Elwood Brehmer

Interior Energy Project progress is muddled

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

Morrissey retires after career spanning half of rail's history

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

Walker to review AK LNG

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

Walker declares a Dalton disaster

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

AIDEA to solicit partners for Interior gas

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

Southeast communities prepare for sharp drop in SRS funding

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

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

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

UAF plant estimate $50M over budget

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

New design kickstarts transformation at KPB Architects

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

Steelfab takes on Wood Bison, Slope, and coal stacks

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

Does Alaska have a revenue problem or a spending problem?

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

Long-awaited Sealaska land transfer is complete

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

Sealaska Corp. continues search for the right business fit

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

Power cost debate reaches from RCA to Legislature

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

Long-awaited Sealaska land transfer is now complete

JUNEAU — It took 43 years, two months and 17 days since the passage of the Alaska Native Claims Settlement Act, but Sealaska Inc. is finally whole. The Southeast Alaska Native regional corporation officially took title of 70,075 acres of formerly federal land March 6 during a ceremony at the company’s headquarters in Juneau. Sealaska President and CEO Anthony Mallott said the land transfer provides a time to reflect on Alaska Native history and will be a major benefit to Sealaska, its shareholders and the entirety of Southeast Alaska for years to come. “This is a great way to frame how we expect to manage our land for the next 100 years,” Mallott said. More than 68,400 acres of the land — once Tongass National Forest — will be managed primarily for timber harvest and was selected with that purpose in mind, Sealaska leaders said. The remaining roughly 1,500 acres scattered in smaller parcels throughout Southeast were chosen for historical and cultural significance and economic development potential. Mallott and others from Sealaska repeatedly thanked the members of Alaska’s congressional delegation, including former Sen. Mark Begich, for their years of work to get the land transfer legislation passed. Sen. Lisa Murkowski was the lead sponsor of the latest iteration of the Sealaska lands legislation. The land was owed to the Alaska Native corporation under ANCSA. Sealaska relinquished selection rights to another 327,000 acres as part of the transfer. In total, Sealaska now holds 360,000 acres in Southeast Alaska. Sealaska director and former board chair Albert Kookesh said the land conveyance was the result of more than 300 meetings held across the region by the corporation to reach myriad of compromises with concerned parties. “We were directed by Sen. Murkowski, who was the primary sponsor, to get rid of as much of the opposition as we could,” Kookesh said. Included in the legislation was a provision to “lock up” 150,000 acres of the Tongass National Forest from development. Kookesh said Sealaska spent nearly $10 million over the years to get what it was rightfully owed. “We’d spend another $10 million if we had to,” he said. The Southeast Alaska Native Land Entitlement Finalization and Jobs Protection Act was rolled into an omnibus lands package, which was part of the 2015 Defense Reauthorization Act signed by President Obama Dec. 19. Sealaska Vice President and General Counsel Jaeleen Araujo worked on the land transfer for more than 10 years. “This kind of event is a reward for a long road,” she said at the signing ceremony. Not only does the land end Sealaska’s claims under ANCSA, it should help float the region’s drowning timber industry. Mallott said in an interview that the land would be the key to keeping Sealaska’s timber harvest sustainable at between 30 million and 50 million board feet per year from its lands. Bureau of Land Management Alaska Director Bud Cribley signed the conveyance paperwork for the federal government. He said he was honored to represent everyone in the government that worked on the settlement. Cribley said a provision in ANCSA allows for an interim land conveyance such as the one given to Sealaska. However, it required the transfer be signed within 60 days of enactment of the legislation, which left a lot of work for a short amount of time, he said. “Trying to accurately describe 70,000 acres in Southeast Alaska was nothing less than a challenge,” Cribley said. Over the next several years Sealaska and BLM will finish surveying and patenting the land. Sealaska will also have to apply for easements cemetery sites it wishes to designate in the coming years, according to BLM.   Elwood Brehmer can be reached at [email protected]

Several options on table for delivering gas to Fairbanks

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

Legislation introduced to level the playing field on utility tariffs

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

State asks for air carriers' help to manage airports

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

Army hears from Alaska on force cuts

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

Midwest utility offers proposal to shore up Railbelt grid

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

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