Elwood Brehmer

Mat-Su Borough officials hope to trim $12.3M ferry bill

The Matanuska-Susitna Borough will likely avoid paying back all of the $12.3 million it owes the federal government, manager John Moosey said of a bill that stems from a failed attempt to start Knik Arm ferry service. Moosey said borough leadership is putting a plan together that will hopefully convince the Federal Transit Administration to change its view on how the grant money should be handled. That plan should be sent to Washington, D.C., for consideration by late November, he said, as part of a revised schedule agreed to by the agency and the local government. “(A resolution) is probably going to take a couple months to hammer through, but I’m pretty sure we’re going to be successful,” Moosey said. “By successful I do not mean the whole thing goes away, but certainly not as onerous as the whole $12.3 million.” He added that the borough has worked extensively with the FTA Region 10 office in Seattle and that the feds understand how exhaustive the search for a resolution has been. Borough officials have hinted that some sort of payment plan on a lesser amount could be a probable outcome. In August, acting FTA Administrator Therese McMillan wrote a letter to Moosey ordering the borough to repay the $12.3 million spent of $21.2 million in federal grants allocated to developing ferry service between Port MacKenzie and Anchorage. The agency is open to working with the borough to resolve the issue, McMillan wrote, a sentiment that seems to have held true. At the time the borough had 30 days to repay the debt before it became delinquent and began accruing interest, a statutory requirement that has been withdrawn, according to Moosey. The $21.2 million was awarded in three chunks from 2002 to 2009. Of the money the borough spent on the project, $3.6 million was on a passenger terminal at Port MacKenzie and other funds were used to help pay for construction and outfitting of the 195-foot M/V Susitna, which was turned over to the borough shortly after construction. The U.S. Navy footed most of the $78 million bill for the Susitna, a prototype catamaran-style landing craft built in Ketchikan. The whole plan fell apart when the borough was unable to get the remaining $40 million needed to complete the ferry landings. For more than a year the borough has tried to sell and even give away the Susitna with no luck. If another government would take the Susitna, the borough would likely be off the hook for at least some of the grant money. The vessel’s one-of-a-kind design provides it unparalleled capabilities but also makes finding it a new home difficult, Moosey said. It docks differently than traditional ferries and has a limited payload that does not meet most industry needs. The Susitna can carry 110 people, cargo and land on a beach in as little as four feet of water. When describing the vessel, Moosey said, “The only thing I can equate it to —Grandma’s at home and she’s got to go to church and to go buy groceries and the only thing she’s got is a Ferrari and she can hardly afford the insurance and the cost to operate it.” It is currently docked at Ward Cove outside of Ketchikan at a cost of about $30,000 per month when insurance, maintenance and other fees are added up, he said. Moosey noted that everyone involved has “gone out of their way” to help the borough minimize costs associated with the Susitna. In the end, the FTA understands the borough’s situation but must follow through on its requirements, Moosey said. “They just want it resolved in a timely manner and so do we,” he said. “My assembly wants this resolved and they’ve been saying that for six months.” Elwood Brehmer can be reached at [email protected]

Anchorage on pace for bed tax record

All they major indicators show Alaska’s tourism industry has fully recovered from the depths of the “Great Recession.” That is particularly evident in Anchorage, where bed tax revenue outpaced 2013 — a record year for the key industry metric — over the first half of the year. Visit Anchorage President and CEO Julie Saupe said the second act of the year should continue the trend when the numbers are final. “Our fall season is going to be fantastic,” Saupe said. If her prediction holds true, bed tax revenue in the Municipality of Anchorage could approach $24 million, which would be a record for the third consecutive year and be nearly a 25 percent increase from 2009. Reliant on discretionary spending, the industry took a major blow when economies worldwide recoiled in 2009-10. Some studies estimate Alaska lost close to 5,000 tourism and hospitality-related jobs during the worst period of the recession. Anchorage has been helped in recent years by a healthy convention industry. The addition of the Dena’ina Civic and Convention Center to the city’s downtown allows multiple gatherings to be held at once, Saupe said. In October the Alaska Federation of Natives Convention returned to Anchorage and brought with it the National Indian Education Association Convention. “(NIEA) chose Anchorage based on the fact that AFN was going to be here in October and they wanted to do their conventions back-to-back,” she said. Next year about 1,400 members of the International Economic Development Council will convene in Anchorage and headline a busy convention schedule for the city, according to Saupe. While the large meetings often bring upwards of 1,000 people to the city, she emphasized that smaller, regular state meetings are vital to Anchorage as well. “The ability to maintain our state business, serve that 350-person convention, and at the same time have something like the IEDC in town has been important,” Saupe said. The industry rebound can also be seen in Southcentral cruise ship activity. More visitors come to Alaska via cruise ship than any other mode of transportation. According to the Cruise Lines International Association Alaska, cruise companies are adding nearly 8 percent capacity to the region for 2015, with ships expected to carry 330,000 passengers across the Gulf of Alaska to Seward, Whittier and Anchorage next year. Saupe and her team at the Anchorage tourism marketing group consider Seward and Whittier port calls as good or better for their city than calls directly to Anchorage. Nearly all of the passengers disembarking from ships in the smaller towns travel to Anchorage by rail and they often spend more time in the city than those on ships making day stops. Holland America Line’s Statendam will call on Anchorage nine times from May to September of next year, up from five stops the company’s Amsterdam made in 2014. Juneau The larger ships making gross-Gulf voyages also make multiple stops in Southeast, benefiting the communities there. As the region’s hub, nearly all of the ships stop in Juneau. Smaller vessels deployed to Alaska this past summer led to what will likely be a slight dip in cruise visitors. Juneau Convention and Visitors Bureau President and CEO Nancy Woizeschke said she expects the final tally to be about 950,000 cruisers through the capitol city for 2014, off less than 5 percent from last year. Alaska flirted with the magical 1 million-cruiser mark in 2013. “We don’t think we’re going to hit the 1 million cruise ship visitor mark this year but we certainly saw a lot of independent travelers coming this year outside of cruise ships so we’re always excited to see that,” Woizeschke said. Independent travelers often use Juneau as a trailhead of sorts for trips to other parts of Southeast. She said a 3 percent increase in cruisers is expected for next year based on larger ships being sent to Alaska again. Several of the ships traversing the Inside Passage in 2015 will have the ability carry more than 2,000 passengers, and Princess Cruise Line’s Ruby Princess will lead the way with more than 3,000 berths, Woizeschke said. Elwood Brehmer can be reached at [email protected]

Senate candidates spar over resources, federal overreach

Alaska’s major Senate candidates stuck with what’s got them where they are while debating resource development issues as Election Day closes in. Former state Attorney General and Natural Resources Commissioner Dan Sullivan took as many shots at Democratic Senate Majority Leader Harry Reid and President Barack Obama as he did at Sen. Mark Begich. He continually attempted to link the three and pressed Begich on a voting record he claims is in-step with the administration’s positions, a record Begich continually denied. At the Oct. 23 Anchorage debate sponsored by the Resource Development Council for Alaska, Begich attempted to highlight instances in which he has opposed federal agencies and pushed for development, particularly North Slope oil and gas work. Sullivan’s campaign has largely focused on improving the resource development climate in Alaska. Along with current senior Alaska U.S. Sen. Lisa Murkowski, Sullivan said, “We will shift the policies — move forward on pro development policies and roll back the Obama administration’s anti-resource development policies which by and large my opponent has supported.” His history of fighting “federal overreach” and the Environmental Protection Agency while leading the Department of Law and DNR in Gov. Sean Parnell’s administration is evidence of the principles he would take to the Senate, Sullivan said. He instituted a policy that had the State of Alaska intervene in federal lawsuits attempting to halt development projects and proposals as attorney general, he said, “so we’d have a seat at the table.” The Alaska Senate race will play a large role in determining which party controls the Senate. If Republicans take control, Murkowski, now the ranking Republican on the Senate Energy and Natural Resources Committee, would take the chair of the committee that oversees the Interior Department budget. The two agreed that states should have automatic standing in such lawsuits so their interests are properly represented. They also agreed that the Endangered Species Act is “broken” and states should be a part of the listing decision. Sullivan took the issue a step further and said threatened and endangered listings under the act that are based on habitat and climate change projections “are used to shut down resource development.” The Pebble mine proposal, one of Alaska’s most controversial development projects for years, is a topic that separates Begich and Sullivan. Begich reiterated his position that Pebble — which would likely be one of the world’s largest surface primarily copper mines in the most productive sockeye salmon-rearing watershed — is “the wrong mine in the wrong place.” He is the only member of Alaska’s congressional delegation to officially oppose the project. The EPA’s pending action to ban a large mine based on its authority under the Clean Water Act wetlands section before the Pebble Limited Partnership formally releases a plan has become a focal point for conservatives demanding restrictions to executive power. Begich treaded lightly on the Pebble question, saying his position is based on the specifics in this instance and that he would do what he can to prevent the broadening of the agency’s power that some have feared could result. He added that Bristol Bay-area residents were pushed to request the EPA’s help in halting mine development because “they did not feel the state was responding to their desires or their questions.” Sullivan said the EPA has not made it clear where it derives its authority to ban a proposal prior to wetlands permits being applied for. “This is not up to the community,” he said. “This is the law; what is in the law — what is in the Clean Water Act.” While Section 404(c) of the Clean Water Act gives the EPA administrator authority to deny wetlands permits for projects that the agency determines will have an “unacceptable adverse effect” on drinking water or fish and wildlife habitat, it does not specify at what point in a project’s progression that authority kicks in. If the 404(c) process is completed to prohibit Pebble, it will be the first time the EPA has used the provision to stop a development proposal before a plan is released. Sullivan said that while Begich says the use of the power is very specific, it sets a “very dangerous” precedent. Similar action could be taken anywhere in the state, he said. “My record is one of fighting the EPA,” Sullivan said. “As senator, I would make it clear in legislation what we already think is clear in legislation,” that the EPA doesn’t have the authority to block development as it is trying to do in the Pebble case. When asked why he thought federal agencies are actively opposing development under the Obama administration, Sullivan left little room for doubt. “Harry Reid and Barack Obama, some of their biggest supporters are also some of the biggest anti resource development — in many ways radical environmentalists — in the country,” Sullivan said. Begich said the problem with Sullivan attempting to link him to the president is that President Obama is halfway through his second term. “I know he wants to run against Obama but he’s gone in two years and this is about a six-year Senate seat and Alaska’s interests,” he said. Begich touted projects in the National Petroleum Reserve-Alaska — ConocoPhillips’ CD-5 and Greater Moose’s Tooth-1 oil projects — as proof of work he has done to help Alaska development. Both projects have been slowed by the demanding federal regulatory process, but are moving forward. “We’ve been successful in cutting through the red tape to get CD-5 moving,” Begich said. Combined, the projects are expected to produce 46,000 barrels per day. Sullivan said opening the Arctic National Wildlife Refuge for development is imperative to increasing Trans-Alaska Pipeline System, or TAPS, throughput, something he said is critical for the nation, not just Alaska. He criticized Begich for not getting legislation to open ANWR through the Senate despite Democrats holding the majority. “I think the most important thing we can do is retire Harry Reid as Senate majority leader,” Sullivan said. “He has said repeatedly he will never open ANWR. He will never compromise on ANWR.” On the state side, Begich refused to answer how he voted on the Aug. 19 Ballot Measure 1, Alaska’s oil tax referendum. He said the voters resolved the issue and now policymakers need to make sure the current tax structure works for the state. When pressed by the moderator, Begich said: “Here’s the problem on that bill that went to the voters. Two sides went into their corners and the Legislature couldn’t resolve it. I will bet you right now come this session or next this issue will be back on the table.” Sullivan noted his work as DNR commissioner to help draft Senate Bill 21, the oil tax reform bill. However, he said the failure of House Bill 77, a controversial piece of water rights legislation that he championed while in the Parnell administration, was simply the political process at work. He said more bills like HB 77 are needed at the federal level. “It was meant to streamline and make more efficient, timely and certain our permitting system (and) prevent outside groups from holding up water reservations and it didn’t limit the public process, and it didn’t get through the Legislature; that’s democracy,” Sullivan said. Elwood Brehmer can be reached at [email protected]

Alaska Air Group turns a record quarterly profit — again

The cliché that “records are made to be broken” is taken to heart at Alaska Air Group Inc., where yet another record quarterly profit of $200 million was announced Oct. 23. The third quarter adjusted net earnings result is the ninth record in the last 10 quarters for the company that owns both Alaska Airlines and Horizon Air. It is also the 22nd consecutive profitable quarter for the company. The record profit was a 27 percent increase versus the third quarter of 2013, also a record at the time, and equated to $1.47 per diluted share. Alaska Airlines split its stock in June. A share was worth $51.82 at the end of trading Oct. 27. Air Group CEO Brad Tilden said during a conference call with investors that the positive returns were driven primarily by four factors: “Strong revenues, very strong non-fuel cost performance, lower fuel prices and increasingly by the benefit of much more fuel-efficient aircraft, which are coming online. This is shaping up to be a year of record profitability despite increased competition.” The increased competition is largely from Delta Air Lines out of Seattle, Alaska Airlines’ home hub. Delta began flights between Juneau and Ketchikan and Seattle this year; those routes were flown exclusively by Alaska Airlines for years. Air Group’s net pretax income was $320 million for a 21.8 percent margin and a 27.5 percent improvement over third quarter 2013 pretax figures. Year-to-date adjusted pretax income was $716 million, a 45.5 percent increase over the first nine months of 2013. Total operating revenue was $1.46 billion for the quarter, up 7.3 percent year-over-year. As Tilden noted, average fuel costs, one of the largest expenses for airlines, fell for the quarter and year. Alaska Air Group spent an average of $3.15 per gallon for fuel in the third quarter, a 2.8 percent decline. For the year per gallon fuel costs were down 3.3 percent. When combined with a 2.8 percent increase in fuel efficiency — based on average seat miles per gallon — fuel expenses improved significantly, he said. Much of the fuel savings can be attributed to newer mainline aircraft. Alaska Airlines has 23 Boeing 737-900ER aircraft, which have 37 more seats than the 737-400s they are replacing in Alaska’s configuration, and use about the same amount of fuel as the older, smaller 737, Air Group Chief Financial Officer Brandon Pedersen said. Alaska Airlines has firm orders for 37 more 737-900ERs over the next three years. “With fuel representing about a third of total airline operating costs, fuel efficiency gains add to our competitive cost structure advantage,” Pedersen said. Several industry watch groups consistently rate Alaska Airlines as the most fuel-efficient domestic mainline carrier. Other major domestic carriers including American Air Lines, Southwest Airlines and United Airlines reported strong third quarter financials based largely on fuel savings, according to the Associated Press. Air Group productivity, calculated as the number of revenue passengers per full-time equivalent employee, also increased 2.2 percent in the quarter. Reducing debt and associated expenses has been a priorityAir Group leaders have said and has played a large role in the company’s recent financial success. Its debt-to-capital ratio at the end of the third quarter was 31 percent, down from 47 percent a year prior. Pedersen said during the call that Alaska Air Group would like to keep its debt-to-capital ratio less than 40 percent, based on research of other large industrial companies within the S&P 500. Air Group’s 12-month return on invested capital, or ROIC, improved to 17.2 percent. It was 13 percent for the year ending Sept. 30, 2013. Nonfuel unit costs decreased 3.6 percent year-over-year on an 8.1 percent increase in capacity. Pedersen said nonfuel expenses are expected to fall 2.5 percent in the fourth quarter as well, on what should be a 10 percent capacity increase. With its numbers driven by Alaska Airlines, the Alaska Air Group capacity as a whole has increased 6 percent for the year. Its load factor, the percentage of available seat miles sold, is down 0.3 percent to 85.7 percent year-to-date. Tilden reported that Alaska Airlines agreed in principle to a contract with its flight attendants Oct. 9. The flight attendants are the only large employee group currently without an updated contract, he said. “I want to thank our flight attendants for continuing to provide great service throughout the negotiations,” Tilden said. “We believe that it’s a fair agreement that recognizes the great work that our 3,300 flight attendants do every day.” The union rejected a tentative agreement in February and has worked without a new contract since May 2012. Elwood Brehmer can be reached at [email protected]

Eagle River 'brake light hill' getting a winter makeover

The moniker “brake light hill” should begin fading from the vernacular of Glenn Highway travelers in about a year. That’s the goal of the Alaska Department of Transportation and Public Facilities’ Eagle River bridge project. DOT began work in late September to add a third lane to the northbound Glenn Highway between the Hiland Road and Artillery Road exits. As part of that work, a new, northbound bridge will be constructed. The northbound grade will subsequently be reduced from 6 percent to 4 percent, which should improve traffic flow over the bridge, according to DOT. Department engineer Tal Maxwell said the new three-lane bridge will be about 20 feet higher than the current one, and that will help cut the hill. The bridge will span Eagle River in what is now a large median between the northbound and southbound corridors. Building a new bridge structure will actually allow DOT and Kiewit Corp., the project’s private construction firm, to work outside of the traditional road construction season, Maxwell said. DOT spokeswoman Shannon McCarthy said the plan is ideal for construction in a high-traffic area because it adds lanes with minimal traffic congestion. “We’ll be working all winter on building the foundation for the bridge. That should not impact traffic,” Maxwell said. The section of the Glenn Highway between Anchorage and Eagle River sees more than 50,000 vehicles on an average day. The northbound work — Phase 1 of the Glenn Highway Hiland to Artillery Road improvements — is a $42.5 million, state-funded project. A $35 million general obligation bond passed during the November 2012 statewide election supplied a majority of the funding with the rest coming from state appropriations. Staying away from Federal Highway Administration dollars, which constitute a majority of major road project funding, allowed DOT to move from conception to contract bidding within 13 months, much quicker than the typical federal procurement process, McCarthy said. Additionally, the project is being done on a design-build contract, not the design-bid-build process usually used for road projects. In the coming days, the left lanes of both the north and southbound lanes will be closed from 9:30 p.m. to 4:30 a.m., according to an Oct. 21 department release. Crews will also be working on the east side of VFW Road. Right now the construction team is building crane pads and clearing space for other requisite equipment. That will continue until the ground is too frozen to get more grade work done, according to Maxwell. The northbound bridge and new road segment is scheduled for completion in December 2015. “We have a lot of work to get done and as soon as we can in spring we’re going to hit the ground running,” Maxwell said. Tying the new bridge into the existing traffic pattern will require lane closures next year, he said. The closures will be done around rush hours so a traffic back up that occurred Oct. 15 is not repeated, McCarthy said. “What we have established is that we don’t do lane closures during peak travel times,” she said. The Oct. 15 delays that lasted up to 90 minutes stemmed from miscommunication within the department as to when lane closures are permitted on the project, according to McCarthy. DOT will work to keep all future lane closures limited to that 9:30 p.m. to 4:30 a.m. window, she said. Additionally, the department will do what it can with notices to alert the public about traffic pattern changes so travelers are not caught unaware in delays. “If we get to the point where we have to have a lane closure (during peak traffic) the whole concept is to make sure the public knows about it two to three weeks in advance so they’re prepared,” McCarthy said. When the work is done the existing bridge and highway sections will be converted to a frontage road between the interchanges. Phase 2, a new southbound bridge and lane expansion, will commence when funding becomes available, according to Maxwell. He said Kiewit has the design ready for that half of the highway to keep continuity throughout all the work. McCarthy said it is still too early to tell whether Phase 2 will be primarily state or federally funded. The scope of the Eagle River bridge work can be viewed further at the dedicated project website, www.eagleriverbridgenb.com. Traffic pattern updates are available at www.alaskanavigator.org or 511.alaska.gov. Elwood Brehmer can be reached at [email protected]

Forward-thinking on LNG paying off for Talkeetna Lodge

Could the Talkeetna Alaskan Lodge be a model for other businesses in other areas of the state without coveted natural gas infrastructure? The liquefied natural gas supplier to CIRI Alaska Tourism’s expansive luxury resort thinks so. “When you have a location that has enough energy usage that you can justify the capital expense and results in a savings compared to the alternative then there’s a potential for that to take place,” Fairbanks Natural Gas President and CEO Dan Britton said. The Cook Inlet Region Inc. subsidiary built the 212-room lodge in 1999 and installed LNG heating infrastructure at a time when fuel oil was relatively inexpensive. Today, the common heating fuel outside of the urban areas of Southcentral often costs $4 per gallon on the road system and more across the rest of Alaska. CIRI Alaska Tourism Chief Operating Officer Gideon Garcia said LNG figured to be a more efficient, safer and risk-averse long-term business proposition when compared to fuel oil. “The rationale (for using LNG) was a real careful review of all the options out there and obviously running electrical for a hotel that size would’ve been just prohibitive in terms of cost and with the reliability of things, if the heat goes out you can’t have your entire property go down because of a single point of failure,” Garcia said. The forward thinking paid off. In 2013, the Talkeetna Alaskan Lodge used 9,550 thousand cubic feet, or mcf, of natural gas. At FNG’s advertised price of about $23 per mcf, the tourism company spent about $228,000 to heat the lodge, which it keeps warm while business is closed during winter. Burning fuel oil while customers are absent would be “ferociously expensive,” Garcia said. At $4 per gallon, the energy equivalent for fuel oil is roughly $30 per mcf, meaning the lodge operators saved more than 23 percent on their heating bill, when $4 per gallon fuel oil would have cost them $286,000. Garcia said the original plan for the lodge was to be ready to hook up to even lower-cost natural gas. “The long-term hope of course was thinking that there might be a pipeline coming down the Parks Highway so we were pre-deployed and ready to tap into that if need be,” he said. The lodge’s location just outside of Talkeetna gives it the opportunity to purchase gas from Fairbanks Natural Gas, which operates a small gas liquefaction facility near Point MacKenzie with its sister company Titan Alaska LNG. Most of FNG’s LNG goes farther north by truck to heat customers in the core of Fairbanks, but running a shipment up the Talkeetna Road every couple weeks is not an issue, Britton said. Similar offshoot LNG operations could become more common across Alaska if the Interior Energy Project — the state-subsidized plan to develop a North Slope LNG supply chain down the Dalton Highway to Fairbanks — comes to fruition. Likewise if a commercial or state gas pipeline from the Slope to Southcentral is built, LNG could be trucked to communities outside a pipeline corridor already struggling to survive because of exorbitant energy costs. Alaska Industrial Development and Export Authority officials leading the Interior Energy Project have said they’ve been approached by prospective mine developers about LNG for remote mine power if excess gas becomes available. Elwood Brehmer can be reached at [email protected]

Walker against Pebble and EPA, suggests 5% agency cuts

Independent gubernatorial hopeful Bill Walker said he is skeptical of Pebble and that he would deal with the state’s shaky fiscal situation by suggesting 5 percent cuts in agency budgets as well as prioritizing the state’s growing laundry list of major infrastructure projects. “Based on what I know at this point I’m not in favor of Pebble,” Walker said during an Oct. 10 sit-down with Journal editorial staff. Despite years of exploration and study and more than half a billion dollars of investment, little is known about how the controversial copper-gold mine would ultimately look, he said. Walker noted, as many on both sides of the fight have, that Pebble Limited Partnership has not released a formal plan for how it would safely develop one of the world’s largest porphyry copper and gold deposits at the headwaters of the Bristol Bay watershed. When discussing Pebble, Walker used it as a way to distinguish his leadership style from that of Republican Gov. Sean Parnell. Concerns about the proposed mine voiced by Alaska Native and commercial fishing groups earlier in the exploration process fell on deaf ears in the Parnell administration, Walker claimed, forcing the groups to turn to the Environmental Protection Agency. Since 2011 the EPA has been involved in an information-gathering process on Pebble that has led it to propose a ban on surface mining of the Pebble deposits northwest of Iliamna. The Parnell administration joined the Pebble Partnership in a since-dismissed lawsuit against the EPA earlier this year, alleging the federal agency’s action would violate the state’s right to develop its land. Pebble is challenging the dismissal in federal appeals court. With his background in local government as a former mayor of Valdez and president of the Prince William Sound Regional Citizens Advisory Council, Walker said he would be more attuned to what Alaskans say about what’s happening in their backyards. “I think we’re seeing the results of withdrawing input from local regions, local people impacted by development,” he said. “We’re a resource state and the best decisions come when we have the best input and I don’t think we have that now.” Despite being against Pebble, Walker also said he is not pleased with the active role the EPA has taken in the controversy. By using its Clean Water Act power to preemptively block projects based on their purported impact on wetlands, he said the agency could expand beyond Pebble. “I’m concerned about the EPA’s role in Alaska; I’ll put it that way,” Walker said. On the budget Regarding the state budget and deficits, Walker accused Parnell of not taking the fiscal situation seriously. “This administration has not admitted there is a problem,” Walker said of the state budget. He emphasized that Parnell’s fiscal year 2015 long-term budget plan calls for continued deficit spending — approaching $3 billion in the red by 2022, the same year the state reserves would be drained if oil averages $100 per barrel. Walker said he is sometimes criticized for not specifying how he would solve the current budget crunch or the worse one on the horizon, while at the same time Parnell has not offered a solution. To start curbing the state’s exploding operating budget, Walker suggested department commissioners trim their expenses by 5 percent immediately. “I will sit down with each department or have my commissioners (do it) and say, ‘Find 5 percent in your budget.’ My goodness, if you can’t find 5 percent. Lee Iacocca said in his book every department has 5 percent just laying around, so that can be found.” Overall, the state needs a combination of spending cuts and revenue growth, he said, “but we can control spending a whole lot more than we can control revenue,” given that upwards of 90 percent of state income is tied to the oil industry. Walker said the leadership in his administration that he would ask to cut spending could include individuals in Parnell’s camp — if they have the right skill set. Without naming names, he said he is aware of some folks in the Parnell administration that have not been allowed to reach their full potential because of what he called a “lack of leadership.” “There may be some people that are campaigning for Parnell — in fact there are — that I would like to have in my administration,” Walker said. “It’s about putting together the best team there is, not the best political makeup.” Project priorities Whether it’s the proposed Juneau access road, the Knik Arm Crossing or one of the numerous other capital projects the state is investigating, they all need to be put to an economic benefit test, according to Walker. He said Parnell recently criticized him for not taking a stand on the Juneau road, which the governor has championed. The $574 million, 48-mile pavement extension north of the capitol city would shorten trip time from Haines-Skagway and increase vehicle capacity to Juneau, but would still require ferry service. Walker called it a “road to reelection,” and said it is fiscally irresponsible to take a position on such a project without evaluating it against other infrastructure projects in need of dwindling state dollars. “To me, capital project have to have some sort of tie to the economy cause that’s what it’s all about; we’ve got to make our economy work,” he said. “We will have to prioritize some things and some things that we’ve studied forever — there comes a point when you say, ‘It’s not going to happen.’ We need to stop studying things that are not going to happen.” The Interior Energy Project could be one of those projects. Walker said the state has “put blinders on” when alternatives have been presented to the state-subsidized effort to provide the Fairbanks-North Pole area with lower-cost natural gas for heat and power generation. “My highest goal is to get energy costs down in Alaska,” as quickly as possible, he said. To accomplish that bold decision will be required, according to the gubernatorial candidate. Senate Bill 23, the legislation passed in 2013 that gave the Alaska Industrial Development and Export Authority a $330 million-plus public financing package to advance Interior Energy work, specifies the money must go towards a project that trucks North Slope gas south. He said a presentation the Alaska Railroad Corp. gave to AIDEA in December 2013 about the prospect of transporting Cook Inlet gas north by rail was “summarily dismissed.” “I’m still convinced you could probably (get gas to Fairbanks) cheaper coming out of Cook Inlet and going up the railroad,” Walker said. As the Interior Energy Project has progressed over two years the prospect of a Cook Inlet natural gas supply for the Interior has gone from suspect to substantial. One company, WesPac Midstream LLC, recently announced it is working on a Port MacKenzie-located gas liquefaction facility for in-state sales regardless of whether the Interior Energy Project moves forward. WesPac estimates it could provide privately financed Cook Inlet LNG to Fairbanks by rail for roughly the same price the Interior Energy Project team projects it can get it from the Slope, which is about half the energy equivalent price of fuel oil. Walker noted that the unveiling of the Interior Energy Project’s final gas cost has been pushed back to Nov. 5, a day after the gubernatorial election. “Need I say more?” he said. At the same time, Walker said he wants to be the governor that finishes the projects that are worthy of funding. He highlighted the rail spur from Houston to Port MacKenzie, a $303 million project that still needs $119 million for completion, and a key component to WesPac’s LNG-by-rail proposal. Deciding which projects take precedent will take unpopular decisions, Walker said, but will be necessary given the state’s increasingly limited fiscal resources. Elwood Brehmer can be reached at [email protected]

CIRI files opposition to Buccaneer sale proposal

Cook Inlet Region Inc. objected on multiple levels to Buccaneer Energy’s proposed bid and sale terms for the bankrupt oil and gas independent’s assets. The Southcentral Alaska Native regional corporation’s Oct. 13 filing in U.S. Bankruptcy Court for the Southern District of Texas claims that Buccaneer’s Oct. 7 motion, which requests its assets be sold together under one bid with a “naked” auction, will not draw fair market value. Buccaneer’s only producing asset is the small Kenai Loop natural gas field it operates in the City of Kenai. CIRI owns land adjacent to the Kenai Loop pad parcel and is seeking substantial royalties from Kenai Loop production, which it says has drained gas from CIRI’s portion of the reservoir. That fight is ongoing in the Alaska Oil and Gas Conservation Commission. Australia-based Buccaneer filed for Chapter 11 bankruptcy in the Houston court May 31 after failed investor deals and empty Cook Inlet exploration work left the company and its subsidiaries with less than $50,000 in cash and between $50 million and $100 million in liabilities. According to a list of unsecured creditors, the State of Alaska and nine Alaska-based companies were owed a total of more than $2.1 million when Buccaneer filed for bankruptcy. CIRI also objected to the suggested handling of what Buccaneer referred to as “suspended proceeds.” The bid and sale proposal would hand off responsibility to the winning bidder of an escrow account to hold Kenai Loop production funds while the royalty dispute is pending. First ordered by the AOGCC in May, Buccaneer finally set up the account Oct. 2. If Buccaneer’s sale proposal is granted by Judge David Jones, potential bidders would have to deliver their bids by noon Alaska time on Oct. 24 to a trustee of the court and the impacted parties. Bids would have to be for “substantially all” of Buccaneer’s assets, unless other terms were agreed to by Buccaneer, the company’s updated Oct. 15 motion states. Buccaneer filed for a 30-day extension to file their bankruptcy plan Sept. 26, pushing the deadline out to Oct. 28. Bidders would be additionally required to submit a “good faith deposit” of $3 million and a letter agreeing that Buccaneer could keep the winning bidder’s deposit if a deal fell through after the auction, which would be held Oct. 27 at the Houston office of the law firm Fulbright and Jaworski LLP beginning at 6 a.m. Alaska time. Tennessee-based Miller Energy Resources Inc., the parent to Cook Inlet Energy, has expressed its intent to bid on Buccaneer’s assets, as has the finance group AIX Energy LLC, which purchased debt from a major Buccaneer creditor earlier this year. Based on statements from Miller and AIX, bids could be in the $50 million range. Parties objecting to a winning bid would have until late Oct. 29 to file a protest to the bid, a period CIRI argues should be at least a week given the complexity of the case. Elwood Brehmer can be reached at [email protected]

HUD awards $7 million to Native villages

Alaska Native groups have been awarded nearly $7 million from the U.S. Department of Housing and Urban Development for housing projects across the state. HUD Secretary Julian Castro made the announcement during an Oct. 6 visit to Anchorage hosted by Sen. Mark Begich. In all, 15 Alaska communities from all regions of the state received up to $600,000 in Indian Community Development Block Grant Program, or ICDBG, funds. Nationwide, about $60 million of the competitive grant money went to more than 90 tribal communities from 23 states. “These grants are critical to promote housing and economic development and they also support self-determination,” Castro said. “Our tribal partners, not Washington, (D.C.), decide which activities and projects meet their needs.” After meeting with housing authority leadership from across Alaska, Castro said he was impressed with the existing relationships between government and the state’s private organizations and the work done to improve communities in the state — one of the reasons the state was awarded as much as it was. “We’re committed to harnessing the power and the resources of partnerships with our state government, our local governments and the leadership of nonprofits here as well on the ground to ensure that more folks have a good roof over their head and more than that a better quality of life,” Castro said. “In so many ways the positive changes that happen won’t be because of D.C.; they’ll be because of strong leadership here.” Begich, a former Anchorage mayor, said he is confident the money will be spent wisely on appropriate projects because HUD has a “robust and aggressive” auditing department for such grants, a group he became familiar with when working on grant-funded community development in the city. “If there was one piece of paper incorrect we would hear about it,” Begich quipped. Awards to nine groups nationwide will be eligible to be used for mold remediation in tribal-owned and designated housing, according to a HUD release. It was the first time HUD money has been used for similar mold problems last fiscal year, Castro said. The Indian Community Development funds are part of more than $736 million HUD received in fiscal 2014 to support housing and community development work in Indian, Alaska Native and native Hawaiian communities nationally. Cook Inlet Tribal Council received $600,000 to purchase property in East Anchorage that will be the site of 23 senior housing units and retail space. Primarily a social services organization, CITC is working with Cook Inlet Housing Authority on the mixed-use building that will have residences on top and about 7,000 feet of retail space on the ground floor, according to authority president and CEO Carol Gore. The senior housing is part of the larger, $17 million Creekside Town Center project at the corner of Muldoon Road and DeBarr Avenue. CITC President and CEO Gloria O’Neill said her work is focused on connecting people with opportunities and the only way that is possible is through partnerships like the one CITC has with Cook Inlet Housing. “We know that housing is probably our greatest challenge to overcome in Anchorage today and CITC is just very grateful that we could play a small piece in it all,” O’Neill said at the press conference announcing the grants. Rental vacancy rates in the state’s largest city are some of the lowest in the nation, fluctuating between 2 percent and 3 percent in recent years, a situation that has caused prices to spike and begun to impact Anchorage’s economy, city leaders have said. Earlier this year Cook Inlet Housing Authority won the HUD Secretary’s Opportunity and Empowerment Award for its decade of work to invest $84 million in Anchorage’s Mountain View neighborhood and turn 130 blighted properties into more than 270 affordable homes. At an Anchorage Chamber of Commerce forum following the grant announcement, Castro was asked what HUD could do to promote more affordable and space conscious multifamily development in Anchorage. He said a shift in housing demand has taken place in the Lower 48 since the market crash of 2008-09 as young prospective homebuyers are waiting longer to purchase their first homes and looking more to multifamily units when they do. “The market seems to have started to reshape itself and even during these last few years there has been a commitment to the development of the multifamily housing market at a much stronger rate compared to single family housing,” Castro said. He added he would expect to see the trend emerge in Anchorage as well. Castro, who took the cabinet position July 28, said at the chamber forum all of the work HUD does is to maximize benefits for those willing to tackle challenges. “I believe our nation has been greatest through the years when we match folks taking advantage and working hard in their own lives with opportunities we commit to as a nation and that’s the role I see HUD playing. At HUD, we like to call ourselves the department of opportunity,” he said. Castro is the fourth cabinet-level official from the Obama administration that Begich, who is running for reelection, has hosted in Alaska in the past few months. The others include Transportation Secretary Anthony Foxx, Energy Secretary Ernest Moniz and Commerce Secretary Penny Pritzker.   Alaska grant recipients Cook Inlet Tribal Council Inc. — $600,000 Eklutna Native Village — $600,000 Gulkana Village — $600,000 Hughes Village — $345,919 Metlakatla Housing Authority — $600,000 Native Village of Akutan — $170,680 Native Village of Atka — $600,000 Native Village of Gakona — $75,000 Native Village of Kongiganak — $600,000 Native Village of Ruby — $600,000 Native Village of Tazlina — $40,000 Northway Village — $600,000 Organized Village of Kasaan — $599,904 Pribilof Island Aleut Community of St. Paul Island — $600,000 Rampart Village — $339,213 Elwood Brehmer can be reached at [email protected]

Keynote speakers come together for AFN 'Rise as One' theme

A horrific crime brought Miriam Aarons and Mao Tosi together. On Oct. 23, the pair of community organizers will share a message of collaboration as co-keynote speakers at the Alaska Federation of Natives Convention in Anchorage. “I never thought in a million years I would ever be an AFN co-keynote speaker,” said Aarons, 32. The 37-year-old Tosi is of Samoan descent. A former professional football player for the Arizona Cardinals, Tosi grew up in Anchorage and said being asked to headline the state’s premier Native gathering is an honor he is proud of and thankful for. Both prefer to talk more about their message and less about their uniqueness among AFN keynotes — Aarons for her age and Tosi for his background. “I am Alaskan. I maybe came a different route but the acceptance is there; maybe not because of who I am but for the work I’ve done,” Tosi said. He ran a spirited but ultimately unsuccessful campaign for the East Anchorage Assembly seat earlier this year. When Aarons heard news of a May 2013 double murder and sexual assault in Anchorage’s Mountain View neighborhood she immediately wondered what she could do for the family, the community. A mutual acquaintance of the two encouraged her to reach out to Tosi. After a simple Facebook message the Stop the Violence car wash and block party was arranged just two days later. More than 1,500 people showed up for the event to draw attention to Alaska nonprofit organizations that offer assistance to victims of violent crimes, Aarons said. The pair and their volunteers raised nearly $25,000 that went to the family members of the victims of the terrible tragedy that occurred just days prior. Tosi, who manages the Northway Mall where the rally was held, remembers being particularly proud of the people of Anchorage for their turnout and support. “It was many Alaskans that came together. I shook every person’s hand that was waiting in line and the line was probably 20 to 30 cars long, and everyone in line did not mind waiting because they knew what they were there for. It was amazing, truly amazing,” he said. “It was one of those healing moments.” Their work that day exemplified the “Rise as One” theme of this year’s AFN Convention. Aarons admits to already having some jitters at the thought of standing before the AFN crowd, particularly because she feels a “pretty big responsibility,” she said. However, she hopes that with Tosi’s help a can-do message comes through. “Really, one of my underlying messages is that I’m just a regular person,” Aarons said. “Before I teamed up with Mao I was just a lady pregnant with twins and I happened to have a little bit of faith in my idea and I teamed up with the right person and that was really the key to making something happen.” A Bering Straits Native Corp. shareholder and the company’s communications director, Aarons said her employer’s flexibility and support are imperative to some of the volunteer work she does. “I’m thankful I work for a company that encourages its employees to get out in the community and do things,” she said. She plans to encourage other companies to do the same in her speech, which she hopes can be kept rather informal. AFN President Julie Kitka wrote in a statement that the group is continually looking to include new voices within its community. “There are many shining lights and people of courage who make a difference in Alaska,” Kitka wrote. “Some quietly take actions every day. Some take actions working across various communities and sectors and are so inspiring, AFN wants to share their work at our convention. The two individuals who were selected as keynoters for 2014 are such individuals.” Tosi said another message the two hope to emphasize is one to push culturally diverse Alaskans to come together over common issues and address both positive goals and serious challenges. It’s a message his nonprofit, AK PRIDE, spreads to Alaska’s youth. AK PRIDE works to help young people identify their passions and strengths and pursue them as far as they are willing take them by connecting kids with others who have experience in their chosen path, whatever it may be, Tosi said. Such encouragement in athletics helped him reach the NFL and taught him lessons that have translated to other aspects of life, notably the importance of teamwork. Giving kids an avenue to chase their dreams and reiterating to them that they should be proud of their subsequent accomplishments is how AK PRIDE tries to break the cycles of substance abuse and domestic and sexual violence that plague parts of the state. “A lot of the work I’ve been a part of has not been because of myself alone, but partnering with others, working together, uniting together and how important that message is to unite — take action. If Miriam can do it you can as well; if I can do it you can too,” Tosi said.  “Taking pride in our community is what I’ve always represented and continuing to share that message is what I’m going to do. I’m really excited to work with Miriam again and to get this message across that we’re here to rise as one.” Elwood Brehmer can be reached at [email protected]

Miller bids for Buccaneer as CIRI gas dispute continues

There is a new suitor for Buccaneer Energy’s Alaska assets and a tangled web of legal challenges continue for the bankrupt independent producer. Miller Energy Resources Inc. announced its intent to spend $40 million to $50 million on  “substantially all” of Buccaneer’s Alaska holdings in a Sept. 15 release. The Knoxville, Tenn.-based independent entered a non-binding letter of intent with Buccaneer, according to the release. Miller is the parent company of Cook Inlet Energy LLC, which has an office in Anchorage. Buccaneer’s Cook Inlet interests are scheduled to go up for bid Oct. 14, a result of the company filing for Chapter 11 bankruptcy in U.S. Bankruptcy Court for the Southern District of Texas on May 31. An Australian company, Buccaneer has operations in Houston, but its domestic work was primarily in Southcentral Alaska. AIX Energy LLC, a Houston-based energy finance group, has also made it known that it will bid for Buccaneer’s Alaska holdings. In April, AIX purchased debt from Buccaneer’s major creditor, Meridian Capital International. According to court filings, Buccaneer had no more than $50,000 in cash and at least $50 million and up to $100 million in liabilities when it made its claim for bankruptcy protection. Buccaneer’s debt to unsecured creditors in Alaska is more than $2.1 million. The State of Alaska and nine Alaska-based companies are on a list of Buccaneer’s 30 largest unsecured creditors. Once a promising new entrant to Cook Inlet when gas production was declining, Buccaneer seemingly spread itself too thin over the past two years to absorb exploration that came up empty and financing that fell through. The bankruptcy proceedings have slowed down and complicated Buccaneer’s other ongoing cases before the Alaska Oil and Gas Conservation Commission and Alaska Superior Court in Anchorage. The Superior Court case — closed June 5 pending resolution of the bankruptcy proceeding — is a lawsuit filed by Cook Inlet Region Inc. against Buccaneer for natural gas royalty payments the Native regional corporation claims it is owed as a result of production from two Buccaneer wells on the Kenai Loop pad in the City of Kenai. CIRI, which owns a property adjacent to the Kenai Loop pad, claims it owns 20 percent of the Kenai Loop gas reservoir, and thus should be paid for a portion of what Buccaneer has produced. The state Mental Health Trust Land Office owns the pad parcel that Buccaneer is producing from via an operating lease. Ethan Schutt, vice president of land and energy development for CIRI, has said Buccaneer’s gas contract is for about $7 per thousand cubic feet, or mcf, of gas. Based on CIRI’s claims and Alaska Oil and Gas Conservation Commission production data, the total value of the gas produced from the Kenai Loop wells is about $47 million, meaning CIRI would be owed about $9.4 million if its assertions are correct. An Alaska Oil and Gas Conservation Commission hearing that parallels the Superior Court case resumed Sept. 17 after an August agreement between Buccaneer and its creditors allowed the Texas bankruptcy court to lift a stay on the hearing. CIRI counsel Jim Torgerson told the commissioners that Buccaneer had — as of Sept. 17 — not followed through on a May 22 commission order to set up an escrow account at an Alaska financial institution to hold its Kenai Loop revenues until the dispute is sorted out. “From CIRI’s standpoint the first order of business is ensuring compliance with — Buccaneer’s compliance with the commission’s order and we would ask that the commission work to ensure that compliance with its order,” Torgerson said according to a transcript of the proceedings. Mental Health Trust Land Office Deputy Director John Morrison said in an interview that to his knowledge the last royalty payment the state agency received from Buccaneer was in June for May production. CIRI’s Schutt has said his company is also owed a share of the royalties Buccaneer has paid to the Mental Health Trust Land Office, because those payments were made for gas that is technically CIRI’s. Buccaneer, CIRI, the Mental Health Trust Land Office and the state Department of Natural Resources, which manages oil and gas leases on state land, negotiated for most of the year to reach a settlement outside of the commission until recently. All of the parties willing to comment have said they were close to an agreement several times but a sticking point is unclear. Buccaneer has been publicly quiet on this point and most others throughout the saga. According to Morrison and the hearing transcript, a holding account was set up after Buccaneer unsuccessfully tried to establish the escrow account. Morrison said all of the Kenai Loop gas revenue was being diverted to the backup account. Commission chair Cathy Foerster said that she was aware of an issue with the wording in the commission’s order that did not comply with the rules of the bank Buccaneer used and made it clear to the producer’s attorney Jon Katchen that action needs to be taken to resolve the escrow account issue. “We’re as serious as a heart attack when we tell you to do something here…and it goes on a piece of white paper and it goes out to everybody and I’m not aware why it hasn’t happened — really doesn’t sound good,” Foerster said. “You need to get with our assistant attorney general and figure out what you’re going to do, what we need to do to get this escrow established and get it going.” Ultimately, the commission agreed to continue the hearing Dec. 3 with the consent of the parties. Elwood Brehmer can be reached at [email protected]

Canada, UK show promise for unmanned aircraft systems

Commercial unmanned aircraft use in other countries is demonstrating how they could be used in Alaska once proper regulations are in place. Curt Smith, a technology director for BP, said the company, which commissioned the first commercial overland, unmanned aircraft flight in the country on the North Slope in June, implements technology not because it’s cool, but because it makes sense and improves efficiency. BP is using very small unmanned aircraft systems, or UAS, in Britain to inspect towers at refineries and other facilities on land, Smith said. They are also being used to monitor platform infrastructure in the North Sea. “They used to put ropes and scaffolding on (the towers) and climb around on them,” Smith said. “It’s not only not that safe — it takes forever to set up and take down and you have to take it out of production when you’re doing your inspection.” The flights are approved by the Britain’s Civil Aviation Authority, the country’s version of the Federal Aviation Administration. Smith said the agency has determined it is safe to fly a UAS that weighs about four pounds around the infrastructure. He spoke at the annual Alaska UAS Interest Group Meeting in Anchorage Sept. 18. “We’re waiting for that to happen in the U.S.,” Smith added. Widespread commercial use of the craft isn’t yet allowed in this country. The FAA is working frantically to establish congressionally-mandated guidelines for small UAS operation by September 2015. The mandate, part of the FAA Modernization and Reform Act of 2012, is unfunded, agency officials are often quick to point out. BP is trying to get special certificates of authorization, known as COAs in the acronym-friendly industry, to do similar inspections on rig platforms in the Gulf of Mexico, Smith said. The North Slope flight was conducted in conjunction with UAS manufacturer AeroVironment and used a hand-launched, fixed-wing Puma. At the time BP was vague about the flight’s purpose, saying the Puma would survey pipelines and roads. Smith provided more detail in his presentation. The COA has been used to fly numerous missions to monitor the condition of the 200-plus miles of gravel road the company uses on the Slope, he said. “If the roads are in bad shape we can’t move equipment around and we can’t do our jobs. The idea was to basically use some robotics and imaging technologies to maintain these roads better, which means inspect at a lower cost and do it faster,” Smith said. Steve Poirot, chief technology officer for Fairweather LLC, which provides oilfield support services and was involved in the Puma flights, said BP’s desire to monitor road conditions and have better maps of them was not initially an unmanned aircraft job. “We wanted the best mapping. We didn’t care how we got it,” Poirot said. The Puma equipped with light detection and ranging sensors, or LIDAR, turned out to be just as accurate as traditional ground surveys or manned flights using LIDAR, he said. LIDAR uses pulsed lasers to measure the distance of the surface of the earth from the sensor. When flown over a road, the individual distance measurements are combined in computer-generated maps that show variations in the road’s surface and pinpoint the exact centerline. The LIDAR maps, combined with GPS guided semi-autonomous equipment, help drivers moving drilling rigs that can be 3.5 million pounds and 28 feet wide on a 32-foot wide gravel path, Smith said, and are a major improvement over what was available before. “Turns out our maps weren’t that great because they didn’t have to be just to drive around,” Smith said. The mapping can also be used to rescue personnel stranded in the Slope’s all-too-common whiteout conditions. While the technology to do the mapping has been around for some time, a UAS makes it feasible. “Where our Puma comes in is making those maps cost effectively and accurately,” he said. In Canadian airspace, full-size aircraft are flying sans pilots to track wildfires and sea ice. CAE’s Nolan Ryon said the company is using a Diamond DA-42 with infrared, LIDAR and radar systems to overlay visual graphics to maps. Once known as Canadian Aviation Electronics Ltd., Quebec-based CAE is an aviation simulation and modeling company. Fairweather also flies a manned version of the DA-42 in Alaska to do pipeline surveys. The pilot seat in the state-of-the-art aircraft can be replaced with what is essentially a computer pilot and is then flown from a control center on the ground. The DA-42 is designed to accept nearly every sensor, imaging equipment and camera imaginable. Flying it unmanned keeps pilots out of harms way on long missions over water or uninhabited territory. The Canadian government began using UAS to monitor resources in 2012, CAE’s Matt Jamison said. The country does not have explicit restriction on unmanned aircraft use, so missions can be flown with a special flight operations certification from the Department of National Defense, he said. To pinpoint wildfire hotspots, infrared imaging is combined with synthetic mapping, which can give firefighters more complete information and a better idea of how to attack a blaze, according to Jamison. Ryon said CAE hopes to extend what it is doing in Canada to Alaska when FAA regulations allow. Ultimately the company envisions using the DA-42, or other UAS, as part of a complete unmanned system for maritime surveillance, he said. Such a system would employ an unmanned aircraft, a surface buoy and an undersea vehicle and could serve as security, emergency response or wildlife monitoring equipment “If there’s a detection from either the buoy or our submersible, we’re able to deploy our UAS and get an aerial shot, an underwater shot and a surface shot from our sensor visualization,” Ryon envisioned. “So we have a complete package ready to patrol the waters of Alaska.” Elwood Brehmer can be reached at [email protected]

It's official: day boats will be built in Ketchikan

Alaska’s newest ferries will be the first made in the state after all. Gov. Sean Parnell announced an agreement Sept. 20 between the state and Vigor Alaska to construct two Alaska Class ferries at Vigor’s Ketchikan shipyard. Vigor Alaska estimated in a company release that the pair of 280-foot Alaska Marine Highway System ferries can be built for $101 million total, less than the state’s $120 million Vessel Replacement Fund. “These vessels will be the largest ships ever built in Alaska,” Parnell said at an event in Ketchikan announcing the agreement. “Building these ferries in-state will be a major boost for Alaska’s economy. This has been our intent during the entire process.” The state was able to control where the vessels are built by not using federal funds, which would require going through the federal procurement process that requires the lowest construction bid be accepted. While the vessels are projected to be finished with money to spare, the delivery date has been pushed back more than a year to sometime in 2018, according to Parnell’s office. The project timeline on the AMHS web site forecasts a 2016 delivery timetable. Vigor Alaska’s business development lead Doug Ward said the timeline was revised in negotiations with the state in part to minimize cost. Vigor will be able to manage its workforce and reduce labor costs with longer lead times, he said. The day ferries will mainly run in Lynn Canal between Haines-Skagway and Juneau. They are designed to hold up to 300 passengers and carry 53 vehicles. The state currently has 11 ferries in its fleet, some of which are nearly 50 years old. Once the Alaska Class vessels are up and running one of the state’s aged mainliner ferries will likely be retired, AMHS officials have said. About a year behind the Alaska Class process, the Marine Highway is also designing a mainliner to replace the M/V Tustumena, which serves Kodiak, Homer and all of the Aleutian ports. Early work on the day-boat project is scheduled to start in the coming weeks. Ward said Vigor Alaska, formerly Alaska Ship and Drydock, plans to hire up to 80 full-time shipbuilders for the four-year project and ultimately grow its Ketchikan-based workforce to 250 employees. At the beginning of 2014 Vigor had 160 employees in Southeast Alaska. A new project delivery method and the fact that the ferries will be identical will both help reduce overall cost, Ward said. “You have a learning curve on the first vessel and then as that vessel’s getting midway into construction we can apply the lessons learned from the first vessel to assure that we stay within budget and within schedule,” he said. Major steel construction on the second vessel will commence when the first is about 50 percent to 60 percent complete. The Alaska Marine Highway System and Vigor Alaska project is the first time ever that a ship — in this case two — has been built using the construction manager-general contractor, or CMGC, delivery method, according to Ward. By moving away from the traditional design-bid-build process, in which “low bid takes all,” as he described, Ward said the state and shipbuilder can work closely together during the entirety of construction and mitigate the risk of delays and cost overruns. The CMGC method removes the opportunity for large magnitude change orders that often occur during construction under design-bid-build, he said. Under the traditional method the project owner typically selects a builder when it has a 65 percent concept design and the builder works through the technical design prior to construction. “During that detailed design period, that’s when you start uncovering issues of constructability — if you put the engine over here you can’t change the oil filter, things like that,” Ward said. Vigor used the CMGC process when it built the ship assembly hall in Ketchikan in collaboration with the state, which owns the shipyard property through the Alaska Industrial Export Authority. Elwood Brehmer can be reached at [email protected]

$4M drilling program underway at graphite prospect

Graphite One Resources Inc. is slowly checking steps off its to-do list in preparation for development of its graphite claims north of Nome. The Vancouver-based exploration company holds title to 129 claims at its Graphite Creek prospect on the Seward Peninsula. It is in the midst of a $4 million drilling campaign, the commencement of which was announced in an Aug. 27 release. The exploration will continue for about six weeks, until Oct. 15, Graphite One Vice President of Exploration Dean Besserer said in an interview. “What we’re doing in this short campaign is infill drilling allowing us to bring the resource into the indicated and inferred category,” Besserer said. Graphite One embarked on three years’ worth of pre-development permitting last year for what it considers a world-class flake graphite deposit. At the November 2013 Alaska Miners Association gathering, Besserer said the hope was to begin development late in 2016. Financing exploration has taken longer than expected, he said, pushing a likely groundbreaking for the mine back about a year, to late 2017, with first production coming the following year. The prospect is located about 40 miles north of Nome on the northern slope of the Kigluaik Mountains, about 10 miles from spur-road access to the Seward Peninsula’s Taylor Highway. If developed, Graphite Creek would be the lone graphite mine in the U.S. Chinese mines have dominated the market for decades. A $5.5 million exploration campaign in 2012 that included 18 drill-core sites and more work last year revealed an inferred graphite resource of 23.4 million tons, according to a resulting company report. The deposit is highlighted with a vein of 8.6 million tons of near-surface material containing 13.5 percent mineralization. A subsurface portion of nearly 28 million tons of base has a flake graphite content of 9.7 percent. The near-surface deposit runs for about 1.3 miles along the base of the range and the entire formation is about 10 miles long on a 16,800-acre parcel. It is being investigated with a 50-year initial life projection, while further discovery could push it out as far as 100 years. Besserer said the promising results of the 2012 season still needed to be fine-tuned to support financing for development, expected to cost from $120 million $150 million, and that is the reason for this year’s drill work. “Right now we’re just trying to get our prefeasibility done,” he said. At that price the Graphite Creek mine could have a payback window as short as a year and a half, according Besserer. The fact that Graphite Creek is a flake deposit makes it particularly valuable. Flake graphite, used in lithium-ion batteries, has traded between $1,000 and $2,500 per ton since 2007, while more common amorphous or lump graphite trades for about $400 per ton. Besserer described a graphite mine as a “glorified gravel pit” to the Alaska Miners Association and downplayed its impact on the land recently to the Journal. “It’s not a gold mine; its very environmentally benign, so hopefully people see this as a good thing all around,” he said. The other big project in the region getting more attention is the U.S. Army Corps of Engineers prospecting work to develop a deepwater port, likely in the Pt. Spencer-Port Clarence area west of the Graphite Creek claims. Besserer said Graphite One representatives have been at a number of the Corps’ public meetings and that a nearby deep draft port would definitely benefit the project as a place to store material, but it is not necessary to move the graphite mine forward. If 50,000 tons of graphite concentrate were collected at the mine each year — a large graphite mine but small relative to other types of mines — he said shipping would consist of a few shallow draft barges per year. “Either way we’re just kind of on the coattails of the oil and gas guys, the real reason why they’re looking at a deep draft port,” Besserer said. Young holds hearing on Port Clarence Rep. Don Young, chairman of the House Subcommittee on Indian and Alaska Native Affairs said at a Sept. 10 hearing he plans to move legislation in December that would transfer federal land to Bering Straits Native Corp. and the State of Alaska. The Point Spencer Coast Guard and Public-Private Sector Infrastructure Development Facilitation and Land Conveyance Act sponsored by Young would transfer nearly 2,400 acres of uplands to BSNC and about 180 acres of near shore land, including an airstrip, to the state. Originally developed as a U.S. Coast Guard navigation station, the bill would allow the Coast Guard to retain use 140 acres and give it the option to lease space from the Native corporation if need be. BSNC first asked for conveyance of the site in 1976. “The bill gets lands in the hand of the stakeholders and gives the means to them to work together on the sensible development of the small purse of land in the Bering Straits region,” Young said in the subcommittee hearing. Kip Knudson, director of state and federal relations for Gov. Sean Parnell, testified that the state wants to work together to develop a port, but that the finer points of the bill need to be adjusted from the state’s perspective. Specifically, he said the state would not be able to operate the airstrip under FAA guidelines given the currently proposed conveyance. “An Arctic deepwater port is critical to the region, to the state and to the nation and the sooner we get it the better,” Knudson said. “The governor knows that a partnership will bring about this faster.” Elwood Brehmer can be reached at [email protected]  

RCA: state needs major power transmission improvements

Alaska has an adequate power supply but an insufficient transmission system, which together could be strained by new Environmental Protection Agency requirements, according to Regulatory Commission of Alaska members. RCA Chair Bob Pickett told a legislative energy roundtable Sept. 5 that utilities have invested about $1.2 billion in new power generation infrastructure in recent years. However the state still needs roughly $900 million in upgrades to its transmission lines to fully realize the benefit of that new generation. The generation investment includes projects that are recently online such as the Chugach Electric Association-operated $360 million Southcentral Power Project, as well as facilities in the works — Municipal Light and Power’s $275 million, 120-megawatt George Sullivan Plant 2 and Matanuska Electric Association’s 171-megawatt Eklutna plant, among others. North Pole Rep. Doug Isaacson and other Fairbanks-area legislators led the discussion held in Anchorage. Pickett said the utilities and the commission are working to resolve what impact the massive generation investments will ultimately have on electrical rates, particularly in the Railbelt. The $160 million bill for the Cook Inlet Natural Gas Storage Alaska facility completed in November 2013, known as CINGSA, can be tacked on to the overall total sum of plant projects, Pickett noted. If reliable service is going to trump price when utilities develop their business models, their customers will have to pay for the new plants, he said. “The public will not stand for any kind of extended rolling blackouts and unnecessary outages,” Pickett said. “This generation is much better than the legacy generation (the utilities) were working with.” While some customers may not like increased bills to finance new power plants, there is little the RCA can do. The commission works under the directive of the Legislature, which has not explicitly given it “siting authority” Pickett said, or the expressed power to rule over which power projects are necessary. As a result, the RCA can only try to mitigate the impact of a project’s cost to ratepayers while meeting the owner’s revenue requirements as the utilities — which have their own, often public processes for making capital decisions — make the final decisions on what money gets spent. “We respond to the filings from the utilities at the point and time when they’re trying to put a new capital expenditure into the rate base,” he said. There have been exceptions to that process, however. Chugach Electric, which is majority owner along with ML&P of the Southcentral Power Project, asked the commission for preapproval of the project, which likely helped it refinance other debt and present the best plan possible when looking to finance the plant itself, Pickett said. The RCA has withheld from ruling on utilities’ capital plans to keep itself out of the business of regulatory overreach, he added. Isaacson said the Legislature needs to understand its role as the ultimate regulator, given that it has oversight of the commission, and give clear guidance to it. While the latest round of natural gas-fired power plants are often more than 30 percent more efficient than their predecessors, those benefits won’t be fully realized without better Railbelt transmission infrastructure, according to Pickett. For most of the state’s history, Chugach Electric has acted as the de facto ISO, or independent service operator, of Southcentral transmission lines because it is the largest power producer, commissioner Norman Rokeberg said. As a result, it is difficult to calculate how transmission rates exactly impact power cost for each utility because the buying and selling of power and subsequent transmission cost is in flux. If the state were to form an ISO it would set the tariff rates and could manage transmission rebuilds. The state-owned Bradley Lake hydro project near Homer, is managed under contract thus it is very inexpensive to transmit its power, Rokeberg noted. He said total transmission cost from Bradley Lake in state fiscal year 2013 was about $895,000. Since 1995 the project has averaged a power output of about 380,00 megawatt hours per year. The Railbelt power grid limits the ability of utilities to sell power between them because it lacks carrying capacity in several “neck down” areas. In some remote places the grid is connected by a single set of power lines. Rokeberg said the state is limited as to the amount of Bradley Lake power it can sell to points north because of transmission constraints near Soldotna. Similarly, the scope of Chugach Electric’s Cooper Lake hydro near Cooper Landing is essentially capped because of transmission limitations between Kenai Lake and Anchorage. “Homer (Electric Association) has a lot of power they could be selling,” Rokeberg said. Improved transmission could help the state’s utilities meet the EPA’s latest carbon pollution guidelines released in June if lower-emission power generated from Southcentral natural gas could be sold to Golden Valley Electric Association in Fairbanks, which uses coal and naphtha. Rokeberg said the Obama administration’s goal to ultimately eliminate coal-fired power plants has created a cap and trade system. “What the administration has done is create a national energy policy and by default a state energy policy,” he said. The Alaska Department of Environmental Conservation could be backdoored into administering the federal rules by regulating the nature of the state’s power generating facilities, he said. Rokeberg is the RCA’s designated lead on a state interagency task force responsible for submitting the state’s recommendation to the EPA on how it will meet the new Clean Air Act Section 111 guidelines. Along with the RCA, the task force includes representatives from Gov. Sean Parnell’s office, the Alaska Energy Authority and the Department of Environmental Conservation. “The strangest thing about this regulation is you can’t go in and build a natural gas combined cycle plant in Fairbanks, were we to have a new pipeline,” Rokeberg described. “We couldn’t build a new natural gas plant there and have it fit the parameters of (subsection) 111(d).” That stems from more restrictive regulations on new power plants as opposed to existing facilities, he explained. State recommendations are due by October, he said, but Alaska will likely request for a 60-day extension — more time to muddle through the finer points of the regulations. From there, the EPA will issue its final rulemaking sometime next year and Alaska will have a year to come up with a plan to comply with the carbon emission restrictions. This is all happening as Golden Valley works to bring online a 50-megawatt clean coal power plant in Healy, an attempt to lower its power costs that are double what some of the Southcentral utilities can charge. Rokeberg said states that have grids connected to one another will have the option of a second year extension to work out complexities between each other. He added that he has been in touch with regulatory officials in Hawaii and along with Alaska, the “grid island” states might ask for their own regulatory extensions to deal with their unique isolation challenges. Elwood Brehmer can be reached at [email protected]

Buccaneer bankruptcy leaves millions in unpaid Alaska bills

Buccaneer Energy Ltd. and its family of subsidiaries filed for bankruptcy in May, leaving millions worth of unpaid bills in Alaska. The Australia-based independent’s debt in the state is more than $2.1 million, according a list of Buccaneer’s 30 largest creditors filed with the U.S. Bankruptcy Court for the Southern District of Texas, located in Houston. The Alaska Department of Revenue is listed as Buccaneer’s ninth-largest creditor and the second-largest in the state, with a bill of $605,116. Department of Natural Resources spokeswoman Elizabeth Bluemink said the money is actually owed to DNR for a combination of Cook Inlet oil and gas lease payments and production royalty payments. Once paid it would almost immediately be transferred to the treasury, and subsequently the Revenue Department. Overall, Buccaneer owes about $33 million to its 30 largest creditors. One of the businesses it owes is Mayflower Remote Services, a catering and housekeeping company in Kenai, which has seen its work dry up since Buccaneer pulled out of Alaska this spring. Mayflower was one of the first companies to contract with Buccaneer when it began exploring Cook Inlet late in 2012, owner Edgar Duero said. “I’m just a small business owner. The bankruptcy has really devastated my company,” Duero said. “They owe me $96,000 and that’s a lot. I’m just trying to get legally what I can.” Buccaneer owes Duero $96,800 to be exact. He understands that some other businesses are owed many times more, but Mayflower was under contract exclusively with Buccaneer, he said, meaning he has had to lay off all of his employees. “The life of my business is pretty much gone,” he said. Duero and his 16 employees fed drilling crews on Buccaneer’s Endeavor jack-up rig and onshore West Eagle from late 2012 through mid-February of this year, when Buccaneer’s tenuous financial situation began to catch up with it. The nearly $100,000 bill is for about 10 weeks of work last winter, ending when Buccaneer shut operations down, according to Duero. Any money he ends up seeing from Buccaneer will not be pocketed. Duero said he owes $30,000 for food consumed on the Endeavor and at the West Eagle site east of Homer. Additionally, he owes about another $30,000 in federal taxes, which he said he doesn’t know how he’ll pay at this point. Duero used a personal loan to pay his now laid off employees. “Even though I got burned I cannot burn my people,” he said. When operational, Buccaneer was almost always late with payments by about a month, Duero said, but the money eventually came through. Working with Buccaneer was supposed to be a way to grow Mayflower Remote Services. He said he was optimistic when the state — through the Alaska Industrial Development and Export Authority — partnered with Buccaneer to bring the offshore jack-up rig to Cook Inlet. “In the beginning I thought I could trust them because I heard the State of Alaska was part of this Endeavor rig and that was encouragement for a little guy,” Duero said. Following the bankruptcy proceedings in Texas has been difficult and making sense of the stacks of court filings he gets from the creditor committee, which sends updates several times a week, has been equally as challenging for Duero. “Of all the paperwork in my office I have more from the bankruptcy than my own paperwork,” he said. “All of this wording you have to be an attorney to understand.” He has been told more should be known by the end of the month, and payments could come by the end of the year, he said. However, being an unsecured creditor he likely won’t get it everything he is due, Duero said. “They’re not going to get you 100 percent; they’ll probably get you like 30 cents on the dollar,” he remarked. Until then, Duero and his one remaining employee are operating Mayflower Catering in Anchorage. City of Kenai Manager Rick Koch said the city had an amicable working relationship with Buccaneer while the company was in town. “We never had any issues with them, but we never had much money in play either,” he said. Buccaneer has kept current on its lease payments for three Kenai Loop wells located in the city through the bankruptcy, which total about $25,000 per year, according to Koch. The other parties looking for payments related to the Kenai Loop production, namely Cook Inlet Region Inc., which claims it is owed gas royalties, will likely resume their case in Alaska Oil and Gas Conservation Commission hearings later this year. That case has been on hold while Buccaneer attempts to resolve its other known debts in bankruptcy court. Koch added that Buccaneer adhered to its permits and followed protocol when doing seismic work on city property. Koch said three or four local businesses testified at public meetings about work with Buccaneer that the city should’ve ended its relationship with the company based on the fact that they were not paid on time. Several Peninsula companies ultimately demanded up-front payments from Buccaneer, he said. Back in the South Texas court, Buccaneer filed to have five office leases and IT contracts vacated Sept. 9. Buccaneer’s attorneys filed for immediate relief from a $6,118 per month office lease in Anchorage that is set to expire Aug. 31, 2015. In Nikiski, the company wants to vacate a $7,815 per month lease for 6,000 square feet of warehouse space that was used to house spare parts and equipment for the Endeavor. Buccaneer no longer operates the Endeavor so it has no use for the warehouse and the money could be better allocated somewhere else, its attorneys reasoned in the court motion. Having paid through July, the lease would be retroactively rejected effective July 31. According to Buccaneer the property owner holds a $7,800 security deposit and Buccaneer has vacated both the Anchorage and Nikiski properties. A hearing regarding the lease motion is scheduled for Sept. 23, at noon, Alaska Standard Time. Elwood Brehmer can be reached at [email protected]

New Alaska FAA chief focused on safety

As the new head of the Federal Aviation Administration in Alaska, Kerry Long is focused on one word: safety. The fact that other topics sometimes overshadow the agency’s core mission of promoting safe flying is a testament to how effective the FAA is and should not be forgotten, he said. “I’m pleased that we can focus on issues of efficiency, on issues of getting somewhere late, where we don’t have to worry about if we’re going to get there,” he said. “I think that gets lost in translation. Aviation is still by far the safest mode of transportation.” Long took over as the FAA Alaska Region Administrator July 28. Since then, he has immersed himself in the unique needs of the state’s aviators and how the federal agency with oversight of those needs can best meet them.  First and foremost is making sure new and existing users of the skies can operate side by side, as well as advancing how they are monitored. “My priorities here are NextGen and the UAS test site,” Long said. The UAS, or Unmanned Aerial System, test site sponsored by the University of Alaska Fairbanks Long referred to is one of six nationwide chosen by the FAA to help the agency meet its congressional mandate to develop regulations to integrate unmanned aircraft into the national airspace by the Sept. 30, 2015. The Pan-Pacific UAS Test Range Complex, headquartered in Fairbanks, includes not only the vast tracts of airspace above Alaska, but also areas of Hawaii and Oregon that afford industry the option to test technology in the Arctic, tropics, or somewhere in between. Long said the uniqueness of the Alaska test site, combined with the support, financially and otherwise, it has received from the state, has helped push it to the front of the group. The Legislature appropriated $5 million to UAF’s Geophysical Institute in fiscal year 2012 to advance UAS testing. With continued state support, he wants to do whatever the FAA’s regional office can to help keep Alaska at the forefront of UAS testing, Long said. “We can, I think, significantly support UAF and the test site, to be specific, in how we think they ought to be staffed to be able to effectively run this dispersed program they have in Hawaii and Oregon and here,” he said. It will be a challenge for the FAA to do much more because the federal regulation mandate did not come with money. “Our goal at the FAA is to support these test sites the best we can, but unfortunately we have a mandate but no funding, which is a tough combination,” Long noted. FAA test site evaluators that visited Fairbanks in August were impressed with the safe and efficient operations going on there, Long said from his Anchorage office Aug 29. While the UAS test site evaluation group was in Fairbanks, the test site staff was able to show first-hand the capability of small unmanned aircraft in a practical setting, he said. “There was a traffic accident and we happened to have the evaluation team that has been going from test site to test site making sure that everybody is following best practices and that sort of thing,” Long described. “One of the folks was the gentlemen responsible for approving any emergency requests for a (certificate of authorization) and he was able to approve the use of a UAS to demonstrate to the team how it would be used with a traffic accident and how much more efficient it is to use a UAS to do the photography work.” Prior to taking the regional administrator position, Long served as the FAA’s chief counsel under President George W. Bush from 2007-09. More recently, he was a lead ethics official with the National Transportation Safety Board. Before his public service began, Long was a large aircraft transaction attorney, working primarily for Boeing and Rolls Royce, he said. He emphasized that communication is key in his new position. Long met with Rep. Don Young, Sen. Lisa Murkowski, state Transportation Department Deputy Commissioner of Aviation John Binder and private industry representatives to gain perspective about what the state needs from the FAA in his first weeks in Alaska. Long said he assured the congressional delegation members that, “I will be as candid as we can be as an agency with what’s going on.” His experience in other parts of the federal government will help him bridge the gap that all-too-often exists between Alaska and Washington, D.C., he said. “Not only do you need an effective advocate for the FAA in Alaska, you need an effective advocate for Alaska at the FAA in Washington,” Long remarked. “I’ve been to Washington; I’ve spent my time there and I’ve cut my teeth there on many of the issues we face up here. “I’ve learned what fights can be won.” He plans on hosting as many Outside federal officials as will travel to Alaska so they can better understand what the state’s aviation industry needs, he said. A visit from FAA Deputy Administrator Michael Whitaker, who is leading implementation of the agency’s NextGen air traffic monitoring program, was scheduled for early this month. NextGen, the “next generation” of aircraft tracking, is a satellite-based system that is designed to update aircraft location quicker than radar, allowing for more efficient flight paths and safer operations at crowded airports. Within five to 10 years, the FAA hopes NextGen will be installed across the country. “The bottom line is we are all counting on NextGen into the future to be the answer to the inefficiencies of dealing with ground-based navigation,” Long said. “It’s one of the most massive programs undertaken by the government, certainly ever by the FAA. Beyond engaging with other federal officials, Long said he is happy to talk about the agency’s mission in Alaska, whether that’s a group of school children or state leaders. It’s a vital part of the job he enjoys, and best of all, it hardly costs anything, he said. “I’m free. I’ll go anywhere and I’ll talk to anyone about aviation safety and the role of the agency and there’s lots of people around here that will do that with me,” Long said. “As far as I’m concerned no group is to small as long as they’re interested and can help us promote aviation safety.” Elwood Brehmer can be reached at [email protected]

Flint Hills refinery closure makes for higher-priced asphalt

As paving season peaks, getting asphalt to construction sites across Alaska has become more complicated and expensive since Flint Hills Resources closed its North Pole oil refinery. The real price of asphalt oil has spiked about 20 percent over last year — about $150 per ton — for construction projects in Fairbanks and more remote locations, Exclusive Paving General Manager Travis Cline said. The reason for the cost increase is asphalt oil used for state Transportation Department Northern Region projects must now be trucked up from Tesoro’s Nikiski refinery. Tracked bi-weekly by DOT, the base, or “rack” price of asphalt oil is actually less than last year. Through Sept. 4 the rack price was $600 per ton and had been steady since June 20, as opposed to $619 per ton for the 2013 paving season. While work on road projects occurs all summer long, most paving is done in late summer and early fall. “Those numbers, that they use for that index, that is what they get direct from the manufacturer,” Cline said. “That price doesn’t take into account the trucking. That’s why when it finally gets to our jobs here in Northern Region it’s quite a bit more expensive.” DOT Northern Region Construction Engineer Frank Ganley said the state was initially hearing that asphalt was running about $100 more per ton than was projected in many of the contracts it has with construction companies, but added that the $150 figure is reasonable as well. “A lot of that information we just don’t have yet from our contractors,” Ganley said. Contracts for this summer’s projects were bid and awarded last winter and early spring, prior to when Flint Hills announced it would close its North Pole refinery, which happened June 1. He estimated Northern Region work would use about 25,000 tons of asphalt oil this year, meaning it could cost the state and its contractors combined up to $3.75 million more than projected. Asphalt oil typically makes up about 6 percent of the final product that is laid on the road surface. The rest is mostly sand and gravel aggregates. DOT road construction contracts include a price adjustment clause that requires contractors to share in the added cost, up to 7.5 percent, Ganley said. “That cause was put in there to deal with the volatility of oil prices seven and eight years ago,” he said. Cline said Exclusive Paving happened to get two of the largest resurfacing jobs in Fairbanks — Airport Way and the Johansen Expressway — at the wrong time. “What a year to get have the big paving jobs when the price of (asphalt) oil goes up like that,” he said. Bids for future work in the region will include the new, added cost of transporting asphalt oil from the Kenai Peninsula, rather than from an Interior source, he said. Preseason fears about Tesoro being able to meet the asphalt needs of the entire mainland of Alaska have been quelled, according to state officials and paving companies. This spring, a Tesoro spokesman said the company would not have a problem meeting the demand. Southeast paving projects are supplied with asphalt that is shipped up from Seattle. While supply from Tesoro has not been an issue, Lane Keator, Carlile Transportation System’s Fairbanks terminal manager, said the logistics of the trucking operation from Nikiski have contributed to the cost. “The biggest challenge is probably maintaining the heat,” Keator said. “It’s loaded hot in Nikiski and it’s a 12-hour, one-way trip minimum from Nikiski to Fairbanks.” Highly viscous asphalt oil is heated to 300 degrees Fahrenheit or more keep it liquid. Keator said Carlile and other companies that haul asphalt oil to the Interior now have to pump it into heated tanks once they get to Fairbanks or North Pole, allow it to reheat and then pump it back into the tanker trucks before it is sent to its final destination, which could be as far away as Deadhorse or Eagle. Luckily, the State of Alaska allows truckers to drive 15 hours per day, as opposed to the 12-hour limit many other states have, he added. However, drivers hauling asphalt north must “start fresh” in Nikiski, he said. Tesoro has the ability to load about one truck per hour with asphalt oil, and the added demand has required cooperation between dispatch centers to make sure nobody is stuck in line at the refinery, Keator said. “The trucking companies have worked well together to make sure we don’t step on each others’ toes — to make sure nobody has to wait” at the asphalt rack, he said. Elwood Brehmer can be reached at [email protected]

Mat-Su officials to meet with feds over $12.3M ferry bill

Matanuska-Susitna Borough officials are prepping for negotiations with the U.S. Transportation Department to resolve $12.3 million the borough owes the feds for its failed ferry plan. In all, the Mat-Su Borough received $21.2 million from the Federal Transit Administration from three grants awarded between 2002 and 2009 to jumpstart ferry service across Knik Arm between Port MacKenzie and Anchorage. Mat-Su Manager John Moosey said at a special Aug. 21 assembly meeting that he discussed the bind the borough is in with Transportation Secretary Anthony Foxx in person when Foxx visited Alaska in early August. He said Foxx invited borough officials to meet with DOT leadership in Washington, D.C., in the coming weeks to negotiate a settlement. Of the $12.3 million the borough spent on the project, $3.6 million was on a passenger terminal at Port MacKenzie and other funds were used to help pay for construction and outfitting of the 195-foot Susitna, which was turned over to the borough shortly after construction. The U.S. Navy footed most of the $78 million bill for the Susitna, a prototype military landing craft. Assemblyman Jim Sykes said in an interview that borough leaders discussed possible legal solutions to try and force a settlement during an executive session Aug. 12, but largely figured challenging the federal government would be a losing battle. Mat-Su attorney Nicholas Spiropoulos said the current Sept. 5 deadline for payment stands in the way of negotiations. “One of the first things we’re going to address (with FTA) is we need an extension to have a dialogue,” Spiropoulos said. If the borough ends up paying an interest penalty, it would likely be between 1 percent and 3 percent, depending on applicable market rates. Multiple borough officials have reiterated that they are hopeful a settlement without a penalty can be agreed upon. In the past, some Mat-Su officials said the project fell apart because it was determined the Susitna’s several hundred thousand dollar per month operating bill was unsustainable. Recently, the Municipality of Anchorage’s reluctance to commit to a ferry terminal has been blamed for killing the plan. Mat-Su Assemblyman Steve Colligan said at the Aug. 21 meeting that when Anchorage pulled out of the ferry development under then mayor-turned Sen. Mark Begich, “We had one hand clapping in that relationship.” On Aug. 5, acting FTA Administrator Therese McMillan sent a letter to Moosey demanding payback of the money within 30 days or the borough would face penalties, including possible garnishment of other federal appropriations. McMillan wrote that she regrets the fact that the borough has not been able to find a use for the Susitna or a qualified public entity to take the vessel, which could absolve the borough of its debt. However, “FTA has no legal authority to unilaterally waive the debt and is required to begin the collection process,” she wrote. Colligan noted that he and other Mat-Su officials traveled to Washington, D.C., last year and requested the demand letter — necessary for a resolution to be reached, he said. If the borough were to find a private buyer for the Susitna, it would have to repay at least a portion of the $12.3 million it spent. The borough has rejected private bids of up to $2 million. The Philippine Navy was scheduled to inspect the Susitna — docked in Ketchikan — Aug. 27-28, according to a borough release. Assemblyman Darcie Salmon said representatives of the Knik Tribal Council approached him Aug. 20 with interest in the Susitna. Knik Tribal Council leadership could not be reached for comment regarding the ferry. Elwood Brehmer can be reached at [email protected]

Financing plan OK'd for Interior Energy Project gas plant

The Alaska Industrial Development and Export Authority board of directors unanimously approved a key deal with its Interior Energy Project partner at its Aug. 25 meeting in Anchorage. The North Slope LNG Concession Agreement, as it is known, between AIDEA and Northern Lights Energy LLC, a subsidiary of MWH Global Inc., puts a legal framework in place as the AIDEA-MWH team works towards a financing plan for the North Slope liquefied natural gas plant — the foundation of the plan to truck LNG down the Dalton Highway to customers in and around Fairbanks. The Interior Energy Project is the state’s solution to alleviate the burden of high fuel oil prices and poor winter air quality on Fairbanks-area residents by making lower cost natural gas available. AIDEA’s retail price target of about $15 per thousand cubic feet, or mcf, of gas would be about half the cost of fuel oil at $4 per gallon. MWH officials have said financial close should come sometime in late October or early November. “Once you go to financial close then the concession agreement becomes a way for them to operate the plant as a concession for AIDEA,” said Mark Davis, authority deputy director. Under the terms of the agreement MWH would operate the plant for up to 30 years as Northern Lights Energy. It allows for a maximum nominal return on investment of 12.5 percent for MWH’s investors in the plant. Northleaf Capital Partners, a Toronto-based firm, is the project’s silent private investor. Exactly how much Northleaf and subsequently AIDEA contribute to the up to $200 million plant remains unclear. MWH has agreed to put up at least $20 million and up to $85 million towards the LNG plant, meaning AIDEA could be on the hook for between $75 million to $180 million depending on the cost of the plant and the final private investment amount. Board member and former Fairbanks state Sen. Gary Wilken has expressed concern at recent board meetings about whether or not MWH will ultimately come through on claims it made when AIDEA chose the engineering consultants as a partner in January. A North Slope plant financing term sheet sent to AIDEA by MWH in November outlines private investment of $50 million to $85 million, with the range accounting for variations in plant cost. Based on those conditions, AIDEA would contribute the $125 million Sustainable Energy Transmission and Supply fund, or SETS loan approved by the Legislature for the Interior Energy Project. The more private investment the LNG plant receives, the more of the $332.5 million of state financing devoted to the project AIDEA can put towards distribution infrastructure in the Fairbanks area. Wilken said Aug. 25 that each party’s final contribution “is still very much up in the air.” MWH has said Northleaf wants to invest as much as possible while still achieving a reasonable return. AIDEA’s Davis said Kiewit Corp., chosen to construct the North Slope plant, is working to finalize construction cost in the coming weeks. In Fairbanks, work continues to build out a gas distribution network so residents can hook up to gas if it becomes available in early 2016 — AIDEA’s delivery goal. Interior Gas Utility chair Bob Shefchik told the board that his utility is using the $8.1 million loan AIDEA approved for it in April towards planning buildout of the 877 miles of distribution pipe it will need to serve North Pole and the outlying areas of Fairbanks. Shefchik said the miles of pipe IGU will likely install has grown from about 670 miles to 877 miles because individual service lines are now included in that figure. Adding service lines, which utilities often subsidize, to the network increased the estimated overall network cost by about $95 million, to a total of $251 million. However, partnering with Golden Valley Electric Association for gas storage cut those projected costs from $46 million to $30 million, he said. For IGU customers, distribution costs will make up about 25 percent of final, “burner tip” gas cost if AIDEA can finance the pipeline network construction with its Interior Energy Project-approved bonds or loans — the latter of which are capped at 3 percent interest. If private financing must be sought because AIDEA ends up using most of its funds for North Slope plant construction, distribution costs could end up being more than 40 percent of the burner tip price and push that price well beyond $15 per mcf, Shefchik said. Fairbanks Natural Gas has been adding to its gas pipeline network throughout the summer. FNG President and CEO Dan Britton said the company has hired about 35 seasonal construction workers to work on the expansion. When combined with about 40 contracted workers, the FNG construction team had installed about 19 miles of pipe as of the Aug. 25 meeting, according to Britton. The company plans on installing 33 miles of pipe in the core of Fairbanks if the weather allows for work into October. About another 30 miles are planned for 2015 as well. This year’s work will add nearly 2,400 residential and 277 commercial customers to FNG’s network, he said. The work is being paid for with a $15 million AIDEA loan contingent on purchasing gas from the North Slope plant when it becomes available. “Ultimately our system requires about 100 miles of more expansion before it is fully built out,” Britton said. He added that FNG will be looking to AIDEA for future expansion financing. Elwood Brehmer can be reached at [email protected]

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