Elwood Brehmer

Tourism expected to hold the line in 2014

It’s almost time for the rush of family and friends from the Lower 48, and Alaska’s tourism industry leaders are expecting a good, but not great, 2014 visitor season. John Binkley, president of Cruise Lines International Association Alaska, formerly the Alaska Cruise Association, said he is expecting 972,000 cruise visitors to the state this year, a slight decrease from the 999,600 cruisers to Alaska in 2013. While the final 2013 tally did not quite reach the 1 million cruisers, it was the first year since 2009 that the benchmark was even approached after the global recession and a since-repealed cruise passenger state tax increase hit the industry hard. Less than 900,000 passengers toured Alaska by cruise ship in 2010 and 2011. Binkley said this year’s projection is based on less available cruise openings caused by some of the lines adjusting their schedules from last year because of Environmental Protection Agency regulations. “When (the cruise companies) were making their decisions for 2014 we still had the cloud of ECA, the Emission Control Area, hanging over us that the EPA had mandated with the expensive fuel, so that affected the deployment decisions as to where they were moving their ships,” Binkley said. Passed in 2010, Emission Control Area standards required ships operating within 200 miles of U.S. or Canadian coasts to burn fuel containing less than 0.1 percent sulfur by 2015. In September, Carnival Corp., the world’s largest cruise company announced it had reached an agreement with the EPA to add less expensive “sulfur scrubbers” to the ships’ exhaust systems to comply with the regulation as opposed to burning fuel that Binkley has said would’ve added an expense to cruise operators of $150 per passenger. He said several of the other major cruise lines operating in Alaska have since reached similar compromises with the EPA. “At least they allow for the technology solution rather than mandating the expensive fuel,” he said. After Anchorage saw no cruise ships in 2013, Holland America’s Amsterdam will call on the city four times from May to August. The Amsterdam will also stop in Homer on its way to Anchorage. Despite having no ships in port last year, Binkley said the state’s largest city still felt the economic impact of Whittier and Seward being “turn-ports” for cruise ships. Being the airport and railroad hub for Southcentral draws cruisers beginning or ending their ocean voyages in the smaller communities to Anchorage often for several days as opposed to those visiting it just for a day as a “port of call,” he said. Visit Anchorage President and CEO Julie Saupe said her organization considers the other region ports a part of Anchorage. “If you’re a hotel in Anchorage you like Seward and Whittier as a stop more so than Anchorage as a port of call,” Saupe said. “Now if you’re a museum or a lunch spot downtown you really appreciate the Amsterdam coming right in.” She said she is optimistic about the summer of 2014 because of increased airline exposure to Alaska and how the cruise prices are holding up. “Things seem to be selling without extra effort, without having to throw in additional values or 10 percent off and that’s something we always watch for,” she said. “We know the cruise lines work hard to fill those ships; the question is how hard to they have to work to fill those ships?” Icelandair is continuing seasonal service to Anchorage from Reykjavik that started in 2013 and Yakutia Airlines is doing the same with flights from Eastern Russia. Delta has also increased its flights from the West Coast to Anchorage this year. Interior Fairbanks is coming off a “robust” winter tourism season, Explore Fairbanks President and CEO Deb Hickok said, and she hopes that will carry to summer. The winter Aurora viewing season in Fairbanks is popular with Japanese and Korean tourists as well as domestic travelers. Bed tax revenue in the City of Fairbanks was up 19 percent in January over 2013 and Hickok said she is anticipating strong numbers for the first quarter overall. More than half of the summer visitors to Fairbanks are tied to cruise-tour packages, Hickok said, and because of that she expects similar visitor numbers to last year. Delta is offering nonstop service from Seattle to Fairbanks and United Airlines will again be flying direct between Fairbanks and Chicago and Denver this summer, routes it first flew in 2013. Frontier Airlines will also be flying between Fairbanks and Denver, Hickok said, providing more options for travelers and hopefully driving down airfares to the Golden Heart City. “Competition is a good thing,” she said. Interior businesses tied to winter tourism are reporting more and more international visitors from nontraditional markets like Taiwan, Australia and China, Hickok said — a trend she hopes to see grow. “We’re seeing a good mix of international visitors that I think is going to carry over into summer,” she said. Hickok and Saupe spoke to the Journal from Chicago, while attending the U.S. Travel Association’s 2014 IPW (International Pow Wow) meant to bring North American travel industry marketers together with worldwide vacation planners. Elwood Brehmer can be reached at [email protected]

Ambler District potential justifies road, says NovaCopper CEO

NovaCopper Inc. CEO Rick Van Nieuwenhuyse said his company is near a goal of 10 billion pounds of copper for potential development in the Ambler Mining District. The Ambler Mining District, which stretches for approximately 75 miles between the Brooks Range to the north and the upper Kobuk River to the south, is a world-class copper deposit, Van Nieuwenhuyse said at an April 3 Resource Development Council presentation. “The thing that’s unique about Ambler is grade,” he said. Vancouver-based NovaCopper has two large areas of focus in Ambler, the Arctic deposit and its 3.1 billion pounds of 6 percent indicated copper and the Bornite deposit, with 5.7 billion pounds of inferred resources and 300 million pounds of indicated copper. The Arctic deposit also has 400 million-pound inferred resource and could be worth up to $1.4 billion over a conservative 12-year mine life. The resource estimates for the Arctic deposit are from a September 2013 preliminary economic assessment. Bornite figures are from a technical report NovaCopper released April 1. South of the main mining district, the Bornite deposit is separated into 2.3 billion pounds of about 1 percent-grade surface-accessible copper ore and 3.4 billion pounds of high-grade, 2.8 percent copper ore that would be reached via underground mine, Van Nieuwenhuyse said. Overall, Arctic ore is believed to average a 3.3 percent copper grade and 4.5 percent zinc. If developed, it would also yield about 29,000 ounces of gold and 2.5 million ounces of silver yearly, he said. Because of the quality of the Arctic deposit, its estimated capital requirement of about $7,000 per ton of material is about half of the industry average, according to Van Nieuwenhuyse. Still, the one mine would have a startup cost of more than $700 million and cost $164 million per year to operate, he said. Those costs are calculated with diesel power. If the state’s plan for trucking North Slope liquefied natural gas to Interior comes to fruition, potential mine development — from NovaCopper and others — could stand to benefit from the lower cost fuel, too. “The trucks would just have to learn to turn right off the Dalton Highway,” Van Nieuwenhuyse said. The trucks would turn onto a roughly 200-mile long access road to the Ambler Mining District. Both the Alaska Industrial Development and Export Authority, which took over work on the road proposal from the Department of Transportation for financing purposes, and Van Nieuwenhuyse have said no Ambler-area mines will be developed without a road. During March legislative hearings, AIDEA Deputy Director Mark Davis said what is envisioned for the road now is a one-lane industrial road at a cost of nearly $400 million. AIDEA is working to “value engineer” the cost down, Davis said. In an interview, Van Nieuwenhuyse said he would like to see a road financed through bonds or lower interest loans paid by tolls, rather than direct private investment. To date, there has been about 127,000 meters of exploratory drilling done in the Arctic and Bornite deposits, Van Nieuwenhuyse said, about 48,000 meters of which was done by NovaCopper. Previous exploration teams did the rest from the late-1950s through the late-1980s. The drilling done recently has been done with operations set up primarily with helicopters, he said. “There’s hardly any drilling in this district because it’s bloody expensive,” Van Nieuwenhuyse said. Since 2004, he said NovaCopper has spent $82 million on exploration of the Arctic and Bornite deposits. “Any district worth its salt would have millions of meters of drilling,” Van Nieuwenhuyse said. He continued: “Just to develop the mining district, just from a drilling standpoint, you could justify building a road just on that.” Over the next three years, NovaCopper will be working on combining the Bornite and Arctic projects first in feasibility studies and then financing plans, he said. Whether or not a road would be seen as justified without a firm commitment of mine development from the state or region stakeholders remains to be seen. Van Nieuwenhuyse said the impact a road could have on caribou, the primary subsistence resource in the region, needs to be studied further. He added that NovaCopper’s work is gaining traction among the residents in the potential corridor because of the prospect of well-paying jobs and access to lower-cost fuel provided by the road. Inland Northwest Alaska communities have some of the highest fuel costs in the state. According to Van Nieuwenhuyse, his company has paid $1.3 million to regional NANA Development Corp. and village corporation shareholders over the last three years for work at the exploration sites. Elwood Brehmer can be reached at [email protected]

AIDEA backs first loans for LNG trucking plan

The Alaska Industrial Development and Export Authority board approved $23.1 million in loans for the Interior Energy Project April 3 — money that will be used to build the first part of the complex natural gas supply chain for Fairbanks-area residents. A $15 million loan was awarded to Fairbanks Natural Gas, which currently serves about 1,100 customers in the city’s core, and the borough-owned startup Interior Gas Utility was approved for $8.1 million. FNG President and CEO Dan Britton told the AIDEA board that the $15 million would be used to add about 30 miles of pipe to its existing infrastructure in the next two years and allow the utility to serve up to 2,500 new customers in its service area.  “We’re happy to be expanding and getting more gas to more customers versus just talking about it,” Britton said. Gary Wilken, AIDEA board member and a former state senator from Fairbanks, said FNG’s plan is “aggressive and welcome.” FNG, which currently trucks about 1 billion cubic feet, or bcf, of Cook Inlet gas  per year to Fairbanks, was criticized during Alaska Regulatory Commission hearings last fall for not growing its customer base on its own within the service area that was ultimately awarded to IGU. Britton has long contended that the utility’s small size made it difficult to secure long-term gas contracts needed to back expansion. Britton said FNG has its design and permits ready and has been working with the Department of Transportation to coordinate its digging with road projects scheduled for this summer. IGU board chair Bob Shefchik said the utility would use the money to design, permit and secure right-of-ways for its extensive gas distribution system to be started in North Pole. By 2021 IGU has said it plans to lay nearly 670 miles of gas pipeline in an effort to reach more than 11,600 customers. He said IGU would be “in the dirt in the summer of 2015.” While the utilities work at the southern end of the Interior Energy Project, AIDEA will be working with its North Slope gas liquefaction plant partner Colorado-based MWH Americas Inc. The trick will be melding the ends of the project and setting up a trucking network to begin hauling LNG down the Dalton Highway by early 2016, AIDEA’s stated goal. “This is the biggest puzzle I think I’ve ever worked on in my life,” AIDEA Executive Director Ted Leonard said. Poor winter air quality and the fact that some residents pay up to $5,700 annually for fuel oil to heat their homes has driven the initiative to get natural gas to Fairbanks. AIDEA projects that trucked North Slope gas will be about half the cost of fuel oil in the Interior. The loans to the utilities are from the state’s Sustainable Energy Transmission and Supply fund and act as essentially as 20-month, no interest lines of credit, AIDEA Deputy Director Mark Davis said. Passed last year, Senate Bill 23 initiated the Interior Energy Project and authorized AIDEA to use up to $125 million in loans from the SETS fund for the North Slope plant and distribution systems. The end of 20-month grace period roughly coincides with when AIDEA hopes to get first-gas to Fairbanks, which would give the utilities a revenue stream to pay for the debt.  “This is designed to get them jumpstarted. We don’t want customers paying for unused pipe,” Davis said. FNG’s loan was approved unanimously, while IGU’s was approved on a 4-2 vote with board members Crystal Nygard and Wilson Hughes dissenting. Board member Russell Dick was absent. Hughes and Nygard expressed concerns over whether IGU could repay the loan and if it should instead be a grant from the $57.5 million capital appropriation as part of SB 23. “This (IGU loan) is a little unique because usually AIDEA loans are for hard assets like the one to Fairbanks Natural Gas for pipe,” Davis said. He continued: “If IGU is unable to pay this at the end of 20 months then there would really be a discussion as to whether IGU was really in existence.” IGU’s distribution system design, permits and right-of-ways would become AIDEA’s if the utility cannot repay its loan, he said. According to Shefchik, IGU had about $450,000 available at the end of March. On March 27 the Fairbanks North Star Borough approved the utility for a $7.5 million line of credit available through 2021, when full build-out of its system should be wrapped up. The borough credit is not a loan backstop, he said. The loan “represents a compromise between us and the AIDEA management rather than utilizing the capital money now is to have it be a loan,” Shefchik said. How the loans are structured once repayment begins will depend on how much gas the utilities commit to buy from the North Slope plant, according to Davis. As gas distribution expansion continues beyond 2015 the utilities will have the option of purchasing gas from other places but would then have to look for other financing too, Leonard said. Board member Wilken asked about AIDEA’s ability to drive demand to the North Slope plant. “I love competition but I hate stranded assets,” Wilken said. Leonard said “take or pay” agreements with the utilities for gas are essential for the viability of the plant. “Our position has been that any funding or financing that (AIDEA) provides has to be tied to utilizing gas from the North Slope plant. In accordance with SB 23, interest rates on the SETS loans can be up to 3 percent, and will be worked out in the future along with further gas purchase contracts. FNG will purchase up to 500 million cubic feet from the North Slope plant as part of the current loan terms to supply the customer base served by expanded infrastructure and paid for with the $15 million, Leonard said. The final design for the 9-bcf North Slope plant that could cost up to $180 million, is still up in the air. In the coming months AIDEA must decide whether to build the entire plant at once or to build a 4.5-bcf module initially that can have a second added as demand increases. Leonard noted that the Interior Energy Project has never been viewed as a long-term solution for Fairbanks energy, and that if a gas pipeline ever bisects the state the utilities would be able to draw cheaper gas from it. By then, he said, it’s possible other demand from customers such as mines could arise for trucked LNG, keeping the North Slope plant viable. After full build out, FNG is projected to have another 3.5 bcf worth of demand added to its 1 bcf now. IGU’s end demand is expected to total 4.5 bcf as well; the difference being the vast majority of its customers will be residential and require less gas than some of FNG’s commercial customers in the heart of Fairbanks. Britton said about 50 percent potential customers are expected to switch to gas within the first two years of it being available, with 20 percent converting in year three, and 15 percent in year four. Leonard said that Golden Valley Electric Association’s purchase of gas will be essential to the success of the project. Golden Valley President and CEO Cory Borgeson said in an interview the cooperative is ready to purchase about 2 bcf per year of gas for electricity generation. “We’re in on this very important project,” Borgeson said. Regardless of how the gas demand washes out, Leonard said backing the gas infrastructure is a good thing. “We are building out distribution with these funds that does provide distribution either for our plant or for the larger pipeline or for alternative gas on the plant side,” Leonard said. “These loans provide low-cost financing for the citizens of Fairbanks for their distribution system.” Elwood Brehmer can be reached at [email protected]

Flurry of medevacs stokes road battle

When it comes to a road for King Cove, Sen. Lisa Murkowski has held true to her word and has not let the issue die. Alaska’s senior senator has railed on Interior Department Secretary Sally Jewell’s decision to deny a land swap that would allow emergency road access between the Alaska Peninsula villages of King Cove and Cold Bay at every opportunity since Jewell announced her ruling Dec. 23, 2013. At an impromptu press conference in Anchorage immediately following that call she received from Jewell, Murkowski called the decision an “insult” and “offensive,” and said she regretted voting to confirm Jewell. Murkowski took her fight to the Senate floor April 1, a day after the medevac of an injured fisherman out of King Cove in which the fishing vessel he was aboard couldn’t make it to Cold Bay because of rough seas and the Coast Guard had to wait four hours to reach King Cove because of high winds. “Maybe I’m taking this too personally,” Murkowski said about 10 minutes into her April 1 floor speech. “Both my sons fish in these areas; they go through the Gulf of Alaska; they go through Unimak Pass (west of Cold Bay) every year as fishermen. And if something should happen to them or if something should happen to their crew, and the closest deepwater port happens to be King Cove but the weather is to the ground I want a road for them. I want a road for the people of King Cove. I want a road for the Seattle fisherman who is transiting back because it’s a lifeline.” Alaska’s congressional delegation, Gov. Sean Parnell and King Cove residents say the road would provide an essential link for emergency services when bad weather prevents flights out of King Cove or boat travel across Cold Bay. With a paved runway longer than 10,000 feet, Cold Bay’s airport has one of the longest civilian runways in the state and is the area’s main link to Anchorage. The old military post was built during World War II. King Cove’s airport has a 3,500-foot gravel runway. The village has roughly 960 year-round residents. Over the years 19 people have died in plane crashes or waiting to get medevac service out of King Cove. However, no one has died trying to leave since 1994. Murkowski did not change her choice of words when speaking directly to Jewell during a March 26 hearing held by the Senate Appropriations Interior and Environment Subcommittee on the proposed Interior budget for the 2015 fiscal year. “The notion from your department that you must protect Alaska from Alaska Natives, our first people, is insulting,” Murkowski said to Jewell. At the heart of the issue is a planned 11-mile gravel road that would cut across what is now Izembek National Wildlife Refuge land and connect King Cove and Cold Bay. The land exchange calls for the federal government to turn over 206 acres in the Izembek Refuge along with 1,600 acres outside the refuge in exchange for about 56,000 acres land owned by the state and King Cove Corp., the Alaska Native village corporation. Congress approved the land swap and it was signed into law in 2009, but turning over the federal land requires the Interior secretary’s approval. It would give the state the right-of-way it needs to build the section of road that has been estimated to cost about $21 million and would be paid for by the state. In February 2013, the U.S. Fish and Wildlife Service, an Interior agency, recommended that then-Interior head Ken Salazar reject the land swap based on the impact it could have to wildlife habitat in the refuge. Salazar chose not to rule on the issue and Murkowski’s confirmation vote for Jewell’s appointment was contingent upon her visiting King Cove, which she did last August. Jewell said in a December Interior Department release that the road would cause “irreversible damage” to the Izembek Refuge, that she understands the need for reliable transportation between the communities and that other methods of transport could be improved to meet community needs. In summer, the 315,000-acre refuge is home to 98 percent of the world’s population of Pacific black brant, a goose that breeds there, according to the Interior Department. “The lives of our people, our elders, children and grandchildren are at stake over this issue,” Aleutians East Borough Mayor Stanley Mack said after Jewell’s decision. “Are birds really more important than people? It seems so hard to believe that the federal government finds it impossible to accommodated both wildlife and human beings. Is the Obama administration turning its back on Native Americans?” Murkowski said to Jewell March 26 that the president’s Interior budget does not have any money set aside for alternative modes of transportation between King Cove and Cold Bay. Jewell said the department needs suggestions from local residents about viable alternatives if the road that she diplomatically called Murkowski’s “preferred alternative” does not go through. The possibility of a permanent U.S. Coast Guard position in Cold Bay, which has been floated by Jewell and others, is out of the question according to Murkowski, who said she talked to regional commanders in the Coast Guard who dismissed the idea. “I think it is very clear that the Coast Guard does not view this as a mission, that they do not view this as a mission they wish to take on,” Murkowski said. “In order to accommodate the people of King Cove on a somewhat regular basis they would require two additional helicopters at $26.1 million apiece.” Murkowski spokesman Robert Dillon said Coast Guard medevacs from King Cove to Cold Bay — there have been five conducted through April 1 this year and eight since Jewell’s Dec. 23 decision — cost up to $210,000 each, as a helicopter often must be dispatched from Kodiak Island. In an April 2 letter to Murkowski, Coast Guard Congressional and Governmental Affairs Cmdr. Daniel P. Walsh wrote that a new, permanent facility in Cold Bay equipped with two MH-60T Jayhawk helicopters would cost $112 million initially and $11.4 million per year to operate. Jewell’s decision, while relentlessly hammered by Murkowski, has been supported by conservation groups, a number of former assistant Interior secretaries and some of the residents of Cold Bay. In February 2009, the village of Cold Bay mailed out 52 surveys asking residents to share their sentiment about the proposed road link with their neighbors. According to a summary of the surveys, 29 were returned with stances against the road and nine were for it. When asked about the issue, Cold Bay Mayor Jorge Lopez said he would have to consult with the city council and would not be able to comment in time for this story. A bipartisan group of former assistant Interior secretaries from the Nixon, Ford, Clinton and George W. Bush administrations wrote a letter to Jewell dated March 14 supporting her stance against a road through Izembek. The letter notes that in 1998, the Clinton administration reached an agreement with the road’s then-biggest proponent, Alaska’s late Sen. Ted Stevens, to appropriate $37.5 million for upgrades to the King Cove clinic, dock facilities and a new hovercraft for use between King Cove and Cold Bay. After spending $9 million on a hovercraft, the Aleutians East Borough took the hovercraft out of service in 2010 saying it was too expensive to operate and couldn’t handle rough water. Jewell has said the hovercraft handled every emergency transport needed while it was in service. What is happening to the hovercraft now is another story. Used for nearly two years as a shuttle between the Aleutian village of Akutan and the new village airport on Akun Island about 6 miles away, Aleutians East Borough spokeswoman Laura Tanis said it was taken out of service Feb. 15. The borough plans to put the hovercraft up for sale, Tanis said, with the proceeds going to projects in Akutan and King Cove. Tanis cited the cost and unreliability of the hovercraft as reasons for discontinuing its use. Bruce Babbitt, Interior secretary under President Clinton, wrote an op-ed piece for the Los Angeles Times March 11 with the headline “Alaska’s ‘road to nowhere’ is still a boondoggle,” referencing the infamously-dubbed Bridge to Nowhere proposed between Ketchikan and Gravina Island. According to Babbitt, the road would connect salmon processing facilities in King Cove to the Cold Bay’s airport and allow for expanded shipping of commercial fish. Additionally, he wrote that the road would “set a dangerous precedent as the first new road ever authorized through a congressionally protected wilderness area, one of the most stunning estuaries on the planet.” Murkowski has emphasized the road would be restricted to emergency-use only. Even the Yukon-Kuskokwim Delta-area Association of Village Council Presidents, which represents 56 Western Alaska Native villages, has weighed in. In a letter to Jewell dated May 6, 2013, AVCP President Myron P. Naneng Sr. wrote that the group opposes the Izembek road as stakeholders of the waterfowl resource because of concerns about what it would do to goose habitat. “In taking this position (against the road), AVCP is not dismissing the valid concerns of the people of King Cove. We believe, however, that the proposed road is not the solution — that other transportation alternatives that would not impact migratory waterfowl should be discussed and developed with King Cove,” Naneng wrote. Alaska Region Director of The Wilderness Society Nicole Whittington-Evans echoed Babbitt in an interview saying that the road set a very dangerous precedent for development in designated wilderness areas and questioned how the road would be kept open during dangerous winter weather. “We want local residents (in King Cove) to have safe transportation that is as reliable as their remote location allows,” Whittington-Evans said. She added that residents in need of immediate medical care would not use a road when faster air transportation is available. The Wilderness Society’s Alaska spokesman Tim Woody said the organization supports Jewell’s ruling on the road through “science-based rationale” and that other alternatives, such as returning the hovercraft to service, should be investigated. “We agreed with Sally Jewell that this is about finding a solution that meets all needs,” Woody said. Elwood Brehmer can be reached at [email protected]  

Tongass exemption reinstated; FWS moves to list wolves

A federal appeals court overturned a lower court ruling that denied exempting the Tongass National Forest from the controversial “Roadless Rule” on March 26. In its 2-1 opinion to uphold the Tongass exemption, a 9th Circuit Court of Appeals panel cited the U.S. Department of Agriculture’s attempt to ease the socioeconomic impact to Southeast Alaska created by the Roadless Area Conservation Rule, address regional timber demand and its wish to end litigation as acceptable justifications for the original USDA action. The Appeals Court remanded the case to Alaska U.S. District Court to determine if a supplemental environmental impact statement is needed for the exemption. At roughly 17 million acres — the size of West Virginia — the Tongass is the largest national forest. Enacted at the end of the Clinton administration in January 2001, the Roadless Rule has been at the center of lawsuits in four other western states and Washington, D.C. It was meant to preserve nearly 60 million acres of national forest across the country from further development. In 2003, the USDA issued a record of decision that determined the Tongass should be exempt from the development ban. A 2011 Alaska U.S. District Court ruling overturned the exemption and the State of Alaska sued to reinstate the exemption and overturn the entirety of the Roadless Rule. Also in 2011, the 10th Circuit Court of Appeals rejected a State of Wyoming petition to reinstate a District Court injunction barring implementation of the rule, thus restoring Roadless management in the state. The most recent version of the case pitted the Organized Village of Kake and 11 regional and national conservation organizations including Greenpeace and the Sierra Club as plaintiffs against the USDA — the parent department to the U.S. Forest Service — and the State of Alaska and the Alaska Forest Association as defendant and interveners. A year and a day before the Appeals Court decision, 9th Circuit Court Judge Richard J. Leon wrote in a 2013 ruling that the state’s quest to repeal the Roadless Rule completely came too late, after the six-year statute of limitations had expired. The members of Alaska’s congressional delegation and Gov. Sean Parnell lauded the March 26 ruling as a win for the state against federal policy that doesn’t fit the state’s situation. “This is a huge victory for Alaskans and their families who depend on economic development in the Tongass. Although this rule has already done irreparable harm to the timber industry and small communities in Southeast Alaska, this win will allow Alaskans to start building the industry back up,” Parnell said in a formal statement. In early 2011, Sens. Lisa Murkowski and Mark Begich co-sponsored stalled legislation to permanently repeal the Roadless Rule. Sealaska Corp. spokeswoman Dixie Hutchinson wrote in an email to the Journal that the ruling will return management of the Tongass back to the Forest Service and provide the people of Southeast with a voice in how the forest is managed. Sealaska, the Alaska Native regional corporation for Southeast Alaska, has been working the delegation for years to gain roughly 70,000 acres still owed to it by the federal government under the Alaska Native Claims Settlement Act. Corporation leaders have stressed the primarily timer land it has requested would temporarily lift the region’s once-strong timber industry. Timber harvest is allowed in Roadless areas, but industry officials say the helicopter logging required is slow and expensive. Judge Carlos T. Bea cited USDA’s 2003 record of decision extensively in the majority opinion issued March 26. Bea noted the department’s acknowledgement that the Tongass is a unique situation with 29 of the 32 communities inside the national forest isolated from the highway system. Because of that, “the Roadless Rule would condemn these communities to continued isolation” and economic hardship, according to USDA. Unemployment rates in some small Southeast communities not benefited by tourism range between 15 percent and 20 percent. Thus, the exemption is a “reasoned explanation” based on the department’s expertise, to which the court is supposed to defer, Bea wrote. Further, Bea referred to the historical timber harvests as a reason to reinstate the Roadless Rule exemption in the forest. From 1980-2002, the average harvest in the Tongass was 269 million board feet and prior to 2001 the harvest had never been less than 100 million board feet, according to the 2003 record of decision. Given the historical harvest figures, a conservative market demand estimate of 124 million board feet was deemed reasonable in the record of decision. Here again Bea deferred to the department’s expertise in his ruling. “It is certainly reasonable for the agency to determine that a higher market estimate from 22 years of data is preferable to a lower market estimate based upon demand in a short cyclical downturn, even for a ‘short term’ rule,” Bea wrote. The fiscal year 2012 timber harvest in the Tongass with the Roadless Rule in effect was 20.8 million board feet, according to the Forest Service’s 2012 Tongass Monitoring and Evaluation Report. Judge M. Margaret McKeown disputed the timber demand projections in her dissenting opinion because they did not account for the “dramatic post-2000 decline in timber demand,” she wrote. The record of decision projected the Roadless Rule would cause a harvest reduction of 77 million board feet per year, which didn’t hold true by 2003, according to McKeown. The 2003 decision also noted the pending litigation at the time as a reason for exempting the Tongass from the Roadless Rule — a way to mitigate future court proceedings — according to Bea’s opinion. Litigation has continued for more than a decade after the record of decision, a fact noted by McKeown in her dissent. However, Bea wrote that the McKeown dissent “argues that the record of decision created more litigation than it resolved. But such an analysis second-guesses the USDA’s decision based on 20/20 hindsight. Agencies are not soothsayers, and litigation is an uncertain art.” US Fish and Wildlife moves to list Tongass wolf While the reinstatement of the Tongass exemption to the Roadless Rule can be seen as a win for the timber industry, a March 28 announcement from the U.S. Fish and Wildlife Service that the agency has taken the first step to list a Southeast wolf species as threatened could temper timber optimism. Fish and Wildlife has initiated a 90-day petition to list the Alexander Archipelago wolf as threatened and to designate critical habitat under the Endangered Species Act. The Alexander Archipelago is the island chain that makes up nearly all of Southeast Alaska and stretches roughly from Juneau south to the British Columbia coast. According to the Fish and Wildlife Federal Register posting, the wolves inhabit all of mainland Southeast and islands south of Frederick Sound, meaning the large islands of Baranof, Admiralty and Chichagof would be exempt from any possible habitat classification while Prince of Wales Island would not.  Murkowski said in a written statement from her office that if the decision to list the wolf is made it would further “lock up” Southeast and limit economic development. “I find it ironic and more than a mere coincidence that this administration would decide to take this step right after the 9th Circuit Court overturned the Roadless Rule in the Tongass,” she said. “This will have real and lasting ramifications on the economy of Southeast. That, to me, is unacceptable.” As part of the 90-day petition, Fish and Wildlife is asking for comments and scientific data on the wolves of Southeast. Based on the information submitted, a 12-month finding on the petition will be issued. In a March 28 statement responding to the Fish and Wildlife action, the Alaska Region of the Forest Service issued a written statement saying it would work with the service and the Alaska Department of Fish and Game to gather sound population data on the wolves and assist in future management of the predators. The Federal Register comment deadline is May 30. Elwood Brehmer can be reached at [email protected]

Alaska has a love-hate relationship with its energy

Every year Alaskans wait with bated breath for the PFD announcement — their personal share of the state’s oil wealth. While clean, reliable hydropower provides inexpensive electricity to Southeast, residents of the Interior and Western Alaska struggle to afford $5 per gallon fuel oil. Some pay more for heat than their mortgage every month. For 10 years, Chris Rose, founder of the Renewable Energy Alaska Project, or REAP, has tried to level the energy field across the state. “We have worked very hard to help people understand this is an economic issue,” Rose said. According to Rose, Alaskans spend more than $5 billion per year on energy, with most of that money leaving the state. Over the past couple years, REAP has partnered with the state in an effort to make sure Alaska’s future leaders have the basis to tackle their state’s wide-ranging energy challenges. In 2012, the nonprofit began developing the AK Energy Smart curriculum with the Alaska Center for Energy and Power at the University of Alaska Fairbanks as a way to spread the word about the importance of energy awareness through the state’s schools. REAP took the curriculum on a barnstorming mission to about a dozen communities across the state. Teachers and administrators were invited to workshops to learn how AK Energy Smart principles could be melded into their current lesson plans. Courtney Munson, REAP’s education coordinator, said in all representatives from 39 districts learned about the curriculum in 2012. Energy curriculums from across the country were studied and bits and pieces that applied to Alaska were added to AK Energy Smart. A popular focus in Lower 48 schools that was omitted is being energy efficient during summer when air conditioners are running, a problem not typically associated with Alaska, Munson noted. “The first thing we did when we created this curriculum was break out the big concepts; what are the things we want everyone to know?” Munson said. From there, the lessons such as  “Be an Energy Saver,” geared towards middle school students, needed to be scaled for older and younger kids, she said. In high schools the focus is on action components, Munson said, with more involved and detailed measures students can take to impact energy use at home or school. Younger students are simply made aware of the broad concepts and “energy pathways” around them, she said. It’s a way for teachers of the youngest students to weave AK Energy Smart principles into their current lesson plans. “Some of the lessons are ones the teachers would take as a reading lesson; it’s just the story is about energy. It’s a story about a girl in her house who started discovering things using energy and through the story we teach these concepts,” Munson said. “These are things that younger children can understand; it’s just more visualizing it.” Feedback from teachers was mostly positive after the first summer. They found AK Energy Smart particularly easy to integrate into the classroom because the lessons were designed around Alaska, she said. Teachers in rural Alaska could get a few kilowatt meters that cost $30 to $40 and have their students track energy usage of certain appliances and translate that to cost, she said. It doesn’t require complicated or expensive materials. The impetus for the education work is to share information, an essential part of changing the culture and reducing expensive energy use, Rose said. The sooner the learning can start, the better, he said. “Talking to kids early on about why energy is important, where their energy comes from is an important thing for our future — to make sure our kids are energy literate,” Rose said. “There’s a tremendous ignorance, sadly, about where energy comes from. A lot of people know very little about how their electricity is produced.” When Jack Walsh was the superintendent in the Western village of Naknek, he and some of his teachers sat in on an AK Energy Smart workshop. Walsh said he too was impressed with how applicable the curriculum was to his small school with about 180 students from kindergarten through high school in one building. “Where an elementary class might work with their teacher on turning off lights or learning how they could conserve energy in other ways, what we saw with some of our older students, especially in classes like science, they could do more exploring with some of the options that exist with wind or solar power,” Walsh said. A staff meeting about the curriculum and how it could be applied directly to the school began to change everyone’s habits, according to Walsh. He said the school’s maintenance director tried to make everyone aware of how much electricity the 90,000 square-foot building was using and costing — nearly $30,000 every month. “He put the number from the electric bill on a piece of eight-and-a-half by 11 piece of paper and hung it next to every light switch,” he said. The simple act got others to do simple but often overlooked things — to close open windows and doors and turn off the lights before they left, he said. Additionally, just beginning to talk about energy in the school broadened the scope of the conversation to bigger topics nearly immediately. Walsh said the local electrical cooperative was investigating the prospect of generating power from geothermal sources at that time. Naknek is powered with diesel-fired generators. “There were a lot of things going on in the community that were important for us to better understand and unfortunately while (the geothermal) project wasn’t as successful as people had hoped it was important for kids to know that there are so many ways for us to reduce our reliance on fossil fuels because they might be able to save that in ways I never thought of or others had never thought of in the past,” Walsh said. Now the superintendent at the Craig district in Southeast, Walsh said he plans to implement AK Energy Smart into classrooms there. Alaska Housing Finance Corp. now has a two-year, $200,000 contract with REAP to continue AK Energy Smart outreach, AHFC Energy Specialist Tim Leach said. He looks at it as a way to give students a “leg up” on how to make good energy choices in the future, Leach said. “We really want to make sure that this curriculum, which we see really as an essential element for students here in Alaska, moves forward and gets in the hands of the teachers here in Alaska and allows the students to become energy literate,” he said. Teachers who aren’t able to attend in summer at workshops in regional hubs can attend via webinars. He said the curriculum can also be downloaded from the AK Energy Smart website. Elwood Brehmer can be reached at [email protected]

Great Alaska Quake shook up science

When North America’s largest-known earthquake shook Alaska for all it was worth at 5:36 p.m., on Good Friday, March 27, 1964, George Plafker was in the right place at the very right time. At 35, Plafker was an up-and-coming geologist with the U.S. Geological Survey in Menlo Park, Calif. Because he had spent the previous three years mapping Southcentral Alaska’s mineral resources, Plafker was one of the few USGS scientists familiar with the infant state and subsequently was sent north. “I was at a meeting in Seattle so they only had to pay my fare half way,” Plafker said during a February lecture. The March 28 flight would send Plafker’s career in a new direction. “I don’t think any of us had any experience working on earthquakes,” he said. Today, Plafker is scientist emeritus of the Earthquake Hazards Program at the USGS Menlo Park Science Center. Part of a three-man team of geologists, Plafker was on the ground in Anchorage less than 24 hours after the earthquake struck. His flight was diverted to Elmendorf Air Force Base north of the small city because the air-traffic control tower at the international airport had collapsed. The lone individual in the tower was killed. The 9.2 magnitude earthquake, with its epicenter 74 miles east of Anchorage on the north edge of Prince William Sound, was felt as far away as Dutch Harbor and Seattle. The quake and resulting tsunamis took 128 lives from Alaska’s Gulf Coast all the way south to Los Angeles. In Alaska, 15 people are believed to have died during the four-minute quake, while another 113 were killed by the large waves. Damage in the state totaled more than $310 million at the time, roughly $2.3 billion in today’s dollars. Crescent City, Calif., took the brunt of the damage to the Lower 48. The small town sits about 20 miles south of the Oregon border on the California coast. Its locale on a point in the coastline makes it particularly susceptible to large waves. When the March 27 tsunami hit Northern California, the 21-foot swell of water killed 10 people in the town, according to the University of Southern California Tsunami Research Group. Of the $17 million worth of damage in California associated with the tsunami, $15 million of it occurred in Crescent City. Waves as high as 6.5 feet were recorded as far south as San Diego, and one person died when the tsunami surge hit Cerritos Channel in Los Angeles. Small, “warning waves” along British Columbia gave residents of Vancouver Island notice to the 20-plus foot wall of water that was coming, preventing any loss of life in Canada despite no official warning system. Plafker said many of the waves that caused damage in Southcentral were “secondary,” localized waves, those caused by coastal landslides and not the direct ground shake. A landslide in Shoup Bay just west of Valdez started a wave that snapped trees 100 feet above the shore, he said. Southcentral Alaska is particularly prone to earthquake-induced land failures because of the abundance of unstable glacial till soil, above or below the water, that is ready to give way. When added to nearby towns built on the only flat areas near sea level — Valdez, Whittier, Seward — it makes for dangerous sum. “What we learned is — stay away from these places. If you can’t stay away run like hell to higher ground when it starts shaking,” Plafker said. During their first 10-day reconnaissance trip to try and draw early conclusions about what had happened during the quake, Plafker said the Army at Fort Richardson made helicopters and housing available to the Outside geology team. At the time, it wasn’t even known exactly how large of the quake was. “It was called an 8.5 for 10 to 12 years after the fact,” he said, because that was as high as the Richter scale went in 1964. Changing the science The modern theory of plate tectonics was just starting to evolve in 1964 as well, and Plafker’s research would have as much to do as anything with how what happens under our feet is viewed today. In the early 1960s, evidence began to circulate that what is known as “sea floor spreading” was occurring under the Pacific Ocean, he said. That is, magma erupting and oozing from cracks in mid-ocean ridges cools, hardens and forms new ocean floor. “About ’64 the idea that the sea floor is spreading out was accepted but all of the people — we called them in those days ‘stabilists’ versus the ‘mobilists’ — the stabilists would say, ‘Oh, well the earth is expanding to accommodate that and there’s nothing happening at the edges,” Plafker said in an interview with the Journal. The southern coast of Alaska is at one of the edges. It’s there where the denser, younger sea floor plate is pushed under the lighter, older continental plate, forming a subduction zone. The Pacific plate is sliding under the North American plate at about two to three inches per year, Plafker said. As the years turn to decades to centuries, that plate relationship is not without stress, however. The edge of the North American plate gradually bunches up and along with it the land behind the edge is pushed upward. When the pressure behind the edge of the plate becomes too great, the land springs forward  — generally south — and causes a major earthquake. Enter Good Friday 1964. Searching for subduction After returning to Alaska in May, Plafker and his team spent the spring and summer of 1964 traveling Prince William Sound by boat, searching for evidence to support the subduction zone theory. Some of the evidence was pushed right out of the ocean for all the world to see. Parts of Montague Island on the south side of the Sound and Middleton Island farther out in the Gulf of Alaska rose up to 36 feet during the earthquake. Plafker said the movement was obvious where barnacle lines on shore side rocks became exposed. “These little critters all knew where they belonged in the water and they came up very abruptly and died,” he said. Dead trees along Kenai Peninsula and Kodiak Island shores evidenced where the ground had sunk into the saltwater zone. As Plafker explained, when the continental plate pushes out it adds mass to its leading edge and stretches and thins the land behind it. He said areas of Anchorage, where sinkholes all but swallowed homes and roads, fell as much as 10 feet. Plafker’s findings left the stabilists with little solid ground to stand on. “For 50 years I’ve been telling this stuff to all of the people that would listen,” he said. After publishing his team’s findings, Plafker said geologists at the California Institute of Technology who had studied the 9.5-magnitude earthquake in Chile in 1960 — still the lone-recorded event larger than the Alaska earthquake — met the results with resistance. “A friend of mine at Cal Tech said, ‘If that’s what happened (in Alaska), how come it’s the only place in the world it happened?’” Plafker recalled. “I said, ‘Well, I don’t think it’s the only place; it’s the only place we’ve really looked.” He said the Cal Tech professors had determined the Chile quake was caused by an offshore strike-slip fault where the plates collide and grind sideways, much like the San Andreas fault that bisects California. When his dissenting friends offered grant money for Plafker to prove them wrong, it was an opportunity he couldn’t turn down. After chartering a fishing boat for two months in 1969 and studying 600 miles of “inland sea,” — an area he said is very similar to Prince William Sound — in Southern Chile, Plafker said the resemblance to what he saw half a world away was undeniable. “It was a matter of serendipity you can’t believe,” as he described it. Not coincidentally, the USGS started its formal Earthquake Hazards Program soon after Plafker’s research was publicized. “I used those two earthquakes and a comparison of the two for my dissertation at Stanford,” Plafker said. “Besides having a hell of a good time in Chile I got a Ph.D. out of it very easily. Those were the two biggest earthquakes in history and they had a very tight story.” As for when another mega-quake can be expected in Southcentral Alaska, Plafker said, “I’m still working on that.” He said geologists are studying sediment layers on the Copper River delta to determine if the 1964 quake was the eighth or ninth major event in the last 5,600 years, meaning there should be another one in about 570 to 650 years, he said. Plafker was scheduled to give a lecture at the Anchorage Museum on March 27 to commemorate the 50th anniversary of the Great Alaska Earthquake, but he is currently recovering from a bike accident and won’t be able to make the trip to Alaska. USGS Research Geologist Peter Haeussler from the Alaska Science Center is expected to take his place. Building for ‘the big one’ Alaskans love their state — snow, cold, dark, earthquakes and all. Adapting to most of the challenges Alaska presents means simply having a little thicker skin than Outsiders; living with earthquakes takes a bit more engineering. Alaska is by far the most seismically active place on Earth. According to the USGS, nearly one in 10 earthquakes in the world happen in the state. The Municipality of Anchorage adheres to the International Building Code, or IBC. Ron Wilde, a structural plan reviewer with the municipality’s Community Development Department, said IBC standards are then amended to mesh with the local conditions. Areas in West and North Anchorage that have soil layers susceptible to slides and gave way in 1964 call for more particular design requirements, he said. N. Claiborne Porter, an architect in Anchorage for more than 40 years, said homes in the city mostly survived the large quake unscathed if they didn’t fall into sinkholes or weren’t caught up in landslides. The 1964 earthquake was not one of terrible motion, rather one of exceptional duration at more than four minutes long, which caused land to give way. It’s the amount of energy released over such a long period of time that puts it second on the all-time list. Still, “Post earthquake, there has been a terrific increase in the amount of hardware that goes into a structure,” Porter said. Almost all wood frame homes in Anchorage today are designed with ultra-sturdy metal plates that fasten the joists together. The idea is that the flexible wood can absorb the energy and motion endured during an earthquake while the strong joints hold the structure together. “A building is a total system,” Porter said. Ken Andersen and Mike Fierro, engineers with the structural and civil firm Reid Middleton Inc. in Anchorage, said the modern idea behind designing large commercial buildings is much the same. Fierro said steel structures are designed so the lateral beams act as a “seismic fuse” and spare the columns — designed heavier for two to three times more load — and thus the entire structure. “Steel turns into tangy taffy. It can stretch; it can take an enormous amount of deformation but not fail,” he said. “So, we want the (lateral) beam to do that.” Engineers in Reid Middleton’s Everett, Wash., office have a promising tool to determine the structural integrity of essential facilities immediately after an earthquake; it’s called the Rapid Evaluation and Assessment Program and it’s been installed at the San Diego Naval Medical Center. Andersen said sensors are installed in key structural areas of the building and after during an earthquake they send signals to a monitoring station where it established whether or not the building exceeded its design acceleration and needs to be evacuated. While he said it has only been installed in San Diego so far, other military facilities on the West Coast are looking into adopting the REAP technology. Andersen said nonessential buildings are built to withstand accelerations 25 percent to 30 percent greater than those experienced in 1964. They’re built to stand long enough during design-load events so everyone inside can get out before the building fails, he said. Essential facilities, such police and fire stations, hospitals and to some extent schools, are designed to levels at least 1.5 times beyond an average office building, Andersen said. Those criteria are likely to change, he added. “Every time there is a significant earthquake that results in building damage, technical people — scientists, engineers, geologists, FEMA (Federal Emergency Management Agency) — will send out groups to take a look at the site, take a look at the damage and what they see evolves into the code,” he said. Elwood Brehmer can be reached at [email protected]

Lawmakers briefed on Ambler, Juneau road projects

Legislators were brought up to speed on $900 million worth of work on two of the road proposals on the state’s ever-growing list of mega projects at a March 6 committee hearing. The Joint Transportation Committee heard from Alaska Industrial Development and Export Authority leadership on the Ambler Road project in Northwest Alaska and from the Department of Transportation and Public Facilities regarding the Juneau Access road. AIDEA Deputy Director Mark Davis told lawmakers that the authority took over work on the proposed corridor to the Ambler Mining District from DOT last June so the state’s infrastructure financing gurus could investigate options beyond traditional capital appropriation funding for the project. The road would provide access to four copper, zinc, lead and silver deposits that stretch for about 75 miles between the Brooks Range and the upper Kobuk River. Exploration of the deposits has so far been led by NovaCopper Inc., which owns the rights to the largest copper claim known as the Arctic deposit. NovaCopper has also teamed with NANA Regional Corp. on exploring the Bornite deposit, just south of the main Ambler claim belt. A February 2013 report from NovaCopper estimated the Bornite deposit holds roughly 2.4 billion pounds of copper. In July of last year the company issued a preliminary economic assessment of the Arctic deposit that estimated a total resource value of between $619 million and $1.4 billion. The final version of that report, released in September, projected mining and income tax payments to the state of $273.4 million over a 12-year mine life. “Without a road the mines cannot be developed,” Davis said. The Ambler Road would run west for approximately 200 miles from near milepost 135 of the Dalton Highway and give any Ambler-area mines that are developed rail access in Fairbanks.  There, AIDEA would likely partner with the Alaska Railroad to build a small ore terminal, Davis said. DOT took up the project in 2010 when it began reconnaissance studies on the corridor. Since then, the state has put $17.75 million towards the Ambler Road and Gov. Sean Parnell has asked for an additional $8.5 million in his proposed fiscal 2015 budget. Rough cost estimates have put the road in the $400 million range. Davis said AIDEA has value engineered DOT’s two-lane proposal down to a one-lane industrial road that should cost “significantly less,” he said. If AIDEA can secure private funding for the Ambler Road and avoid using public money for construction, its classification as an industrial road could allow restricted use and lower costs. One or more partners would be sought for all construction and maintenance costs, Davis said, similar to what AIDEA has done with the Red Dog mine road north of Kotzebue. “The rationale is to put some of the construction and design on the private sector,” he said. “They tend to be more innovative; they tend to be quicker; they tend to be less expensive than the government.” By starting the National Environmental Policy Act environmental impact statement process this year, environmental permitting could begin in 2016, with construction in 2019, he said. Davis said bonding the state’s portion of work — possibly up to $90 million — could mean no other state contributions would be needed beyond the NEPA process. AIDEA estimates it will need between $15 million and $21 million beyond what Parnell has proposed until permitting is complete. NovaCopper and AIDEA have a memorandum of understanding to keep each other updated on work, given the ties between the road and mine development, according to Davis. This year, AIDEA is continuing discussions about the subsistence, access and economic impacts of the road and mines with area villages, he said. Also, the authority will contract again with DOT and the University of Alaska on geotechnical and environmental impact study work. Years from now, if the road is built and all activity in the Ambler Mining District has wrapped up, Davis said there are multiple options that could provide increased public access on the road. Those decisions will be made during the NEPA process, he said. The first half of the 52-mile Pogo gold mine road near Delta will open to the public once the mine is closed, he said. Lois Epstein, engineer and Arctic program director for The Wilderness Society, testified before the Transportation Committee and raised concerns about how fast the state is moving on the project. “The administration has gotten ahead of itself on Ambler Road,” she said. Before the state puts any more money towards Ambler development, Epstein said there should be clear facts about the viability of the mine prospects and the support garnered from area villages. She questioned whether the state would be able to find private partners to finance enough of the road to justify the estimated $273.4 million return in taxes. NovaCopper’s July 2013 report justifies moving forward with a pre-feasibility study, the company has stated. Epstein said the villages of Bettles, Evansville, Alatna and Allakaket all recently passed resolutions stating positions against the proposed road. One of the biggest concerns area residents have is how the east-west road would impact caribou migration patterns, she said. The Red Dog mine road, which has been promoted as an example of responsible resource development, runs north-south and could affect herds differently, Epstein said. Rep. Craig Johnson, R-Anchorage, said the direct return on investment the project could have is secondary to the benefits of job creation in the very rural region and all but dismissed Epstein’s testimony. “I just hope that at some point we get to see the benefits of development testified to,” Johnson said. “I know we’re looking at specifics, but at some point I think we also need to look at the positive impacts that jobs, and creation of jobs and access to less expensive energy plays in this and we can’t just deal with a piece of dirt turned over and a caribou having a good road to walk on north and south instead of having to cross east and west.” In his testimony, AIDEA’s Davis said the possibility of ice roads used to deliver lower-cost fuel to area villages off of the Ambler Road exists if the road is built. Greta Schuerch, government relations coordinator for NANA, said the state’s partnership with the Native corporation on Red Dog stands as a successful model for Ambler, but that everyone still needs more information on the Ambler project before decisions are made. Juneau access road Extending a road almost, but not quite, to Skagway from Juneau was the second topic for the Transportation Committee. DOT Division of Program Development Director Jeff Ottesen said extending Juneau’s Glacier Highway 48 miles north to the Katzehin River, about three quarters of the way to Skagway, would save the state untold millions in the coming years. The savings would come from retiring one of the state’s mainline ferries without replacing it and the lower maintenance cost of a road versus a 400-foot ferry. “One thing about a road, is that most of that first investment is retained over decades and decades and decades,” Ottesen told the committee. “It doesn’t wear out; it’s not steel that corrodes; it’s not engines that wear down.” Over 50 years, building and maintaining a mainliner ferry costs upwards of $1.4 billion, even after money recovered from fares is factored in. A November cost analysis put the road “right at $500 million,” Ottesen said. The state put $4.6 million towards the project in the current fiscal year and Parnell has $55 million for it in his budget. Currently, DOT is working with federal agencies to complete a supplemental environmental impact statement, or EIS, needed after the 9th Circuit Court of Appeals ruled in 2011 that the state’s original document failed to consider the possibility of improving service with the existing ferries and terminals. The road would end at the Katzehin because the National Park Service deemed the area around White Pass to be a national historic resource and an area that can’t be impacted based Federal Highway Administration regulations. That means the “day boat” ferries on the verge of being built for running Lynn Canal would run up to 10 times per day between a ferry terminal at the end of the road, Haines and Skagway. DOT projects that activity would increase vehicle capacity in the corridor nearly 10-fold by 2020 — anticipated completion of the two-lane road — and demand by more than 18 times from 71 vehicles to more than 1,300 vehicles traveling the route per day. Additionally, travel time between Skagway and Juneau would be cut in half, from an average now of about 7.2 hours with wait-time, to about three hours. Gary Hogins, DOT’s lead on the project, said the traffic added to Juneau’s road system would be “insignificant.” Elwood Brehmer can be reached at [email protected]

House aims to revamp high-cost workers' comp system

Workers’ compensation rates in Alaska have continued to climb in recent years despite a declining number of claims. The House Labor and Commerce Committee took up legislation March 7 aimed at reforming the system and reigning in costs. House Bill 316, introduced by committee chair Kurt Olson, R-Kenai, would eliminate the current usual, customary and reasonable, or UCR, fee schedule and replace it with a schedule set by the state Workers’ Compensation Board. The board would base its fee schedule on Medicaid and Medicare rates and further adjust costs to reflect the market with a conversion factor it would set. The UCR fee schedule is based on what physicians charge in a geographical area, not what it costs to perform medical procedures, according to Olson’s sponsor statement. A biannual study done by the State of Oregon found that Alaska carries the highest workers’ compensation insurance premium rates in the country, despite a 3 percent drop in premiums in 2012. In 2000, Alaska ranked 28th in workers’ compensation premium rates, but by 2006 it was the most expensive state in the country. Since then, Alaska has been first or second. While workers’ compensation claims declined 14 percent in the past year, medical costs increased 25 percent in the same period, said Olson staffer Anna Latham, who presented HB 316 to the committee. Alaska workers’ compensation premiums are 160 percent greater than the national median, Latham said, and medical costs make up 76 percent of overall premium rates. Alaska Department of Labor and Workforce Development Workers’ Compensation Director Mike Monagle has said medical costs nationwide account for about 60 percent of premium rates. According to a brief provided by Olson’s office, primary medical care in Alaska is paid at 185 percent above Medicare rates; surgeries are paid at 482 percent above Medicare; and radiology procedures are paid at 312 percent above Medicare. Latham said the Workers’ Compensation Board, Gov. Sean Parnell and leglislators all agree that the rate system needs serious revision. Alaska State Chamber President and CEO Rachael Petro said during public testimony that the state’s high workers’ compensation costs have become a competitive issue for Alaska businesses. Reforming workers’ compensation rates “is a top priority for the Alaska Chamber and for our members,” Petro said. Approved in 2004, the UCR system has been extended numerous times since it was first supposed to sunset in 2007 by lawmakers unable to reach an agreement on workers’ compensation reform. Another change HB 316 would make is it would add a fee schedule for emergency transportation services, something the current system does not do. Schedules would also be set for in-patient hospital fees, physician visits and out-patient care, Latham said. The fee-setting methodology employed by HB 316 is used in 32 states, she said. The Workers’ Compensation Board would also set reimbursement limits for durable medical equipment and prescription drugs. These rates and the conversion factors would be set annually, Latham said. Additionally, HB 316 requires prescriptions include a code from the Food and Drug Administration’s National Drug Code directory, aimed at better tracking prescription drugs and curbing drug abuse. Monagle, with state workers’ compensation, estimates prescription drug costs account for 20 percent of all compensation claims. Those who testified that the workers’ compensation system in the state needs to change largely supported Olson’s bill. Concerns were raised about the ability of the board to properly set the conversion factors and a clause in the bill calling for the system to sunset in 2019 and revert back to the current system. The Workers’ Compensation Board is made up of nine state labor representative and nine management representatives appointed by the governor. The worry behind the sunset clause is that it would prevent long-term certainty in the industry. When the committee reconvened March 10, Olson said the sunset provision had been removed in a committee substitute for HB 316. “I would say that’s the only thing so far that’s brought all the stakeholders together; nobody liked the sunset clause,” Olson said. As to the board setting the conversion factors, the committee substitute language also called for fellow Labor Department group, the Medical Services Review Committee, to advise the Workers’ Compensation Board on the annual issue. If passed, the board would begin setting fee schedules July 1 at the start of the state fiscal year, and the changes would go into effect Jan. 1, 2015, Latham said. No action was taken on the bill March 10 because Labor and Commerce Committee members did not have the requisite time to review the committee substitute, Olson said. The committee was set to take up HB 316 again March 14. Elwood Brehmer can be reached at [email protected]

Bypass mail proposals draw ire from Alaska delegation

Legislation in the U.S. House of Representatives that would work to cut the cost of bypass mail to the U.S. Postal Service by millions has drawn staunch opposition from the Alaska congressional delegation, who are claiming the changes would have just the opposite effect on the rural freight system. During a March 4 hearing of the House Subcommittee on Federal Workforce, U.S. Postal Service, and the Census, Deputy Postal Service inspector general Tammy Whitcomb testified that the Alaska-specific program lost $76 million last year, or 70 cents for every dollar of the $108 million the post office invested. The Alaska Bypass Modernization Act would require the Postal Service to establish bypass mail rates that cover 30 percent of program costs in fiscal year 2015 and increase to cover half of the cost of bypass mail by fiscal 2020. Oversight and Government Reform Committee chair and bill sponsor Rep. Darrell Issa, R-Calif., said postal ratepayers nationwide are sharing the burden of the bypass mail losses. His legislation, at current rate prices at freight levels, would save the Postal Service about $24 million per year. Established in 1972 as a way to ease demand on postal facilities that were running over capacity, bypass mail supplies a large portion of the consumer goods used in rural Alaska. The program uses a complex system of rate and aircraft classifications depending on the route served to determine freight fees. Those rates are established by the Department of Transportation and imposed on the post office. Air carriers transport the freight orders that could be anything from food to power tools to household items, directly to their destination without going through a postal facility. The carriers are paid by the Postal Service. The current minimum shipping price for a requisite 1,000-pound palletized order is $365, according to Postal Service Alaska District Manager Ronald Haberman. “I would like to point out that despite its costs, the bypass mail system works well for the Postal Service,” Haberman said. Sen. Mark Begich said to the House committee that bypass mail saves the post office $45 million per year versus using standard postage because it cuts down on facilities and labor costs that would have to be incurred if the system were abolished. He testified that, “anyone citing the cost of bypass mail should include that ($45 million) figure.” Rep. Don Young spoke off the cuff to the committee and said he did not know where the title of the hearing, “Alaska Bypass Mail Delivery: A Broken System,” came from. “Chairman Issa has a strong interest, as I’ve said before, in legislating in my state,” Young said. “He’s worried about $70 million lost, supposedly. This would cost the Postal Service probably $200 million if they were to have this, what we call parcel post.” Young said that the losses incurred through bypass mail are small when compared to the overall financial state of the quasi-government organization. “There’s a $15 billion debt in the post office and you’re worried about $70 million,” he said to the committee. The financial troubles of the Postal Service are well documented. The service reported a $354 million loss in the first quarter of fiscal year 2014 as well as $40 billion in unfunded liabilities driven by pension obligations. It marked the 19th net loss over the last 21 quarters, according to a USPS release. Postmaster General and CEO Patrick Donahoe has said the Postal Service cannot continue on its current financial path without legislative action and will likely default on a $5.7 billion pension payment due Sept. 30 without significant help from Congress. Begich lauded the Senate Homeland Security and Governmental Affairs Committee, on which he serves, for moving the Postal Reform Act that would give the Postal Service more freedom to manage its debt and allow for some funding surpluses to be put towards pre-funding pension payments. The Senate bill does not include any changes to the bypass mail system. In written testimony, Sen. Lisa Murkowski stated that bypass mail saves the Postal Service $13.4 million per year by allowing a “huge volume of qualifying parcel post mail to literally bypass postal facilities.” Processing bypass mail through “in-house” operations would increase the mail through Anchorage and Fairbanks facilities by nearly 1.7 million pounds per week, the Postal Service’s Haberman testified. More than 87 million pounds of intra-Alaska freight was moved via bypass mail in calendar year 2013, according to Haberman. Deputy inspector general Whitcomb offered that eliminating the statutory restrictions limiting new carriers from entering the market could be a way to make the system more efficient, along with simply raising bypass rates to “eliminate its burden on other customers.” She suggested the State of Alaska could reimburse the Postal Service for its bypass losses if the program remains the same with Permanent Fund money. To make up the $76 million 2013 shortfall the state would have only had to contribute 2.6 percent of the $2.9 billion the fund earned last year, Whitcomb testified. Murkowski also testified that the freight system saves other federal agencies money by allowing them to ship goods for programs such as U.S. Department of Agriculture’s food aid programs more efficiently. Additionally, she stated that the relationship between how many passengers the six mainline bypass mail carriers serve and how much mail they are allotted has encouraged increased passenger service in rural communities, thus leading to 40 fewer communities relying on Essential Air Service and saving the government millions. The Alaska Bypass Fair Competition Act, also sponsored by Issa, moved out of the full Oversight Committee Feb. 11. It would open competition for mainline bypass service by shortening the time a carrier must participate in the program to be an existing mainline carrier to 36 months of continuous service. Currently, all existing mainline carriers must have met the detailed criteria as of January 2001. Murkowski and Begich both testified that increasing competition among the now six mainline carriers would lessen the amount of mail each carrier transports and hurt the program’s efficiency. Rate rollback In February, Begich said he had gotten Postmaster General Donahoe to agree to roll back rate increases that went into effect Jan. 26 on large packages in the traditional mail system. Rates on packages heavier than 50 pounds had increased by up to 50 percent for some in rural Alaska. At the time, Begich said Donahoe told him the sharp rate hikes were an unintended consequence of system-wide rate adjustments and would be scaled back as soon as possible in areas where the Postal Service is the only parcel carrier. The rates are set to return to pre-hike levels March 20, according to a March 7 release from the senator’s office. It was that day that the Postal Regulatory Commission approved the rollback. “There were some unexpected bureaucratic hoops but I am pleased that relief from the higher parcel post rates is on the way for Alaskans,” Begich said in the release. “My office has been hounding the Postal Service and the PRCD over the past month to expedite the process and I’m happy that we’ve cleared a major milestone today (March 7).” March 20 is the end of the 30-day Federal Register notification period required for all rate changes. Elwood Brehmer can be reached at [email protected]

Anchorage files suit against MARAD over port management

The Municipality of Anchorage is broadening the reach of litigation to include the federal government among the defendants in the ongoing port expansion drama. During a March 3 press conference, Anchorage Mayor Dan Sullivan discussed his administration’s decision to file a lawsuit Feb. 28 against the U.S. Maritime Administration, or MARAD, in the U.S. Court of Federal Claims. The U.S. Department of Transportation agency was in charge of managing the construction project at the city’s port when cost overruns and questions about construction and design techniques brought the critical infrastructure project started in 2003 to a halt in 2010. No significant work has been done on the port in nearly four years. The latest legal action by the municipality brings the total number of defendants involved in the port work to four in two cases. The municipality sued PND Engineers, CH2M Hill, owner of former port design consultant VECO Corp., and Integrated Concepts and Research Corp. on March 8, 2013, in state Superior Court. That case has since been moved, despite protest by municipal counsel, to federal Alaska District Court in Anchorage. The Court of Federal Claims in Washington, D.C., where the municipality has sued MARAD has jurisdiction over contract disputes with the federal government. The business relationship between the municipality and MARAD ended unceremoniously in 2012 when the agency was “kicked out” of the port project, Sullivan has said. The municipality now has oversight responsibility of the port expansion. “As we all know the management of (MARAD’s contract) was not handled competently and we’re seeking damages as a result of that,” he said. Damages in excess of $10,000, but ultimately to be determined by the court, are being sought on two counts of breach of contract and one count of “breach of the implied covenant of good faith and fair dealing,” according to the municipality complaint. MARAD signed memorandums of agreement with the municipality in 2003 and 2011 detailing its responsibilities at the port. MARAD also signed contracts in 2003 and 2008 with Integrated Concepts and Research Corp., the firm it hired as a management partner under the Small Business Administration’s 8(a) program, which has special provisions for Alaska Native corporations. ICRC was owned by Koniag Inc., the Alaska Native Regional corporation for Kodiak, at the time of the first contract, but was sold to a Virginia company prior to the 2008 contract. Improper application of the preferential 8(a) rule by MARAD in 2008 was one of several issues raised in a scathing Inspector General audit released in August 2013, reviewing the agency’s involvement in port projects in Guam, Hawaii and Anchorage. According to the complaint, MARAD agreed to pay ICRC $11.3 million in September 2012 as part of a negotiated contract adjustment agreement without the municipality’s knowledge. “At the same time MARAD was secretly negotiating a settlement with ICRC, MARAD was pretending to work with (the municipality) to reject the ICRC claim and to prepare a counterclaim with (the municipality’s) assistance,” the complaint alleges. The settlement released MARAD and ICRC from liability and recourse against each other regarding contract work at the Port of Anchorage, the municipality claims. Per the agreements between MARAD and the municipality, the federal agency took 3 percent of the $302 million appropriated for the project as fees for its work, amounting to just more than $9 million since 2003. On Feb. 25, the Anchorage Assembly approved CH2M Hill as a project manager for the port on an initial five-year, $30 million fee-for-service contract. CH2M Hill prepared the 2013 study that deemed PND Engineer’s patented Open Cell Sheet Pile design unsuitable for seismic and design-life criteria at the port. That study was cited extensively in the first lawsuit. PND has claimed from the outset that faulty sheet pile installation was to blame for the project’s challenges. Over the next few weeks, a project management plan will be drafted and Sullivan said he hopes to have a new design approved within a year. First, some of the projects expired permits must be re-acquired. “We’ve got this project back on track, but it’s important that any and all entities that were responsible for previous mismanagement or mishaps in construction are held accountable,” he said. The general statute of limitations on disputes in Federal Claims court is six years; Sullivan said the case falls within that time frame. He said the municipality is standing up for the people of the state that depend on the Port of Anchorage. Outside of Southeast, roughly 90 percent of all the goods that enter the state go through the Anchorage port. So far, the Anchorage Assembly has approved $1.75 million for legal proceedings dealing with the port project, he said. Overall, $439 million in combined funding has been appropriated to the project that started with an estimated cost of less than $300 million in 2003. Of that, $138.6 million was federal money appropriated through various channels over nine years. During his Feb. 18 report to the Legislature, the Anchorage mayor said it would probably need another $250 million to $300 million in addition to the roughly $130 million the municipality has set aside for work now. The money available now will last for some time, Sullivan said, as his plan has scaled back the scope of the project. A brand new $280 million “north berth” dock has been taken off the table and future work will focus on traditional, pile-supported structures to mainly replace what is at the port now, he has said several times. As the 50th anniversary of the 1964 earthquake approaches, port officials have said the aging structure that withstood that disaster likely wouldn’t fare so well if a similar quake were to happen now as corrosion and general age have taken their toll. Sullivan told state lawmakers that he thought that the likelihood of the project receiving federal funding similar to past levels going forward — $138.6 million over nine years — is “very slim,” he said. Because the Defense Department has deemed the Port of Anchorage is a strategic port, $60.4 million of the federal funds the construction project has received to date came from the department, which requires dredging to a mean depth of 45 feet at such ports. The port is currently dredged to about 35 feet at the dock face. That might make the project available for some Defense and federal grant dollars, but he added that he plans to meet with the Gov. Sean Parnell and officials with the Alaska Industrial Development and Export Authority and the Alaska Housing Finance Corp. in the coming months about alternative funding. He said the municipality will prepare its plans for next legislative session and the port would almost certainly be its largest single request to the state in 2015. “We need to really strategize on what are the best sources of money that may again include some additional local debt,” Sullivan said at his press conference. The city has contributed $80.3 million to port construction. Sullivan also may have hinted to the Legislature that action against MARAD was being planned. “We are not going to go quietly into that good night when it comes to legal options with MARAD,” he said at the time. Elwood Brehmer can be reached at [email protected]

Arctic players talk infrastructure, spill response in Girdwood

GIRDWOOD — Alaska’s need for Arctic infrastructure — fixed and mobile — dominated the discussion at World Trade Center Alaska’s Arctic Ambitions conference Feb. 27 in Girdwood. State officials and representatives from Arctic nations and their businesses provided insight into what the state and federal governments can do, and who could be possible international partners with them, as economic activity in the region grows. Former Lt. Gov. and University of Alaska Anchorage Chancellor Fran Ulmer said oil spill response highlights nearly every forum she attends regarding Arctic policy and economic development. Ulmer, who was chancellor at UAA from 2007-11, is currently the chair of the U.S. Arctic Research Commission. The National Council is set to issue a report in April that will compile research focused on best practices of oil spill response in what she referred to as “icy waters.” She said the report will update previous work done by the U.S. Arctic Research Commission. Spill response procedures are needed as trans-Arctic shipping activity grows along with Outer Continental Shelf oil exploration, Ulmer said. While Arctic shipping currently represents only about 1 percent of all commercial maritime activity, she said it is growing about 5 percent per year. “It’s a big increase for a region that has limited infrastructure to support it,” Ulmer said. Multiple reports have put the number of commercial vessels that traveled the Northern Sea Route along Siberia and through the Bering Strait in 2012 at around 40. The U.S. need for additional icebreaking capacity is something the members of Alaska’s congressional delegation have spoken about at-length and was noted throughout the conference. The U.S. Coast Guard has two active icebreakers, the heavy Polar Star and the medium-duty cutter Healy. As non-Arctic nations such as China and South Korea are investing in icebreaking fleets, state government officials as well as the delegation have said the U.S. is falling behind. Growing the U.S. icebreaker fleet will likely cost several billon dollars. Until that investment is made, Tero Vauraste, president and CEO of the Finnish maritime support company Arctia Shipping, told the conference attendees that the U.S. and other Arctic nations could look to the Baltic region for icebreakers and general “icy waters” expertise. He said the region is one of the only areas in the world where there is heavy commercial activity in often ice-choked waters — outside of what occurs on a smaller scale in the Great Lakes. The countries surrounding the Baltic Sea are some of the only one’s in the world that have developed and working plans for managing commerce in Arctic-type conditions, he said. Arctia operates five icebreakers and offers supports the offshore oil and gas industry that operates in the Baltic Sea, Vauraste said. The company also assisted Shell with its exploration in the Chukchi Sea with two support vessels. Further OCS exploration by Shell has been suspended indefinitely as the Bureau of Ocean Energy Management deals with the January decision by the 9th U.S. Circuit Court of Appeals finding flaw with the environmental impact statement on which the OCS lease sale was based. Of the roughly 100 icebreakers operating throughout the world, about 60 were built in Finland, according to Vauraste. “We are good in hockey, but we’re world champions in icebreakers,” he said, referring to Finland’s victory over the U.S. men’s hockey team in the Olympic bronze medal game. He also warned against the belief that shrinking summer sea ice will eliminate all the challenges to Arctic business. “The diminishing of ice does not mean conditions get easier; they get more variation,” Vauraste said. The need for fixed marine infrastructure in Western Alaska is something the U.S. Army Corps of Engineers and the State of Alaska have been investigating in a joint study for nearly three years. It’s also something Vitus Marine CEO Mike Smith exemplified in his presentation. Vitus Marine orchestrated the fuel shipment to Nome in 2012 with the Russian tanker Renda and the Coast Guard Cutter Healy that captivated observers around the world. Smith said serving Bristol Bay communities can be extremely challenging as shifting channels at river mouths can make marine charts obsolete nearly as fast as they can be published. State Sen. Lesil McGuire, R-Anchorage, said at the conference that Senate Bill 140, which she is sponsoring, would expand the power of the Alaska Industrial Development and Export Authority to allow it to partner in financing Arctic infrastructure. Companies shipping to remote villages in the region often rely on local captains familiar with the latest conditions to help them navigate. At Nome, where the port is dredged to 21 feet, there are still “real economic implications to having to having a lack of infrastructure,” Smith said. Vitus Marine is only able to deliver up to 1.8 million gallons of fuel at a time because of the depth of Nome’s port. That means on a contract to deliver 2.5 million gallons two multi-day trips must be made with a tanker that could have made one delivery, adding up to $300,000 to the total cost of the fuel, or more than 10 cents per gallon, he said. In its presentations to state and federal officials, the Army Corps of Engineers has related the 800-mile infrastructure gap in Western Alaska between Nome and the deepwater port of Dutch Harbor as being similar to the distance between New York City and Jacksonville, Fla. Corps of Engineers Chief of Planning for the Alaska District Bruce Sexauer said at the Arctic conference that initial plans to issue a recommended deepwater port plan for the Seward Peninsula have been pushed back from this March to early summer as Corps leadership in Washington, D.C., has asked for more investigation of the proposed sites. Sexauer said the Corps of Engineers is not the only group interested in a port capable of supporting Arctic commercial activity. The study team will be giving a second presentation to a White House committee on their progress in the coming weeks, he said. The project is viewed by the Obama administration as a matter of national security, he said. Program manager for the Corps on the port project Lorraine Cordova has said there are 23 iterations of proposed infrastructure development being looked at when the Nome, Cape Riley and Point Spencer sites are combined. Most of the plans call for the Nome port to be dredged to between 26 feet to 39 feet, Sexauer said, at a projected cost of about $250 million. At those depths response and security vessels could be stationed in Nome or at Point Spencer, which has natural 40-foot depths, but no shore side infrastructure. He said Cape Riley is being looked at as a possible shallow draft barge facility for resource extraction projects. The most immediate export prospect in the area is the Graphite Creek prospect 40 miles north of Nome. Leadership in Graphite One Resources, the company developing the graphite claims, have said construction the project, with an initial 50-year life, could start as soon as late 2016. Elwood Brehmer can be reached at [email protected]

Municipality to go after MARAD over port

The Municipality of Anchorage is broadening the reach of litigation to include the federal government among the defendants in the ongoing port expansion drama. An announcement Monday morning from municipal spokeswoman Lindsey Whitt stated Mayor Dan Sullivan would hold a press conference from City Hall at 11:30 a.m., March 3 to discuss his administration’s decision to file a lawsuit against the U.S. Maritime Administration, or MARAD. The U.S. Department of Transportation agency was in charge of managing the construction project at the city’s port when cost overruns and questions about construction and design techniques brought the critical infrastructure project started in 2003 to a halt in 2010. No significant work has been done on the port in nearly four years. In a Feb. 18 presentation to the Alaska Legislature’s Joint Transportation Committee, Sullivan referenced an August 2013 Inspector General’s audit of MARAD’s involvement in port projects in Guam and Hawaii as well as Anchorage. “Essentially, (the IG audit) said MARAD failed in every single aspect of their project management duties,” at Anchorage, he said. The municipality is currently seeking damages from project designer PND Engineers; CH2M Hill, owner of former port design consultant VECO Corp.; and Integrated Concepts and Research Corp., hired by MARAD to oversee the project for the agency. Sullivan told state lawmakers that he thought that the likelihood of the project receiving federal funding similar to past levels going forward — $138.6 million over nine years — is “very slim,” he said. Overall, $439 million in combined funding has been appropriated to the project that started with an estimated cost of less than $300 million in 2003. During his Feb. 18 report to the Legislature, the Anchorage mayor said it would probably need another $250 million to $300 million in addition to the roughly $130 million the municipality has set aside for work now. He also may have hinted that action against MARAD was being planned. “We are not going to go quietly into that good night when it comes to legal options with MARAD,” Sullivan said at the time. On Feb. 25 the Anchorage Assembly approved CH2M Hill as a project manager for the port on an initial five-year, $30 million fee-for-service contract. Elwood Brehmer can be reached at [email protected]

Refinery closing will likely cost railroad $11M per year

The impending closure of the Flint Hills Resources North Pole refinery could cut $11 million in annual revenue to the Alaska Railroad, adding to the “unholy trinity” of challenges facing the state railroad, its president and CEO Bill O’Leary said. O’Leary made his remarks Feb. 20 to the Resource Development Council for Alaska. The Flint Hills closure will also put the railroad’s recent announcement of proposed commuter service between Wasilla and Anchorage on hold. O’Leary said the service, which railroad officials said could start this fall on a trial basis, wouldn’t generate substantial revenue early on and isn’t feasible given the added financial strain caused by reduced freight service demand. Railroad leaders predict bulk fuel transports in 2015 to be roughly 20 percent of peak volumes in 2003 that were primarily jet fuel shipments from the Flint Hills refinery to the Port of Anchorage. When it’s purchased by airlines, fuel from the port is piped to Ted Stevens Anchorage International Airport. O’Leary said the $11 million loss in freight business is expected despite a likely increase of northbound fuel trains to meet Interior demand for multiple fuels now provided by Flint Hills. The overall freight business for the railroad totaled 5.1 million tons of goods moved in 2013, off 23 percent from 6.6 million tons in 2008, O’Leary said. Gravel and export coal hauls have fluctuated during the time period, but the decline in service is largely attributable to decreased production from Flint Hills. The railroad hauled nearly 2 million tons of petroleum in 2008, while the sum of 2013 fuel shipments was less than 1 million tons, according to railroad data. To compensate, the Alaska Railroad has cut what was once daily freight service between Anchorage and Fairbanks to five days per week. “Freight is far and away our largest in the series of business lines,” O’Leary said. Freight transport accounted for 67 percent of the railroad’s $143.7 million in revenue for 2013. Passenger service made up 18 percent of generated revenue and the railroad’s real estate holdings accounted for 13 percent, according to figures provided by the railroad. The remaining two percent resulted from miscellaneous revenue streams. The railroad reported $14.2 million in net income last year and is estimating $8.3 million in profits in 2014. In 2011, the railroad generated $13.4 million of income on $187 million of revenue. Although it is a state-owned corporation, the railroad operates on a calendar year, not the state fiscal year that begins every July 1. The faint good news in the Flint Hills announcement is that it was made early, he said. The refinery isn’t expected to shut down until June, giving the railroad time to try and soften the blow, he said. Anchorage Mayor Dan Sullivan told the Legislature’s Joint Transportation Committee Jan. 18 that the Port of Anchorage would likely see “net neutral” business with the loss of Flint Hills jet fuel shipments and the addition of Delta Western’s fuel storage. Last April, Delta Western, which supplies petroleum products to Western Alaska communities, announced plans to build 11.3 million gallons of fuel storage at the port by late this year. The second challenge facing what O’Leary said is believed to be the last full-service railroad in the nation — offering both freight and passenger service — is “the mother of all unfunded mandates, Positive Train Control,” he said. Positive Train Control, or PTC, is a national mandate by the Federal Railway Administration to install tracking and control systems that can override human error if a train is going too fast or is in the wrong place, O’Leary said. First unveiled in 1997 and mandated in 2008 after a series of accidents in the Lower 48, the Alaska Railroad estimates full PTC implementation will cost it about $155 million. Failure to install the system could result in fines of up to $25,000 per day and loss of passenger service. O’Leary said the current December 2015 deadline to complete PTC is unattainable for nearly all the nation’s railroads, so he said he expects an extension of several years. To date, the railroad has spent $63.8 million on the capital project. That money, along with the $19.1 million in state funding the railroad received in the fiscal year 2014 budget leaves about $70 million of work unfunded. The railroad has requested an additional $40.8 million from the Legislature over the next two years, O’Leary said. A change to the federal funding formula for passenger railroads completes O’Leary’s hard-times trinity. The transportation funding package passed in October 2012 known as MAP-21 cut the Alaska Railroad’s allotted funding from $36 million to $28 million despite efforts to stop the cut by the congressional delegation, O’Leary said. The Alaska Railroad “came under attack” by lawmakers from other states that didn’t think it warranted the same funding provided other passenger lines, even though it meets the requirements, he said. “We don’t look like the Chicago Transit Administration; we don’t look like Dallas Area Rapid Transit,” O’Leary said. When an increase to the railroad’s match requirement is added to the federal funding reduction, the hit totals $12 million per year, he said. That money would have gone towards upkeep of railroad’s capital-intensive infrastructure, according to O’Leary. Surface transportation funding will come up again later this year, and he said the fight over money for the railroad could resume. Going forward, the focus is going to be more on revenue generation and business expansion to solve the railroad’s financial bind and less on cost reduction, O’Leary said. Last March, prior to O’Leary taking the helm, 54 positions were cut at the railroad in a cost-saving measure.  More than 800 full-time employees worked for the Alaska Railroad in 2008, a workforce that has shrunk to about 580 now as business has dwindled. Nearly all of the large proposed infrastructure projects in the state would boost business for the railroad, O’Leary said. In the interim, railroad officials have discussed with the Alaska Industrial Development and Export Authority board the possibility of transporting liquefied natural gas from Cook Inlet north to Fairbanks by rail. Moving the LNG, that would mainly be used for heat, by rail would be much cheaper than by truck and could provide an alternative fuel source for the Interior if the state’s project to ship North Slope gas to the region — the Interior Energy Project — is delayed or falls through. Since the railroad’s presentation to AIDEA about the feasibility of shipping LNG by rail in December, O’Leary said in an interview that “there has been a lot of interest in the marketplace,” but there have been no further meetings between the railroad and the authority on the option. O’Leary said further developing the railroads nearly 18,000 acres of real estate available for lease across the state could provide an opportunity for increased and stable revenue. He said real estate holdings amounted for 76 percent of the railroad’s net income in 2013. “Real estate has long been a tremendous buffer for us over the years as we fight the business cycles in both freight and or passenger service,” he said. There are no plans for general passenger fare increases as a way to mitigate the financial burdens, O’Leary said. “We’re going to continue to focus on good customer service,” he said. Passengers are coming back to the Alaska Railroad, but numbers are still down from pre-recession highs when more than 542,000 passengers boarded the state’s trains in 2008. Recent ridership bottomed out in 2010 at 405,000 passengers as traffic on cruise line-owned railcars pulled by the Alaska Railroad fell. More than 1 million cruisers toured the state in 2013 for the first time since 2009 and the railroad carried more passengers, up to nearly 490,000 last year. Elwood Brehmer can be reached at [email protected]

Assembly approves CH2M Hill for Anchorage port mgmt.

After delaying it twice and holding a special meeting the Anchorage Assembly voted Feb. 25 to approve CH2M Hill’s bid for construction management services at the Port of Anchorage. Passage of the initial five-year, $30 million contract came nearly two months after Mayor Dan Sullivan announced the international engineering and management firm had been chosen among a group of companies to manage future work on the port’s stalled construction project. Additional two-year options could take the contract out to a nine-year, $54 million working agreement. Despite being approved by an 11-1 vote, Assembly members voiced concerns over the length of the contract and the fact that CH2M Hill is in litigation with the city over consulting work VECO, a company now owned by CH2M Hill, did on the original port design in 2007. Assemblyman Bill Starr from Eagle River was the lone dissenting vote, and Assemblyman Patrick Flynn, who represents Downtown Anchorage, abstained from the vote. On Jan. 23 the municipality’s Bidding Review Board found unanimously no conflict of interest between CH2M Hill’s involvement in a lawsuit with the municipality and entering into the management contract. Starr said he wanted a contract that set more performance benchmarks and could hold CH2M Hill accountable if anything goes wrong. “The master agreement doesn’t look much different than the one that started the problem before,” he said before the vote, referring to the earlier agreement the municipality had with the U.S. Maritime Administration to manage the project. Questions have been raised about the suitability of dock design and construction techniques during MARAD’s oversight period. “The oversight measures are lacking on the master contract,” Flynn added. Stacey Jones, a vice president for CH2M Hill on its West Coast port projects said the contract includes language that would allow the municipality to drop the company at any time without recourse. It is a task order-based contract, she said. CH2M Hill gets paid only when a negotiated task order for work is approved, according to Jones. CH2M Hill also conducted a study released in early 2013 on the Open Cell Sheet Pile design first used at the port and found it unsuitable for seismic stability at the site. Sheet pile designer PND Engineers has said repeatedly construction issues are to blame. Further, CH2M Hill presented concept designs to the municipality about a year ago that have been used as an outline for further work. Sullivan said in an interview shortly before the vote that his administration has spent more than four years trying to determine who is responsible for the challenges the port project has faced and now it is time to change direction he said. “I’m tired of looking backwards, from now on we’re looking forward 100 percent,” Sullivan said. Work would begin almost immediately to re-permit the project, and while he may be ambitious, pre-construction work could begin as early as the spring of 2015, he said. In a Feb. 18 presentation to the Legislature’s Joint Transportation Committee Sullivan told legislators that work on a new north dock at the port would be stopped to save nearly $280 million on the project. Rather, he said, work would be done to replace the existing dock face with a traditional pile supported structure, much like what is in place now. The scaled back plan would require $250 million to $300 million in addition to the roughly $130 million the municipality has in its coffers for the project. Elwood Brehmer can be reached at [email protected]

IRS audits over disputed excise tax weigh on air carriers

Ambiguity in the federal tax code is costing some owners of Alaska flight services their businesses, according to members of the Alaska Air Carriers Association. Joy Journeay, executive director of the association, said that the Internal Revenue Service has audited six air carriers in the state since 2010 for their application of excise taxes imposed on regular service. Of those audited, three businesses have been sold or gone out of business, she said, and two more are currently being investigated by the IRS. Why the audits started suddenly is unclear, she said, as many of the businesses had been operating under similar procedures for decades. Some of the tax “bills” handed down by the IRS for failure to properly apply the excise tax have approached $2 million dollars, Journeay said in an interview. She declined to comment on how many carriers reached settlements or were issued court orders to pay. The husband and wife team of Todd and Suzanne Rust are waiting to hear from the IRS after being audited. Along with Colin Rust, the couple owns Rust’s Flying Service in Anchorage and K2 Aviation, which operates flightseeing tours of the Alaska Range out of Talkeetna. Combined, they fly 20 single-engine aircraft and employ about 75 people. They told their story during a Feb. 19 panel discussion at the Air Carriers convention — something other operators have been hesitant to do for fear of drawing attention to themselves. Todd Rust said he wasn’t willing to share what the Rusts expected their tax liability would be, but he did say in an interview that charges totaling several hundred thousand dollars have been common. Scott Harris, owner of Harris Aircraft Services in Sitka, told the Journal that a 2011 audit ultimately cost his business $250,000. At the time of the audit, Harris Air flew four aircraft offering service to area lodges as well as supporting Interior Department operations, he said. After laying out his situation to his bank, Harris said he was able to get an unsecured loan to cover his tax liability. Typically, a $4 excise segment tax is applied for each leg of a flight, along with a 7.5 percent tax on the charged fare on a scheduled flight. An IRS instructional document for tax Form 720, which must be submitted quarterly for excise and fuel taxes, provides an example of excise tax application: “In January 2014, Frank Jones pays $266 to a commercial airline for a flight in January from Washington to Chicago with a stopover in Cleveland. The flight has two segments. The price includes the $240 fare and the $26 excise tax for which Frank is liable. The airline collects the tax from Frank and submits it to the government.” It further states that if a segment is to or from a rural airport, the segment tax does not apply. Confusion has arisen among flight service operators about how the tax applies to flightseeing tours, bear viewing flights and flights chartered for hunting and fishing trips. An internal IRS memo from July 2012 directed to Excise Tax Program Chief Holly L. McCann attempt to describe six Alaska-specific scenarios exempt from excise taxes. A “bear viewing platform day tour” to which the tax does not apply is described as, “After landing, the customer deplanes and walks a short distance to a platform where the customer views wild bears. While on the ground, the customer may have a box lunch, but does not engage in any other activities (such as fishing or kayaking). After a few hours, the customer re-boards the aircraft (which may or may not wait on site) and returns to (the operator’s) home base. The bear viewing platform day tour begins and ends on the same calendar day.” Another memo to McCann dated October 2012 states that seaplane operations are exempt from excise taxes if the areas at which takeoff and landing occur have not received funds from the Federal Aviation Administration’s Airport and Airways Trust Fund. Both memos state, however, that, “This advice may not be used or cited as precedent.” Journeay told the gathered AACA members that the disclaimers on the memos exemplify the variance with which IRS employees apply the tax. Harris said that while “ignorance is no excuse” when it comes tax law, the nature with which rules regarding regular and scheduled flight lines were applied, are particularly troubling to him. Because regular service is taxable, it is up to the auditors to determine if — by looking at historical records — shuttle flights to lodges and similar frequent but not formally scheduled service should be taxed, he said. “Running float planes to a lodge somewhere — I don’t think that was the spirit” of the tax code, Harris said. Further, he said he is hesitant to apply the tax to all flights to protect his business from liability because the added charge could be a competitive disadvantage against other flight services not adding the tax to their rates. Requests for comments to questions submitted by the Journal to the regional IRS office in Seattle were not returned in time for inclusion in this story. “When we talked to the IRS lawyer about (how the tax is applied) he said, ‘It’s semantics,” Journeay said. “’If a person uses certain words when describing what they’re doing they’re going to be liable for the law and if someone else uses different language they won’t be.’” She added that if the IRS cannot decide how to apply the tax, the operators should not be penalized. Flights conducted with small aircraft — designated by the IRS as those less than 6,000 pounds gross weight — are also exempt from the excise tax. That varies from the FAA, which defines a small airplane as less than 12,500 pounds maximum gross weight. Flights deemed exempt from excise taxes are subject to a 19-cent per gallon tax on fuel burned during the flight — one or the other is paid. Journeay said operators need to know which tax to apply or they could face other penalties. Additionally, she said if the excise tax is applied retroactively out of the operator’s pocket in an effort to comply, the IRS could levy a $250 fine per violation for not following correct procedure. Air audits IRS officials first approached the Rusts about an audit in the summer of 2011. Suzanne Rust said the auditors respected their request to delay the action until the end of the busy flying season, and they began a review of flight records that fall, she said. The audit required devoting “a couple of employees for three weeks” to compile data requested by the IRS, Todd Rust said. Flight schedules are kept at the Rusts’ businesses for a year, he said. The IRS used those to extrapolate operations out for three years he said, putting their “accuracy in question.” Suzanne Rust wondered about the tactics used by the auditors during their work, as well. She said the attorney the Rusts hired questioned the necessity of some of the documents the auditors requested and was told the audit would simply be pushed out to seven years from the original three. Harris, of Sitka, said the auditor assigned to his case was helpful and understanding. It was in a conference call with the auditor’s supervisor that he was told his audit would also be expanded from three years to seven if he appealed the liability ruling. Todd Rust said he did not get an answer when he asked IRS officials how audited businesses are chosen. Journeay said the association has asked Alaska’s congressional delegation to push for an end to the audits until the application of the tax code is easily understood and for the use of terminology that is consistent with the FAA. In a Jan. 22 letter to the delegation, the Alaska Air Carriers Association also asked for forgiveness of “current punitive audit findings and protection from punitive actions” until the confusion is resolved. “One of the worries that we have is that if this type of auditing for small carriers in the state of Alaska goes unchallenged all of the fishing guides and hunting guides who carries anyone and sells a package to go hunting for $4,000 — the IRS can come in and say $2,000 of that was for the plane that took you out and you should’ve been collecting taxes,” Journeay said to the AACA membership. “We’re just seeing that as a very ripe fruit that could be picked.” Delegation intervention Matthew Shuckerow, a spokesman for Rep. Don Young’s office, wrote in an email to the Journal that the congressman introduced legislation to amend IRS code for “on-demand” flights in July 2012. The bill would have clarified when rural charter flights should receive excise exemptions, Shuckerow wrote. A Sept. 13, 2013, letter addressed to Treasury Secretary Jacob Lew and then-acting IRS Commissioner Daniel Werfel signed by Young and Sens. Lisa Murkowski and Mark Begich says that the some of audited businesses have operated under the assumption they were exempt from excise taxes for decades. The letter also requests a meeting with Werfel to discuss the justification for continuing the allegedly “extraordinarily onerous and punitive” audits without providing clarification to the tax code. The congressional delegation also questioned the conduct of IRS staff. “In at least one instance, our offices were informed that the IRS began an audit in the summer of one year, left, did not return to complete the audit until the next summer and then assessed the taxpayer penalties and interest for the intervening months while the agent was away. These actions are very burdensome on small business,” the letter states. Another letter from the delegation dated Feb. 6, 2014, this time addressed to Lew and current IRS Commissioner John Koskinen, stated a promise made by Werfel for a response on the tax issue by the end of January 2014 was not kept and demands the audits be suspended. “The Internal Revenue Service is dragging its feet on what should be a simple policy clarification and as a result, Alaska air carriers are faced with an uncertain future.  Sen. (Lisa) Murkowski and Rep. Young and I agree—it’s time to change the language and make the tax policy work for these Alaska businesses,” Begich said in a statement from his office. Todd Rust said a year went by between the time the audit was finished and when an administrative appeal was held last September. After flying to San Francisco with their attorney, the Rusts were told they had no grounds for an appeal because IRS attorneys had already reviewed the case, Suzanne Rust said. “The clock kept ticking on the interest that whole time,” she added. Journeay and Suzanne Rust both advised flight service owners to contact legal counsel so operation in “good faith” can be verified and penalties on top of late payments and interest can be avoided in the event of an audit. As to whether or not the Rusts will take their companies’ tax liabilities to court when they arrive in the mail, Suzanne Rust said the decision will have to be made if it is worth investing the $50,000 she said it would take to start in court against the IRS. “I don’t know how many operators have $50,000 just to gamble with,” she said. Elwood Brehmer can be reached at [email protected]

JBER, Eielson make F-35 short list

The Pentagon announced Feb. 25 that Alaska’s Air Force bases are on the short list of candidates to host a squadron of F-35 Joint Strike Fighters, the military’s latest generation of fighter aircraft. “Today is great news for Alaska because it demonstrates the Pentagon recognizes our state’s strategic position in the nation’s defense,” Sen. Mark Begich said in a formal statement following the announcement. “With Alaska’s strategic geographic position, unrivaled training environment and ample air space, there is no better choice for stationing the F-35s in the Pacific.” Joint Base Elmendorf-Richardson near Anchorage and Eielson Air Force Base in the Interior are among the five Pacific bases being considered for the squadron. A release from Begich’s office states that an Air Force survey team will visit Eielson and JBER in the coming weeks to further evaluate their potential as F-35 stations. From there, two or three sites will be selected as “preferred and reasonable alternative bases” and receive more detailed study before a decision is made in 2016, according to the release. In November Eielson was listed as one of eight Pacific bases in the running to host an F-35 squadron. Begich serves on the Senate Appropriations Subcommittee on Military Construction, Veterans Affairs and Related Agencies. “I’ve always said that Alaska sells itself in what it provides our military, and from the beginning our case has been clear,” Rep. Don Young said in a statement from his office. “From our 65,000 square mile Joint Pacific Alaska Range Complex — recognized for its unique environment, size, and terrain-diverse landscape — to our highly strategic location, Alaska would be a great home for these fighters.” The Alaska bases inclusion on the Pentagon’s list comes less than five months after the Air Force scrapped a plan to move a 18th Aggressor Squadron F-16 fighters from Eielson to JBER. The plan was widely criticized by Alaska’s congressional delegation and local officials for the negative economic impact it was projected on the Fairbanks area. “In the Interior, the Eielson and Fairbanks community are ready to go full throttle for the F-35s with their location and range space, while JBER and Anchorage present clear positives as well from a military perspective.  Though issues about the Anchorage area were raised when the Pentagon considered placing F-16s at JBER, I am certain those will be objectively evaluate during this next site visit phase in March,” Sen. Lisa Murkowski said in a release from her office. Anchorage leaders raised concerns over the city’s ability to absorb the roughly 1,500 it was estimated would move to the city with the F-16s. Matthew Felling, a spokesman for Murkowski's office, wrote in an email that the squadron would be 48 planes. Young has said each fighter will likely require 100-plus support personnel. Elwood Brehmer can be reached at [email protected]

CH2M Hill gives detail to role of VECO in port expansion

A CH2M Hill spokesman issued a statement Feb. 18 in an effort to clarify confusion over the role of VECO Inc. in the Port of Anchorage expansion project. CH2M Hill purchased VECO Inc. in September 2007, and the Colorado-based engineering giant with nearly 3,000 employees in Alaska now has a contract pending with the Municipality of Anchorage to manage future construction at the stalled port project. Approval of the contract has twice been delayed by the Anchorage Assembly as members have expressed concern over a possible conflict of interest regarding the municipality’s ongoing lawsuit against CH2M Hill regarding consulting work VECO Inc. performed on the sheet pile design used at the port. The municipality is also suing PND Engineers and former project manager Integrated Concepts and Research Corp. Assembly members have agreed to take up CH2M Hill’s contract bid Feb. 25. The municipal Bidding Review Board met Jan. 23 and unanimously approved the contract proposal and found no conflict of interest in regards to the pending litigation. In a statement provided to the Journal, CH2M Hill spokesman John Corsi wrote: “VECO was one of several sub-consultants engaged by (Open Cell Sheet Pile designer) PND (Engineers) in 2006 to complement their design team. VECO’s scope of work was to provide technical support to project scheduling and estimating, review of soil test data and properties provided by others and to conduct a single seismic stability analysis of an early OCSP concept design. VECO completed their scope of work in March 2007 and had no other participation in the subsequent design changes and completion of final design by PND, the engineer of record. “VECO also had no role in the oversight of the pile driving and other construction.” As part of its consultant work, a report prepared by VECO dated March 15, 2007, determined that the sheet pile design proposed at the time met seismic stability criteria for the project. The initial construction management contract now pending before the Assembly at the port is for five years and up to $30 million, with extensions that could make it up to a nine-year, $54 million deal for CH2M Hill. If it isn’t approved, municipal officials have said the bidding would have to start over, something that could delay the process up to an additional six months. CH2M Hill was also commissioned by U.S. Army Corps of Engineers for the municipality to evaluate the suitability of the sheet pile design employed at the port after construction challenges halted the project in 2010. That work was completed in February 2013, according to Corsi. Further, the company was tasked in October 2012 to produce conceptual design alternatives for the Corps of Engineers and municipality, which were released in February 2013. Attempts made throughout 2013 to contact CH2M Hill Alaska representatives about the company’s layered involvement in the Port of Anchorage project were unsuccessful. CH2M Hill is coming forward now so its involvement, particularly as it relates to VECO’s work, is fully understood by the Assembly, Corsi said. The February 2013 suitability study prepared by CH2M Hill was cited numerous times in the complaint filed by the municipality March 8, 2013, against PND Engineers, former project manager Integrated Concepts and Research Corp. and CH2M Hill. At a special Feb. 7 Assembly meeting held to discuss the management contract, Mark Lasswell a senior vice president for CH2M Hill said the company planned to move Lon Elledge, the program manager for CH2M Hill’s work on a port reconstruction and expansion project at Gulfport, Miss. Lasswell said Elledge is “one of the select few we have, probably in the world, who is actually managing a project identical to (the Port of Anchorage).” He referred to Elledge as “unique” and “qualified” to lead the Anchorage project. The Port of Gulfport was damaged considerably during Hurricane Katrina in 2005. CH2M Hill’s contract for the Gulfport work, signed in 2008 for $3.03 million, has been amended in scope and schedule to total $35 million by 2015. A copy of Elledge’s resume submitted as part of the contract management bid proposal provided to the Journal by CH2M Hill states that he has overseen environmental permitting, design, construction, budget and scheduling among other tasks since he started on the roughly $570 million Gulfport project in 2009. It states that Elledge has 35 years of experience managing marine and general construction projects. A request to interview Elledge was denied until the Anchorage management contract is resolved. Mississippi state officials have raised concerns over some of CH2M Hill’s expenses claimed at Gulfport. Mississippi State Port Authority Commissioner Bobby Knesal said in an interview with the Journal that CH2M Hill is “doing a good job as far as managing and everything,” but that some of their fees have been “excessive.” An invoice from the company to the Port Authority for the four-week period from June 1, 2013, to June 28, 2013, listed travel, lodging, office and apartment rental, telephone, parking, and equipment charges totaling $14,690. After meeting with CH2M Hill officials, Knesal said they agreed to “cut back” on some of their expenses. “We were paying the lease for an apartment they were renting for people who flew in a couple times a month and I just thought that wasn’t appropriate,” he said. “They’ve been here long enough; they should have established their residency.” The average wage for 18 CH2M Hill managers and engineers listed on the invoice was $150.70 per hour. Knesal said the wages were not in line with local companies, as he said they should be. Elwood Brehmer can be reached at [email protected]

Bipartisan bill would eliminate exit exam

Legislation introduced by Gov. Sean Parnell and a bipartisan group of legislators would do away with the state high school exit exam. The High School Graduation Qualifying Exam has been administered to high school seniors in Alaska since 2004. Department of Education and Early Development Deputy Commissioner Les Morse said the exam that tests students’ proficiency in reading, writing, and mathematics at up to the sophomore level has run its course. “It probably fulfilled a purpose when it went into place to make sure we up the scores so that all of our kids are at least getting that level of skill,” Morse said. The statewide graduation rate in 2004, the first year the exam was given, was 62.9 percent, according to an America’s Promise Alliance report. The APA is a nonprofit devoted to increasing graduation rates nationwide. By 2013, the rate had reached 71.8 percent among public school students, an increase from 68 percent in 2011, according to state Education Department data. Students who do not test at a proficient level do not receive a diploma, Morse said, but are allowed to retake the test as adults. Mirror legislation was introduced to the House and Senate, respectively, Jan. 21 and Jan. 22. House Bill 220 is sponsored by a group of five Republicans and Rep. Les Gara, D-Anchorage. Senate Bill 111 is sponsored by Sens. Berta Gardner, D-Anchorage, and Gary Stevens, R-Kodiak. Parnell’s omnibus education legislation, House Bill 278 and Senate Bill 139, also contain language that would repeal the exit exam requirement along with numerous other education related actions. If passed, the test would be repealed for the class of 2015. A statement from the HB 220 sponsors states that the bill would save the state approximately $2.7 million “that can be put to better use for the education of our children.” HB 278 and SB 139 additionally include provisions to pay for students’ first ACT or SAT test, common college qualifying exams. Those tests average about $50 per student, Morse said. That cost added to the $2.7 million savings from not administering the exit exam would equate to an overall state savings of about $913,000. Morse said the cost savings is a bonus but never influenced the push to end the test. The primary driver was to find ways to better prepare students for work or post-secondary education, something the state test doesn’t do, he said. An unintended consequence of the exit exam is that some teachers may teach towards making sure their students pass the test, rather than focusing on maximizing their ability, Morse said. “When you look at where do we want to put our resources and were could we provide families better information to make sure kids are career ready, college ready, there are really some better assessment tools available today,” he said. The state Board of Education and Early Development unanimously passed a resolution Jan. 27 supporting the repeal of the exit exam as a requirement to earn a high school diploma. The resolution states that “the competency examination is not an appropriate means of measuring college and career readiness.” Parnell’s legislation includes a provision to give adults up to a three-year transitional period to retake the exit exam if it is done away with. Morse said the repealing the exam should still meet statutory requirements when combined with the option for retaking it for a time. Elwood Brehmer can be reached at [email protected]

Roads to Resources adds West Susitna, stalls other projects

As the original Roads to Resources projects await more money, a new state study adds new proposals to the mix. The West Susitna Access Reconnaissance Study released by the Department of Transportation and Public Facilities in late January highlights five routes, that if constructed, would provide access to the largely undeveloped side of the Susitna River valley and the resources available there. Collectively, the more than 350 miles of proposed access corridors are more than $1.8 billion of infrastructure, representing another “mega project” for the state. DOT Roads to Resources manager Murray Walsh said the study considering ways to reach significant coal and mineral deposits in the area came out mostly as anticipated. “I haven’t heard anybody express shock and amazement at the results,” Walsh said. “I think most of us expected to find a lot of opportunity on the west side; it’s just seeing it all described in one place creates the sense of opportunity.” The routes that stood out as initially the most practical to begin development with are a 64-mile road to Beluga on the west side of Cook Inlet and one of two possible roads extending up the Skwentna River valley to the edge of Rainy Pass at the base of the Alaska Range. The Beluga road would skirt the Susitna Flats State Game Refuge near the mouth of the river, run past several placer gold claims and end in close proximity to the Chuitna Coal Project. Its cost estimate, with a 1,640-foot bridge across the Susitna River, is $257 million, or about $4 million per mile. A 72-mile road extending south and west from an area south of Trapper Creek near Amber Lake to and along the Skwentna River would require 1,200-foot bridges across the Hayes and Yentna rivers and cost roughly $504 million. Another option to reach the same area would begin at the Little Su River Road — as would the Beluga road — and run 108 miles to Rainy Pass. That option would cost $453 million, according to the report. All of the cost estimates in the study are for 24-foot, two-lane gravel roads. Both of the Skwenta valley routes pass the 13,160-acre Canyon Creek coal lease area, which with total inferred resources of nearly 260 million tons is “so huge you could almost justify a railroad for it,” Walsh said. The Department of Natural Resources issued a decision to hold a competitive lease sale for the Canyon Creek land last July, however a sale has yet to be held. The state estimates the entire region holds more than 11 billion tons of subbitumous coal, primarily used for electrical generation, valued at more than $530 billion at current prices. Additionally, the Beluga road would bisect numerous West Cook Inlet oil and gas lease holdings. Walsh said the biggest challenge to developing any road is funding. Access roads to do not qualify for Federal Highway Administration funds that go to projects that prioritize safety and capacity improvements, he said. One way around that would be to enter a partnership with private entities interested in developing the resources in the area to help pay for the work, Walsh speculated. The Susitna Valley State Forest would benefit from increased access to the west side of the valley as well, Forestry Division Director Chris Maisch said. If passed, mirror legislation House Bill 79 and Senate Bill 28 would form the 762,700-acre forest from 33 parcels in the river valley. The area contains roughly 312,000 acres of viable timberland, with much of that being on the west side of the Susitna River, according to a 2010 state assessment of the land. While much of the available timber is not up to the quality of that found in other areas of the state, the resource may be able to support a value-added processing industry or provide fuel for small-scale biomass energy operations, Maisch said. The road to Tanana northwest of Fairbanks is the furthest along of the four major Roads to Resources projects Gov. Sean Parnell proposed in late 2011.  DOT Northern Region engineer Ryan Anderson said the road that would reach the Yukon River on the opposite bank from the City of Tanana is nearly ready for construction. “We’re all permitted on the Tanana Road,” Anderson said. Planned as a one-lane pioneer road with frequent turnouts, the 26-mile road extending from the end of the Tofty Road off of the Elliott Highway would provide direct winter access to the community via an ice bridge and summer access via ferry, Anderson said. Negotiations with Native corporations about right-of-way access across corporation lands are the last major hurdle for the road and have been “positive” so far, he said. Tanana residents collected timber from state land cleared for the right-of-way for use as firewood and in the wood-fired boilers that heat several public buildings in the city, Anderson said. Parnell proposed $6 million in his fiscal 2015 capital budget to complete the project that received $10 million as a part of the first Roads to Resources appropriations in fiscal 2013. A 220-mile road to the Ambler Mining District would cost between $350 million and $500 million, DOT’s Walsh said. If Parnell’s $8.5 million proposal for the project is approved by the Legislature it will have had $21 million dollars appropriated to it over three years. Walsh said complete design would likely more than double that figure. “The investment the state is spending now is basically taking it to permitting,” he said. Future money appropriated to the Ambler Road project will go to the Alaska Industrial Export and Development Authority so it can investigate financing options for construction if it gets that far, Walsh said. NovaCopper, which has claims in the mining district containing more than 140 million long tons of indicated and inferred copper ore, is a possible financing partner for the industrial road.  The public’s access to the proposed industrial use road could hinge on how much private money, if any, is put forth to fund construction and maintenance. Upgrades to Southeast’s Klondike industrial use highway that connects Skagway with Canada’s road system — appropriated $2.5 million in fiscal 2013 — are on hold, Walsh said. The road is currently rated for 10-axle, 170,000-pound loads. Walsh said the goal is to eventually increase its weight limit to 12-axle, 200,000-pound loads, but before that can happen the Captain William Henry Moore Bridge must be improved, a project that is allocated $13.4 million in Parnell’s budget proposal. When the Roads to Resources initiative was started in 2011 the goal was to finish the Klondike Highway improvements by 2017. “The Yukon mining boom that was predicted in 2011 has not kicked off yet,” Walsh said, meaning increased demand for a stronger highway hasn’t materialized either. Work on a spur road to Umiat off of the Dalton Highway on the North Slope is on hold as well, Anderson said. A draft environmental impact statement has been suspended until results from exploratory drilling work Linc Energy is doing in the area this spring are known, according to Anderson. If the results do not lend to further oil and gas development, demand for the road would fade. The 116-mile road would begin near Galbraith Lake at milepost 278 on the Dalton Highway and run northwest to Umiat. That project began with $10 million in state money nearly three years ago. Elwood Brehmer can be reached at [email protected]

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