work done while still keeping active. It’s KPB’s way of making Anchorage a better place to work, according to Prozeralik. “When we bring clients (to the office) everybody walks away with a different impression of what an office space could be,” he said. Elwood Brehmer can be reached at [email protected]

Steelfab takes on Wood Bison, Slope, and coal stacks

In Alaska, oftentimes if you can’t do it yourself, it won’t get done at all. Richard Faulkner has built his business on that principle. Faulkner and his wife Janet have run Steelfab since they purchased the North Anchorage fabrication facility in 1989. “We do anything and everything you can think of to a piece of steel,” he said. The couple has grown the business from about a half-dozen employees when they took over the operation to nearly 50 full-time workers today. What was once little more than a few-thousand square-foot shop has been transformed into an 85,000-square foot metal works complex complete with a massive paint shop and a 73-by-380-foot fabrication floor. On March 19, Steelfab welders were assembling pens to transport wood bison for the Alaska Wildlife Conservation Center alongside exhaust stacks being prepped for Golden Valley Electric Association’s coal-fired power plant in Healy. Farther down the shop, Faulkner led a tour of about a dozen Northern Industrial Training students passed a massive steel module that was being broken down for transport to the North Slope. All the work on the large steel modules Steelfab builds is done in-house, he said, and they are built to be used hard. Heavy corrugated walls provide strength for everyday work and protection in the event of a mishap. Faulkner recalled an incident in which a Steelfab module was dropped six feet while being unloaded from a barge on the Slope. “It bounced,” he said. The 50-by-30-by-26-foot module Steelfab just finished was built to house a 45,000-pound Caterpillar loader tractor, Faulkner said. At about 160,000 pounds, it disassembled into 50 pieces and can be put back together in about four days, he said. The company usually makes about 15 to 20 each year. In the paint shop, formed sections of steel tubing destined for ExxonMobil’s Point Thomson natural gas liquids development were getting a final protective coat. Steelfab modified drill casing for Shell’s offshore work several years ago. In addition to the fabrication work, Steelfab serves as a steel warehouse for the public. Faulkner has up to 1,500 tons of product available at any time. At any time his contract list could include a multi-million dollar project for a drilling company or Slope support contractor and a few hundred-dollar order for someone building a personal trailer. “We have to be able to do multiple things occasionally,” Faulkner said. “We’re a certified bridge facility in the state of Alaska — the only one.” On top of the major bridge certification from the American Institute of Steel Construction, Steelfab is also listed by the institute as a certified building fabricator and sophisticated paint facility. Faulkner’s shop has further certifications from the American Welding Society, the National Board of Boiler and Pressure Vessel Inspectors and is approved for tank fabrication by the American Society of Mechanical Engineers. Keeping up on the qualifications is costly, Faulkner said, but it allows him to attract a wide range of business that keeps his employees busy and business steady. It also helps Steelfab compete with Outside fabricators, he said. “Companies in Alaska are held to a higher standard of fabrication” by customers because of their cold climate building experience, he said. Faulkner told NIT students soon to be looking for work that his business practices might make it harder to get in the Steelfab door, but that they can count on reliable employment if they hold up their end of the bargain. “Our work is fairly steady through the winter. We work for the drilling contractors, the oilfield contractors; those sorts of outfits do take up the winter,” Faulkner said. “Then once we hit the summer — right about now — we’re working for (construction) guys just getting started.” Steelfab does not bid on large capital projects and therefore doesn’t ramp up its workforce for major jobs only to cut employees when work slows. “My goal has always been to have a steady workforce — keep them busy 40 to 50 hours a week, 12 months out of the year,” he said. Elwood Brehmer can be reached at [email protected]

Does Alaska have a revenue problem or a spending problem?

As is often the case, the answer probably lies somewhere in the middle. The revenue problem is no secret: A precipitous fall in Alaska North Slope crude price from a $102 per barrel average in August to a $49 per barrel average in January has placed a state that has left itself reliant on oil for income in a major bind. Prices have pretty much stabilized so far in 2015, but some oil industry analysts have said the bottom of the canyon could ultimately be in the $20 per barrel range, with a slow climb out over several years. That paints a bleak picture for a state that draws 90 percent of its revenue from black gold. The Fall 2014 Revenue Forecast from the state Department of Revenue projects Alaska’s general fund will take in a little more than $2.55 billion this fiscal year and a measly $2.2 billion in fiscal year 2016. The state is expected to run budget deficits in the $3.5 billion-plus range over the next couple fiscal years as a result. Revenue’s predictions make 2011-13 revenue — $7.71 billion, $9.92 billion and $7.6 billion — seem like ancient history. The good old days of billion-dollar capital budgets while still putting money in the bank are long gone. Comparisons with the 1986 oil price collapse have been made from Ketchikan to Kotzebue. However, that was a boom-and-bust scenario, which state economists say isn’t very analogous to today. In the mid-2000s, prices hovered roughly between $40 and $50 per barrel for Alaska’s traditionally light and valued oil and the state took in about $3 billion per year. Since early 2006, when Alaska North Slope crude, or ANS, pushed above $60 per barrel and began a steady and only briefly interrupted climb, the per barrel price has spent more time at or greater than $100 than $50. The state’s general fund spend has followed suit, regardless of the governor. Capital budgets come and go mostly at the whims of the Legislature, but the operating budget is always there to demand money. In fiscal year 2006, the State of Alaska operating budget included a $2.7 billion total draw from the general fund. By fiscal year 2013 — when the state was flush with cash after nearly $10 billion in general fund revenue in 2012 — the general fund operating budget had grown to $6.42 billion, according to state fiscal summaries. In excess of $2 billion of federal money and money from other funds meant for predetermined uses makes up the rest of the operating budget each year. The growth equates to a 137 percent increase in the state’s controllable portion of the operating budget. By comparison, the state’s population grew 9 percent and inflation increased 17 percent over the same seven-year period from 2005-2012. Since then, big budget spending has backed off to just more than $6 billion the last two fiscal years. The state held about $15.6 billion combined in its Constitutional Budget Reserve and Statutory Budget Reserve funds at the beginning of this fiscal year last July 1. Because forecasting revenue in the out years relies so much on oil prices, models vary, but most experts agree the state will completely drain its savings accounts before 2020 on its current spending and revenue path. The operating budget passed by the House March 13 includes $5.31 billion from the general fund. That legislation is now being vetted by the Senate. Gov. Bill Walker’s budget proposal has a $5.5 billion general fund spend. The governor’s operating budget proposal would be an 8 percent cut in general fund spending from the current fiscal year 2015 budget. Walker has said he hopes to cut government agency spending by up to 25 percent during his four-year term. Where is the money going? Nearly half of the 2015 general fund appropriation went to the state departments of Education and Health and Social Services. Combined, they accounted for $2.68 billion, or 44 percent, of the $6.01 billion spend for the current budget cycle. Driven by Medicaid costs, the Department of Health and Social Services general fund appropriation has grown 107 percent in 10 years to $1.25 billion today. *Projected revenue. Source: State of Alaska Gov. Walker submitted legislation March 17 to reform the state Medicaid system and expand it primarily with federal money. Republican leaders in the Legislature have said they are worried the cost burden of expanding Medicaid could eventually be shifted to the state and not make it as sweet of a deal as advertised. They have also said reforming the current system is paramount before accepting new money. The general fund portion of the Department of Education and Early Development’s budget stands at more than $1.41 billion, up almost 60 percent from $890 million in fiscal year 2006. Those numbers are slightly deceiving, because most, but not all of that money gets spent every year, according to Education Department officials. What is not eaten up by school grants is rolled over to the next fiscal year budget. The Base Student Allocation — the formula by which schools are funded per student — has barely kept up with inflation over that period. It increased 15 percent from fiscal year 2006 to 2014. Interestingly, while the overall state Education budget has grown 58 percent in the last decade, the number of K-12 public school students has done the opposite. During the 2005-06 school year about 131,300 youngsters attended public school in Alaska. By the fall of 2014 that number was down to 128,800 students. The University of Alaska System comes in third on the State of Alaska’s general fund spend list. In fiscal year 2015 the state universities got $375.8 million. That same budget line was $282.5 million in 2007, according to UA budget records, a 33 percent increase. The Board of Regents requested a $395.7 million operating subsidy from the Legislature for the 2016 fiscal year at its November meeting. Walker’s budget proposal would give $362 million to the university system; the House has $344 million for direct higher education funding in its version of the 2016 budget. Public employee contracts are always a contentious topic in tight budget times. Since 2006, the amount the state spends on executive branch employee wages has increased 40.6 percent, according to annual workforce reports put out by the Department of Administration. The total number of department employees has grown a little more than 8 percent over 10 years, slightly less than the state’s overall population increase of 9 percent. In fiscal year 2006, the average state agency employee earned $49,932 per year; in 2014, their yearly earnings averaged $64,884, a 30 percent increase. Comparatively, Alaska’s entire workforce, including state employees, had an average annual income of $42,740 in calendar year 2005, according to the U.S. Bureau of Labor Statistics. Alaska’s fiscal years begin on July 1. By 2013, the average Alaskan made $53,110, a 24 percent increase from 2005. With benefits included, the state spent about $1.57 billion on its executive branch workforce in 2014, according to the Department of Administration. Where do we go from here? Rep. Lora Reinbold, R-Eagle River, got thrown out of the House Majority Caucus March 16 for not playing by the rules — for wanting more budget cuts than her mostly Republican and now former caucus mates agreed to. Reinbold broke ranks and protocol by voting against the House operating budget passed March 13 because she said it does not do enough to close the state’s budget gap. She said that cuts made in committees were a good start, but they started to evaporate when her colleagues took them up on the House floor. “When I saw them bragging about amendment after amendment after amendment after amendment — putting things back in (the budget) — that caused me to lose faith in the shell games that were going on,” Reinbold said in an interview March 17. Photo/Michael Dinneen/AP At left, Rep. Lyn Gattis, R-Wasilla, and Rep. Lora Reinbold, R-Eagle River, congratulate each other on their 2012 primary election wins. Reinbold was booted from the House Majority Caucus March 16 after breaking ranks to vote against the operating budget. Her view of a responsible budget when revenues decline is one that matches annual revenue plus 10 percent of the state’s savings, she said. That would mean roughly a $3.75 billion general fund appropriation to the fiscal year 2016 budget, based on Department of Revenue projections. During times of plenty, Reinbold would like to see 10 percent of revenue banked. To accomplish her goals the state needs to evaluate all spending “with parameters of sustainability” she said. Reinbold suggested pay, hire and travel freezes for state employees in the coming years and stringent employee performance evaluations for state workers. She also said public union contracts need to be negotiated in public because they spend public dollars. Revising state employee contracts would help solve the university’s budget problems as well, she said. “When I asked (UA President) Pat Gamble, ‘What’s the number one thing that needs to be addressed?’ Pat Gamble said union contracts,” Reinbold recalled. Contracts for three of the states largest labor unions will be up for negotiation by the end of 2016. One of those is the Alaska State Employees Association, which has 9,000 general government employee members. ASEA Executive Director Jim Duncan said his members are realists and understand the that there will be little money available for wage and benefit increases when they begin negotiations in November. He said the union conceded significantly in its current three-year contract: modest 1 percent wage increases in 2013 and 2014 and a 2.5 percent wage increases this fiscal year. Also, he said benefit contribution hikes were mitigated. The state places $1,389 per employee per month in an ASEA benefit trust that is managed by a union-elected board, which selects benefit plans for its members. That same amount is contributed to several other unions as well. “We negotiated with the Parnell administration and we gave up lots,” Duncan said. After announcing layoffs to about 300 positions, Walker said in early February that he does not want to place the budget strain “on the backs” of State of Alaska employees through concessions. The union expects its 2015 wage increase to be honored and Duncan expects further layoffs given budget projections, he said. Duncan said wage rollbacks would be counter-productive, but noted wage freezes are a possibility. “We clearly expect that when we go back to the table in November 2015, that there’s not going to be much available as far as wage increases or benefit increases or anything in that regard,” he said. Elwood Brehmer can be reached at [email protected]  

Long-awaited Sealaska land transfer is complete

JUNEAU — It took 43 years, two months and 17 days since the passage of the Alaska Native Claims Settlement Act, but Sealaska Corp. is finally whole. The Southeast Alaska Native regional corporation officially took title of 70,075 acres of formerly federal land March 6 during a ceremony at the company’s headquarters in Juneau. Sealaska President and CEO Anthony Mallott said the land transfer provides a time to reflect on Alaska Native history and will be a major benefit to Sealaska, its shareholders and the entirety of Southeast Alaska for years to come. “This is a great way to frame how we expect to manage our land for the next 100 years,” Mallott said. More than 68,400 acres of the land — once Tongass National Forest — will be managed primarily for timber harvest and was selected with that purpose in mind, Sealaska leaders said. The remaining roughly 1,500 acres scattered in smaller parcels throughout Southeast were chosen for historical and cultural significance and economic development potential. Mallott and others from Sealaska repeatedly thanked the members of Alaska’s congressional delegation, including former Sen. Mark Begich, for their years of work to get the land transfer legislation passed. Sen. Lisa Murkowski was the lead sponsor of the latest iteration of the Sealaska lands legislation. Such land transfers to Alaska Native corporations are required by ANCSA. In total, Sealaska now holds 360,000 acres in Southeast Alaska. All of the selections were formerly Tongass National Forest parcels. At more than 17 million acres, the Tongass is roughly the size of West Virginia and is the largest federal forest in the country. Sealaska director and former board chair Albert Kookesh said the land conveyance was the result of more than 300 meetings held across the region by the corporation to reach myriad of compromises with concerned parties. “We were directed by Sen. Murkowski, who was the primary sponsor, to get rid of as much of the opposition as we could,” Kookesh said. Included in the legislation was a provision to “lock up” 150,000 acres of the Tongass National Forest from development. Kookesh said Sealaska spent nearly $10 million over the years to get what it was rightfully owed. “We’d spend another $10 million if we had to,” he said. The Southeast Alaska Native Land Entitlement Finalization and Jobs Protection Act was rolled into an omnibus lands package, which was part of the 2015 Defense Reauthorization Act signed by President Obama Dec. 19. Sealaska Vice President and General Counsel Jaeleen Araujo worked on the land transfer for more than 10 years. “This kind of event is a reward for a long road,” she said at the signing ceremony. Legislation involving public lands is always difficult to get agreement on, Araujo said in an interview. Further, she noted the Sealaska lands bill came up during a period when it is hard to move anything through Congress. To get it to move, a virtual consensus had to be reached. Araujo, an Alaska Native, said Sealaska came to learn how many groups from a myriad of backgrounds are concerned about the Tongass as much as the Native people are. She described the process as a continuous education to inform people that Sealaska was merely asking for it was owed. “At times it was frustrating when people were looking at this as a corporate giveaway or a land grab,” she said. “We were constantly reiterating the fact that this is an existing entitlement.” Easing those concerns meant concessions. That included the 150,000 acres of wilderness now permanently protected. About 26,000 acres of selections on northern Prince of Wales Island that were part of previous failed conveyance bills were omitted from the one that passed. Historical logging work on the island has developed a network of roads and there was an uneasiness about a private company benefitting from infrastructure installed at the Forest Service’s expense, Araujo said. In the end, Sealaska relinquished selection rights to 327,000 acres as part of the transfer. “(The Tongass) is similar to the Arctic National Wildlife Refuge — a prized jewel to so many people,” she said. “Of course, we live here and have lived here for thousands of years so we can appreciate the importance of the beauty and the bounty of this place.” Mark Kaelke, the Southeast Alaska project director for Trout Unlimited, an active conservation organization on Tongass issues, wrote a piece on the group’s website titled, “Controversial Sealaska bill contains a few Tongass gems,” shortly after Congress agreed to the terms of the omnibus lands bill. Bureau of Land Management Alaska Director Bud Cribley signed the conveyance paperwork for the federal government. He said he was honored to represent everyone in the government that worked on the settlement. Cribley said a provision in ANCSA allows for an interim land conveyance such as the one given to Sealaska. However, it required the transfer be signed within 60 days of enactment of the legislation, which left a lot of work for a short amount of time, he said. “Trying to accurately describe 70,000 acres in Southeast Alaska was nothing less than a challenge,” Cribley said. Over the next several years Sealaska and BLM will finish surveying and patenting the land. Sealaska will also have to apply for easements cemetery sites it wishes to designate in the coming years, according to BLM. Araujo said what happens to the small selections chosen for economic development near small Southeast towns would largely be up to what the people nearby want. Some were chosen for energy — hydropower — potential, but none will be logged or mined.  “There may be some communities that say, ‘We don’t want any development; we just like the fact that we have Native ownership near our community,’” Araujo said. “That’s fine too.” A timber future Not only does the deed transfer end Sealaska’s claims under ANCSA, it should help float the region’s drowning timber industry. Mallott said in an interview that the land would be the key to keeping Sealaska’s timber harvest sustainable at between 30 million and 50 million board feet per year from its lands. He sees timber harvest once again being the most significant business Sealaska has in Southeast. Sealaska’s timber operations hinged on getting the new forest land, and soon. “The consideration of what would have happened without the lands bill — it wasn’t even worth thinking about,” Mallott said. The corporation began scaling back its annual harvest of Sitka Spruce, Western Hemlock and cedar in 2006 to “bridge” its remaining timber resource until the lands bill passed. About a quarter of the 290,000 acres Sealaska owned prior to March 6 has been clear-cut at some point in the past. Now it’s being managed through calculated thinning to maximize its second-growth potential. Araujo said more than half of the newly acquired timber land is old growth and about a third is young timber. The remainder is non-harvest areas. Exactly what sustainable harvest can come from the total Sealaska forest still needs to be narrowed, but Mallott said it would almost certainly be no more than 50 million board feet per year. The larger Southeast industry has collapsed for a number of secondary reasons that all lead back to one: timber supply. Industry outside of Sealaska — reliant on Tongass timber sales — has succumbed to a shift in management practices by the Forest Service and a back-and-forth fight over the Roadless Rule. For more than two decades prior to enactment of the Roadless Rule in 2001, which restricts additional road development on nearly 60 million acres of national forest nationwide, the annual Tongass timber harvest averaged about 270 million board feet. That harvest has fallen to less than 100 million board feet per year since. In fiscal year 2012, it was 20.8 million board feet, according to a Forest Service report. The Forest Service under President George W. Bush exempted the Tongass from the Roadless Rule, but that exemption has since been overturned by a federal court and awaits a ruling from the entire 9th Circuit Court of Appeals. Alaska Forest Association Executive Director Owen Graham said the industry needs access to about 300 million board feet annually to be competitive on the global market. At the same time the Forest Service has shifted to management emphasizing young, or second growth, harvest. That has left some mills unprepared to handle the smaller timber. Graham said he supports the young-growth initiative, but it needs to be phased in over a longer period. “We need more acres and we need more time to let the trees mature,” he said. Peak production days meant Sealaska employed about 600 people for its timber-associated operations, Araujo said. That number had fallen by about half when the lands bill was introduced in early 2013, according to company leadership at the time. At times Sealaska has bid on Forest Service sales to keep up its supply up. Overall, the timber workforce was 4,000 to 5,000 strong during the industry’s heydays of the 1980s, Graham said. Today, about 300 people in Southeast Alaska make a living through timber harvest, according to the state Labor Department. There is one medium-sized mill, Viking Lumber in Craig, and numerous small, one- to five-person mills. Sealaska exports nearly all of the logs it harvests, with the small exceptions of “micro-sales” to small mills on Prince of Wales and in Hoonah. That keeps some value-added processing jobs out of Alaska. Mallott said the company is using the resource addition as an opportunity to study the economics of its entire timber business. “We’d love to figure out the domestic manufacturing feasibility gap,” he said. “What is it in the model that allows us to get a much better price exporting than within the domestic market?” Mallott sees Southeast timber more conservatively than Graham; he said the land conveyance could lead to a flat bottom for the industry, rather than a significant rebound or further fall. However, he and Araujo both noted that Sealaska will be working with anyone willing to provide stable, if modest, timber work. “I can’t even emphasize enough how important (the land transfer) is to allow us to have a sustainable program and timber industry in concert with the Forest Service,” Araujo said. Elwood Brehmer can be reached at [email protected]

Sealaska Corp. continues search for the right business fit

JUNEAU — Sealaska’s land acquisition will help its timber business and the Southeast Alaska Native corporation is looking to expand in other sectors as well. Sealaska Corp. President and CEO Anthony Mallott said in an interview that the corporation has a team continuing to pursue business purchase options, with the hope of announcing something significant within six to 12 months. The focus is first and foremost on industries Sealaska knows well, Mallott said. From there, an emphasis is being placed on operations with high cash flow and those that have ties to Alaska, or at least the Pacific Northwest. “If it’s not in the state, it should have an opportunity to reach to the state,” he said. Sealaska currently has four government services firms that specialize in the environmental, technical, IT and construction and project management sectors. Alaska Coastal Aggregates and Sealaksa Timber round out its natural resource subsidiaries. The acquisition team is working with patience and discipline Mallott said, meaning a new business purchase could take longer than a year. Mallott announced last year that his corporation would enter acquisition mode after selling off companies it owned based all over the Lower 48 and Mexico. Owning firms headquartered outside Alaska is common among the state’s 12 Native regional corporations. He noted that Sealaska is hunting for new business with significant capital on hand. At the end of 2013 the corporation held $80.2 million of cash and investments and had more than $121 million in liquid capital and credit, according to its annual financial report. Mallott stressed Sealaska will develop a “network of trust” to fully understand the risks in whatever venture it enters on his watch and avoid past mistakes. “Historically, we’ve purchased assets within industries that we didn’t have a full understanding of and it’s led to issues, so the learning and gaining experience and creating a network of folks that work within different industries, that’s going to be the key in getting a deal done sooner rather than later,” Mallott said. “And that’s what we’ve been doing the last year and a half.” The 2013 Sealaska Annual Report also detailed a very rough year. Sealaska posted a $35 million net loss that year. Without natural resource revenue sharing from the other Native regional corporations, the final losses would’ve been much worse — $52.2 million in operational losses. Chris McNeil Jr., president and CEO at the time, attributed the losses primarily to one of its construction firm’s losses that offset profits in other businesses. Combined with an internal restructuring that touches many branches of the corporation, Mallott said the acquisition, when it comes, will be a “turnaround moment” for Sealaska. “When you think about the want to be around 100 years from now, let alone 500 years from now — all those structural things you need to be sure of and we think now is the right time,” he said. “We’re doing both; we’re actively looking and we’re structurally improving Sealaska.” Elwood Brehmer can be reached at [email protected]

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