Elwood Brehmer

AEDC: economic outlook good despite gov't spending cuts

Continued good days are ahead for the Anchorage economy, at least according to the Anchorage Economic Development Corp. AEDC President and CEO Bill Popp said the group is optimistic about the coming years and expects about annual growth of 1 percent or more in the number of jobs in Anchorage through 2017. “We continue to set records on an annual basis in terms of the total number of jobs available in Anchorage,” he said. Popp made his remarks July 30 at AEDC’s annual three-year forecast presentation. Alaska-based research firm McDowell Group compiled the forecast. So far in 2014, the city has added about 570 positions across all employment sectors, nearly 0.4 percent growth. The opening of national sporting goods giants Cabela’s and Bass Pro Shops helped spur 550 new retail jobs over the first half of the year, Popp said. “Retail is our rock star so far in the first six months,” he remarked. For nearly a decade the number of available positions in the city’s retail industry has been virtually flat. A repeat of 2013 seems to be in the works so far in 2014 with cuts to 600 government positions split nearly evenly between federal and local employment. “If we didn’t have this decline in employment we would be at our number right now in terms of net new jobs (predicted) in Anchorage,” Popp said. In January AEDC forecasted 1,200 new jobs for the year. The transportation sector has grown by about 450 positions this year and health care has rebounded from a slower than average 2013 to add 320 jobs to date. Business and professional services remains strong with 220 new jobs and a busy cruise season has contributed to 170 new leisure and hospitality jobs. The loss of 870 government positions last year offset significant private sector gains. Ultimately, Anchorage ended 2013 with 315 more jobs than at the beginning of the year — 0.2 percent growth. That decline in government jobs will need to moderate if the forecasted 1 percent overall growth is going to materialize. Still, Popp said the ongoing challenge faced by Anchorage businesses of finding the right employees is becoming a “big headwind” for employers wishing to expand. “We think the private sector job growth could be substantially stronger if we had more qualified candidates in the local market, but the labor pool, as I’ve said before, is a labor puddle,” he said. While AEDC is predicting population growth of about 1 percent annually through 2017 — from 304,100 this year, to more than 313,000 in three years — Popp said most of that growth would be from within. There is a net outflow of adults from Anchorage, he said, likely because other cities across the country have a lower cost of living. “There are other communities in the United States that can offer a better deal,” he said. “We do not have a significant influx of people moving to Anchorage and that is something we need to pay attention to.” As a result, a recent but slight uptick in the city’s unemployment rate is probably going to be short-lived, Popp predicted. In June, Anchorage’s unemployment rate was 5.6 percent, up from 4.8 percent in May, but flat year-over-year, according to the state Labor Department. “By later this summer into the fall we could see unemployment back down in the mid-4 percent range, perhaps even as low as 4.4 (percent),” he said. Ted Stevens Anchorage International Airport is expected to remain busy, which is particularly beneficial to the Anchorage economy because it provides nearly 10 percent of city jobs. Passenger traffic growth is forecasted at about 2 percent annually through 2017, Popp said, meaning more people than ever before will likely be passing through the airport in the coming years. By 2017, AEDC projects more than 5.5 million passengers will use the Anchorage airport. Traffic at the airport rebounded in 2013 to nearly 5.1 million passengers after falling 2.6 percent in 2012. Air freight volumes at the Anchorage airport  — volatile over the last 10 years — will stabilize in the years ahead, AEDC predicts. Popp said global supply chains are shifting slightly away from air freight transport and are using more efficient craft that don’t need to stop in Anchorage to refuel. Personal income is expected to continue growing at between 4.5 percent and 4.7 percent annually, Popp said. The overall total for Anchorage income could surpass $20 billion in 2017, according to AEDC; it was $17 billion last year. Contributing to the income of not only Anchorage residents, but all Alaskans, could be larger Permanent Fund Dividend, or PFD, checks. Popp said 2009, the last poor year for the stock markets, is coming off the books for the investment fund average this year, and 2014’s PFD checks could surpass $1,500. Without specifying sources, he said some experts are predicting future dividends as high as $2,500 or more if the markets remain strong. Such cash influxes would have a “leavening effect” on fourth quarter business in the years ahead, he said. AEDC against Ballot Measure 1 “The AEDC board urges all Alaskans to vote ‘No’ on Ballot Measure 1,” Popp said after his economic forecast presentation. AEDC’s 31-member board of directors passed a resolution opposing the ballot referendum that would repeal the current oil production tax structure known as Senate Bill 21 at a May 21 meeting. While AEDC is not an advocacy organization, Popp said the board felt it necessary to take a stand on this political issue because of the ramifications it feels repealing SB 21 would have on the Alaska. “The reasons the board took this position are many but boil down to a simple view — the measure would have a chilling effect on North Slope oil and gas industry investment and employment, threatening the future and economic health of Alaska and Anchorage,” he said. Groups advocating to repeal SB 21 contend the legislation does nothing to guarantee new investment in Alaska’s oil and gas industry by producers and it doesn’t allow the state to maximize its take of profits during times of high oil prices. “Billions in investments in existing infrastructure over the past decade before the passage of SB 21 are more about risk reduction and cost efficiency than producing new barrels,” he said. Years of production decline from North Slope oil fields have begun to significantly impact the state’s budget, Popp said, and recent investments aimed at producing new oil have materialized only since SB 21 was passed just more than a year ago. He said the multiple tax regimes the state experimented with prior to the current flat tax system did nothing to stem production decline and a fourth change in production taxes will stymie investment. Elwood Brehmer can be reached at [email protected]

Feds ask Mat-Su for ferry grants back

The Federal Transit Administration wants $12.3 million back from the Matanuska-Susitna Borough for the borough’s failed Knik Arm ferry plan. Acting FTA Administrator Therese McMillan sent a letter to Mat-Su Borough Manager John Moosey Aug. 5 demanding repayment of the grant money. The $12.3 million is the portion of approximately $21.2 million in grants approved for the project that the borough has spent. The letter states that the borough has 30 days to repay the Transportation Department agency before FTA begins collections through administrative offset. Moosey said in an official statement on the borough’s website that he was not surprised by the letter. “I expected this (ferry crossing) to be done much easier but this was a challenge,” he said. “We’ve been working diligently looking for solutions to this issue for the last 2.5 years. If we had ferry landings, I’m confident we would not be here today.” McMillan wrote that the FTA is required to begin debt collection per the terms of the grants and does not have the legal authority to waive the debt despite the bind the borough is in. The Mat-Su Borough Assembly has scheduled a special meeting Aug. 12 to address the issue. The ferry vessel, the M/V Susitna, was built as a half-scale naval prototype landing craft vessel, with an agreement that the borough would take ownership and put it to use as a shuttle between Port MacKenzie and Anchorage when the U.S. Navy was through with it. The Navy paid for the lion share of the $78 million construction bill. The borough has been looking to sell or give away the ferry for more than a year since plans to build a terminal dock in Anchorage fell through. If the Susitna is sold to a private entity the borough would have to pay back much of the FTA grant money. However, if it can be donated to an eligible domestic government, the Mat-Su Borough might be able to seek grant forgiveness, a borough release states. The borough has approached the Alaska Marine Highway System and the National Oceanic and Atmospheric Administration about donating the Susitna, but an agreement couldn’t be reached. Private groups have made offers to purchase the Susitna, but none would have covered the cost to repay the grants. The Philippine Navy and an oilfield service company are expected to inspect the Susitna, docked at Ward Cove near Ketchikan, later this month. Dock fees, insurance and general upkeep have cost the borough several hundred thousand dollars per month while the Susitna has gone unused, Mat-Su officials have stated. The $3.6 million ferry terminal at Port MacKenzie is part of the $12.3 million FTA debt, according to the borough. Despite being unwanted, the 195-foot Susitna is a vessel with remarkable capabilities. The catamaran ferry has the space to hold up to 129 passengers, 20 vehicles and has a 35-ton overall freight capacity. It has a main deck that can be lowered to offload equipment and can land on beaches in as little as four feet of water. Elwood Brehmer can be reached at [email protected]

Alaska Air reports another record quarter

At Alaska Air Group Inc. records are indeed made to be broken. Leaders of the parent to Alaska Airlines reported a record second quarter net income of $157 million. The results reported July 24 are a 50 percent increase in profits versus the $105 million second quarter of 2013 and mark the company’s eighth record net income in the last nine quarters. It was also Alaska Air Group’s 21st consecutive profitable quarter. Operationally, President and CEO Brad Tilden said Alaska Airlines had the highest on-time performance among the eight major domestic carriers at 88 percent. “With the continued commitment of our people across the system, we expect to deliver another year of exceptional financial and operational performance in 2014,” Tilden said during an earnings call with investors. The adjusted earnings broke down to $1.13 per share, up 53 percent from the second quarter of 2013. Air Group stock was trading at $46.47 near the end of trading July 29. The company executed a two-for-one stock split July 9. Operating revenue was up 8.7 percent year-over-year at $974 million. Pre-tax margin grew 18.3 percent and adjusted pre-tax earnings were $252 million. Air Group Chief Financial Officer Brandon Pedersen said the phasing out of older aircraft helped improve Alaska Airlines’ fuel efficiency by 2.5 percent in the second quarter. That, combined with hedging lower fuel hedging costs that saw the economic fuel price drop 2.4 percent year-over-year, contributed to the positive results, according to Pedersen. He said there is a target of returning $350 million to the company’s shareholders by the end of the year. It is currently issuing a quarterly dividend of 25 cents per share. “When viewed as a percentage of either free cash flow or net income, Air Group’s distributions will likely lead the industry, underscoring our long-term commitment to ensuring that our owners get an appropriate return,” Pedersen said. The dividends totaled $34 million in payouts over the first half of the year. Through June, the company had repurchased 1.8 million shares totaling $83 million, he said. In May, a new, multi-year $650 million stock repurchase plan was announced on the back of a just-completed $250 million repurchase program. Its 12-month running return on invested capital, or ROIC, was 16.1 percent, up from 13 percent during the previous 12 months. Alaska Air Group finished the quarter with an adjusted debt-to-capital ratio of 32 percent. Pedersen said it was 81 percent at the end of 2008. With its credit rating of BBB- by Fitch Ratings, Alaska Air Group is one of only two major domestic carriers to have an investment-grade credit rating. The other is Southwest Airlines. “This important recognition validates the work we’ve been doing to position Air Group as a high-quality industrial company,” Pederson said. Aside from the financials, Alaska Air Group became a Fortune 500 company for the first time in its history during the quarter.  “Our pensions are fully-funded and we own 73 of our airplanes free and clear,” he said. “Our balance sheet puts us in an excellent position to defend the franchise we’ve created here in the Pacific Northwest.” Air Group Senior Vice President Andrew Harrison said passenger revenue was up 8 percent on a 5.2 percent increase in capacity for the quarter. In recent months Delta Air Lines has increased its schedule out of Seattle, Alaska Airlines’ main hub, a trend Harrison said Alaska Air Group expects will continue. He said Delta’s Seattle flights will likely overlap with half of Alaska Airlines’ available seat miles by next summer. The increased competition has hurt unit revenues for several quarters and will continue to, Harrison said. Delta and Alaska Airlines have been partners in many ventures including mileage plans for many years, a relationship that has been strained by Delta’s increased presence in the Pacific Northwest. Tilden said the revenue gained from feeding Delta’s flights as well as the “natural end-to-end connection opportunities” with the industry giant could make working through the relationship challenges worthwhile. By next spring, Alaska Airlines’  Seattle departures are expected to grow by 11 percent, he said. For the remainder of the year Alaska Airlines will look to wrap up a $100 million investment in new seats for its 94 Boeing 737-800 and 737-900 aircraft. The seats each have a power outlet and USB input for electronics and will grow capacity by 2.4 percent without sacrificing legroom, company officials have said. Along with the seat upgrade, Alaska Airlines will be the first airline to install Boeing’s new larger overhead compartments, allowing passengers to have larger carry-on items, Tilden said. Elwood Brehmer can be reached at [email protected]

Icebreakers top US Arctic needs during House testimony

The challenges behind melding the Arctic needs of the State of Alaska and federal agencies were exemplified during a July 23 House subcommittee meeting. Representatives from the U.S. Coast Guard, Navy, the National Oceanic and Atmospheric Administration, the National Science Foundation and the State of Alaska testified to what they need to operate in the Arctic. Topping the list in the testimony before the Coast Guard and Maritime Transportation Subcommittee was icebreaking capability. Subcommittee chair Rep. Duncan Hunter, R-Calif., said the United States is already behind Russia in that regard, which operates about 40 icebreaking vessels, and China, which isn’t an Arctic nation. “The U.S. fleet of icebreakers is in a dismal state. I wouldn’t even call it a fleet, really,” Hunter said in his opening remarks. The Coast Guard has two operational icebreakers, the Healy and the Polar Star. A third, the Polar Sea, is currently deactivated. With the 2013 release of an Arctic strategy report by the White House and a subsequent implementation plan, Rep. John Garamendi, D-Calif., said he is glad the Obama administration is taking the Arctic seriously, but disappointed that the planning initiatives “have not yet taken root in the administration’s budget.” “The stark reality is that with each passing year the Arctic is becoming more open, more accessible, warmer and a more compelling economic and security interest to the U.S.,” Garamendi said. “Other nations have grasped this reality; we should too.” The U.S. will lose power and influence in the region if the federal government does not take Arctic issues seriously, Hunter said. The U.S. is set to take chairmanship of the international Arctic Council forum beginning next year. The round figure of $1 billion is the estimated price tag to construct a new heavy icebreaker for use by the Coast Guard and the Navy. Hunter said an icebreaker that is simply a research vessel and not capable of carrying out Defense Department missions would cost about $500 million. He asked both NOAA Director of Response and Restoration and retired Coast Guard Capt. Dave Westerholm and National Science Foundation polar director Kelly Faulkner if their agencies would be willing to contribute to funding construction of one or more icebreakers. Westerholm and Faulkner said their budgets, collectively about $11 billion, are not allocated to build an icebreaker. The agencies, including branches of the military, are protecting their “current budget turf,” Garamendi said, when building icebreakers should be a shared responsibility. While the National Science Foundation may not be ready to fund construction of such a vessel, it is the foundation’s position that high-tech science capabilities be left off any future icebreakers if the cost of the features could compromise the heavy icebreaking mission. In a lighter moment, while smiling in the direction of Rep. Don Young, Garamendi said, “Perhaps from the oil revenues of Alaska we can find money” to build an icebreaker. “If we build an icebreaker we’re going to charge the hell out of you,” Young responded. Young and Hunter questioned why the agencies couldn’t contract with private firms that have icebreaking vessels for their work. Faulkner said the National Science Foundation has contracted for icebreaking capabilities in the past. A July 17 Congressional Research Service report updating the status of the Coast Guard’s effort to modernize its icebreakers found growing uncertainty in the Department of Homeland Security’s budget requests for icebreaker funds. The fiscal year 2013 submission laid out requests totaling $860 million through fiscal year 2017, a funding schedule that would have allowed the Coast Guard to take delivery of a vessel within 10 years, according to the report. The fiscal year 2014 budget submission pushed back and lessened funding requests to $230 million through fiscal year 2018. This year’s budget request is for $230 million through fiscal year 2019. If the $6 million in the current request is awarded, the Coast Guard will have received $15.6 million for icebreaker acquisition over the last three years. Alaska Department of Natural Resources Deputy Commissioner Ed Fogels testified that social issues that plague many of the roughly 50,000 residents of Arctic Alaska are directly related to a lack of economic development in the area. The federal government needs to cooperate with the state to encourage proper resource management and development in the region, something that hasn’t happened recently, he said. “The state is concerned about the opportunistically heavy-handed interpretation we have seen of certain laws and systems over natural resource management in Alaska, particularly those pertaining to resource development permitting, such as the National Environmental Policy Act, the (Army Corps of Engineers) 404 permitting system, the Clean Water Act, the Clean Air Act, the Marine Mammal and Protection Act and the Endangered Species Act,” Fogels testified. “We request that Congress review the executive branch’s burdensome, inefficient, scientifically dubious and overly-broad application of these laws which can place additional weight on the individuals, businesses and communities that drive the well-being of Alaska.” Fogels referenced Interior Secretary Sally Jewell’s denial of a road between the Aleutian villages of King Cove and Cold Bay as “an example of what we don’t need to do in the Arctic.” He said the state is on the forefront of resource stewardship and has a management program that should be a model for Arctic nations and the rest of the United States. The state’s investigation into access roads on the North Slope and the Ambler Mining District in Northwest Alaska are projects that could help the region’s economy, he said. In Alaska’s push for Arctic infrastructure development, Fogels cited the state’s collaboration with the Army Corps of Engineers on a plan for a deepwater port near Nome. Such a port has been advertised as an Arctic station by the Coast Guard and oilfield service and response vessels. The Corps of Engineers recommendation for an Arctic port is expected by the end of the year.

Crowdfunding transforms business investing, spreads risk

Crowdfunding is not just for cash anymore. Danae Ringelmann, co-founder of Indiegogo, the world’s largest crowdfunding website, said what was once thought of as a niche funding mechanism is now attracting businesses and projects for countless reasons. “Indiegogo is actually a lot more than an alternative form of financing,” Ringelmann said. “It’s doing something very fundamental in the whole financial equation, and that is it reduces risk and specifically market risk and execution risk.” Ringelmann shared her experience July 28 at the Anchorage Economic Development Corp.’s Crowdfunding AK forum, held at the Bear Tooth Theatrepub in Anchorage as part of AEDC’s annual Entrepreneurship Week. Almost all startups share three types of risk, she said, the first being funding. Naturally, crowdfunding mitigates funding risk by allowing a project or business to be pitched to millions at once rather than to just a single boardroom. When crowdfunded, a startup’s market risk dissipates as funding grows, Ringelmann explained. Being funded by hundreds or thousands of individuals from every corner of the globe proves an idea’s merit from the get-go, she said. And even more specifically, crowdfunding allows entrepreneurs to conduct market research while improving their pitch for dollars. The “perk” feature of crowdfunding cures much of the execution risk associated with launching a product. It can be used to determine the optimal size a product should be or the exact features it should have to reach peak demand, she said. Ringelmann described the transformation of the Misfit Shine, an activity tracker funded through Indiegogo. She said the entrepreneur behind the “world’s most elegant activity monitor,” as it is advertised on its website, offered different colors of Misfits as perks for investing in the product. In the end he found that his funders were willing to pay $50 more for a black Misfit than a silver one. “It’s a way to get smarter faster,” Ringelmann said. Further, while the Misfit was originally designed as a sleek, button-style device — an alternative to wrist-worn activity monitors — his funders began asking for it incorporated into jewelry and a new product line was born, Ringelmann recalled. “When people part with their dollars it’s a much greater indication in terms of what their true interests are rather than what they say in terms of would they buy or fund something,” she said. As the hidden features of Indiegogo and crowdfunding have become unveiled themselves since it launched in 2006, the platform is continuously being used in new ways, Ringelmann said. Crowdfunding is being incorporated into pitches for traditional financing because of its ability to ease the market and execution worries of banks or venture capitalists that were previously largely unknowns during the funding stage of a startup. She explained that often when a funding milestone is reached with traditional financing a crowdfunding campaign will be launched to solidify market interest and determine the overall amount of capital needed before it is all invested. Even large, established businesses are getting into the crowdfunding game. Marvell Technology Group, a large multinational semiconductor producer worth nearly $5 billion, used Indiegogo to test a new line of code writing software, Ringelmann said. “(Marvell) used Indiegogo to raise $50,000 — they surpassed their goal a little bit — only because they wanted to test the market and see if they were making something the world wanted in the way that they wanted it,” she said. As crowdfunding continues to evolve, Ringelmann said she believes it will force the investing scene to evolve away from cash being the ultimate bargaining chip and towards it being another commodity as it is available from more sources. In the traditional financing game those with cash had the power and were sought after because they were a startup’s only option. She said that model is shifting. “What’s happening is now the sources of capital have to add more value than just being the sources of cash,” Ringelmann said. As cash becomes less important, banks and venture investors will start to emphasize the intangibles they can provide that distant crowdfunders cant, Ringelmann said. She predicted that the future of traditional financing will be less about providing cash and more about using the value of relationships and expertise to win the opportunity to invest in a project. “I do see a symbiotic relationship going on between Indiegogo and the crowd and traditional financing,” she said. While crowdfunding is mainly a way to attract capital today, tomorrow it will be an “incubator of ideas,” according to Ringelmann. “What we’re trying to do is build this ecosystem where everyone can fund what matters to them.” Elwood Brehmer can be reached at [email protected]

Ambler Road proponents dismiss conflict of interest claims

Concerns over a proposed mine access road in Northwest Alaska are unfounded, the state and a mining company proponent of the project claim. According to Nancy Wainwright, an attorney with law firm Trustees for Alaska representing the village of Ambler, Dowl HKM has performed work on the Ambler Road project for the state and was contracted previously by Vancouver-based NovaCopper. Dowl HKM is a national transportation infrastructure engineering and environmental consulting firm. “(Dowl HKM) appears to be a very important factor in this road promotion,” Wainwright said. Alaska Industrial Development and Export Authority spokesman Karsten Rodvik said questions raised at authority board meetings earlier this year about a possible conflict of interest stemming from a third-party consulting firm hired by AIDEA and NovaCopper, which has pushed for a road to the Ambler Mining District, are an unneeded worry. “Dowl HKM has not performed work on any contract for NovaGold or NovaCopper since AIEDA took over management of the Ambler project,” Rodvik said. He added that he sees no basis for claims that a conflict of interest exists. The road would provide access to four rich copper, zinc, lead and silver deposits that stretch for about 75 miles between the Brooks Range and the upper Kobuk River. It would run west for approximately 200 miles from near milepost 135 of the Dalton Highway and give any Ambler-area mines that are developed rail access in Fairbanks. AIDEA took over the Ambler Road project last year, primarily so the state financing authority could investigate a public-private partnership financing model for the industrial road. As a privately funded one-lane corridor, it would likely be closed to public access while mining activity is occurring. The state Department of Transportation worked on the project beginning in 2010, prior to transferring it to AIDEA. On its current timeline, construction on the road would begin in 2019, according to AIDEA. In a March report to the Legislature, AIDEA Deputy Director Mark Davis said Dowl HKM was involved with the project with DOT and the authority, a fact Wainwright said is significant. She said Ambler residents are worried about the relationship between AIDEA, the consultant and NovaCopper at public meetings. The parties present at public meetings in remote villages and fly out in the same planes, she said. “There’s an appearance of a conflict that has never been resolved,” Wainwright said. NovaCopper CEO Rick Van Nieuwenhuyse wrote in an email that the “conflict of interest is completely without merit.” He could not be reached for further comment in time for this story. NovaCopper has touted the road a link to jobs at one or more mines that could be developed in the district. AIDEA has said it could also provide lower cost fuel to isolated communities in Northwest Alaska through ice road links from the industrial Ambler Road. Rodvik said AIDEA is currently seeking a contractor to conduct the environmental impact statement, or EIS, a step in the project required by the National Environmental Policy Act that it hopes to begin late this year. Whatever group the authority selects to conduct the EIS must keep previous consultants on the project at arms length, Wainwright noted, to comply with NEPA regulations that state no entity that has any history on a project can be involved in the EIS process. Additionally, she said villagers are worried that their concerns about the potential impact to caribou migrations and subsequent subsistence activity are not being taken seriously at public meetings. Reports from some meetings are that public comments are not being recorded, Wainwright said, and at others only those comments supporting the project are being documented. As a result, villagers in the road corridor have taken to holding their own meetings, she said. Wainwright emphasized that the AIDEA board has pushed for public input on the Ambler Road at its meetings and has heard public concerns, but that the board’s directive to does not seem to be reaching staff, she said. “When citizens have to take over the public process that agencies are supposed to handle the public process has gone awry,” she said. Rodvik said AIDEA has held 31 public meetings from the Interior to Kotzebue since it took over the project and has received “significant” support for its work. He noted that none of the meetings to date have been required by any process and that another round of public involvement will begin with the EIS. Before AIDEA moves forward with the project the authority’s board must approve any agreement, Rodvik noted. Elwood Brehmer can be reached at [email protected]

EPA inches closer to stopping Pebble

The Environmental Protection Agency took another step towards blocking a Pebble copper and gold mine July 18. Dennis McLerran, EPA Region 10 administrator, said in a formal statement that the agency is moving to protect the robust salmon stocks of Bristol Bay from the possible impacts of a large mine in the region. The 214-page proposed determination document calls for a ban of large-scale mining in the area of the Koktuli River and Upper Talarik Creek watersheds north and west of Iliamna, where the Pebble deposit is located. The watersheds are part of the larger Kvichak and Nushagak River watersheds — the Pebble deposit sits nearly on the border of the two — which support some of the largest returns of sockeye salmon in the world each year. “The science is clear that mining the Pebble deposit would cause irreversible damage to one of the world’s last intact salmon ecosystems. Bristol Bay’s exceptional fisheries deserve exceptional protection,” McLerran said. “We are doing this now because we’ve heard from concerned tribes, the fishing industry, Alaskans and many others who have lived and worked for more than a decade under the uncertainty posed by this potentially destructive mine.” If developed, it is believed a Pebble mine would be one of the world’s largest surface copper and gold mines. The EPA has justified its proposed action under Section 404(c) of the Clean Water Act, which gives the agency the authority to block the placement of fill material in any area that it determines would have an adverse impact on fish or wildlife. Pebble Limited Partnership has not submitted a formal mine plan and has yet to apply for a Section 404 wetlands permit issued by the regional U.S. Army Corps of Engineers. For those reasons the Pebble Partnership is accusing the EPA of overstepping its regulatory authority. “The correct, legal and defensible way forward is for EPA to suspend its preemptive 404(c) process and allow us the full opportunity to have our project reviewed by federal and state regulatory agencies, including EPA, under (the National Environmental Policy Act),” Pebble CEO Tom Collier said in a formal statement. After losing London-based Anglo American Plc, a 50 percent-share investor in the Pebble project last September, remaining owner Northern Dynasty Minerals Ltd. has said it will go forward with a mine plan after it finds another investment partner. The Pebble Partnership has said a mine would provide more than 1,000 jobs over the 25-year life of the mine to an area of Alaska with high unemployment. Pebble’s opponents argue it would jeopardize the nearly 14,000 full-time and seasonal positions provided by the fishing industry. In February, the EPA said it would investigate using its Clean Water Act authority to block the mine, an announcement that spurred Pebble Partnership to file a lawsuit against the agency in federal District Court May 21, claiming the EPA could not make a reasonable judgment on potential mine impacts with the information it had. Days later, the State of Alaska requested to intervene on behalf of Pebble because blocking the mine would restrict the state’s right to develop its resources for the benefit of its residents, according to its court filings. All of Pebble’s mineral claims are on state land. The EPA’s ability to overrule a Corps of Engineers wetlands permit approval or deny a permit based on an application has been used only 13 times in the 42 years of the history of the Clean Water Act. Never before has the agency used the Clean Water Act as justification to restrict land use prior to a wetlands permit submission for a specific project. The EPA has based its actions on its Bristol Bay Watershed Assessment, released in January, which found that Pebble could potentially harm the region’s fisheries, and subsequently the associated commercial fishing industry. Intra-agency emails from 2010-11 suggesting Region 10 EPA officials had determined the outcome of the assessment against Pebble from before the agency formally announced it would be conducted have caused Pebble to dispute its objectivity. The EPA Inspector General’s office is currently conducting a review of the assessment process. “EPA’s proposal is based on a watershed assessment that its peer reviewers found to be no better than a screening document, and that EPA’s professionals have recognized is missing the information needed for a permitting decision,” Collier said. The most recent proposal determination focuses on mine sizes that the EPA says Northern Dynasty Minerals Ltd., currently the sole Pebble owner, used in its U.S. Security and Exchange Commission filings for investors. Those hypothetical mines range in size from 2 billion tons of ore processed over a 25-year mine life to a 6.5 billion-ton mine. According to the EPA, Pebble’s pit mine would cover up to 6.9 square miles and require three mine tailings impoundments covering up to 18.8 square miles. In the draft determination the agency claims a mine capable of processing just 250 million-tons of ore would lead to the loss of at least 5 miles of anadromous fish, or salmon, habitat, or the loss of at least 19 miles of tributary streams to anadromous waters. Additionally, the loss of 1,100 or more acres of wetlands would occur, according to the EPA. As nearly every announcement related to the Pebble has, the July 18 EPA announcement sparked a rash of announcements from mine supporters, its opposition, and even some in between. Sen. Mark Begich took a stand against Pebble after the Bristol Bay Assessment was released in January, and supported the EPA in a formal statement from his office issued July 18. “This is a long and detailed determination, but based on initial review, the draft determination applies only to the Pebble deposit,” Begich said. “The limited scope is critical and means the determination would not affect mining or any other resource development project in any other parts of the state.” Begich’s congressional delegation mates, Sen. Lisa Murkowski and Rep. Don Young have said they would withhold judgment on the mine until a formal plan is released; something Murkowski has chided Pebble for not doing. “The EPA is setting a precedent that strips Alaska and all Alaskans of the ability to make decisions on how to develop a healthy economy on their lands,” Murkowski said in a release. “This is a blueprint that will be used across the country to stop economic development.” Young called the determination a “jurisdictional power grab.” At a July 18 Commonwealth North lunch presentation, state Department of Natural Resources Commissioner Joe Balash said that the EPA is “in the best light, attempting to put constraints on development of minerals in that particular region and we’re very anxious for what that means for future deposits that are identified as having commercial value.” Trout Unlimited Alaska has led the fight against Pebble and applauded the EPA’s proposed determination, as did the United Tribes of Bristol Bay. “We are grateful that the EPA listened to our tribes and followed the science showing that the mining proposals like Pebble will threaten our way of life,” United Tribes President Robert Heyano said in a formal statement. “This announcement brings us the much-needed certainty that our salmon and waters will be protected, and as a result, our communities, culture and livelihood.” The EPA Region 10 office will take public comment on the determination July 21 through Sept. 19, and public meetings on the issue will be held in Anchorage Aug. 12 and several Bristol Bay communities Aug. 13-15. Elwood Brehmer can be reached at [email protected]

Fairbanks legislator suggests Interior gas pilot project

A Fairbanks legislator is pushing state officials to market the benefits of converting home heating systems away from fuel oil to Interior residents. Rep. David Guttenberg said representatives from the Alaska Industrial Development and Export Authority and its sister group the Alaska Energy Authority involved in the Interior Energy Project have expressed concerns over the prospect of a market for North Slope gas in the Fairbanks area at recent meetings. The Interior Energy Project is the state’s plan to truck liquefied North Slope natural gas to Fairbanks and North Pole as a way to relieve high energy costs and poor winter air quality caused by the region’s dependence on home heating oil. “It’s the same old dialogue about there’s no gas because there’s no market — no market because there’s no gas,” Guttenberg said in an interview with the Journal. Fairbanks Natural Gas, which already supplies more than 1,100 customers in the core of Fairbanks with natural gas, and the Interior Gas Utility, or IGU, estimate they will combine to make gas available to about 13,600 new residential customers by 2024. With a much larger distribution build out plan, IGU will be able to supply less than 2,000 residences when first gas is available in late 2016, according to presentations by the utility. The utilities and the state agencies have said that voluntary residential conversion from fuel oil to natural gas home heating is critical for the project to create demand and a market for gas to hit AIDEA’s stated goal of a final “burner tip” price of $15 per thousand cubic, or mcf, of gas. Conversion is expected to be slow in the first years of the project and increase as gas becomes available to more homes. Depending on the type of boiler system a home has, conversion could cost anywhere from $2,300 to more than $10,000, according to a January 2014 study conducted by the environmental consulting firm Cardno Entrix for the Interior Energy Project. “I proposed that (AIDEA) simply start a pilot program to create enthusiasm for the market,” Guttenberg said. While his plan would leave the details to the experts, Guttenberg said, for example, the IEP team could choose 100 Fairbanks homes to retrofit and subsidize the changeover. It would be a way to assure people the state is not “spending hundreds of millions towards more studies, more projects that are never going to happen,” he said. Doing so would also create an anticipation and enthusiasm amongst Interior residents for a cheaper energy supply when gas finally starts rolling down the Dalton Highway, Guttenberg said. “Get gas to them, make it a very visible project and get people motivated (and asking) ‘Why don’t I have gas?’” he said. AIDEA and AEA have responded that they are discussing ways to encourage conversion, according to Guttenberg. The Cardno Entrix study projects 10 percent of residential customers will convert in the first year of each build out phase. In year two, another 40 percent will make the change to natural gas and by the fifth year gas is available 90 percent of eligible homes will be hooked up to the gas distribution system, the study claims. Another key to the project is what kind of large commercial or industrial demand there is for gas. Golden Valley Electric Association President and CEO Cory Borgeson has said the utility would purchase up to 2.5 billion cubic feet of gas annually as soon as it is available for power generation. That commitment has shrunk since Golden Valley’s Healy clean coal power plant has become a reality. The likelihood of finding other large customers to make the project viable is unknown, but AIDEA’s team says it is something they are continually working on. While a plan like the Interior Energy Project has been discussed for years, it came together at the end of the 2013 session when the Legislature passed $332.5 million in bonds, loans and grants to get North Slope gas to the region in Senate Bill 23. If Guttenberg’s suggestion of a marketing plan with the easiest gas available, likely trucked Cook Inlet gas, takes shape, another funding source would probably be needed as SB 23 specifies all the funds from the legislation must be used to get North Slope gas south. A Democrat, Guttenberg said Gov. Sean Parnell could make subsidized conversions a reality if he wanted. Spending up front to market a product is something done successfully in the private sector every day, he said. “Act like a normal entity. Act like someone who is trying to create a market for your product,” he said. “Get the enthusiasm going; that’s basically it.” The fact that Interior’s energy crisis hasn’t yet been solved should be blamed on Alaska’s recent leadership, he said, and is one of the “failings” of the Parnell administration. “When oil hits $100 and above and you’re in that neighborhood and you’re getting billions of dollars of extra revenue as far as I’m concerned you have an obligation to build an economy,” Guttenberg said. “You hear from the (Fairbanks) Chamber of Commerce and everybody the one thing holding down development is the cost of energy.” Elwood Brehmer can be reached at [email protected]

Industry offers avgas alternatives, FAA targets 2018 use

The Federal Aviation Administration announced July 10 it has received proposals for alternatives to leaded fuels for piston-fired engines. FAA officials have said their goal is to have an unleaded aviation fuel option available by 2018. “We’re committed to getting harmful lead out of general aviation fuel. This work will benefit the environment and provide a safe and available fuel for our general aviation community,” Transportation Secretary Anthony Foxx said in a formal statement. Aviation gasoline, commonly referred to as avgas, is the only commonly used fuel in the country that still has lead added to it. The most widely distributed avgas is a 100-octane fuel known as 100 low-lead. The toxic element is added to avgas to achieve a higher octane level in the fuel, which improves engine performance, and lubricate parts in highly stressed piston aircraft engines. Federal regulations ended the addition of lead in vehicle fuels nearly 40 years ago. Jet fuels do not contain lead. According to the FAA, there are approximately 167,000 general aviation aircraft in the United States that use leaded fuel. There are more than 10,000 piston-engine aircraft registered in Alaska, meaning the state has nearly 16 times the aircraft per capita as the national average, the state Transportation Department reports. The FAA requested the 10 alternative fuel proposals it received in June 2013 as part of the agency’s Piston Aviation Fuels Initiative, or PAFI, aimed at helping the general aviation industry make a smooth transition to unleaded gasoline. The proposals came from fuel producers Afton Chemical Co., Avgas LLC, Swift Fuels and a group including BP, Total USA and Hjelmco. The fuel initiative will play a “key role” in deployment of unleaded fuel across the nation’s existing general aviation fleet, an FAA release states. Congress appropriated $6 million in the current budget to fund the PAFI tests at the FAA Technical Center in New Jersey. Testing will analyze how common engines in the existing fleet respond to the fuels, associated costs, the possibility of their production and distribution and potential environmental impacts. Jane Dale, the government affairs coordinator for the Alaska Air Carriers Association, said more money needs to be put towards fuel research if significant steps to eliminate leaded avgas are going to be taken. FAA Administrator Michael Huerta said in a release that the agency would collaborate with industry partners and the Environmental Protection Agency to find a viable solution to leaded avgas. Restricting avgas consumption would only work in Alaska if a substitute fuel performs like its leaded predecessor, Dale said. If substitute fuels do not have the same characteristics of avgas, they would have to be implemented over decades, up to 30 years, she said, to allow for the industry to transition its fleet. Nearly 96 percent of the commercial aircraft fleet in Alaska is piston-engine aircraft that burn leaded fuel, Dale said, meaning new fuel requirements would have an immediate and lasting impact on the state’s economy. According to the federal bureau of transportation statistics, avgas accounts for 0.15 percent of the fuel consumed nationwide, but that figure jumps to 3.38 percent in Alaska. “The federal government should commit to a substantial research and development program for aviation fuel and produce a viable fuel alternative prior to any regulatory changes,” Dale said. The EPA estimates about 14.6 billion gallons of avgas consumed between 1970 and 2007 emitted approximately 34,000 tons of airborne lead. Avgas is the single largest contributor to airborne lead particulates in the country, according to the agency. The aviation industry has come under fire from environmental groups for purported impacts of using leaded fuels in populated areas. Friends of the Earth has led a petition since 2006 to the EPA calling for tighter regulations regarding lead emissions from agvas. In April of this year Friends of the Earth filed a motion requesting the EPA reconsider a 2012 denial of its petition. The motion claims the EPA has all of the information it needs to make a finding that avgas lead emissions “may reasonably be anticipated to endanger public health or welfare.” EPA has said it intends to make a final endangerment determination in mid-to late 2015, after studies of the issue are complete. Elwood Brehmer can be reached at [email protected]

Alaskans take up oil debate before Aug. vote

The public was encouraged to participate in the oil tax discussion July 14 during a debate between current and former state government officials broadcast across Alaska. Voters will have the final say on the issue August 19 when they either vote “yes” on Ballot Measure 1 to repeal the current oil tax structure known as Senate Bill 21, or “no” to keep SB 21 in place. Rep. Les Gara, D-Anchorage, who has been at the forefront of the “Repeal the Giveaway” movement against Gov. Sean Parnell’s SB 21, and Juneau natural resources attorney Lisa Weissler sat on the “yes” side of the table at Juneau’s Mendenhall Valley Public Library. Opposing them was Jim Clark, former chief of staff to Gov. Frank Murkowski and Murkowski’s former Revenue Commissioner and Alaska Electric Light and Power Co. chief Bill Corbus. Alaskans from Craig, Dillingham, Bethel, Anchorage and Kenai were encouraged to question the four-person panel via videoconference. Juneau Votes, a non-partisan group aimed at increasing voter turnout, coordinated the debate. Gara opened his remarks by calling SB 21, which lowered the state’s take of oil profits at high prices, a “pathway to poverty” for Alaska. He said repealing SB 21 and going back to ACES, the progressive oil tax structure that increases the state production tax as market prices rise, is in line with the state constitution’s mandate to maximize the use of Alaska’s resources for the benefit of all Alaskans. “(The constitution) requires us to get the maximum benefit possible because we own the oil,” Gara said. “It’s how we fund our schools, our construction jobs, our roads, our infrastructure, our energy progress.” Corbus said nearly half of the state’s jobs are tied to the oil industry in some way and that SB 21 encourages short and long term investment that will secure those jobs as opposed to taking as much money as possible through high taxes. Roughly 90 percent of the state’s revenue comes from the oil and gas industry in the form of lease sales and production and corporate income taxes. Clark and Gara dominated the discussion. Seated at opposite ends of the table, the two revisited a disagreement over SB 21’s actual production tax rate. Clark insisted it sets a 35 percent rate for existing production, a figure Parnell’s administration has used. Gara claimed the rate is 27 percent for existing fields and 13 percent for “new oil” produced from fields that came online after 2003. Over time the less-taxed new oil will overtake traditional production and cripple state revenue, Gara and Weissler said. Gara pointed to Department of Revenue projections that the state will have a budget shortfall of approximately $2 billion over the next five years at oil prices of $100 per barrel as proof that SB 21 is a “giveaway.” Clark called it “disingenuous” to attribute those losses to the new tax — that they would’ve occurred under either tax system because ACES and SB 21 generate about the same revenue for the state with oil prices at or just above $100 per barrel. At lower prices, SB 21 draws more tax dollars, according to the Revenue Department. Increasing production in the existing fields by 2 to 4 percent would help blend the lower taxes of new oil into the state’s take and offset potential revenue declines, according to Clark. He said Gara’s cohorts in the “Repeal the Giveaway” campaign agree ACES was not the correct tax system because production decline continued at an average of about 6 percent per year during the six years it was in place. He noted that the total government take — the combination of local, state and federal taxes on net oil revenue — under ACES averaged about 72 percent. “That’s quite a bit higher than our competitors,” Clark said. The oil producing states edging the Gulf of Mexico have total take rates near 50 percent, he said, and to be in the middle of the pack Alaska’s needs to be from 60 to 65 percent. Gara dismissed Clark’s claim. “The tax rate is not what attracts new investment,” Gara said. “I know it has an impact, but it’s not what attracts new investment.” He backed that statement by highlighting the fact that North Slope oil production has declined steadily since 1989 under numerous tax regimes. When dealing with large corporations that do business in a global market lower taxes or tax credits must be tied to in-state investment, Gara said, and the “flaw of SB 21” is that there are no such requirements in the law. Even Parnell’s own Revenue Department forecasted a 45 percent decline in production by 2024 under SB 21, Gara contended. Corbus said those figures are based on prior investment projections by producers and do not account for future projects encouraged by the newer tax. Clark said the recently announced stem in production decline — production in fiscal year 2014 was just 700 barrels per day less than fiscal 2013, the Revenue Department announced — proves SB 21 is working. Gara offered his view on how the state should deal with oil taxes if SB 21 is repealed and ACES is reinstated. “We should rewrite a law that takes some of what was in ACES, a lot of what was in ACES, that says you get tax breaks if you invest in Alaska — you can buy your tax rate down if you invest in Alaska,” he said. Clark countered that a 2010 reduction in taxes for Cook Inlet producers helped spark what is now considered a rebirth of activity in the Inlet that has quelled fears of a natural gas shortage for Southcentral. Oil industry investment is spurred by a combination of oil price, ease of production and taxes, Clark said. He emphasized often during the two-hour back-and-forth that Alaska must find the “sweet spot” between state tax, oil price and production to maximize state revenue. Additionally, Clark predicted that if ACES is reinstated, legislators will be hesitant to change it, as Gara says would happen. “I think a vote of the people that turns down SB 21 and goes back to ACES is going to live with ACES, which even the ‘yes’ proponents agree is a broken system,” Clark said. Gara said he plans on reintroducing a bill in the upcoming session that would provide state-funded, low-interest loans to independent producers for processing facilities and other production infrastructure as a way of encouraging investment. The one point both sides could agree on is that projecting oil prices, which play a dominant role in which tax structure garners the state the most money, is a losing game. “I’ve rooted for different oil prices for different reasons and I’ve been wrong every time,” Gara said. Corbus said oil prices are unpredictable because they are subject to an “emotional business” that has much to do with international politics. Clark said because the state relies so heavily on oil taxes for its revenue Alaska has created a “de facto” partnership with the producers and is “at the mercy” of the oil and gas markets, like it or not. “(Oil companies) are not in Alaska because they love us; they’re in Alaska to make money,” he said. Elwood Brehmer can be reached at [email protected]

Strong, early sockeye returns highlight salmon season

The Bristol Bay sockeye run continues to exceed expectations. Prior to the season, the Alaska Department Fish and Game forecast was for a sockeye run of 26.6 million fish. A run of that size would have allowed a commercial harvest of 17.9 million fish, leaving about 8.7 million fish for escapement. All of those numbers have already been surpassed. Through July 7, ADFG counted a total salmon run of 30.88 million in the region. The commercial harvest through that day was 21.14 million fish. The run has also well surpassed the 2013 run of 23 million fish. The 20-year average run is approximately 36 million sockeyes for Bristol Bay. Strong red returns in the Wood River drainage pushed ADFG to increase the sport fish limit from five to 10 reds per day on July 4. The Wood River run was more than 1.9 million through July 2, far greater than the upper escapement goal of 1.5 million fish. An early and now waning king salmon run on the Nushagak River forced the department to halve the daily bag limit — from two to one — for sport caught kings in the large Bristol Bay watershed July 7. As of that day, 59,539 kings had passed the Portage Creek sonar on the Nushagak, well off last year’s total of 86,054 kings for the same day. The total Nushagak king run in 2013 was 113,743 fish. According to a July 3 ADFG release, the run is expected to fall within the escapement goal range of 70,000 to 90,000 kings. Southcentral Upper Cook Inlet sockeye returns continue to outpace historical averages as well. Through July 8, 42,273 early-run sockeyes had passed the Russian River weir, exceeding the runs upper-end escapement goal of 42,000 fish with six days of counts to come. The traditionally larger late run officially begins July 15. Those late-run reds are on their way up the Kenai River, too. Nearly 127,000 fish had passed the sonar at Mile 19 of the Kenai by July 8. By comparison, 50,100 late-run reds had passed the counter in the same period last year. The Kenai River personal use dipnet fishery begins July 10. King salmon caught in the fishery must be released. Sport king fishing opened July 1 on the Kenai below a regulatory marker near Skilok Creek, downstream of Soldotna. The first week of the run is ahead of the previous two years with 1,524 fish counted through July 7. Single-hook and no-bait restrictions are in place for the fishery. With more than a month to go in the Kasilof River red run and already surpassing its minimum escapement goal of 160,000 fish, ADFG increased the daily bag limit from three to six sockeyes on the Kasilof July 4. Through July 8 the Sterling Highway sonar on the river had counted 201,469 sockeyes. Additionally, ADFG expanded the personal use red fishery on the Kasilof through Aug. 7, opening the river to dipnets up to the Sterling Highway bridge. Upper Inlet commercial fishers have harvested 520,000 salmon, ADFG reported July 9. Of those, 452,210 were Upper Cook Inlet Central District sockeyes. The department also reported 2,481 kings had been taken commercially in the Upper Inlet. To the south, the Lower Inlet commercial fleet had harvested 122,683 salmon, a catch dominated by 117,848 sockeyes as of July 9. Elsewhere in Southcentral, more than 17.8 million salmon have been harvested commercially in Prince William Sound fisheries, according to ADFG numbers available July 9. The eastern purse seine fishery pinks accounted for more than 10 million of those fish, with another 2.8 million pinks harvested in the Montague District. Copper River gillnet fishers had taken 1.8 million sockeyes and 9,541 kings, according to the Sound report. Through July 8, nearly 960,000 sockeyes had passed the Miles Lake counter on the Copper. The upper escapement goal for the fishery, which is counted through July 27, is 750,000 sockeyes. As a result of the high sockeye returns, ADFG is opening the Chitina dipnet fishery July 14 to July 20 with a supplemental harvest of 10 fish per household allowed above the annual limit. The yearly limit is 15 for household of one and 30 salmon for households of two or more. Commercial harvest of Kodiak sockeyes neared 789,000 fish as of July 7, with the total salmon catch eclipsing 1 million fish. A majority of the sockeyes came from the Karluk River area with 423,521 fish harvested there. More than half — 41,870 — of the 91,664 pinks harvested in Kodiak fisheries came from Karluk as well. Chum harvest around the island totaled 106,094 fish through the first week of July, with the Karluk, northeast and Duck bay areas dominating the catch. Southeast The summer king troll fishery opened July 1 in Southeast. ADFG’s total king harvest target, with Alaska hatchery fish, is 171,300 fish. Harvest statistics will not be available until later in the month, according to the department. In the spring troll fishery about 43,000 kings were taken. That was the highest number since 2007. Only 7,000 chums were harvested by 43 Icy Strait spring troll fishers, down from a harvest of 280,000 chums by 185 permit holders in the same area in 2013, ADFG reported. The region’s purse seine fishery opened in traditional areas June 15. ADFG is projecting a harvest of 22 million pinks, well below the 10-year average of 34.5 million of the small salmon. Total chum returns, which are primarily hatchery fish, are expected to be 9.9 million salmon. Elwood Brehmer can be reached at [email protected]

Nearing 30 years, state power program keeps going and going

About to turn 30 years old, a state power assistance program is more important than ever to life in rural Alaska. The Power Cost Equalization Program, known as PCE, helps mitigate the financial burden of electric bills that can be downright exorbitant with just modest power use in some parts of the state. Designed to bring power costs for rural residents in line with the rates their urban counterparts pay, Alaska Village Electric Cooperative President and CEO Meera Kohler said PCE takes what is often a rate of 60 cents per kilowatt-hour or more and reduces it to a more manageable rate of about 20 cents per kilowatt-hour, or kwh. “PCE is probably the number one issue in terms of importance to us,” Kohler said. Rising diesel prices — the fuel behind power generation in almost all PCE participating communities — particularly in the last five years, has pushed the program to provide roughly $40 million in annual assistance of late to the 81,000 Alaskans that lived in the 190 communities eligible in fiscal year 2013, according to data provided by the Alaska Energy Authority, which administers the program. Eligible utilities turn in monthly reports to the authority and are then reimbursed for the qualifying power their customers used. The base PCE rate is the weighted average of Railbelt and Juneau utility rates. Because Chugach Electric Association in Anchorage provides more than half of the residential sales used to calculate the base rate, its rate accounts for more than half of the equation. That rate is expected to be 14.8 cents per kwh for state fiscal year 2015, up 0.8 cents from 2014, and is very near current Chugach rates. AEA Executive Director Sara Fisher-Goad told the authority’s board June 26 that not all of Golden Valley Electric Association’s residential sales, at by far the highest rates among Railbelt utilites, factor in to the base PCE rate. “Although Golden Valley has the higher rates, the percentage of their impact to those rates is less because it’s just the City of Fairbanks that is included, not the entire (Fairbanks) North Star Borough,” she said. As a result, sales to about 35,000 residents are calculated into the formula, not 90,000. Golden Valley was calculated into the latest PCE base with a rate of 23 cents per kwh. The maximum PCE rate for each community is equal to 95 percent of the local utility’s operating costs, up to $1 per kwh, minus the base rate. For this fiscal year, the PCE assistance cap is 80 cents per kwh. The most recent average cost after assistance is 21 cents per kwh, according to AEA. Fisher-Goad said only utilities participating in the program at its inception in October 1984 are eligible for assistance today. Any utility with costs below the urban average, primarily those utilizing natural gas or hydropower, is not eligible. That includes the “Four Dam Pool” communities of Ketchikan, Wrangell, Petersburg, Kodiak and the Copper River valley. To qualifying utilities, PCE offsets about 30 percent of all of the power they sell, according to AEA. Assistance is offered to residential customers, with a cap of 500 kilowatt hours per month, and community facilities, with a cap of 70 kilowatt hours per resident per month. The local qualifying local services include sewer and water, community buildings and public lighting. Without PCE, average rural customers would see their bills triple from about $100 per month to $300 per month, Kohler said. That is particularly significant when the customers often have limited incomes that go almost exclusively towards energy bills, food and clothing, she said. “Most of the protein on their tables comes from subsistence (harvest) so thank goodness for that,” Kohler said. Commercial customers, eligible for assistance in the early years of the program, no longer qualify; neither do state facilities. Kohler said the local facility assistance is essential to keeping some rural towns alive. “The cities are able to operate their facilities because their cost of power is a third of what it would otherwise be and if PCE were to go away I think there would be a lot of communities that would basically close their doors,” Kohler said. “The local governments would not be able to pay the electric bill. They’re already struggling with the heating bill.” As it stands, a lot of rural communities have cut all full-time employees to save money, she said. Along with eliminating commercial customers, PCE has seen its use cap lowered from 700 kwh per month to the current 500 kwh, a reduction that cut program costs by 40 percent, but also put a seasonal strain on some customers, Kohler said. A vast majority of rural residents don’t hit the 500 kwh cap during summer, she said, but exceed it in winter. Kohler said she has supported bills that have stalled in the Legislature in recent years that would raise the cap to 600 kwh per month. “I would very much support PCE going to support commercial customers, especially if the limit is the same as residential and for some small businesses it might make a very material difference,” she said. “But the political realities — you choose your battles and my battle is to preserve PCE for residential customers.” Fisher-Goad said ways to improve the program are always being investigated, but in recent years it has been healthy and self-sustaining. The Power Cost Equalization Endowment Fund was capitalized in 2000 with Constitutional Budget Reserve money and sale proceeds from the Four Dam Pool projects, she said. The fund has about $943 million in it today and was supplemented in 2006 and 2011 with capital appropriations totaling $582 million. Managed by the Department of Revenue, AEA is authorized to take up to 7 percent of its three-year market average from the endowment to pay for the program. Fisher-Goad said the authority uses about $300,000 to cover administrative costs and another “very small” amount to train utility operators on how to comply with the program to achieve maximum efficiency every year. AEA anticipates investments by the Revenue Department will be relied upon as the sole funding source for the endowment for the foreseeable future, Fisher-Goad said. Revenue has a legislative mandate to achieve 7 percent returns on the endowment in order to keep it solvent. Along with the legislation to raise the kilowatt-hour ceiling, legislation to eliminate the return mandate and cap AEA’s draw at 5 percent stalled last session. While the department has done “a fabulous job on meeting the investment mandate,” and then some the last several years as Fisher-Goad said, Deputy Revenue Commissioner Mike Pawlowski said discussions came up in the department during the last session about how to reduce the stress of hitting such a high return. “PCE is one of the only funds that Revenue manages that has statutory direction to achieve that type of a rate of return and internally we’ve raised that there are risks that come along with chasing that type of return,” Pawlowski said. Regardless of how the program may change in the future, Kohler said she wants all Alaskans to understand it is not an entitlement program, particularly during years of leaner state budgets. “(PCE) makes a very, very modest amount of electricity affordable for Alaskans who want to live in the places they’ve lived for thousands and thousands of years,” she said. “I feel that all the wealth of Alaska has come from rural Alaska and the very least we can do is sustain rural Alaska because in my opinion, that’s what makes Alaska, Alaska — rural Alaska.” Elwood Brehmer can be reached at [email protected]

MARAD seeks dismissal of port suit

The U.S. Maritime Administration asked a federal court to throw out the Municipality of Anchorage’s suit against the agency over its involvement in the city’s port expansion debacle. In its motion for dismissal submitted June 27 to U.S. Court of Federal Claims Judge Edward Damich, the Maritime Administration, or MARAD, asserts the memorandums of understanding it worked under on the Port of Anchorage construction project were cooperative agreements and do not hold it liable for the money lost on the currently stalled project. MARAD and Anchorage entered into the first memorandum, or MOU, in 2003 to comply with a congressional requirement that federal funds for the project be doled out by the Department of Transportation agency. In 2011, after widespread construction problems were discovered, MARAD and the city signed another MOU that expanded MARAD’s role to be a part of the Port Oversight and Management Organization. As a member of that group, along with city and port officials, MARAD was to help provide “overall executive leadership vision, policy, strategic objectives, and priorities for the project,” the MOU states. No substantial construction has occurred at the port since damaged sheet pile dock facing was discovered in 2010. Anchorage sued MARAD at the end of February claiming the agency owes it unspecified damages for the port construction project that has little to show for the $439 million of public money poured into it. Early designs estimated to cost less than $300 million added an all-but earthquake proof north dock to the port and replaced the aging pile dock that is now 50 years old. MARAD’s attorneys point out that Anchorage has already tried to recoup damages for similar claims from other parties involved in the construction drama. The suit against MARAD pulled the last significant player in the port project into litigation with Anchorage. The city sued the project management, dock design and consultant companies in March 2013. That case is ongoing in Alaska U.S. District Court. Anchorage’s claim alleges MARAD failed to live up to the MOUs because it failed to provide “promised expertise to design, construct, and oversee the design and construction of the project.” The city also says it has virtually lost the $139 million of federal money appropriated to the project because of MARAD’s mismanagement and will likely not have the benefit of federal funds going forward. On the original 10-year timeline, the Port of Anchorage expansion was supposed to be completed in 2013. Anchorage Mayor Dan Sullivan has said it now will likely be at least 2019 before a scaled down version of the port is finished. Finally, Anchorage claims MARAD “recklessly” settled a contract dispute with Integrated Concepts and Research Corp., the project management firm, by paying out $11.3 million to ICRC without the city’s consent or knowledge. To the first set of allegations, MARAD’s attorneys note that the agency had no experience or technical expertise in designing or managing a complex construction project before the Anchorage work, a fact the city was well aware of. According to MARAD, the listed terms of the 2003 agreement require it to handle the project financials and little more. MARAD’s attorneys noted in the 45-page motion that the first MOU requires Anchorage — the municipality and the port — to “provide overall program requirements and direction of port expansion to MARAD.” Further, city officials were to “review all plans, specifications, and status reports submitted by the primary contractor and its subcontractors before submission to MARAD,” the 2003 MOU states. Because it was tasked mainly with money — a role it claims was directed by Congress — MARAD had the authority to settle its contract argument with ICRC and Anchorage blends the distinctly different 2003 and 2011 MOUs in its complaint, the agency contends. “The 2003 agreement, which was in place until after discovery of construction and design problems in 2010, placed the risk of failure (as between Anchorage and MARAD) primarily on Anchorage by assigning Anchorage greater management responsibility,” MARAD’s motion asserts. MARAD also cites the meeting minutes from the June 24, 2003, Anchorage Assembly meeting when the first MOU was formally approved as proof the city was aware of its own and MARAD’s roles in the project. Then-Port of Anchorage director and former Gov. Bill Sheffield “was satisfied that Anchorage retained sufficient program control of what improvements would go into the port, where they would be located, and what they would do. Under the arrangement with the federal government, MARAD would be responsible for handling and paying construction claims,” according to an excerpt from a report Sheffield gave to the assembly in support of an amendment to the 2003 MOU, cited in MARAD’s dismissal motion. The agency’s limited role in the Port of Anchorage project was criticized in a Transportation Department Inspector General audit of the agency’s work in Alaska, as well as its involvement in port projects in Hawaii and Guam. The IG report blames the construction issues on the fact that MARAD delegated its technical and program authority to Anchorage through the MOUs, according to the motion. MARAD states that Congress did not give it the directive to begin obtaining technical and construction expertise until 2009, after it was involved in Anchorage, as a reason for its purported role as a money-handling agency in the project. Elwood Brehmer can be reached at [email protected]  

AIDEA advances Interior gas project despite unknowns

The Alaska Industrial Development and Export Authority board of directors approved the framework of an agreement for the construction and operation of a North Slope natural gas liquefaction plant June 26 without yet knowing exactly what its financial contribution to the plant will be. The concession agreement, as it is known, lays out how AIDEA’s project partner MWH Global Inc. will incorporate the private investment it secures with the state funds dedicated to the Interior Energy Project through Senate Bill 23. How much state money will need to go into the plant will depend on the final cost of the gas to Interior residents, which is dependent upon multiple unknown costs at this point. Prior to entering an executive session, the board had a tense discussion with staff from AIDEA and MWH about the possibility of the state fronting nearly all of the money for the plant — up to $182.5 million — under the terms of the concession agreement. The state money would come from $125 million of Sustainable Energy Transmission and Supply, or SETS, fund loans and a $57.5 grant appropriated to AIDEA in SB 23 to pay down the cost of gas from the project. Board member and former state senator from Fairbanks Gary Wilken said the prospect of the state paying for the bulk of a North Slope LNG plant expected to cost between roughly $160 million to $200 million is a diversion from what the board was told in January when it selected MWH to participate in the Interior Energy Project. Based on MWH’s term sheet at the time, AIDEA was told portions of the SETS and grant money totaling $79.5 million would still be available for funding gas distribution systems after the plant was paid for, Wilken said. AIDEA Executive Director Ted Leonard said that was not the case. “We’ve always said a majority of the SETS funds would go into the plant and also the capital appropriation. That’s been in all of the presentations that I’m aware of,” Leonard told the board. “We are looking into having as much owner or investor money in the plant as we can where it still makes the (gas) price out of the plant viable.” After an executive session the board unanimously approved the concession agreement. According to the final MWH term sheet, MWH would contribute a minimum of $20 million and up to $85 million to the plant through its investor, Toronto-based Northleaf Capital Partners. AIDEA would then be on the hook for the remainder, between roughly $75 million to $180 million depending on a combination of the cost of the plant and private investment. MWH Vice President and Managing Director Rick Adcock said that Northleaf wants to invest as much as possible while keeping the final cost of gas for Interior residents down. AIDEA has continuously said its goal is to provide a “burner tip” gas price to consumers of about $15 per thousand cubic feet of gas, or mcf. That would be about half the cost of fuel oil, which many area residents currently use for heat. How much private investment the authority secures will depend on the cost to construct and operate the plant. AIDEA Deputy Director Mark Davis said an “indicative” plant price should be known by the middle of July.  Similar prices for transportation down the Dalton Highway and gas storage in Fairbanks and North Pole should be available by July 25, according to MWH’s Chris Brown. The indicative prices are closer to the final price than the feasibility estimates used earlier, but are still variable. Ultimately, the costs that will make up the final gas price should be known by Oct. 1, Davis said. By the end of October all costs and investments should be set and gas purchase agreements should be in place, MWH has said. Another point of contention at the meeting was the unveiling to the board that AIDEA will likely use a gas supply contract that Interior utility Golden Valley Electric Association has with BP to feed the plant. Board chair Dana Pruhs called the use of Golden Valley’s contract “a cardinal change” in the project. Pruhs asked AIDEA staff if Golden Valley would be able to set its own gas price that could inflate the final cost. Golden Valley President and CEO Cory Borgeson said in an interview that the utility would act as a “pass through” for other utilities — Fairbanks Natural Gas and the Interior Gas Utility — buying gas from the project and would not mark up the cost. The 20-year supply contract is for up to 23 billion cubic feet, or bcf, of gas per year, much more than the total estimated residential demand of 7.5 bcf. “I believe that BP provided us this gas contract thinking that this contract would be used for this project because at the time we got this contract Golden Valley was pursuing (to lead) this project,” Borgeson said. He said he believed AIDEA has worked hard to get its own contract but that securing a supply contract from a producer is “very hard.” Borgeson said he could not disclose the contract price. AIDEA’s cost models for the project have put the wholesale cost of gas at between $3 and $4 per mcf. Always viewed as an anchor tenant, Golden Valley can commit to an off-take of 2 bcf per year for electrical generation, Borgeson said. That gas would offset power currently produced by burning diesel. As a large Interior Energy Project customer, the more gas Golden Valley purchases the lower the cost of gas would likely be for everyone involved. He added that Golden Valley was recently notified by Fort Knox mine, a major customer, that the gold producer would be cutting back its annual power demand in 2017 from 33 megawatts to about 12 megawatts to 17 megawatts, a fact that could affect how much gas Golden Valley needs. Borgeson has said the utility has a responsibility to its ratepayers to provide the lowest-priced electricity it can and if that comes from fuels other than natural gas it must go in another direction. “Golden Valley really wants this project to succeed,” he said. “We believe this is extremely important. We’ll do everything we can to help facilitate this but we’ve made it clear that there are certain risks we are not willing to take that make this project all the more complicated.” For the birds While prices are being hashed out in offices to the south, AIDEA’s Davis said the authority is trying to get to work on the North Slope pad that will eventually support the LNG plant. Earlier this year, AIDEA purchased a parcel from Spectrum LNG for $1.8 million to use for the 17-acre pad site. Davis said AIDEA is working with the Department of Natural Resources to get the occupancy date for the site moved up from mid-August so the construction team can get to work as soon as possible. When much of that work begins will depend on ducks in the area, he said. “They have to wait for a bird window on the Slope,” Davis said. “Construction can’t begin until about Aug. 1 to Aug. 15, that depends on when the eider ducks leave, but we will have observers out there watching and when they leave we’ll start” building the gravel pad. Elwood Brehmer can be reached at [email protected]  

Haida Energy and AEA agree on loan for Prince of Wales hydro

It took a few tries, but the Alaska Energy Authority approved a loan June 26 that everyone involved could support to get Prince of Wales Island off diesel power. The $20 million loan to Haida Energy Inc., a joint venture between the village corporation of Haida Corp. and Alaska Power and Telephone, will be used to construct the Reynolds Creek hydro project about 10 miles east of the village of Hydaburg on Price of Wales Island in Southeast Alaska. When completed, the five-megawatt Reynolds Creek power plant will supplement the roughly 6.8 megawatts of hydropower currently available on the island and, with the needed interties, allow nearly all of the island’s residents to use exclusively hydro power. Alaska Power and Telephone President and Haida Energy board member Bob Grimm said in an interview that diesel-generated power on Prince of Wales costs about 32 cents per kilowatt. Projections are for first Reynolds Creek power to cost 14 cents per kilowatt. The loan comes just in time for Haida Energy, Grimm said, and is the end of a long negotiating process. AEA’s Power Project Fund team and Haida Energy agreed to a 3.78 percent interest rate with a seven-year interest-free grace period for the $20 million, 50-year loan. Those financial terms are contingent upon Haida Energy securing approval of a power sales agreement from the Regulatory Commission of Alaska for the sale of Reynolds Creek power, and in turn, a revenue stream from the plant to begin repayment. To get Reynolds Creek on line by June 2016 and fall within the window provided by its Federal Energy Regulatory Commission, or FERC, license, Grimm said Haida Energy will ask the RCA to speed up its normal process. “The RCA statutory requirement is to (make a decision) within six months,” Grimm said. “However, we’re going to ask for expedited treatment in an effort to comply with FERC requirements. If they are unable to do that we will be requesting a waiver and requesting a schedule modification from FERC.” If the RCA continues on its normal timeline, with the loan commitment in place, Haida Energy is hopeful FERC will grant a waiver to extend the construction window, he said. Haida Energy rejected loan terms approved by the AEA board at its April 24 meeting because they would have forced the company to charge more for its power, Grimm said at the time. AEA’s original loan terms were for a 4.6 percent interest rate and a two-year grace period with no payments on the $20 million. That repayment structure would have forced Haida Energy to charge a price close to that of diesel power and the project likely would not have been approved by the RCA, the company contended. Under the revised terms, the price of power will jump for a short time near the cost of diesel power when the repayment schedule kicks in, according to AEA’s projections. However, that cost will quickly stabilize and gradually decline rather than escalate, as is predicted to happen with diesel. Haida Energy’s original loan proposal in early 2013 was for a variable interest rate depending on the amount of power produced from Reynolds Creek. It called for no interest until the project produced 7,300 megawatt hours of power annually, with interest ramping up to 4.84 percent at maximum capacity production of 20,000 megawatt hours per year. That loan was tentatively agreed to by AEA staff but did not receive board approval. With Reynolds Creek projected to run at about 25 percent capacity in its first years of operation, Grimm said Haida Energy has been in contact with prospective mine developers in search of more affordable power — Niblack and Bokan — on Prince of Wales Island. Even if a mine doesn’t come to fruition, he hopes the extra power will be used by local businesses to reinvigorate an economy damaged by a dwindling timber industry in the region, Grimm said. “The lower the (power) rates the more competitive you are,” he said. AEA board member and former state senator from Fairbanks Gary Wilken said, “I’ve never met a hydro project that I didn’t like,” but that he was concerned with the way Haida Energy was able to simply reject AEA’s loan terms to get something they liked better. “I don’t want the action of this board to set a precedent that we are going to live with and will become the de facto loan that we have and then we’ll just ratchet it down as other folks have the same issues,” he said during board discussion. Ultimately, Wilken was the only board member to vote no on the loan resolution, which was approved. Board chair Russell Dick recused himself from voting. AEA Executive Director Sara Fisher-Goad said each project is looked at in three ways: its financial feasibility, economic viability, and technical feasibility. “We look at each application separately on that part,” she told the board. AEA does not agree to a lower interest rate unless it is needed to make a project viable, Fisher Goad said. She noted that the Reynolds Creek project loan is the largest and most complicated loan approved for the Power Project Fund. The Power Project Fund statutory interest rate is a 12-month running average of the municipal bond rate. AEA has the authority to lower that rate to zero percent if the authority sees fit. Board member and Revenue Deputy Commissioner Mike Pawlowski, representing Revenue Commissioner Angela Rodell on the board, said he hopes the approval of future loans can be tied to the approval of a power sales agreement, as the Reynolds Creek loan is. Fisher-Goad said AEA would work to put more responsibility on the loan applicant to prove why they need a lower interest rate and make the application process more rigorous in the future. Elwood Brehmer can be reached at [email protected]

State asks to join King Cove's lawsuit over road access

Alaska is again looking for a fight with the feds, this time over the King Cove access road. Assistant Attorney General Thomas Lenhart filed a motion June 30 to intervene on behalf of the tribes of King Cove in the tribe’s federal District Court lawsuit against Interior Secretary Sally Jewell over Jewell’s rejection of a proposed emergency access road between the communities of King Cove and Cold Bay. Also listed as plaintiffs in the case is the Aleutians East Borough and King Cove Corp., the Native village corporation. At the heart of the case is a land exchange that would shift approximately 43,000 acres of state land in the region and 13,000 acres of King Cove Corp. land to the federal government in exchange for 206 acres of the Izembek National Wildlife Refuge — land that would be used as the right-of-way for the road. “After years of putting birds over the well-being of Alaskans, it’s time for the Obama administration to agree to this exchange,” Gov. Sean Parnell said in a release from his office. On April 7 Parnell announced in a statement from his office the state’s intent to sue the Interior Department to get the road built on a separate claim — a right-of-way claim under the federal Mining Act of 1866. The disputed 11-mile section of road would connect segments of current road on state land. At the time, Attorney General Michael Geraghty sent a letter to Jewell that served as notice to the state’s intent to sue the department. According to federal statute, the state must wait 180 days after issuing the notice before it can take the feds to court on the right-of-way claim, making the earliest date it could sue Oct. 4. Supporters of the road effort claim the one-lane link is essential for the safety of residents of King Cove, as it would provide them reliable access to the all-weather airport with a 10,000-foot runway in Cold Bay. The villages on the western tip of the Alaska Peninsula sit across the water of Cold Bay from each other and are terrestrially separated by the Izembek Refuge. In an official statement from her office, Jewell said in December that she would uphold the no action alternative preferred by the U.S. Fish and Wildlife Service as part of the environmental impact statement, or EIS, process required for the land swap. At the time Jewell said critical waterfowl habitat would be disrupted by the road and said Interior would work with King Cove residents to find a safe travel alternative. Currently, people in King Cove that are in need of extensive medical attention must be flown out by U.S. Coast Guard medevacs to receive treatment in Anchorage during bad weather. The State of Alaska claims it should be allowed to intervene in the suit because Jewell is preventing the state from managing its lands and ignores its role as a cooperating agency in the EIS process. The state cannot fulfill its duty to keep its residents safe without the land swap. Also, the state is prevented from managing its land in the best interest of its residents if it is not allowed to make such deals, according to the court filing. “Finally, the state has an interest in ensuring that its citizens and communities are provided reasonable access across the vast federal land holdings in the state. In this case, the health and safety purposes of such access over the Izembek Refuge are literally of life and death importance,” the motion states. Sen. Lisa Murkowski has ranted at length over Jewell’s decision, calling it “offensive” and “insulting” on multiple occasions. Congress and the state in a 2009 omnibus land management bill approved the land exchange, but is contingent upon the Interior secretary’s approval based on the EIS. The road, estimated to cost about $21 million, would be paid for by the state. Opponents have said the road would not only harm wildlife, but could be used by fish processors in the area, would not always be passable during hazardous weather conditions and would set a precedent of development in federally protected wild areas. As of June 30, the Department of the Interior had not responded in court to the original lawsuit. Elwood Brehmer can be reached at [email protected]  

State asks to join King Cove suit

Alaska is again looking for a fight with the feds, this time over the King Cove access road. State Assistant Attorney General Thomas Lenhart filed a motion June 30 to intervene on behalf of the tribes of King Cove in the tribe’s federal District Court lawsuit against Interior Secretary Sally Jewell over Jewell’s rejection of a proposed emergency access road between the communities of King Cove and Cold Bay. Also listed as plaintiffs in the case is the Aleutians East Borough and King Cove Corp., the Native village corporation. At the heart of the case is a land exchange that would shift approximately 43,000 acres of state land in the region and 13,000 acres of King Cove Corp. land to the federal government in exchange for 206 acres of the Izembek National Wildlife Refuge — land that would be used as the right-of-way for the road. “After years of putting birds over the well-being of Alaskans, it’s time for the Obama administration to agree to this exchange,” Gov. Sean Parnell said in a release from his office. The state is also at odds with the federal government over the Environmental Protection Agency’s procedure in its ongoing attempt to block the Pebble copper-gold mine on state land near Iliamna and lost a case in 2013 to overturn strict emissions laws for ships traveling along the U.S. coast. Supporters of the road effort claim the one-lane link is essential for the safety of residents of King Cove, as it would provide them reliable access to the all-weather airport with a 10,000-foot runway in Cold Bay. The villages on the western tip of the Alaska Peninsula sit across the water of Cold Bay from each other and are terrestrially separated by the Izembek Refuge. In an official statement from her office, Jewell said in December that she would uphold the no action alternative preferred by the U.S. Fish and Wildlife Service as part of the environmental impact statement, or EIS, process required for the land swap. At the time Jewell said critical waterfowl habitat would be disrupted by the road and said Interior would work with King Cove residents to find a safe travel alternative. Currently, people in King Cove that are in need of extensive medical attention must be flown out by U.S. Coast Guard medevacs to receive treatment in Anchorage during bad weather. The State of Alaska claims it should be allowed to intervene in the suit because Jewell is preventing the state from managing its lands ignores its role as a cooperating agency in the EIS process. The state cannot fulfill its duty to keep its residents safe without the land swap. Also, the state is prevented from managing its land in the best interest of its residents if it is not allowed to make such deals, according to the court filing. “Finally, the state has an interest in ensuring that its citizens and communities are provided reasonable access across the vast federal land holdings in the state. In this case, the health and safety purposes of such access over the Izembek Refuge are literally of life and death importance,” the motion states. Sen. Lisa Murkowski has ranted at-length over Jewell’s decision, calling it “offensive” and “insulting” on multiple occasions. Congress and the state in a 2009 omnibus land management bill approved the land exchange, but is contingent upon the Interior secretary’s approval based on the EIS. The road, estimated to cost about $21 million, would be paid for by the state. Opponents have said the road would not only harm wildlife, but could be used by fish processors in the area, would not always be passable during hazardous weather conditions and would set a precedent of development in federally protected wild areas. As of June 30, the Department of the Interior had not responded in court to the original lawsuit. Elwood Brehmer can be reached at [email protected]

Building sector maintains gains from 2013

Crews are busy across Alaska as the summer building season is in full swing. With the exception of Fairbanks, year-to-date building activity in the state’s largest cities has been comparable to the first months of 2013, a rebound year for construction in much of Alaska when employment returned to its pre-recession peak. In the Municipality of Anchorage, more than $301.6 million worth of residential, commercial and government property building permits were applied for through May 31, nearly identical to the $302.8 million in permits through May of last year. Of that, roughly $160 million was commercial permit applications, compared to $187.8 million for the same period of 2013. While the value of commercial applications in Anchorage declined so far this year, the number of permits has increased by 11 percent from 457 to 508 for new construction and existing alterations or additions combined. The municipality received building permit applications valued at about $240 million through the first five months of 2012, making the last two years a 25 percent improvement. Activity bottomed out in recent years in 2010 when permits totaling $144 million were applied for through the spring. One of the bigger projects in Anchorage, Cook Inlet Region Inc.’s new home, the Fireweed Business Center, is ahead of schedule, CIRI real estate project director Chad Nugent said. “We took advantage of last year’s Indian fall,” to get early digging work done, he said. The eight-story, 110,000 square-foot glass-encased office complex valued at $23.8 million according to its building permit should be move-in ready by early spring 2015, according to Nugent. CIRI will occupy about 40 percent of the building at the intersection of Fireweed Lane and the Seward Highway, leaving about 60,000 square feet of class A office space available for lease, he said. The CIRI office development, along with other office construction in Anchorage — namely JL Properties’ 100,000 square-foot office building at C Street and International Airport Road — could help alleviate a tight commercial real estate market in the city. The class A vacancy rate in Anchorage was at 4.3 percent at the end of 2013 and expected to remain that way until the new developments are on the market, according to commercial brokers in the city. Mat-Su Elsewhere in Southcentral, 18 commercial permits valued at $8.23 million were applied for in Palmer through May 31. The largest application was for a $4 million Matanuska-Susitna Borough project. Through May, 45 building permits were sought in the City of Palmer totaling about $11 million. In 2013, the same period had 24 applications for just less than $6 million. The Matanuska-Susitna Borough and the City of Wasilla do not track building permit valuations. Kenai Peninsula A slow start to the year in Kenai has put permit activity well off the pace of 2013. As of June 7, there had been 31 combined residential and commercial permits applied for totaling $2.25 million. The commercial portion of that was 12 permits for $786,000 worth of construction. In 2013, Kenai had accepted 44 total permits valued at more than $4.57 million, of which 20 were commercial work for an estimated $1.71 million. A single $600,000 project at the Homer Electric Association headquarters in Kenai contributed to the valuation spike last year. Just down the road in Soldotna, city building official Ralph Linn wrote in a report that 2014 so far has been a steady building year for the City of Soldotna. By June 23, a total of 41 permits valued at $24.27 million had been applied for. Comparatively, $9.47 million worth of permits were sought in all of 2013. Expansion at the Kenai Peninsula College and the city library in 2012 pushed permit values beyond $25 million that year, up from just more than $9 million in 2011. This year, planned expansion at the borough’s Central Peninsula Hospital, remodels of the Kenai Peninsula College library and nursing buildings, and a remodel of Soldotna’s city hall are driving permit values, according to Linn. Fairbanks Permit activity in Fairbanks was down for the first five months of 2014 when compared to 2013. There were 36 commercial permit applications valued at $11.38 million in the Golden Heart City through May 31, less than half of the estimated permit value of $24.8 million applied for last year. Residential construction in Fairbanks continued to slow, a trend that has established itself in recent years due in part to high home heating costs, local real estate agents have said. Through May 31, residential building permits valued at $862,000 had been applied for among 31 permits. For the full year of 2007, the near-term peak of residential construction in Fairbanks, 981 residential construction permits were sought. Juneau Bigger budget projects in Juneau have pushed the value of commercial work to nearly $39 million on 97 permit applications as of June 23, up from $26.7 million on 98 permits for the same time in 2013. Combined residential and commercial construction has remained fairly steady in the capital city since a low of 385 permits for $26.4 million of work in 2011 year-to-date. In 2012, those figures rebounded to 398 permits valued at $56.5 million; last year it was 402 permits for $40.8 million, and so far in 2014 it has been 414 permits for an estimated value of $51.3 million. Elwood Brehmer can be reached at [email protected]

Bill to simplify vehicle registrations signed into law

WASILLA — Gov. Sean Parnell signed legislation June 20 aimed at simplifying vehicle registration for Alaskans with older cars. House Bill 19 gives individuals the option to permanently register their personal vehicles that are at least eight years old. It also gives personal trailer owners the option to permanently register their trailers. Stoltze, R-Chugiak, the bill’s sponsor, said HB 19 would encourage compliance with state vehicle registration laws. “This is just a simple government bill that makes it easier — less trips to the DMV,” Stoltze said. “It was an expression of, OK, after so many years you’ve paid enough in taxes on the vehicle and it was a value judgment.” When HB 19 takes effect Jan. 1 2015, Alaskans with qualifying vehicles can choose to pay the $100 biennial state registration fee plus a $25 permanent registration fee, which will cover registration for as long as the vehicle remains under the same ownership. The permanent registration is non-transferable. Similarly, trailer owners can pay the $30 fee plus a $25 permanent surcharge to register their trailers for as long as they own them. As a compromise with local governments that draw revenue from motor vehicle registration taxes, Stoltze said boroughs and municipalities can choose to opt in to the plan. The state’s tiered tax plan calls for most personal vehicles owners that qualify for permanent registration to be levied a one-time $16 tax. Those that don’t opt in can continue with current vehicle tax systems. Many local governments across the state, such as the Municipality of Anchorage, tax such vehicles at a higher rate. In Anchorage and the Matanuska-Susitna Borough a qualifying vehicle owner is taxed $70 for every registration. The Fairbanks North Star Borough and the City of Fairbanks do not tax vehicle registration. HB 19 also provides registration fee exemptions for those who are disabled or least 65 years of age on one vehicle. “(HB 19) is what good government is about,” Parnell remarked before making it law. “It’s about removing barriers and just getting out of your way so you don’t have to worry about paperwork. That’s one of the reasons we’re here to serve you.” Elwood Brehmer can be reached at [email protected]

Parnell signs state-led plan to advance Knik Arm Crossing

WASILLA — Gov. Sean Parnell officially approved a state-led financing plan for the Knik Arm Crossing June 20 when he signed House Bill 23 into law. A day prior, there was a sentimental feel at the Knik Arm Bridge and Toll Authority board meeting. With HB 23 becoming law July 1 at the beginning of the state fiscal year, the bridge project bantered about for decades is closer to becoming reality than ever before. “Everything my administration has worked to pursue has been about creating a climate of economic growth, a place where we can have a future together as Alaskans; a place where our families can be strengthened. The Knik Arm Crossing, that bridge is one sure way to assure a future of opportunity. It is a bridge of opportunity; it is a bridge to our future,” Parnell remarked prior to signing the bill at a MatSu Business Alliance luncheon. Parnell reiterated a stance taken by nearly all bridge supporters — that it will help alleviate an extremely tight and pricey housing market in Anchorage that is “punishing” families in the city, he said. The prospect of thousands of acres of developable land across Knik Arm from Anchorage has helped swell support for the bridge “across the pond,” Parnell said while in Wasilla. HB 23 sponsor Rep. Mark Neuman, R-Big Lake, said the bridge has “tremendous support” throughout the Matanuska-Susitna Borough and that it would be critical as a corridor to transport supplies and workers north from Anchorage if a prospective large trans-Alaska natural gas pipeline is built. He estimated future development made feasible by the bridge could bring $4 billion to $5 billion of economic development to the borough. “I worked closely with (Department of Natural Resources) Commissioner (Joe) Balash and Rep. (Bill) Stoltze in House Finance to get an amendment in Senate Bill 138 that would allow for the roads that are being built to build the pipeline to also be designed by DOT for a new transportation corridor to move north,” Neuman said June 20. The bridge would also be a first step towards accessing prospective coal and mineral resources in the West Susitna basin, he said. How the 1.7-mile bridge from northeast Anchorage to Point MacKenzie and associated connections will be paid for has been a topic of much debate in recent months. The proposed two-lane toll bridge was viewed for years as a prime candidate for a public-private partnership, or P3, financing scheme, with the state chipping in bond money and private investors counting on toll revenue for their returns. In December of last year, Parnell’s administration deemed the private markets had soured to the point where the P3 option wasn’t feasible, and the Department of Revenue unveiled a public financing plan broken into thirds. With a contingency cap on the project of $894 million in HB 23, the governor’s financing plan calls for a roughly $300 million contribution from federal highway dollars appropriated to the state, revenue bonds and the remainder coming from Transportation Infrastructure Finance and Innovation Act loans, or TIFIA, issued by the Federal Highway Administration. Toll revenue would be used to pay first the federal loans and then the state bonds. HB 23 as a P3 plan had been approved by the House in its 2013 session and was awaiting Senate approval when it got its financial overhaul. The other major change to the project came in the last days of the most recent session. When it left the Senate, HB 23 shifted the onus of delivering the bridge to the Alaska Department of Transportation and left the Knik Arm Bridge and Toll Authority, or KABATA, as the toll operator once DOT completes the bridge. At the June 19 KABATA board meeting, authority chair Mike Foster downplayed the about-faces the mega-infrastructure proposal has endured. “It has evolved like any major project should evolve,” Foster said. KABATA spokeswoman Shannon McCarthy said the multiple changes could slow some of the ongoing processes, such as applying for the TIFIA loan, but that overall the authority and DOT still plan on beginning construction in 2015, with the bridge opening in 2020. Since the session ended in late April, KABATA and DOT have been collaborating on how to best transfer the 10 years worth of “intellectual property” — environmental permits, engineering and design — the authority has gathered since its inception in 2003, KABATA Executive Director Judy Dougherty told the board. “We’ve met several times and it’s been like blasts from a fire hose for DOT,” she said. To keep on track, KABATA has drafted a letter of interest to the Federal Highway Administration, the first step in a TIFIA loan application, with DOT as the borrower, according to Dougherty. “All environmental permits are either in hand or awaiting issuance of the letter of authorization from (the National Marine Fisheries Service),” she said. An agency under the National Oceanic and Atmospheric Administration, NMFS must approve the project’s construction plan, which cannot adversely impact the endangered Cook Inlet Beluga whales that frequent Knik Arm during summer to feed. Dougherty has said bridge building would be done around the Beluga’s time in the area. In-water construction work at the nearby Port of Anchorage has been halted at times when whales were spotted within a mile of the port. McCarthy said a meeting was held June 20 between officials at Parnell’s Washington, D.C., office and NMFS officials to see where the agency stands on the construction proposal. KABATA staff did not know what the results of the meeting were as of June 24, McCarthy said. Authority officials have said issuance of the project’s U.S. Army Corps of Engineers wetlands permit is contingent upon NMFS approving the construction plan. While KABATA and the DOT wait to hear from NMFS, Dougherty said all of the other agencies have agreed to a transfer of permits from the authority to DOT. The two state groups have identified that integrating the automated toll system, which is KABATA’s role, into the design-build contract will likely be a challenge, Dougherty said, but she is confident that and other difficulties can be overcome. KABATA Chief Financial Officer Kevin Hemenway told the board that a draft socioeconomic study of the bridge’s potential impact on the region should be out in late July. The authority commissioned the study approximately a year ago and at the time said it would be available in fall 2013. McCarthy has said the original timeline was aggressive and Dougherty has downplayed the importance of the study results since the project has shifted away from the P3 financing model, when investors needed such information. The authority officials have been unclear as to exactly what has held up the study. Dougherty was also formerly made head of the authority when the board unanimously approved a motion to do so June 19. Prior, she had been acting executive director for the authority, having taken the role after Andrew Niemiec resigned in December following a motorcycle accident. Another motion approved Dougherty to begin transferring information and funds to DOT when HB 23 takes effect July 1. In the coming weeks the $55 million approved for KABATA in the capital budget will almost assuredly be transferred to DOT, but it’s currently unclear exactly when and how that will happen, authority spokeswoman McCarthy said. Through May 31, KABATA has spent $83.4 million to get the Knik Arm bridge project to its current point, Hemenway said. What money the authority has to spend going forward — $1.6 million has been set aside in the state budget for its fiscal 2015 operation — and what KABATA will have in terms of personnel is unclear. Dougherty will be taking a currently unformed position with DOT July 1 throughout the remainder of the project in addition to her role as KABATA chief, Deputy Commissioner Kim Rice said. Rice said she and Dougherty, a former DOT employee, worked together extensively in the past and that familiarity will help them sort out the unprecedented transition. “There is no clear path forward but we’ll get there and it will be collaborative,” Rice said. Elwood Brehmer can be reached at [email protected]

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