Elwood Brehmer

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]

Power cost debate reaches from RCA to Legislature

Changes are coming to the regulations that guide Alaska’s electric utilities. Where those changes come from and how broad they are will be decided in the next six months, but nothing appears to be off limits. In the Legislature, House Bill 78 is being scrutinized by the House Energy Committee. In the Regulatory Commission of Alaska, draft rules would bring state regulations more in line with Federal Energy Regulatory Commission requirements that guide utilities in the Lower 48. The RCA has direct oversight of Alaska utilities and power producers because the state’s power grids are separate from the Lower 48 network that traverses state lines. HB 78 sponsor Tammie Wilson, R-North Pole, contends her bill would spur private investment in Alaska’s renewable and nontraditional power generation. Wilson says it would level a regulatory playing field that has been tilted towards utilities for more than 30 years and provide “open access” to Alaska’s transmission lines, particularly the Railbelt grid. The legislation would direct the RCA to establish a standard tariff for Railbelt transmission that now has numerous tariffs due to fragmented ownership of the system by regional utilities. Tacking multiple tariffs on power being sent through the system leads to what is known as “rate pancaking” and can make transmitting once-economic power unfeasible. Advocates of the bill are quick to note that much of the Railbelt transmission infrastructure has been paid for by the state over decades, and therefore claim utilities should not be able to charge individual tariffs. A potentially major matter the RCA has taken up deals with how the cost of power generation is defined. It all comes down to “average” versus “incremental.” The Alaska Independent Power Producers Association, a group of nine companies that produce small-scale power or otherwise promote and work in the industry, insists the state’s utilities — again with an emphasis on the large utilities in the Railbelt — need to calculate power cost on an incremental basis. That would mean determining which generation source they use is the most expensive and requiring them to purchase power from another entity if it can be produced cheaper. Currently, most utilities calculate their average power cost across all generation platforms as the cost another power source would need to beat, also known as their avoided cost. The RCA put a draft rule out for public comment March 4 that would, among other things, most notably defines avoided cost as incremental. It is out for public comment until April 3. “This rulemaking has the opportunity to open the door to the kind of private investment that will help shape and expand Alaska’s energy system for the next 30, 40, 50 years,” Teresa Clemmer, an attorney for Alaska Environmental Power, testified to the RCA. Alaska is the only state in the country that adheres to the average avoided cost structure, she said. Without the change, independent producers cannot get the long-term purchase agreements needed to secure private financing for generation infrastructure, the producers claim. In concert with the rule, HB 78 would push utilities to purchase power from an independent source when the cost of that power is “at or below the utility’s avoided cost,” according to an analysis of the bill from Wilson’s office. The Alaska Railbelt Cooperative Transmission and Electric Co., a consortium of Railbelt utilities known as ARCTEC, insists the legislation is duplicative to what the RCA is doing and attempts to solve problems best left to energy regulatory experts. The draft rule was spurred by a proposed rulemaking docket submitted by Alaska Environmental Power — the Delta wind farm — which has been haggling with Golden Valley Electric Association for years over a long-term power purchase agreement. AEP owner Mike Craft has a two-megawatt sale contract in place with the Interior utility and has said repeatedly that he wants to expand his two-turbine wind farm, but can’t without a larger incremental cost-based contract that Golden Valley won’t agree to. Craft says Golden Valley chooses to spurn wind power and burn more expensive fuel oil to retain control of its generation. Cook Inlet Region Inc. energy development director Suzanne Gibson said to the RCA that the Southcentral Alaska Native corporation supports HB 78 and a change to incremental avoided cost rules. She said CIRI couldn’t expand its Fire Island Wind project because it could not find a buyer for the power, despite the fact that the cost of the power came in below the incremental avoided cost of most Railbelt utilities. “The lack of a regulatory framework and a mandate regarding fair consideration and integration of independent power is the primary barrier preventing successful development of Phase 2 (of Fire Island),” Gibson said. Golden Valley and other utilities say it’s not nearly that simple. They generally agree that the tariff issue needs to be resolved and say they’ll always buy the cheapest power. However, integrating a small, often highly variable power source into a large grid can be prohibitively expensive, the utilities assert. Mike Wright, Golden Valley’s vice president of transmission and distribution testified to the House Energy Committee that all the Railbelt utilities offer open access to the transmission system. Golden Valley doesn’t charge integration costs to producers less than two megawatts, he said, and they can choose between paying a quarterly adjusted tariff or negotiating a long-term rate. Utilities buying power from a variable, or non-firm, source must produce back-up power to offset fluctuations in generation from a source such as wind, he said. That can even lead to excess generation during peak production times. ARCTEC CEO David Gillespie told the House committee that avoided cost varies “minute to minute, hour to hour, day to day,” as utilities adjust production for demand and therefore is difficult to accurately project long-term, as small producers need. “The utility is required to make an estimate about that avoided cost over the next 20 years and about the only thing you can say about that estimate is that it will be wrong,” Gillespie said. Thus, utility shareholders end up taking the risk associated with a long-term purchase contract, he said.Matanuska Electric Association General Manager Joe Griffith said in an interview the incremental avoided cost concept “simply won’t work” because independent producers will be able to claim a utilities highest cost generation option, whether it’s in use or not, is the avoided cost they need to beat. Utilities are always happy to buy truly cheaper power, he said, given they work on such small, and regulated, return margins. MEA’s annual rate of return is less than 5 percent, according to Griffith. “(The independent producers’) idea of open access means no cost is not the way it works,” he said. Docket timelines HB 78 would also shorten the RCA’s statutory rulemaking timeline from two years to one. Shortening the rulemaking process would benefit projects that require quick resolution for private investment, according to Wilson’s office, and would also be consistent with the state’s energy policy to streamline regulatory practices. RCA Chair Bob Pickett testified to House Energy that the commission receives between 700 and 900 filings per year and the current requirement was set by the Legislature out of necessity. “Ideally, we would like to get a rulemaking process to its conclusion sooner than the two-year deadline and that would be entirely possible if we didn’t have the workload we currently have,” Pickett said. Moving complicated dockets quickly while still giving each side ample opportunity to state a case is very challenging, if not nearly impossible, according to Pickett. Elwood Brehmer can be reached at [email protected]

Long-awaited Sealaska land transfer is now complete

JUNEAU — It took 43 years, two months and 17 days since the passage of the Alaska Native Claims Settlement Act, but Sealaska Inc. 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. The land was owed to the Alaska Native corporation under ANCSA. Sealaska relinquished selection rights to another 327,000 acres as part of the transfer. In total, Sealaska now holds 360,000 acres in Southeast Alaska. 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. Not only does the land 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. 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.   Elwood Brehmer can be reached at [email protected]

Several options on table for delivering gas to Fairbanks

JUNEAU — There are several options before the Interior Energy Project, but moving slowly is not one of them. Project lead Bob Shefchik said at the Feb. 25 Alaska Industrial Development Authority board meeting that within the next month his team would look to draft a short-list of two or three ways to get natural gas to the Interior. Since AIDEA killed the original North Slope liquefied natural gas trucking plan around the New Year, Shefchik said new project proponents have “come out of the woodwork” with ideas on how to lower energy costs in the Fairbanks area. Shefchik is the former board chair of the Fairbanks North Star Borough-controlled Interior Gas Utility. He said that while the primary investigation will be on LNG feeding the region either from the Slope or Cook Inlet, the Interior Energy Project team will keep an open mind. “If gas comes in a Zeppelin we will look at gas in a Zeppelin, but we will focus on the entire supply chain and the community cost of gas,” a view of the project that was missing before, Shefchik said. AIDEA’s new project team has the resources of the governor’s office, Revenue, Natural Resources, and Commerce departments committed to getting a cleaner, lower-cost energy option to the Interior. Gov. Bill Walker introduced parallel bills to the House and Senate that would expand AIDEA’s ability to use Interior Energy Project financing, now dedicated to a North Slope source, on another plan. “It’s our job now to bring you guys forward a project and our sole focus is to do that,” Shefchik told the AIDEA board. If gas, once liquid or otherwise, can be delivered to Interior residents at about $15 per thousand cubic feet, or mcf, it could save area households thousands on their home heating expense each year and be cost about half the energy equivalent of $4 per gallon fuel oil. The challenges to getting Cook Inlet gas north at a reasonable price are contrary to a North Slope source. The Slope has a stable, inexpensive gas supply and high capital and transportation costs, the opposite of Southcentral. Fuel oil prices have fallen significantly with the price of oil over the last five months, which has strained the immediate viability of the project. However, oil prices are expected to rebound and the economic feasibility of gas to Fairbanks could easily improve as the project moves along. Lower oil prices are seen only as a respite while the Interior Energy Project unfolds. The goal is still to get first gas to the Interior by the fall of 2016. Expanding the LNG trucking operation currently owned by Pentex Alaska Natural Gas Co. would be the most straightforward approach to adding to Interior’s gas supply. Pentex subsidiaries Titan Alaska LNG and Fairbanks Natural Gas handle the midstream and downstream portions of the gas supply chain, respectively. Fairbanks Natural Gas President Dan Britton said in an interview that Titan’s Point MacKenzie LNG plant already runs virtually at its capacity of about 1 billion cubic feet, or bcf, of gas per year, so growing the gas supply would mean expanding the plant. LNG from the Titan plant serves about 1,100 Fairbanks Natural Gas customers in the heart of the city. Adding capacity to the plant would mean adding a new LNG train — what amounts to a completely new liquefaction facility. Britton said lower capital costs at the Southcentral plant mean it could likely be expanded incrementally with a couple 3-bcf trains as Interior gas demand ramps up to 6 bcf over several years. He estimated each new LNG train could be bought, shipped from the Lower 48 and installed for about $30 million apiece. With support infrastructure, such as a maintenance shop and control room already in place, integrating a new train or two is not an exhaustive proposition. “It’s those types of things that don’t seem like a lot, but cost-wise add up very quickly,” Britton said. “(Having a system in place) really simplifies the installation and the costs associated with installation.” Simply being in Southcentral helps a great deal, too. AIDEA’s North Slope project partner MWH Global Inc. originally pitched a 9-bcf North Slope plant for about $200 million. As the engineering process moved along the plan shrunk to a 6-bcf plant with a bare-bones construction cost of nearly $230 million. Britton said the site at Point MacKenzie is 17 acres, ample space for two larger LNG trains. AIDEA’s North Slope gravel pad is about 10 acres. Adding plant capacity would mean adding another transmission pipeline, he said, but with an existing right-of-way to Enstar Natural Gas Co.’s nearby off-take point, that shouldn’t be an issue. Another small bonus of the Point MacKenzie plant is its position on Enstar’s system before the gas is odorized, meaning it doesn’t need to be cleaned. The biggest challenge could be getting the expansion done in time. Lead-time on a 3-bcf train is usually about 14 months, according to Britton. He said a downturn in the market has opened some production slots previously occupied by other projects, but it would still likely take a year to get a train to Alaska. Most of the process engineering could be leveraged from other projects, meaning pre-purchase work would probably take several weeks at most, Britton said. From there, the detailed engineering would be done while the train is being built. When the order for a train would be placed depends on when, or if, the sale of the Titan plant to Hilcorp subsidiary Harvest Alaska is approved. Attorney General Craig Richards has said he wants to investigate the pending sale agreed to last November for anti-trust concerns. The Regulatory Commission of Alaska typically handles such matters on its own. A Department of Law spokeswoman said she could not comment on a pending investigation, but Britton said a final close date between Pentex and Harvest Alaska has been pushed back from July 15 to Sept. 30 at Richards’ request. The RCA’s decision is expected before Sept. 12. If it takes to the end, time will be squeezed to get first gas to the Interior in late 2016 from the Titan — or Harvest — plant. Harvest Alaska has said the company is “actively pursuing” expansion within 18 months if it acquires the LNG plant and Britton said they have told him the same thing. The agreement between Pentex and Harvest includes a 10-year supply contract for LNG delivered to Fairbanks for $15 per mcf equivalent. That does not include regasification and distribution costs to customers. Amassing an LNG trailer fleet would be done while waiting for the LNG train. The trailers — about $240,000 each — usually require about a six-month lead-time for delivery. Titan Alaska LNG runs two truck-trailer rigs to supply Fairbanks’ current gas demand. The possibility of sending LNG north via the Alaska Railroad has received greater attention since the focus of the Interior Energy Project shifted to the south. Britton said he believes rail transport will likely play a role in future LNG transport, but what exactly the transportation system will look like remains unclear. A little pipeline Sen. Peter Micciche, R-Soldotna, believes a small pipeline from Southcentral to Fairbanks is the way to go. An eight-inch, flexible steel pipeline could be laid for between $297 million and $405 million, he said in an interview March 2. AIDEA has roughly $280 million available from the $332.5 million Interior Energy Project financing package in Senate Bill 23. Micciche said he has not seen an “all-in” cost that brings gas to residents at lower than $18 per mcf. “What you keep hearing is little pieces of the project that sound reasonable. You put them all on a ledger sheet and add them up and you’re at the cost of an eight-inch, flex-steel pipeline from Big Lake to Fairbanks,” he said. “Now do you want to fiddle around with all those handling costs for years or do you want to deliver gas the way everyone else does to a market the size of Fairbanks.” Micciche knows LNG; he is the superintendent of ConocoPhillips’ LNG export facility in Nikiski. A pipeline could be done as quickly as expanding LNG shipments, Micciche said, as soon as a right-of-way is secured. He suggested sharing the Alaska Railroad’s right-of-way or the Department of Transportation’s Parks Highway route. He proposed a pipeline to the north shortly after AIDEA announced its intent to purchase Pentex. “This makes (the Flint Hills oil refinery) viable again; LNG doesn’t,” Micciche said. “So the railroad can fiddle around with a few cars of LNG or it can go back to the thousands that it moves when Flint Hills is back in production — its single largest customer (before the refinery closed).” Shefchik said during the AIDEA meeting that his team had meetings scheduled with Enstar and would fully vet Micciche’s proposal independent of other ideas. Alliance says ‘no’ Alaska Support Industry Alliance President Kevin Durling sent a letter to AIDEA Executive Director Ted Leonard Feb. 23 asking the state financing organization to reconsider its plan announced in late January to buy Pentex. Durling wrote that private companies are investing in projects to meet Fairbanks’ energy needs and that AIDEA’s entrance to the market sets a “dangerous precedent” of government competing with private enterprise. “AIDEA has already shown in their previously selected (North Slope) LNG project that they are not able to choose ‘economically viable winners.’ Their initial involvement and subsequent pivot to (Cook Inlet) LNG and the purchase of Pentex will likely delay solving the Fairbanks energy issue,” he wrote. AIDEA has said it would act as a majority shareholder in Pentex and current business operations and management would remain in place. Negotiations of a definitive agreement between Pentex and the authority are ongoing, Shefchik said March 3. AIDEA board member and former state senator from Fairbanks Gary Wilken said the letter distressed him because the Alliance has shown little interest in the project to this point. “I don’t remember the Alliance being at any of our meetings,” Wilken said. Durling was traveling and could not be reached for further comment in time for this story. Wilken encouraged the business organization to learn about how much work has gone into the Interior Energy Project and offered to help anyone interested in the work gather more information. Elwood Brehmer can be reached at [email protected]

Legislation introduced to level the playing field on utility tariffs

JUNEAU — Alaska’s independent power producers and Railbelt utilities are now battling it out in the Regulatory Commission and the Legislature. House Bill 78, the Alaska Competitive Energy Act, would level the playing field between small, private power producers and utilities across the state, according to Rep. Tammie Wilson, R-North Pole, who sponsored the bill. Wilson testified before the House Energy Committee March 3. The state has put $212 million into power generation infrastructure over the last three years and a shift toward attracting private money for power projects needs to occur, according to Wilson. “What this is really about is using private dollars to bring us lower cost (power),” Wilson said, referring to the financing mechanisms independent power producers often use. The legislation would make the state “open for business” to power producers who currently are unable to negotiate fair power purchase agreements, or PPAs, she said, because of antiquated regulations. Alaska has outgrown the regulatory framework that supports a monopolized utility system and needs to open access to its transmission network, Wilson said. “We talk about access and fair a lot in this bill,” she said to the committee. The extensive bill tackles many of the issues the Alaska’s independent power producers have raised over the years while struggling to integrate into the state’s electrical grids. Independent power producers in the state have said some Alaska utilities are more concerned with controlling their own generation than buying the cheapest power. That mindset, combined with a regulatory structure that allows them to demand unreasonably low prices from independent power sources has stifled otherwise willing private investment, the producers claim. If it becomes law, it would clarify regulatory statutes and give the authority and directive to the Regulatory Commission of Alaska to make sure state requirements for electric transmission access are in line with federal law, according to the bill’s analysis. Further, HB 78 requires the RCA set “fair and nondiscriminatory” transmission tariffs, attorney for the Alaska Independent Power Producers Association, Teresa Clemmer said. Ownership of Alaska’s electric transmission infrastructure is broken up amongst the state’s utilities. This has led to what is known as “rate pancaking,” where tariffs, or wheeling fees, are added on top of each other as power is sent through the grid, particularly in the Railbelt, where six utilities own some portion of the intertie. It is one issue all parties agree needs to be resolved one way or another. Because the Railbelt grid was built primarily with state funds, Clemmer said the tariffs should be set at a flat rate. “These are public infrastructure systems similar to highways that everybody should have access to,” she said during her testimony to the committee. It is this such rate pancaking that prevented Cook Inlet Region Inc. from selling wind power from its Fire Island Wind farm in Anchorage to Fairbanks’ Golden Valley Electric Association, according to CIRI representatives. When CIRI couldn’t find a buyer for its power earlier last year the company missed a federal energy tax credit deadline and suspended its construction plan. CIRI had planned to spend $50 million to double what is now an 11-turbine wind farm. A section of HB 78 would limit utilities to charging tariffs that cover their maintenance cost on transmission lines and private equity return if they have made their own investments in the infrastructure. While the bill attempts to make sure the RCA has ample jurisdiction on most related matters, it limits the commission from ruling on bulk power sales outside of a utility service area. Clemmer said there is no need for consumer protection when power is sold to a mine or other large industrial customer. Overall, Clemmer believes HB 78 lays the groundwork for a Railbelt transmission company, or TRANSCO, which would lead investment in the rickety regional grid. Multiple studies over the past couple years have concluded that in excess of $900 million is needed to improve the reliability and performance of the Fairbanks to Homer intertie that in some places is connected through a single line. Large Midwest utilities American Transmission Co. and Xcel Energy Inc. have pitched ideas to legislators this session on ways they could lead a TRANSCO. Such a group would provide private investment in the Railbelt grid and encourage local utilities to invest rather than seeking state funding in a time when there is none to be had. The local utilities argue that the Railbelt grid itself is the problem, not the regulatory structure. Alaska Railbelt Cooperative Transmission and Electric Co. CEO David Gillespie testified that the Legislature needs to focus its efforts legislation that would lead to the formation of a unified system operator that would unilaterally govern the Railbelt. ARCTEC is a consortium of four utilities: Golden Valley Electric Association, Matanuska Electric Association, Chugach Electric Association and Seward Electrical System. Bringing Alaska law in line with the federal Public Utility Regulatory Policies Act, or PURPA, is unnecessary and the RCA is already working to resolve many of the issues HB 78 addresses, he said. On Feb. 27, the RCA opened a docket to address whether or not the Railbelt needs a system operator. The commission currently has two years to finalize a docket matter; HB 78 would cut that timeline to one year. “If our objective is to be more like PURPA, we don’t need a new law, we need to enforce the existing one,” Gillespie said. Chugach Electric CEO Brad Evans wrote in prepared testimony to the Energy Committee that duplicative legislation and regulations increase the potential for inconsistent policy decisions. He expects the RCA proceedings “will result in the same playing field under PURPA as found in other states and likely eliminate any concerns HB 78 might be intended to address,” Evans wrote. The detailed nature of HB 78 goes beyond what legislation should address; the finer points of regulation should be left to the RCA, according to Gillespie. He said ARCTEC believes that independent power producers can adapt to the market in ways larger utilities cannot and that it is in everyone’s interest to create a fair and open system — just that HB 78 is not the best way to get there. “We believe legislation should focus on what we are trying to accomplish and leave how we get there to regulators,” Gillespie said. Elwood Brehmer can be reached at [email protected]

State asks for air carriers' help to manage airports

The Statewide Aviation Division is asking Alaska’s air carriers for help to improve its airports during tight fiscal times for the state. A panel of Aviation Division leaders discussed the state’s plans at the Alaska Air Carriers Association meeting Feb. 27 in Anchorage and said they want to hear more concerns and ideas from airport users. When it comes to rural airports, Deputy Transportation Commissioner of Aviation John Binder said the department, along with the Aviation Advisory Board, is beginning to look at ways to close a revenue gap. The state’s rural airport system operates on about a $35 million budget every year, only about $5 million of which comes from airport revenue, he said. Adding landing fees, airport lease rates and raising the state’s general aviation fuel tax are a few revenue options Binder mentioned. The Department of Transportation and Public Facilities operates 247 rural airports across the state. The Fairbanks and Anchorage international airports are owned by the state but run as self-funded, enterprise organizations. Alaska imposes a 4.7-cent per gallon excise tax on aviation gasoline, or avgas. Some states do not tax avgas; while many have tax rates less than 10 cents per gallon. States with higher taxes on avgas often have refund options attached. Delaware has the highest avgas excise tax rate in the country at 23 cents per gallon and does not have a refund, according to the National Business Aviation Association. “There’s just a whole lot of (funding) options out there that airports across the country use that Alaska doesn’t use very much of because we’ve been blessed with a significant source of revenue for a lot of years,” Binder said, referring to state oil and gas revenues. Getting industry input on which options should the state should use will go a long way to determining what changes are made, according to Binder. The state receives in excess of $200 million each year for capital projects at its airports through the Federal Aviation Administration’s Airport Improvement Program. Since taking office, Gov. Bill Walker has asked his commissioners to investigate ways to cut up to 6.5 percent of non-formula spending from their respective department budgets. Binder said maintaining current levels of funding support and access to rural airports “is a must.” Within DOT, aviation is not likely to be cut like some other areas, he said. “Certainly, aviation is one of our priorities that must go on,” Binder said. He is not willing to cut Aviation Division personnel, he said, given the heavy workload staff already carry. Aviation Division Operations Manager Troy Larue asked the air carriers to notify staff at the airports they frequent about schedule changes. If airport managers know when to expect inbound flights they can better plan out runway maintenance, particularly when to use sand and deicing chemicals during winter, as another way to save dollars. “If there is a day you’re not going to fly we need to know that. A lot of times we’re beating runways into submission and then all of a sudden we don’t have any aircraft flying in,” Larue said. “What we really want to do is optimize all of our chemical usage, all of our equipment and manpower, so we need to shore up our communication with (the carriers) in order to be able to do our jobs more effectively.” Jeremy Worrall, airport maintenance and operations superintendent for DOT’s Northern Region, said the division is trying to improve the reliability of runway condition reporting at many rural airports. The state’s smallest airports are often run by low-bid, contracted personnel, not DOT staff, and have limited training to issue a Notice to Airmen, or NOTAM, he said. Upkeep is contracted at about 60 Northern Region airports. There is a push to make sure runway conditions are updated daily, but those NOTAMs also need to be vetted by division staff. Contractors are not full-time employees and are required to check airport conditions once each day and remove more than two inches of snow from the runway prior to the first scheduled flight. “It’s a pretty minimalist contract in terms of what we expect out of those folks,” he said. Worrall estimated that about 75 percent of Northern Alaska airports are able to keep NOTAMs current after recent division efforts to improve the reporting. Asking for more from contractors would probably push contract costs higher, something everyone wants to avoid when the state is facing a $3.5 billion-plus budget deficit, he said. Consequently, Worrall and Larue asked air carriers to self-report conditions to the division when need be. Larue said if operating hours are cut to save money at some airports, carriers might have to work with the division to make sure runways are safe and usable when staff aren’t around. Rural security Worrall asked all carriers, but particularly those who lease space at rural airports, to take extra time to secure their facilities. The Transportation Security Administration has increased its checks at small airports and has been finding oversights — unlocked doors after business hours that allow access to flight ramps being common — that are easily correctable. “We’re under a lot of pressure from TSA to make sure our airports are safe and secure,” Worrall said. Closing unmonitored quick access points is TSA’s biggest emphasis, according to Worrall. The division is pushing “lock and key” programs to assure buildings are secure. He noted that rural airports likely are not the focus of ill-intended individuals. However, once inside an airport with less-than-stringent security, a person can fly to Alaska’s international airports and beyond behind and remain behind security checkpoints. Elwood Brehmer can be reached at [email protected]

Army hears from Alaska on force cuts

It felt like a high school pep rally, but the result is far more important than any Friday night football game. Alaska leaders joined hundreds of Anchorage residents at the Dena’ina Civic and Convention Center Feb. 23 — an effort to demonstrating the state’s support of the military before a U.S. Army panel tasked with determining which bases should lose troops. Veterans gave impassioned testimony about the pride Alaskans feel for their military neighbors and how welcome the forces are in the state. Army Deputy Assistant Secretary John McLaurin, Col. Thomas O’Donoghue and Lt. Col. Larry Kimbrell also heard directly from Lt. Gov. Byron Mallott, Rep. Don Young and Sens. Lisa Murkowski and Dan Sullivan about the strategic importance of the state’s military installations. The crowd cheered and waved “Proud Veteran” and “Anchorage Rallies Behind Our Troops” signs after nearly every speaker during the public listening session, which lasted for hours into the night. Army delegations like the one visiting Anchorage Feb. 23 are in the midst of traveling to 30 bases across the country to see where force reductions should come from. The three traveled to Fairbanks and Fort Wainwright Feb. 24. The Army is working to reduce its troop strength under the Army 2020 Force Structure Realignment plan, a result of the 2011 Budget Control Act — also known as sequestration — passed by Congress. If the cuts are fully executed as proposed, the Army’s total force would shrink from 570,000 soldiers to 450,000 by 2017. Force reductions at Joint Base Elmendorf-Richardson are focused on the Army’s airborne 4th Brigade Combat Team, 25th Infantry Division, a potential loss of 5,000 troops and their 9,000 family members. According to the JBER website, the 4th Brigade is the only airborne brigade combat team in the Pacific Theater. It is also the newest airborne brigade combat team and one of only six in the United States Army. If 14,000 people left Anchorage the city’s population would shrink by 4.5 percent, according to Anchorage Economic Development Corp. President and CEO Bill Popp. Additionally, cutting the 1st Stryker Brigade at Fort Wainwright could mean Fairbanks would lose 16,000 more troops, spouses and children. Combined, Alaska would lose 4 percent of its population under the worst-case scenario. Direct Army wages account total more than $500 million in Anchorage, with additional payroll coming from civilian on-base positions, according to AEDC. Fairbanks Economic Development Corp. CEO Jim Dodson has said the military accounts for 30 percent of total employment in Fairbanks and North Pole. Murkowski said via live video feed from Washington, D.C., that she wants the Army to pause its troop reduction and noted it’s unlikely the branch will cut 30 brigades. But regardless of the size of the Army, Alaska is the place to focus its active force, she said. “Alaska remains an integral part of our ability to respond to the Pacific,” she said. Sullivan, a lieutenant colonel in the U.S. Marine Corps Reserve, sits on the Senate Armed Services Committee. He emphasized what Defense Secretary Ashton Carter, U.S. Air Force Chief of Staff Gen. Mark Welsh and other Army leaders have said about what Alaska means to national security. “Every single one of them has been talking in the last few weeks about how strategically important Alaska is,” Sullivan said to the Army panel. Sullivan and Young each referenced the late Army Brig. Gen. William “Billy” Mitchell, who is quoted as saying, “He who controls Alaska controls the world.” The benefits of the state’s location are undeniable. Ted Stevens Anchorage International Airport has become a global cargo hub because it is less than 10 hours by jumbo jet from 90 percent of the industrialized world. Alaskans tried to make sure that position is not lost on the military. Earlier on Feb. 23, Anchorage City Manager and retired Army officer George Vakalis noted during an Anchorage Chamber of Commerce event that Alaska’s installations are less than 12 hours from areas of international concern as far away as Afghanistan. Vakalis focused his remarks on the advantages Alaska provides rather than the negative socio-economic impact the force losses would have because pain will be felt wherever troops are pulled across the country, he said. He noted that troops can be moved between forts Richardson and Wainwright via two road routes and rail and that the Port of Anchorage — a strategic Department of Defense port — is “contiguous” with JBER. Alaska’s congressional delegation members and Vakalis all highlighted the 1.5 million acres of training grounds the state affords military forces. On top of that, Arctic training opportunities are limited elsewhere and the lessons learned can be taken worldwide, Sullivan and Vakalis said. “The principles applied to keeping soldiers alive in the Arctic apply to keeping soldiers alive in the desert,” Vakalis said. “Our troops here in Alaska can be sent worldwide. I’ve seen it; I’ve experienced it.” Lt. Gov. Mallott drove home the point that military personnel stationed in Alaska stay here after their service is up. The state’s veteran population is growing 5 percent annually, he said. Chugiak-Eagle River Chamber of Commerce Executive Director Susan Gorski said census data reflects former and current military feel about the Anchorage suburbs. “We are a hometown close to the bases. We are a great, family-friendly community,” Gorski said. “People have discovered that, and military people are staying here. The veterans numbers are quite stunning.” According to the 2010 census, 6 percent of the area’s workforce is active military and 21 percent of its total population of about 35,000 are veterans. The prospect of Army force reductions comes less than a year-and-a-half after the Air Force announced it had abandoned a plan to relocate a fighter squadron from Eielson Air Force Base in Fairbanks to JBER in Anchorage. The congressional delegation and leaders from both communities campaigned against the plan because of the economic toll it would take on the Fairbanks area and the added stress 1,500 more residents would put on Anchorage’s already limited housing market. Since, the Air Force has announced Eielson is a likely place for two new F-35 fighter squadrons, which could add some 2,000 residents to the area in the coming years. Elwood Brehmer can be reached at [email protected]

Midwest utility offers proposal to shore up Railbelt grid

A Midwest utility company hopes to help Alaska fix its strained Railbelt electric transmission system. Xcel Energy Inc. representatives presented to the House and Senate Energy committees on Feb. 19 about ways the company could facilitate private investment in new power lines for the region. Studies commissioned by groups including the Alaska Energy Authority have estimated $900 million to $1 billion worth of upgrades to Railbelt transmission lines is needed in the coming years to increase capacity and improve reliability. Utility leaders often point out that in some places only a single line connects the Railbelt intertie. Major transmission infrastructure upgrades in the past have been paid for at least partially with state funds. “There are two kinds of transmission problems and (the Railbelt) has both of them,” Alaska Railbelt Utility Cooperative Transmission and Electric Co. Executive Director David Gillespie said in an interview. ARCTEC, as it is commonly known, is a utility consortium made of Chugach Electric Association, Matanuska Electric Association, Seward Electric System and Golden Valley Electric Association. First among the problems, Gillespie said, is the aforementioned lack of transmission infrastructure; and second is how existing infrastructure is managed. The six area utilities each own portions of the overall system and add a tariff to power sent through their section of lines. This leads to what is known as “rate pancaking,” when electricity sent through multiple line sections is hit with multiple tariffs. While it is done for the right reasons — each utility is simply charging for use of its property — it can inhibit what otherwise could be an economic endeavor, Gillespie said. Such rate pancaking is a large reason why Cook Inlet Region Corp. could not make Phase 2 of its Fire Island Wind project viable, according to company representatives. The added tariffs did not make purchasing Fire Island Wind power feasible for Golden Valley Electric Association in the Interior, where electric generation is typically more expensive than in Southcentral. CIRI recently announced it has suspended plans to double the size of its 11-turbine wind farm off of Anchorage. Xcel’s plan would have the Minneapolis-based utility invest as a primary transmission company, or TRANSCO, in a Railbelt upgrade. The area utilities could then invest as much as they wanted and take an equivalent percentage ownership in the infrastructure, Xcel Vice President of Transmission Teresa Mogensen said. “We would propose that we could facilitate and lead that collaborative transmission ownership approach, but everybody maintains ownership of their own assets,” Mogensen said to the House Energy Committee. It’s a structure the company is currently implementing with utilities in the Dakotas, Minnesota and Wisconsin as part of a long-term transmission upgrade process. She said Xcel is willing to invest “to the extent that additional investment is desired.” Xcel could use its experience in pulling together multiple utilities run as public, cooperative, and private entities to expedite buildout, Mogensen said. A report on what this type of TRANSCO structure could mean for Railbelt is due to the Regulatory Commission of Alaska in late June. Cheryl Bredenbeck, a transmission investment director for Xcel, said alignment between policymakers, utilities and regulators was essential to the company’s similar projects Lower 48. Consensus between the three groups seems to be forming in Alaska as transmission reliability concerns continue to grow. Bredenbeck noted that in 2005 the Minnesota Legislature provided tax incentives to utilities that invested in transmission upgrades. Mogensen suggested Xcel would be a particularly good partner for a TRANSCO because it is a one-stop-shop for nearly every aspect of the extensive project. “We have in-house capability that is somewhat unique for electric utilities to carry our all aspects of the transmission investment — engineering, design, construction, planning — the whole array,” she said. Wisconsin-based American Transmission Co. has also expressed interest in developing a Railbelt TRANSCO. Mogensen said her company also has experience managing power from multiple generation sources, which could also be beneficial in unifying the Railbelt grid. Southcentral power is generated primarily from natural gas, but hydro, coal, oil and wind are used throughout the Railbelt. Each source has its own set of characteristics that must be melded into the grid. “We badly need additional transmission infrastructure,” Gillespie said. “We recognize that the state’s ability to fund that infrastructure surely isn’t what it used to be and that we’re going to be needing to look for new and more creative ways to finance that infrastructure. The introduction of entities like Xcel and (American Transmission Co.) are things we need to be taking a serious look at.” Each utility owning a percentage of the overall transmission infrastructure, rather than a defined segment, would likely require a governing body known as a unified system operator, or a USO. It would be made up of a board of industry experts. As Mogensen described: The Legislature sets energy policy and the RCA implements that policy. The function of the USO is to have independent system control that makes the most sense for the system as a whole without the influence of dominating special interests. The USO would dispatch the most economically viable power at any time to the extent possible. Such a system allows independent producers and utilities to live side-by-side, she said. Independent power producers in the state have contended some utilities have refused to buy economically viable power in order to keep control of the overall system. The utilities claim integrating small amounts of seemingly cheap power can be more expensive than the producers claim, particularly if the generation source is highly variable, such as wind. The RCA is handling a docket that proposes to change power purchase requirements for utilities and House Bill 78, currently in the House Energy Committee, would outline more a favorable regulatory framework for independent power producers. With distinct transmission ownership boundaries gone, the USO would set a single flat tariff and the money generated would be paid proportionally to the invested utilities. Gillespie said ARCTEC supports a unified system operator because it would eliminate rate pancaking and probably be required to successfully manage a TRANSCO. “Even without additional infrastructure (a USO) will allow improved economics within the system,” Gillespie said. However, keeping the board completely independent might be difficult in Alaska. “We believe that in a perfect world that all of the (USO) board members are independent because it is the clearest and most transparent way to do things,” Gillespie said. In the Lower 48, unified system operator boards are usually comprised of retired industry representatives from other states that have no vested interest in the participating utilities or power producers, according to Gillespie. He questioned how many such individuals are available in Alaska. At least initially, Gillespie said, he foresees a Railbelt USO board made up of equal parts utility, independent producers, consumer and other interests to keep a level playing field. Elwood Brehmer can be reached at [email protected]

Corps has $210 million plan for Nome port expansion

An expansion plan for the Port of Nome is starting to take shape. The U.S. Army Corps of Engineers Alaska District released a draft feasibility report Feb. 20 that outlines what it sees as a reasonable Arctic deep-draft port. For an estimated $210 million, the Corps’ tentatively selected plan would dredge Nome’s outer harbor to a mean depth of 28 feet. It also calls for demolishing a small breakwater at the end of the existing causeway and extending the causeway 2,150 feet. A 450-foot large vessel dock would then be constructed at the end of the causeway in the newly protected area. The large eastern breakwater would remain in place and the extended causeway would wrap around the end of it to expand the harbor. The harbor currently has a maximum depth of about 22 feet. “It’s a good day for everybody — for the city, for the state,” Nome Mayor Denise Michels said when the report was released. The general proposal is similar to one the city drafted in the 1980s, she said, and much of what went into the current iteration came from Nome Port staff. Sen. Lisa Murkowski commended the Corps for their work on the project in a release from her office and said a larger Arctic port could mean job growth for the Seward Peninsula. “Though this is just one step, it is what I am looking for out of this administration to leverage our role and responsibility as an Arctic nation, and invest accordingly,” Murkowski said. “We know other countries are making plans to seize the opportunities presented in the Arctic, and we must do the same.” While Nome is not north of the Arctic Circle, a Western Alaska port would likely be a hub for research, oil and gas support and emergency response vessels working in the Arctic. The cost of the project would be shared, with the federal government picking up $97 million of the work that could have national economic development benefits. Local or state interests would fund the remaining $113 million. Michels said the city would probably look to private partners to help fund construction. The latest report further narrows the focus of a study the Corps and state Transportation Department released almost exactly two years ago that chose Nome and nearby Port Clarence as the two best port locations of 14 sites Western Alaska sites reviewed. Corps of Engineers Alaska Chief of the Civil Works Division Bruce Sexauer said in an interview that Nome was selected because Port Clarence, despite having naturally deep water, has no shore-side infrastructure. He said ships already seek shelter from storms in Port Clarence and lay up there to wait for ice to change, for instance; it serves its purpose. Michels said the City of Nome would request the Corps further investigate dredging the harbor to 35 feet for larger vessels in the comments it will submit on the draft plan. A 30-day public comment period is open through March 23 and Sexauer said the Corps is interested in getting as much feedback on the proposal as possible. He said the Corps determined 28 feet to be sufficient for the vast majority of the industry support and response vessels are expected to call on Nome in the future. Additionally, it would be deep enough to get larger fuel and supply shipments into the Nome that could help curb shipping costs on goods in the city. “There’s a certain break point — if you go down to a certain depth you’ll be able to accommodate a certain number of vessels, and if you go to the next depth you’ll be able to accommodate more vessels,” Sexauer said. “At some point if you go deeper there are not going to be very many more vessels that are going to need to be accommodated.” Sexauer also noted that the inner harbor would also be deepened to 22 feet. Dredging deeper also changes who pays for it. The feds typically pay 90 percent of the cost for deepening navigation features up to 20 feet. That match shifts to a 75 percent federal, 25 percent non-federal for 20 to 45 feet. Under the current plan for Nome, the non-federal sponsor would pay $1.5 million of the estimated $8.3 million dredging cost, according to the report. Because it is an expansion plan of existing infrastructure, Sexauer said the environmental assessment work already done should satisfy National Environmental Policy Act requirements and a full-fledged environmental impact statement likely won’t be needed. From here, the plan needs approval from Corps of Engineers leadership and funding authorization from Congress — how long that could take is unknown. Michels said increased ship traffic through the Bering Strait in recent years has upped the need for more maritime infrastructure. “The need is now, so the sooner the better we can do this the more the global shipping community can benefit from it,” she said. Elwood Brehmer can be reached at [email protected]

AGDC board nominees include former lobbyist

Gov. Bill Walker made three Alaska Gasline Development Corp. board appointments Feb. 19. Walker selected Rick Halford of Dillingham, Joe Paskvan of Fairbanks and Hugh Short of Anchorage to serve on the AGDC Board of Directors. At the same time, the governor said he would seek to expand a state-backed pipeline plan developed by AGDC as a backstop in case a large gas pipeline and liquefied natural gas project fails to proceed. AGDC is also involved in the large gas project in a partnership with North Slope producing companies. Halford spent 24 years in both chambers of the state Legislature and retired as Senate president in 2003. He was co-chair of Walker’s transition team and he is also a former lobbyist for the Alaska Gasline Port Authority, the gas pipeline proponent group Walker’s law firm represented in its effort to bring North Slope gas to a port in Valdez. Halford was paid $100,000 by the port authority in 2005 for work during the legislative session. Short is well known in Alaska financial circles and is a former chair of the Alaska Industrial Development Authority board and a former mayor of Bethel. He is the chair and CEO of Pt Capital, an Anchorage-based Arctic investment firm. Paskvan is an attorney and former Democrat state senator, who served from 2009-2012. AGDC is the state corporation tasked with developing Alaska’s natural gas resources through a North Slope pipeline project. “I am pleased to welcome these three talented Alaskans to our team. Bringing our natural gas to Alaskans and the world market is one of my top priorities as governor,” Walker said in a formal statement. “I am confident that with these additional members, the AGDC board is on track to make that happen.” In January, the governor dismissed former state legislator Drue Pearce, Al Bolea, a retired BP manager, and Richard Ranibow, a former ExxonMobil pipeline project manager, from the board. At the time Walker said he wanted a transparent board and ordered new members from his administration — Department of Labor Commissioner Heidi Drygas, and Acting Commerce Commissioner Fred Parady — not to sign confidentiality agreements. He retained public members Dave Cruz, owner of Cruz Construction Inc., and attorney John Burns. Walker said he is not concerned that his appointees do not have experience specifically in the oil and gas industry. He said he wanted longtime Alaskans that understand the needs of the state. “Our expertise is not going to be board driven,” he said. “Our expertise is going to be administration driven — from the administration of AGDC.” Leaders of the state House of Representatives who were the architects of the Alaska Gasline Development Corp. reacted with caution to Walker’s appointments. “As with any appointments subject to legislative confirmation, we’ll conduct a thorough examination of these new appointees, their experience, and their qualifications,” House Speaker Mike Chenault, R-Nikiski, said in a statement. “We went to great lengths in the legislature to ensure that AGDC would be as far removed from politics as possible, having learned from past projects that real success is built not on hopes and dreams, but on technical, commercial, and financial know- how, with decisions driven by economic realities and not by politics.” Rep. Mike Hawker, R-Anchorage, said, “It is a daunting task to replace the unparalleled expertise the original board members brought to AGDC. I look forward to hearing from the administration the nature of its process used in these appointments, and better understanding the source of each candidate’s qualifications.” Senate Resources Chair Cathy Giessel, R-Anchorage, noted in a press release that, by law, the individuals are selected for their experience in disciplines critical to the corporation’s success, including finance, pipeline construction, operations and marketing, and large project construction management. “I look forward to conducting our usual objective interviewing of the new AGDC Board appointees,” Giessel said in the release. “As with all gubernatorial appointees, my committee and I will focus on the statutes that define the expertise and experience needed for the position. We will evaluate the capacity of the person to conduct the work of the AGDC board.” Elwood Brehmer can be reached at [email protected] Journal reporter Tim Bradner contributed to this report.

Walker appointments to AGDC board include former Alaska Gasline Port Authority lobbyist

Gov. Bill Walker made three Alaska Gasline Development Corp. board appointments Feb. 19. Walker selected Rick Halford of Dillingham, Joe Paskvan of Fairbanks and Hugh Short of Anchorage to serve on the AGDC Board of Directors. At the same time, the governor said he would seek to expand a state-backed pipeline plan developed by AGDC as a backstop in case a large gas pipeline and liquefied natural gas project fails to proceed. AGDC is also involved in the large gas project in a partnership with North Slope producing companies. Halford spent 24 years in both chambers of the state Legislature and retired as Senate president in 2003. He was co-chair of Walker’s transition team and he is also a former lobbyist for the Alaska Gasline Port Authority, the gas pipeline proponent group Walker’s law firm represented in its effort to bring North Slope gas to a port in Valdez. Halford was paid $100,000 by the port authority in 2005 for work during the legislative session. Short is well known in Alaska financial circles and is a former chair of the Alaska Industrial Development Authority board and a former mayor of Bethel. He is the chair and CEO of Pt Capital, an Anchorage-based Arctic investment firm. Paskvan is an attorney and former Democrat state senator, who served from 2009-2012. AGDC is the state corporation tasked with developing Alaska’s natural gas resources through a North Slope pipeline project. “I am pleased to welcome these three talented Alaskans to our team. Bringing our natural gas to Alaskans and the world market is one of my top priorities as governor,” Walker said in a formal statement. “I am confident that with these additional members, the AGDC board is on track to make that happen.” In January, the governor dismissed former state legislator Drue Pearce, Al Bolea, a retired BP manager, and Richard Ranibow, a former ExxonMobil pipeline project manager, from the board. At the time Walker said he wanted a transparent board and ordered new members from his administration — Department of Labor Commissioner Heidi Drygas, and Acting Commerce Commissioner Fred Parady — not to sign confidentiality agreements. He retained public members Dave Cruz, owner of Cruz Construction Inc., and attorney John Burns. Walker said he is not concerned that his appointees do not have experience specifically in the oil and gas industry. He said he wanted longtime Alaskans that understand the needs of the state. “Our expertise is not going to be board driven,” he said. “Our expertise is going to be administration driven — from the administration of AGDC.” Leaders of the state House of Representatives who were the architects of the Alaska Gasline Development Corp. reacted with caution to Walker’s appointments. “As with any appointments subject to legislative confirmation, we’ll conduct a thorough examination of these new appointees, their experience, and their qualifications,” House Speaker Mike Chenault, R-Nikiski, said in a statement. “We went to great lengths in the legislature to ensure that AGDC would be as far removed from politics as possible, having learned from past projects that real success is built not on hopes and dreams, but on technical, commercial, and financial know- how, with decisions driven by economic realities and not by politics.” Rep. Mike Hawker, R-Anchorage, said, “It is a daunting task to replace the unparalleled expertise the original board members brought to AGDC. “I look forward to hearing from the administration the nature of its process used in these appointments, and better understanding the source of each candidate’s qualifications,” Hawker said. Elwood Brehmer can be reached at [email protected] Journal reporter Tim Bradner contributed to this story.    

Issues unresolved after meeting with Jewell

KOTZEBUE — Alaska legislators left Kotzebue unsatisfied after a Feb. 16 meeting with Interior Secretary Sally Jewell. Attempts by the Obama administration to limit North Slope oil and gas development were the focus of the roughly hour-long meeting. Members of the bipartisan — though mostly Republican — group said they repeatedly expressed their frustration to Jewell about the Interior Department push to permanently lock up the Arctic National Wildlife Refuge’s coastal plain from oil and gas development. Rep. Charisse Millett, R-Anchorage, said she thought Jewell was defensive in the meeting and that the president’s recommendation through the Interior Department to designate the coastal plain as wilderness “misses the mark” because the state has pushed for decades to develop, or just explore the area. The wilderness designation would prevent all development activity and restrict motorized transportation in that portion of the refuge. Alaska cannot survive financially without being able to access its resources, said Sen. Mike Dunleavy, R-Wasilla. “The very concept of the state is predicated on the development of natural resources,” Dunleavy said in a press conference with other legislators. “We barely became a state because there were those in (Washington, D.C., before statehood) that didn’t think we could make it on our own.” Bethel Democrat Sen. Lyman Hoffman said he told Jewell that developing the state’s resources would help provide funding to improve living standards and social ills in rural Alaska. The Interior Secretary traveled to Northwest Alaska for two days and met with state legislators, Gov. Bill Walker and the Alaska congressional delegation. The impetus for the trip was a private Feb. 17 meeting with the Alaska Federation of Natives board of directors. For her part, Jewell said to reporters prior to her meeting with the legislators that Congress had the opportunity to approve oil and gas exploration in the late 1980s but declined to do so. President Obama and the Interior Department have made the wilderness recommendation and now it’s up to a Republican Congress, which is at odds with the president over his resistance to approve the Keystone XL pipeline in the Lower 48, to decide what it wants to do with ANWR’s coastal plain. Jewell said she believes she is an easy target, but that there is “a lot of pain being felt in Alaska” right now because of the impact falling oil prices have had on the state’s budget and savings. Recent Outer Continental Shelf oil and gas lease sales and the approval of ConocoPhillips’ Greater Moose’s Tooth-1 construction plan in the National Petroleum Reserve-Alaska as proof of the administration’s support for “responsible and safe oil and gas development,” she said. Oil prices are likely to rebound and ease the state’s budget problems, according to Jewell. “The Arctic National Wildlife Refuge is not going to solve the dependency of the state on a commodity,” she said. The administration has no plans to use the Antiquities Act, a law that protects archeological sites as public resources, as a means of protecting the ANWR coastal plain. Senate President Kevin Meyer, R-Anchorage, said the state has a long-term production problem, not just an immediate oil price problem. North Slope Borough Mayor Charlotte Brower joined the nine-member delegation state legislators in their meeting with Jewell. Brower said she is unhappy with attempts by the administration to lock up portions of NPR-A originally designated for development. She said the Secretary needs to spend a week in each region of the state to understand Alaska and along with the legislators, invited President Obama for an extended visit. Along with Brower, Millett criticized the federal governments reluctance to spend money to clean up leaking legacy oil wells left on the Slope after exploratory drilling done in the 1940s. Millett went as far as to say it’s “hypocrisy” for Jewell to limit development other places while refusing to solve an ongoing pollution problem cause by the feds years ago. “Frankly, if she cares about the environment she’d clean up the legacy wells,” Millett said. The legislators said the next step is to strengthen their relationship with Sens. Lisa Murkowski and Dan Sullivan and Rep. Don Young  — to see what each group could do to make the state’s voice louder. Elwood Brehmer can be reached at [email protected]

FAA releases draft unmanned aircraft rules

Unmanned aircraft operators were given an outline for flight standards Feb. 15 when the Federal Aviation Administration released its proposed rules for drone flights. The draft regulations are a major step towards integrating widespread commercial use of unmanned aircraft in the national airspace. Also known as UAS, unmanned aircraft system flights have been approved by the agency for several years on a case-by-case basis. The Small UAS Notice of Proposed Rulemaking expands on the commonalities of approved flights. Currently, UAS flights are allowed only for nonprofit ventures for research and educational purposes and a very select group of commercial entities, primarily film companies. “Technology is advancing at an unprecedented pace and this milestone allows federal regulations and the use of our national airspace to evolve to safely accommodate innovation,” Transportation Secretary Anthony Foxx said in a formal statement. Common UAS would be limited to craft less than 55 pounds with flights restricted to line-of-sight operations, constraints found in most certificates of authorization, or COAs, issued by the FAA for flights today. ConocoPhillips obtained the first commercial COA in 2013 for research in the Chukchi Sea and BP got the first overland commercial authorization from the FAA in May 2014 for North Slope surveillance. “We have tried to be flexible in writing these rules. We want to maintain today’s outstanding level of aviation safety without placing undue regulatory burden on an emerging industry,” FAA Administrator Michael Huerta said in a release. Congress mandated the FAA to draft regulations for commercial UAS flights by the end of this year when it passed the FAA Modernization and Reform Act in 2012. UAS pilots, referred to as operators by the FAA, would have to pass an agency aeronautical knowledge test and be at least 17 years of age. Subsequent recurring operator tests would be required every two years. After vetting by the Transportation Security Administration, operators would receive a permanent certificate with a “small UAS rating,” much the same as the existing certifications pilots receive, according to the proposed rule. While many UAS guidelines such as size and flight distance regulations were predictable based on standards found in most COAs, requirements for operators were a big unknown in the industry. Airworthiness certification would not be required under the proposed rule, a departure from most COAs. However, UAS will likely need to be registered by the FAA similar to general aviation aircraft. Elwood Brehmer can be reached at [email protected]

Walker unveils Medicaid expansion plan

Increasing Medicaid access to 41,000 more Alaskans will save the state several million dollars per year according to Gov. Bill Walker’s administration. In the first year of expansion, fiscal year 2016, the State of Alaska will save $6.1 million based on figures in a Department of Health and Social Services report. “Medicaid expansion helps Alaskans and healthy Alaskans is a healthy economy,” Walker said during a Feb. 6 press conference. “It’s not about just bringing revenue and jobs; it’s about doing what’s the right thing to do.” The savings are expected to come from shifting health care costs the state currently pays that could be covered by federal Medicaid dollars. For instance, the Alaska Department of Corrections should save $4.1 million next fiscal year by having federal Medicaid funds pay for inpatient treatment of inmates done outside of a correctional institution. Those services are covered if the inmate is otherwise eligible for Medicaid, according to the DHSS report, “The Healthy Alaska Plan: A Catalyst for Reform.” Walker said he hopes to launch the plan sometime in July; the state fiscal year begins July 1. More than 20,000 new enrollees are expected in the 2016 fiscal year and the number should plateau at about 26,500 by 2018. The Alaska Mental Health Trust Authority will “graciously” cover about $1.3 million in administrative costs, including staff to cover enrollment and expanded payments, in the first year, Health and Social Services Commissioner Valerie Davidson said. That will allow the DHSS to develop a plan to either take on the work internally or contract it out. “Thanks to the Mental Health Trust Authority; they have funded the opportunity for us to engage stakeholders and look at what other states are doing so we can develop an Alaska plan,” she said. The federal government will cover all of the expansion cost projected at $145.4 million in fiscal year 2016 other than administrative expenses. In 2017, a $3.8 million state match will be required to get $170.6 million from the federal government. By fiscal year 2021 the match approaches 10 percent; the state will contribute $19.5 million of the overall cost estimated at $224.5 million, the report states — if the Legislature signs off. As the state’s appropriators, legislators must approve the receipt and expenditure of all funds, regardless of their source. Some legislators hesitant about expansion are also eager to reform the current state system and the two “go hand-in-hand,” Davidson said. Technical changes are needed to state statutes to keep Medicaid in line with the Affordable Care Act, she said, providing an opportunity for larger changes once the expansion is in place. Medicaid expansion will increase access to health insurance for an estimated 41,910 low-income Alaskans. These are adults from 19 to 64 years of age who are currently not eligible for Medicaid — those not caring for dependent children, not disabled or pregnant, and who earn at or below 138 percent of the Federal Poverty Level, or FPL, for Alaska. The Alaskans who will be eligible for Medicaid through the expansion live in all areas of the state. Expansion will benefit single Alaskans without dependent children earning up to $20,314 a year, and married couples without dependent children earning up to $27,490 per year. Once these Medicaid recipients in the expansion population achieve a higher income they will be able to transition to the Health Insurance Marketplace and receive a subsidy to help afford coverage until their income reaches 400 percent of the FPL. Davidson said she has been told most legislators could be on board if the administration can show that expanding Medicaid would be net revenue neutral to the state general fund; the plan laid out Feb. 6 indicates there will be savings. A statement from the Alaska Chamber said the business group conditionally supports the plan, and Medicaid expansion must be tied to reform. The state’s current system covered $481 million of services in 2013 not required by the federal government, according to the Alaska Chamber. “Alaska businesses will pay for uninsured Alaskans through the proposed Medicaid expansion or through increased health care costs. The Alaska Chamber supports Medicaid expansion for this reason,” the statement read. “The Chamber’s support for Medicaid expansion ends when the federal funding ends or falls below its initial promise. Our support also ends if expansion exacerbates the state’s fiscal situation.” A push for Medicaid expansion during his campaign was a key contrast between Walker, a Republican turned independent, and former Republican Gov. Sean Parnell, who rejected expansion. Even in 2021, when the state could be paying $19.5 million in match funds and covering staffing and paperwork fees, The Healthy Alaska Plan report projects nearly $3.3 million in overall savings because of increased federal grant opportunities and savings in the Department of Corrections alone growing to $7 million annually. Expansion will come as the state’s current Medicaid payment system is in shambles. The state is under contract with Xerox Corp. to process roughly $1.3 billion of Medicaid payments through its Medicaid Management Information System, but problems in the system have delayed payment and forced the state to advance payment to some health care providers, although this most likely to ultimately paid by the federal government so that the state’s outlay is refunded. According to Department of Law, Xerox has failed to solve the Medicaid information system problems and as of August the State of Alaska had paid more than $154 million to doctors and other health care providers in need of payment for their services. Walker said he thought about changing Medicaid payment provider but determined enough improvements are being made to keep Xerox in place. The governor gets updates on the situation through weekly reports, he said. “Every indication I’ve received is that we’re on the improvement side of the problems,” Walker said. “We are very focused on, and we have zero tolerance for any unnecessary delays.” Davidson said the belief is the payment delays and other application backlogs should be resolved by the July rollout. Elwood Brehmer can be reached at [email protected]

Railroad cuts PTC ask, aims to finance remaining need

The Alaska Railroad Corp. is using some strategic financing to cut its fiscal year 2016 capital request to $18 million as it looks for ways to finance Positive Train Control. Before the legislative session, the railroad was preparing to ask the Legislature for $53.5 million over three years, with a $21.8 million request for the 2016 fiscal year. Refinancing debt accrued in 2006-07 should allow the railroad to bond for $37 million if it gets $18 million this session, Alaska Railroad President and CEO Bill O’Leary told the Joint Transportation Committee Feb. 3. Refinancing the debt and pushing its bond maturity out from 2021 to 2025 would give the railroad enough financial headroom to make the deal work if the Legislature funds the plan, O’Leary said. All $18 million is needed this session so the entire financing package can be taken to the bond markets, he said. Gov. Bill Walker’s initial capital budget did not include funding for Positive Train Control. The Legislature appropriated $34.1 million over the last two years to what O’Leary calls, “the mother of all unfunded mandates.” To date, the railroad has spent nearly $70 million on what is expected to be a $160 million endeavor. Positive Train Control is a safety system designed to eliminate human error accidents on railroads. The Federal Railway Administration currently has a December 2015 deadline for implementation, but Alaska Railroad officials have long said they expect a multi-year extension to the deadline; it’s likely no railroad in the country will meet the current timeline, O’Leary said. Not complying with the requirement really isn’t an option. Railroad leadership could face heavy corporate and even personal fines and the Alaska Railroad could ultimately lose its right to operate passenger service without Positive Train Control. The mandate came down in 2008 after several serious accidents involving passenger trains in the Lower 48. Passenger service produces more than $25 million per year for the railroad, but the statewide impact is much greater, according to a McDowell Group study. It’s estimated passenger service generates about 2,000 jobs and $50 million of direct and indirect wages annually in the state. Additionally, spending from non-resident railroad passengers tops $20 million per year. Approximately 3,700 motor coach trips would be added to Railbelt highways each year in order to keep comparable service volumes without rail passenger service, O’Leary noted. The railroad will be safer with Positive Train Control, but spending money on the system will pull funds away from infrastructure upkeep, he said. If he had his way the $160 million would go into rails, ties, ballast and bridges, he said. “The cost-to-benefit ratio on (Positive Train Control) doesn’t provide a classic return on investment,” O’Leary said. The system will likely cost between per year $5 million and $7 million to maintain, he said, a cost the railroad will work to absorb. Over the past several years the Alaska Railroad’s net income has been in the $15 million range. Elwood Brehmer can be reached at [email protected]

Shefchik takes lead on IEP; $37.7M AIDEA loan in place

Former Interior Gas Utility chair Bob Shefchik has taken the reins of the Interior Energy Project. Shefchik notified IGU leadership and the Legislature Feb. 9 that he would be resigning from his post as the head of the utility board Feb. 10. With Shefchik as the project leader, Alaska Industrial Development and Export Authority Energy Infrastructure Development Officer Nick Szymoniak, Alaska Energy Authority Energy Policy and Outreach Director Gene Therriault and AEA Railbelt Energy Infrastructure Engineer Kirk Warren will join Shefchik’s team. All three have worked extensively on the Interior Energy Project behind the scenes, Shefchik said. Authority spokesman Karsten Rodvik wrote in a statement that the reorganized team is designed to move quickly with Shefchik at the helm. “We believe that Bob’s experience combined with his roots in Fairbanks will be an asset to the team, and will help move the project forward,” Rodvik wrote. AIDEA Executive Director Ted Leonard was originally set to retire at the end of January but has stayed on with the authority to assure the project progresses. On Feb. 5 the Interior Gas Utility got approval for a $37.7 million construction loan from the AIDEA board at a special Feb. 5 meeting. With several members attending via teleconference, the board unanimously approved the loan for development of the utility’s natural gas distribution system. AIDEA will fund the loan from the $332.5 million Senate Bill 23 Interior Energy Project financing package it was authorized to use towards getting natural gas to the region. The Sustainable Energy Transmission and Supply Fund loan package is an expansion of an $8.1 million loan AIDEA approved to get IGU’s distribution system work started last April. It will cover the cost of initial distribution construction in North Pole and installation of temporary gas storage. Engineering of subsequent build out phases beyond Downtown North Pole is also included. The Fairbanks North Star Borough formed IGU in November 2012 to spur additional natural gas use in the borough. With little cash or collateral to back it and favorable terms — 1 percent interest and a 48-year payback — the loan to the utility is outside of AIDEA’s normal lending practices because it is SB 23 money. “(SB 23) pretty much says, do what you need to do to meet the Legislature’s intent,” Leonard said. Originally, the $8.1 million was approved in April as a 20-month fixed line of credit intended to convert to a term loan in conjunction with AIDEA’s financing of the utility’s 2015 build out, which has now happened. With approval of the $29.6 million to fund construction and further engineering, the entire $37.7 million will be loaned as a 24-month line of credit. After two years, interest will capitalize at 1 percent over an eight-year deferment period, when up to 40 years of repayments would begin. AIDEA staff said authority approval would be required for IGU to make draws on the line of credit. AIDEA’s proposed purchase of Fairbanks Natural Gas, the other gas utility in the area, and its parent company, has put the Interior Energy Project back on a late-2016 timeline for first gas, according to those familiar with the project. As IGU board chair, Shefchik said getting natural gas to the utility by the fall of 2016 will give it a customer base and subsequent revenues with which it can pay off the loan. Shefchik said in an interview he felt his utility could secure such favorable terms after reviewing the now-expired concession agreement the authority signed with its former private project partner MWH Global Inc. “If we would have presented (those terms) earlier in the year we probably would’ve been confronted with a different response,” he said. Temporary storage capacity equivalent to three days of peak demand for both IGU and Golden Valley Electric Association — numerous LNG tanks of about 50,000 gallons — is planned for a lot adjacent to Golden Valley’s North Pole power plant. To make sure demand grows, Shefchik said a natural gas conversion working group is in discussions with area banks to investigate ways to finance home conversions from oil to natural gas heating systems. Converting to natural gas could cost homeowners anywhere from $1,500 to $10,000 or more depending on their current oil or wood-burning systems. That conversion cost is seen as an impediment to signing up new gas customers, a lynchpin to success for the overall project. He said he is hopeful for a program where the gas utility’s provide a “backstop for defaults” on home conversion loans. The banks would treat the conversion loans as they would any other, but not bear the entire burden of non-payment. With the utilities taking on a portion of the loan risk Shefchik said he foresees terms in the 10-year range at 3 percent to 4 percent interest. “Because banks have a lot of money right now and they’re sitting on that is really drawing very little, the attractiveness of low-risk investment that’s going to help the community — we’ve had three or four banks step up and talk about participating in this,” Shefchik told the board. Senate hears about utility purchase Soldotna Republican Sen. Peter Micciche continued to offer skepticism over AIDEA’s proposed purchase of Pentex Alaska Natural Gas Co., the consortium of entities that make up Fairbanks Natural Gas and its LNG supply chain, during a Feb. 5 Senate Energy Committee hearing. He shares the authority’s goal of getting affordable energy to the Interior, Micciche said multiple times. He also repeatedly questioned AIDEA’s plan to buy Titan Alaska LNG, the operating company for Pentex’s LNG plant at Point MacKenzie, when Hilcorp already agreed to purchase the plant under its subsidiary Harvest Alaska LLC. “I’m still trying to understand the value of purchasing the liquefaction,” Micciche said. Each time, AIDEA Executive Director Leonard said the authority had no plans of impeding the sale that is pending approval by the Regulatory Commission of Alaska and Attorney General Craig Richards. He said AIDEA is focused on the assets Pentex holds as Fairbanks Natural Gas and that company ownership wished to sell its holdings in one lot. The authority announced its intent to purchase Pextex for $52.5 million Jan. 28. “AIDEA is not making this investment to directly operate a utility. AIDEA would be taking this (ownership) role in essence as the investor in Pentex that would still, in our belief, utilize FNG to operate this company,” Leonard told the committee. “In our view it would allow us to change the structure from just profit to ensure that we have coordination with the utilities to bring the best distribution system to the Fairbanks area.” Micciche also said he sees value in integrating Fairbanks Natural Gas and IGU. At the same time, he wondered philosophically whether state intervention through AIDEA has deterred a private solution to the Interior’s energy and clean air crisis. “Fairbanks is a lucrative market; how much government interference has kept the typical providers out of the market?” Micciche wondered. “I can’t believe that if we (the state) just got out of the way something wouldn’t have happened sooner.” Further, he noted that Hilcorp subsidiary Harvest Alaska has agreed to supply LNG to Fairbanks on a 10-year contract at the equivalent of $15 per thousand cubic feet, or mcf, of natural gas. With added regasification, storage and distribution costs quoted extensively by local utility leadership the final “burner tip” cost of that gas would be in the $20 per mcf range, similar to what was projected the North Slope-focused version of the Interior Energy Project could deliver. The stated goal of the project is get gas to residential consumers at a price near $15 per mcf, about half the energy equivalent cost of fuel oil at $4 per gallon. Fairbanks Natural Gas currently sells to its customers at about $23 per mcf as an unregulated utility. Tariff proceedings for the utility are ongoing in the RCA. Leonard said he agrees that the state should stay out of the way of private enterprise to the extent possible, but also noted that Fairbanks Natural Gas has served about 1,100 commercial and residential customers since the late 1990s without significant expansion. Fairbanks Natural Gas President and CEO Dan Britton has long said the small utility could not secure the long-term gas supply contract it would need to expand. Its agreement with Harvest Alaska is to supply its existing customer base. Elwood Brehmer can be reached at [email protected]

Logistics program breathes life into state transportation

Transportation in Alaska is a lot more than just planes, trains and automobiles. Add cargo ships, pipelines, ferries and any number of other modes of movement and you’ve got a complex network — a logistical nightmare to some. To University of Alaska Anchorage Professor Darren Prokop, it’s a network where challenge meets opportunity. “The state of Alaska either thrives or declines on the basis of how it handles its logistics and supply chain management,” he likes to say. Prokop is the face of UAA’s Logistics Department. He has been with the department nearly since its inception in 1999. The department has grown into a suite of programs offering everything from undergraduate certificates to a master’s degree in global supply chain management. It is the only initiative at the university to offer classes from the high school to the graduate level, Prokop said. Alaska’s unique challenges of distance — from the Lower 48 and across the state — sparse population, environment, and climate fit into his definition of logistics and what the program emphasizes. Logistics is “the art and science of dealing with time, space and location,” he often says. He likens supply chain management to a body’s skeleton, the base of the operation, while logistics is the blood and oxygen that give it life. It’s a science field because data can be measured and analyzed, and an art because it’s constantly improved in previously unforeseen ways, he said. No matter what specific field of business someone is in, logistics and supply chain management is a discipline they should be familiar with, Prokop emphasizes, because it affects every aspect of business. UAA Global Logistics Association President Taylor Mitchell agrees. “It’s a lot more than just getting 50 widgets to somewhere,” Mitchell said. “It’s really a wide open field.” The courses reflect that. Upper class undergraduate students take courses in purchasing, materials management, marketing and international logistics. They are also required to work a 225-hour paid internship. “It gives us the feedback to see whether or not their classroom tools make sense on the job,” Prokop said. The individual classes are small, typically about 20 students. At any time there are only about 50 students in the overall program, he said. The state’s complex of supply chains and transportation affords students the opportunity to see first hand how the shipping web works. Students touring the Port of Anchorage witness first-hand the intricacies of managing a shipment of construction materials headed for a North Slope construction site that came on a Horizon Lines containership and are hauled to Fairbanks by the Alaska Railroad. From there the goods are sent up the Dalton Highway behind a semi-truck and reach their final well pad destination via ice road. Members of the student club also get more chances to absorb problem-solving outside the classroom. Mitchell said the club tries to plan at least one field tour a month. “You get the academic exposure in class and the club provides how-to logistics in the real world,” she said. Mitchell, a Lynden International employee, has her bachelor’s in global logistics and supply chain management and is working on a global supply chain management master’s. She said the tours also serve to expose students to the job opportunities available to them. Club vice president Andy Watts, working on an associate’s degree, said it helps students immensely just to get out and “get our faces recognized” in the industry. The club is holding a public panel discussion March 6 on campus featuring leaders from the Port of Anchorage, Alaska Railroad and Ted Stevens Anchorage International Airport. It’s the first such event the club has put on and Watts said the goal is to fill every one of the 130 seats available in the lecture all. “It’s a really big deal for us as a club,” Mitchell said. Further, Prokop’s students regularly have the opportunity to hear from and question industry leaders who could well be a boss of theirs someday soon. A glance at a syllabus from one of his senior level last fall semester shows nine guest lecturers from the likes of ConocoPhillips, FedEx, Naniq Global Logistics and Alaska Communications. Linda Leary, one Prokop’s guests, is a past vice president of sales at Alaska Communications, a founding member and former president of Carlile Transportation Systems and one of his former students. Leary graduated from UAA in 2004 with a global supply chain management master’s from a program Prokop is particularly proud of. “It’s designed for those with upper management and executive aspirations,” he said. When she enrolled Leary had been in the transportation business for 20 years, but wanted to expand her knowledge base outside of business in Alaska, she said. “(Prokop) tries to bring in a broader, more global perspective to everything, which is really good for Alaskans to have,” Leary said. It’s hard to talk to him for more than a few minutes without hearing about the state’s global position — less than 10 hours from 90 percent of the industrialized world — and the business opportunities the location provides. A big positive of the master’s program for Leary was that she was able to take courses at UAA while living in Seattle, and not remotely. Classes meet one weekend a month for 20 months, 12 hours on Saturdays and eight hours on Sundays, with lunch and dinner catered. Leary was able to fly to Anchorage once a month for school, as a few other students have done, and not have it affect her work schedule. Prokop’s fervor for the field is undeniable, and helpful when pushing through a three-hour class, Mitchell said. “He’s very infectious and the way he’s always so excited makes it enjoyable to go to class,” she said. Leary added, “He’s very smart and very enthusiastic and very curious, which makes it fun.” To Prokop, Alaska is an ideal lab for his field of research and he’s always looking for businesses with problems for his students to solve. “We are a very interesting mix of both domestic and international trade flows that present very interesting opportunities and challenges in logistics,” he said. “For all those reasons it makes sense to do these courses here. This is an area that’s ripe for academic research.” He’s not likely to stop. Elwood Brehmer can be reached at [email protected]

Pages

Subscribe to RSS - Elwood Brehmer