Family company not always smart

Clients often make gifts of interests in family-owned Limited Liability Companies and Limited Partnerships. A consequence of giving through a business entity is that the donees often will have a tax basis substantially less than the basis they would have had if the donor continued to own all assets outright until death.Consider a client, living in Alaska, with three adult children. The client has never made a taxable gift, and her only asset is a share of stock. Although she purchased the stock for $100,000, it is now worth $675,000. The client forms an LLC and contributes the $675,000 of stock to the LLC.Initially the client is the only member of the LLC, so she does not recognize gain when she contributes the stock to the LLC. Also, because the client is the sole member of the LLC, the LLC is ignored for federal income tax purposes. In other words, the LLC is disregarded as an entity separate from its owner. Later, when the client brings her children in as members, the LLC is then, absent an election, treated as a partnership for federal income tax purposes.The client, over the balance of her lifetime, gives her children interests in the LLC totaling 13.3 percent per child. At all points in time the LLC’s only asset is the stock, worth $675,000.At the time of the client’s death, her only asset is the remaining 60 percent interest in the LLC. Under her will or revocable living trust, the client gives this remaining property to her children in equal shares; so each child owns one-third of the LLC. The LLC’s only asset is the stock, which is still worth $675,000.If the client had not formed the LLC and instead had continued to own the stock until her death, under current law her children’s tax basis in the stock would have been stepped-up to $675,000. So the children could then have sold the stock for as much as $675,000 at absolutely no tax cost.A consequence of the client’s giving through the LLC is that the donees will have basis substantially less than $675,000. In other words, if the LLC sells the stock for $675,000, there will be taxable gain.Specifically, under current law the tax-basis analysis is as follows:First: The client’s basis in the stock is her cost of $100,000. When she contributes the stock to the LLC in return for 100 percent of the LLC interests, the LLC takes a carry-over basis of $100,000 in the stock. The client receives a basis of $100,000 in her LLC interests. Although the LLC is initially disregarded as an entity separate from its sole owner, the LLC becomes a partnership for federal income tax purposes on the day the LLC has two or more members.Second: At the time of her death, the client owns 60 percent of the LLC interests. Although the LLC owns stock worth $675,000, the value of 60 percent of the LLC interests is less than 60 percent of $675,000, or $405,000. The valuation expert assisting with the client’s estate believes the value of 60 percent of the LLC interests was roughly $364,500 on the date of the client’s death. Thus the children receive a stepped-up basis of $364,500 in the LLC interests they inherit from their mother.Third: The children now own 100 percent of the LLC and their basis in those interests is $404,500 (i.e., $40,000 carryover basis plus $364,500 stepped-up basis).Fourth: If the LLC sells the stock for $675,000, it will have taxable gain of $270,500 ($675,000 sale proceeds minus $404,500 basis equals $270,500). Assuming an applicable capital gain rate of 20 percent, the LLC members would owe $54,100 in tax.Again, if the client had not formed the LLC and had owned the stock until her death, under current law her children’s basis in the stock would have been stepped-up to $675,000. So the children could then have sold the stock for as much as $675,000 without incurring any tax, a savings of $54,100 under the facts of this case.The upshot is that LLCs or Limited Partnerships could increase taxes down the road. This consequence needs to be figured into the analysis of whether the advantages of a family business entity outweigh the disadvantages.Steven T. O’Hara is a shareholder in the Anchorage law firm of Bankston, Gronning, O’Hara, Sedor, Mills, Givens & Heaphey, P.C. This article is Copyright 2001 by Steven T. O’Hara and is used by permission.

CDQ groups grow into economic force worth $150 million

Community Development Quota groups in Western Alaska have become powerful regional economic development engines, investing millions of dollars in docks, ports, seafood plants and other infrastructure, as well as fisheries businesses.They may also be the fastest-growing business enterprises in the state, although the parent corporations are nonprofits. They started with nothing in 1992, but with a valuable "community share" allocation of valuable pollock and cod harvests of the Bering Sea.By 1999 the groups had combined net assets of $103.7 million, according to data compiled by the North Pacific Fishery Management Council. Between 1999 and 2000, net assets increased 24 percent, to $128.8 million, the council data showed.Larry Cotter, a fisheries consultant who helps manage one of the CDQ groups, predicted that combined assets of the groups could exceed $150 million by the end of this year.Most of growth is in the businesses in which the CDQ groups are investing. All six now own part of the fishing companies with which they share their allocations of groundfish -- this year approximately 300 to 400 million pounds of pollock, cod, sablefish, halibut and crab -- from the rich Bering Sea fisheries."What these groups are accomplishing is the Alaskanization of the offshore fishing industry," said Trevor McCabe, executive director of the At-Sea Processors, the association of large catcher-processor vessel operators.Large sectors of Alaska’s fishing industry have traditionally been owned by nonresidents, but the CDQ groups are changing those dynamics by buying into the catcher-processor fleet in a major way, McCabe said.All of the six CDQ groups have now invested in vessels with their fishery partners. Examples include Norton Sound Economic Development Corp., which now owns 50 percent of Seattle-based Glacier Fish Co., and Coastal Villages Region Fund’s ownership of 20 percent of American Seafoods, a major offshore vessel operator.Central Bering Sea Fishermen’s Association owns an additional 3.2 percent of American Seafoods.The groups have become particularly important as a new source of investment in regional infrastructure. In Nome, NSEDC contributed $3 million toward a required $5 million local match for a planned $36 million major port expansion. The project has now been approved by Congress and should be under construction next year.NSEDC earlier contributed over half a million dollars to improvements of Nome’s existing small boat harbor and is now building a $550,000 new seafood processing plant in Nome. The plant, operated by Norton Sound Seafood Products, a division of NSEDC, will include a retail seafood outlet, according to Eugene Asicksik, NSEDC’s president.The new port will allow fishing to continue later in the year, as late as Nov. 15, Asicksik said.Small processing plants have also been built in Unalakleet and Savoonga. The corporation is also fostering regional fisheries development and helping local fishermen, which is bringing new income into the area.A small halibut fishery has developed in Norton Sound and the northern Bering Sea following test fisheries promoted by NSEDC. About 50 local fishermen, from Savoonga, on Saint Lawrence Island, to Nome, Golovin and Elim on Norton Sound, now fish the quota of halibut allocated to the corporation, Asicksik said.Halibut fishing now brings more than $150,000 in seasonal income to Savoonga, a remote village where people formerly depended mostly on welfare and ivory sales for cash.Through loan programs, the corporation is helping fishermen upgrade their boats and buy gear. Halibut fishermen may also be able to fish an allocation of red king crab that NSEDC receives, for example.NSEDC has also been the only buyer of salmon in the region for six years now. In 1992, the corporation was able to pay fishermen the highest price for pink salmon in the state that year because of the efficiency of the high-volume processing ship Glacier Fish Co. brought to Norton Sound, Asicksik said.For the past two years NSEDC has purchased chum salmon from Kotzebue fishermen who had no other outlet. Half a million pounds of salmon were flown this year from Kotzebue to NSEDC’s processing plant in Unalakleet, where fillets were prepared for ultimate sale in Seattle.A similar success story is unfolding in the Aleutian Islands, where Aleutian Pribilof Island Development Corp. has developed Atka Pride Seafoods, a processing plant, in partnership with the community of Atka.The plant had several years of start-up losses but is now in its third consecutive year of profitability, according to Larry Cotter, executive director for APIDC.What’s important is that the plant and related investments in docks and other facilities has fostered the local small-boat fishery, creating jobs in the community, Cotter said.

Alaska construction can proceed

ANCHORAGE -- Construction of a missile defense system in Alaska can proceed with President Bush’s decision to withdraw from the Anti-Ballistic Missile Treaty with Russia, state and federal officials said Dec. 13."That certainly was the biggest obstacle," said Chris Nelson, a missile defense expert with the state Department of Military and Veterans Affairs.Bush’s announcement came as a congressional conference committee was putting the finishing touches on a defense authorization bill that includes $786 million for construction of a missile test bed in the North Pacific.Some of that money would be used to deploy test interceptors to new silos at Fort Greely near Delta Junction, said Lt. Col. Rick Lehner of the Ballistic Missile Defense Organization. The federal money would also include upgrades for the state-funded rocket launching site in Kodiak, which will be used for anti-missile tests under the administration’s plan.The Bush plan announced last summer would convert the Fort Greely test facility into a rudimentary missile defense system by 2004 if tests are successful. However, the 1972 ABM treaty allowed testing only, so the groundbreaking in Alaska could have been considered a treaty violation.The president’s announcement will allow construction in Alaska to begin next spring with no risk of a violation, state and federal officials said."The phrase you always heard for the last year and a half is what point do you bump up against the treaty," Nelson said. "We see a clear path ahead."The Alaska plan calls for basing a command center and five silo-based missiles at Fort Greely. In addition interceptors would be launched from Kodiak for test shots at target missiles launched from California or from the air above the western Pacific, Lehner said.Kodiak would also be used to launch target missiles toward the Lower 48 to test interceptors launched from California, he said.Plans for an advanced radar installation at Shemya in the Aleutian Islands are on hold, according to state and federal officials. The radar link could end up there or in Hawaii, Nelson said.

Medical training program accredited

The University of Alaska Fairbanks Tanana Valley Campus medical assisting program has received national accreditation by the Commission of Accreditation of Allied Health Education Programs.The accreditation was based on the recommendation of the Curriculum Review Board of the American Association of Medical Assistant’s Endowment. The review board conducted a site visit of the program in May.Tanana Valley Campus offers an associate of applied science degree in medical assisting as part of its allied health program. The degree provides students necessary training and education required for entry-level jobs in the medical assisting profession."The accreditation wouldn’t be possible without the diligent work and dedication of the allied health faculty at TVC," said campus director Jake Poole in a statement. "The approval is a tribute to their efforts."Grant funds UAF Alaska Native nutrition, lifestyle researchThe University of Alaska Fairbanks has received an $11 million, five-year grant to establish an Alaska Native Health Research Center and Center of Biomedical Research Excellence in Alaska.Funds for the grant come from the National Institutes of Health’s National Center for Research Resources Program.UAF’s program aims to develop knowledge about the behavioral, genetic and nutritional factors related to obesity and its relationship to diabetes and heart disease.According to UAF the rate of diabetes for Alaska Natives has climbed in recent years. Alaska Natives have had the ability to survive extreme environmental conditions with limited food resources for several generations, and despite a traditional diet high in fat they have experienced little obesity, heart disease and diabetes until recently.According to the Yukon Kuskokwim Health Corp., between 1985 and 1999 the rate of increase of diabetes for Alaska Natives in the Yukon Kuskokwim Delta was 177 percent. This figures compares with an increase of 76 percent for all Alaska Natives and Native Americans in Alaska.The Alaska Native Health Research Center will work with tribal health organizations. Research will collect information to identify dietary patterns, nutrient intakes and food sources to improve understanding of the nutritional value of subsistence foods.Other efforts aim to work with Alaska Natives to identify a cultural understanding of health and wellness. This research will be used to work with communities in reducing risk associated with increased body weight by improving nutrition and cultural behavioral health.

Recognize office friction, and deal with it appropriately

Do you have people in your office that dislike each other? Do they cause problems for everyone else? Conflict in the workplace is a painful reality. The goal is to recognize friction and tension and deal with it before it escalates into a major problem. One point is clear: Conflict does not magically go away if ignored.Certain types of conflict in the workplace, such as sexual harassment and discrimination, are very obvious and readily identified. Other forms of conflict may not be so easily identified. Small, irritating events that occur repeatedly over time may cause one individual to strike out at another.Managers who exhibit favoritism toward one or more employees set themselves up for problems with the nonfavored. Employees who find ways to appear busy while doing nothing can easily create dissatisfaction among the rest of the department. Conflict may develop when an employee, because he or she did not fully understand the job responsibilities, receives an unsatisfactory job evaluation.What type of conflict requires intervention? Anything that disrupts the office or poses a threat to other employees needs addressing. The degree to which you tolerate a situation before intervention may vary. A manager may not feel it necessary to intervene when a minor exchange of words occurs between employees, unless such an incident becomes a daily occurrence and expands beyond the employees initially involved. However, a situation where one employee threatens another requires immediate action. When handling conflict, some basic guidelines apply. Acknowledge the situation. I remember an exchange between a manager and an upset employee. The manager said, "Well, don’t worry about it. It really doesn’t matter." To which the employee replied, "Just because it doesn’t matter to you doesn’t mean it doesn’t matter to me." Refusing to acknowledge an employee’s anger or concerns only adds fuel to the fire. Get all the information. Few situations are exactly as presented by one person or even two. Before you try to settle a dispute, you need to hear all sides of the matter. Take your time; be patient. The old adage, "Haste makes waste," has more truth in it than we sometimes realize. Take time to evaluate all information. A too-quick decision can do more harm than good when it turns out to be the wrong decision. Focus on the problem, not the individual. Employee X may not be the most congenial of your employees. Most people know at least one "problem employee" during their work experience. This is the employee who is consistently unhappy and uncooperative.This does not mean employee X does not have a legitimate problem. Focus on identifying and resolving the problem. If, after careful and thorough investigation, you determine the individual is the problem, then focus on the individual at that point. Keep talking, keep listening. Keep the communication open. Allow employees to express their viewpoint, but also share with employees the view from your perspective. In addition, be aware of the difference between talking "with" the employee and talking "to" the employee. Talking "with" the employee involves listening. Act decisively. Once you have taken time to gather information, talked to all the parties involved and reviewed all the circumstances, make your decision and act. Leaving the matter in limbo can damage your employees’ perception of you as an effective manager. They may view you as either too weak, too uncaring or both, to handle the problem. The employees may not all agree with your decision, but at least they will know where matters stand. Do not try to resolve conflict by intimidation. Yelling at someone or using manipulation may stop the problem at that moment, but do not fool yourself into thinking it is a long-term solution. Odds are the problem will resurface. At that point not only will you have the initial problem to deal with but also the angry feelings that have festered in the interim.Gregory Smith is president of a management consulting firm called Chart Your Course International located in Conyers, Georgia. He can be reached at 770-860-9464.

Senators halt NextWave deal benefiting Native venture

FAIRBANKS -- Two U.S. senators are raising objections to a proposed deal that would let three Alaska Native corporations keep control of wireless telephone radio frequencies purchased in January.In response to the objections, Sen. Ted Stevens, R-Alaska, agreed to keep the deal out of a Defense Department appropriations bill.Stevens told the Fairbanks Daily News-Miner he had little choice, even though he supports the agreement.Sens. Fritz Hollings, D-S.C., and John McCain, R-Ariz., called the proposed deal an outrage. Hollings said the agreement would set a bad precedent, and McCain said it at least needed hearings.The proposed deal settles a disagreement between the Federal Communications Commission and bankrupt NextWave Telecom Inc. NextWave had failed to pay for wireless spectrum it bought five years ago for $4.3 billion, so the FCC repossessed and reauctioned the frequencies.Alaska Native Wireless, a joint venture between Doyon Ltd., Arctic Slope Regional Corp. and Sealaska, bought a large portion of NextWave’s wireless spectrum in the January auction. The partnership won wireless spectrum rights in such major markets as New York City, Los Angeles, Denver and New Haven, Conn.But NextWave convinced an appeals court this summer that the FCC should have stood in line with other creditors. The issue is now before the U.S. Supreme Court.Rather than continue that litigation, however, the Department of Justice worked out a settlement that would allow the successful bidders to keep the spectrum they purchased. The government would then pay NextWave $5.8 billion to drop all its claims.The Justice Department asked that Congress approve the agreement by Dec. 31.But Hollings said he doesn’t like the deal or the deadline."They’ve put a gun to our head," he said at a news conference. Hollings is chairman of the Senate Commerce Committee, which has jurisdiction, and McCain is the ranking Republican on the committee.Faced with such opposition, Stevens said, there was little he could do."When the chairman and ranking member of a standing committee object to an amendment, there’s little chance that such an amendment will stand when challenged on the floor," Stevens said through his spokeswoman Melanie Alvord.The problem is that such language is not germane to the bill’s subject of defense appropriations. So Hollings and McCain could rise on the floor and raise a point of order against the amendment’s consideration. To defeat that would require 60 votes.Hollings also objected to the NextWave payment."Congress is being asked to reward a group of speculators who put 10 percent down, litigated, lobbied and lawyered for five years, and are now on the cusp of a $5 billion payment," he said.The best thing Congress can do, he said, would be to "clarify that bankruptcy claims do not prevail over the FCC’s role as trustee of our airwaves."

In Phillips' exploration cuts, Alaska fares better than other areas

Phillips Alaska Inc. will reduce exploration spending in Alaska by about 40 percent next year, but the company is treating Alaska better than other regions of the world. Worldwide, Phillips’ exploration spending will be down 50 percent in 2002, according to figures released by the company’s board of directors Dec. 13.Phillips’ Alaska exploration budget is $41 million next year, down from $68 million this year. Total exploration by Phillips is being reduced from $446 million this year to $208 million next year, the board announced. This will result in 10 new wells being drilled in 2002, down from the 15 being drilled this winter.Phillips’ overall capital spending in Alaska is also reduced next year, from $942 million this year to $807 million next year. Capital spending related to production will be $766 million next year, compared with $874 million this year.The company’s budget for Alaska next year also includes ongoing expenditures on new millennium-class tankers to carry North Slope oil to market.Phillips’ board of directors approved overall capital spending of $3.5 billion for 2002, up from $3.1 billion for in 2001.Besides the tankers, Phillips’ 2002 capital expenditures include development of Meltwater, Palm, West Sak and other new developments, as well as ongoing development of the Borealis satellite field in Prudhoe Bay.Phillips is also investing heavily in international projects, including the Bayu-Undan project and gas recycling project in the Timor Sea, the Hamaca heavy-oil development in Venezuela, and the Bohai Bay development in China.The company will undertake projects in the Jade field in the British sector of the North Sea and further development of the Ekofisk and Eldfisk fields in the Norwegian sector.Forty-three percent of Phillips’ capital spending in exploration and production will be spent domestically, with 72 percent of that planned for Alaska. However, only 31 percent of the company’s worldwide exploration budget will be spent domestically, with about half of that planned for Alaska.Foreign exploration budgets are also being cut. In the current year, Phillips is spending $348 million for exploration outside the United States. That will be reduced to $165 million in 2002.

2002 halibut limit goes up statewide, but could go down in Southeast, Aleutians

Halibut limits will be higher next year if recommendations are accepted by fishery managers next month. The International Pacific Halibut Commission has announced that based on stock assessments, the coastwide catch could be boosted to 74.08 million pounds, up from this year’s quota of 73.18 million.The harvest figures include Washington, Oregon, British Columbia and Alaska. Alaska longliners always get the lion’s share of the catch, which would be 61.02 million pounds of halibut if all goes according to plan. That’s up from just more than 58 million pounds this year.Southeast Alaska and the lower regions of the Aleutian Chain are the only regions where halibut catches may be reduced.The halibut catch limit recommendations for next year and other issues will be taken up at the IPHC annual meeting scheduled for Jan. 22-25 in Seattle. Any proposals for consideration must be submitted to the IPHC by Dec. 31. The halibut fishery begins each year on March 15 and ends on Nov. 15.Offshore fish farmsSome 100,000 fish are being raised in a large cage anchored to 28 acres of the ocean floor, just two miles offshore from Honolulu International Airport. The cage measures 65 feet from top to bottom, is 80 feet wide and has 50 feet of clearance from the ocean floor.According to the Los Angeles Times, it’s the first commercial lease for offshore marine aquaculture in the country. The fish being raised in the cage are moi, a favorite in Hawaii. Since July, divers have been feeding the fish daily, pumping pellets through a tube to the cage 40 feet below.Because the cage is submerged, it poses no hazard to navigation and is not in danger from storms. Offshore fish farming also does not pose environmental concerns, as fish wastes are quickly diluted, and disease is less likely to spread. The project so far boasts less than a 1 percent mortality rate, according to the National Sea Grant College Program, the project’s sponsor.The first moi harvest is scheduled for sometime next month and will fetch roughly $8 a pound. Under a 15-year lease, the project may soon expand to four cages with harvests of up to 2 million pounds a year.Aquaculture has been growing steadily in Hawaii over the past decade, from $6.9 million in value in 1991 to $22.2 million last year, according to state figures. Offshore fish farming could boost those figures substantially, because cage culture allows large volumes of fish readily available to major markets on the West Coast and Japan, the Times said.Fish farming, Alaska styleThe Department of Natural Resources is accepting comments on 13 aquatic farm applications for sites in Southeast Alaska and one in the Southcentral region. The Southeast sites propose to raise oysters, geoduck and littleneck clams, kelp and abalone. The lone aquatic farm application for Southcentral is for growing oysters in Paradise Cove near Seward.Any questions regarding the proposed sites can be directed to Guyla McGrady at 907-269-8543. The deadline for applications is Dec. 26.Grant program aids marketingThe Alaska Department of Community & Economic Development and the Kodiak-based Fisheries Industrial Technology Center are again offering Specialty Salmon Marketing mini-grants. The program, sponsored by the U.S. Department of Agriculture through the efforts of Sen. Ted Stevens, R -Alaska, provides roughly $400,000 to Alaska salmon processors and fishermen trying to make inroads into new markets."The purpose of this grant program is to provide a marketing boost to those proven value-added salmon products that are paving new market directions and opportunities for Alaska salmon overall," stated a press release. Awards will range from $10,000 to $100,000 each, and may be used for advertising, test product giveaways, marketing manager travel, label design and all tasks related to product marketing. Administrative services and indirect costs are not allowed.Clarification on sea ottersRegarding the U.S. Fish and Wildlife Service’s decision to deny the Center for Biological Diversity’s petition to list Alaska sea otters as depleted under the Marine Mammal Protection Act, pending further scrutiny, Fish Factor stated in an earlier column that any listing holds the potential to constrain fishing, because of increased regulations and area closures.USFWS public affairs specialist Bruce Woods added the following clarification: "The key word here is potential,’ and in the case of this species we feel that the potential for significant impacts upon fishing is actually very low. Sea otters eat benthic invertebrates (primarily sea urchins), and therefore don’t compete with large-scale commercial fisheries in southwest Alaska."Woods added, "Sea otters typically occur in shallow, nearshore waters where there is little fishing activity, so the incidence of entanglement and mortality is also low. We’ve been working closely with the North Pacific Fishery Management Council to keep its members informed about sea otter issues, both to help them understand these issues and to reassure them that the potential impacts of a sea otter listing would, in all likelihood, be minimal."Kodiak-based free-lance writer Laine Welch can be reached via e-mail at ([email protected]).

Unocal, Marathon propose natural gas line for Kenai Peninsula

ANCHORAGE -- Officials from the Unocal and Marathon oil companies say they plan to apply soon for permits to build a natural gas pipeline to bring gas to the lower Kenai Peninsula.The companies announced Dec. 12 the completion of a yearlong study that concluded the gas line is feasible. The two companies have formed a joint venture, Kenai Kachemak Pipeline LLC, to build and operate it.Natural gas retailer Enstar and Homer Electric Association, the Kenai Peninsula’s chief electric cooperative, also participated in the study.The oil companies still must determine that there is a marketable supply of natural gas reserves before the project gets a final go-ahead, said Unocal spokeswoman Roxanne Sinz. Exploratory drilling is ongoing. The ultimate route and capacity of the pipeline also depend on exploration.The proposed line would link the Kenai-Soldotna area with Anchor Point and Homer, promising cheap heating fuel to the southern Kenai Peninsula in the short term and the prospect of shipping gas from reserves near Anchor Point northward in the long run.The first phase of the pipeline, between Kenai and Ninilchik, may be operational by 2004, Sinz said. The line is expected eventually to snake down to Anchor Point, with a feeder line to be built from Anchor Point to Homer.The project’s goal is to bring natural gas to market in the lower Kenai Peninsula within about three years, possibly sooner, she said.Unocal sees the line as a big economic boost. "And, hopefully, lower energy costs for the end users. We see this as a big plus for everybody," Sinz said.The line will likely follow the Sterling Highway corridor, the companies reported.A large part of Marathon’s capital spending next year in Alaska will be aimed at boosting natural gas production, said John Barnes, manager of Marathon Oil Co.’s Alaska business unit.

Pollock, cod news good for Unalaska, but not for Kodiak

It will be a good fishing season for pollock and cod in the Bering Sea in 2002. That’s good news for Unalaska.But things look pretty bleak for the Gulf of Alaska. That’s bad news for Kodiak and other gulf communities where fishing is a big part of the local economy.In its December meeting in Anchorage, the North Pacific Fishery Management Council approved a 2002 fishing allowance of 2 million tons for all groundfish in the Bering Sea, about the same as 2001. Stocks of pollock and cod are in good shape in the Bering Sea, according to National Marine Fisheries Services scientists.Not so in the Gulf of Alaska, however. Scientists recommended a smaller allowable harvest, and the council approved a 2002 catch of 237,880 metric tons of all species of groundfish, which include pollock and cod.That’s less than half the 554,710 metric ton harvest allowed in 2001.A lower groundfish harvest will hit Kodiak doubly hard because local fishermen have also done poorly in crab because of smaller harvests in recent years. And though the Kodiak fleet fared better than most in the 2001 summer salmon season, lower prices resulted in lower earnings.Setting the annual groundfish allowable catch was the main business for the fishery management council in its December meeting, which concluded Dec. 10.The council also approved a change in the amount of halibut fishermen from Norton Sound, the Yukon Delta and St. Lawrence Island can harvest on each trip, from 6,000 pounds to 10,000 pounds.The change will allow the fishermen to catch more halibut and, ultimately, use larger, more efficient vessels. A halibut quota is allocated by the council for Community Development Quota groups, and in the northern Bering Sea the quota is set aside for local fishermen.The council also received progress reports on a complex plan being developed to streamline crab fisheries with a system of quotas for fishermen and processors.The intent is to reduce the number of vessels fishing for crab by allowing the formation of cooperatives in which quotas can be shared.In that way, the number of vessels actually fishing can be fewer but the benefits can be shared with vessel owners who choose not to fish that season.Hearings on the plan are scheduled for the council’s February meeting, with action by the council expected in its April meeting.

Program offers funding to bring Internet to rural Alaska

Lawmakers recently approved a federal program aimed at providing Internet access to residents in rural communities who lack dial-up connections. The move is another step in efforts to bring basic Internet services to rural Alaska.Meanwhile Alaska Network Systems, a nonprofit organization with members from 12 Alaska local exchange carriers, continues its own push for federal funding to finance its plan to provide rural Internet services.President Bush signed into law Nov. 28 the fiscal 2002 agriculture appropriations bill, which includes expanded language geared at rural telecommunications services, said Jen Siciliano, who works in Alaska Republican Sen. Ted Stevens’ office. Language in the new law is part of the Rural Development Administration’s community facilities program."Dozens of villages in Alaska lack basic dial-up Internet services," Stevens said in a statement issued after the Senate approved the bill. "The expanded language included in the agriculture appropriations bill will provide the resources to develop state-of-the-art Internet access for rural communities."To qualify for the program, state regulatory commissions would submit applications to the Agriculture Department, said Regulatory Commission of Alaska chairwoman and commissioner Nanette Thompson.Communities’ eligibility will be based on high unemployment and absence of dial-up Internet access, she said."Many communities in our state would qualify," Thompson said. "It’s something we are actively pursuing."However, some unemployment data based on census information is unreliable for some rural areas in Alaska, she said.Funding will not be available until the agriculture department lists a notice of availability of funds in the Federal Register, she said.Thompson estimated at least 50 villages in Alaska would qualify for the program.The RCA chairwoman praised recent action by the Federal Communications Commission earlier this month, which also aims to boost Internet access for Alaskans. The FCC granted a waiver Dec. 3 to the state’s part in a federal program that provides funds to eligible schools and libraries to reduce the cost of providing Internet services at those facilities. The move allows community members at home to use the Internet connection of their local schools and libraries for noneducational use during hours when those facilities are closed.The program, administered by the state Department of Education, will probably be more active than the federal program for which state regulators must apply, Thomson said.Last June, Alaska Network Systems submitted a grant proposal for $24 million, seeking to fund Internet service to 139 Alaska villages. ANS filed the grant request June 1 to receive funding from the Department of Agriculture’s Rural Housing Service Community Facilities grant.However, most of the funds ANS targeted were already distributed to 50 other projects in 26 states, although not including telecommunications services, said Ed Cushing, ANS president.The one-time grant, coupled with $8 million from ANS, would have paid for satellite circuits and other expenses associated with providing Internet access, according to the grant proposal."We continue to pursue other grant opportunities," Cushing said.He hopes to secure federal funding next year and plans upcoming trips to Washington, D.C., to promote the project.Cushing noted rural residents’ use of school and library Internet access is better than no Web connection at all but contends that his company’s plan is a better in the long term.

Alaska, like nation, felt economic fallout from Sept. 11 terrorist attacks

No review of the top Alaska business stories of 2001 is possible without discussing a single day in American history: Sept. 11. The terrorist attacks that day on New York City and Washington, D.C., have affected every corner of this country’s economy, and Alaska is no exception. In a state that depends largely on oil revenues, prices plunged and the state’s fiscal gap grew to nearly $1 billion. In a state where tourism is a major industry, advance bookings are off 23 percent. And the stock markets’ decline have reduced the savings of individual Alaskans, the portfolios of major Alaska corporations and even the size of the Alaska Permanent Fund dividend. Economists now tell us that the United States entered a recession sometime this spring, so lower demand for oil, reduced recreational travel and lower stock prices would have occurred regardless of the events of Sept. 11, but it’s also clear the attacks intensified those trends. And those trends have spread around the world. In Japan, the economy shrank last year. That’s bound to have a negative effect on everything from air cargo shipments to commercial fish prices in Alaska. Ironically, all of this occurred in a year in which Alaska itself was not in a recession. In fact, the state’s economy grew by 2 percent, and state economists believe it will grow another 1 percent in 2002. But Alaska, and Alaskans, are part of the national and global economies. Sooner or later, what happens outside our borders will affect us all. If Sept. 11 taught us anything, it is that we are all in this together. Natural gas pipeline The year 2001 began with oil and gas prices high. Those prices fueled a long-standing Alaska dream: to build a natural gas pipeline from the North Slope to the Lower 48 through Canada. The "big three" owners of natural gas on the North Slope, BP Exploration (Alaska) Inc., Phillips Alaska Inc. and ExxonMobil Production Co., had begun studying the economics of two proposed routes.

Weather slows construction; waterpark to open in spring

Developers of H2Oasis, a South Anchorage indoor water park, are continuing construction despite delays and now aim to open in spring.The company expects to enclose the building this month, said Dennis Prendeville, president of Alaska Waterpark Co. Inc. At press time in mid-December about 70 percent of the structure was enclosed, he said.Project developer Alaska Waterpark is serving as general contractor with help from Marlow General Contractors Inc. of Anchorage.Cold weather slowed some exterior work, and other delays have slowed the project, Prendeville said."Everything seems to take longer than expected," he said.Work on a major feature of the attraction, the wave pool, is more than half finished. Most of the special equipment is at the construction site, including slides and a pirate ship, although some pumps have not arrived yet, Prendeville said.Other significant project milestones include pouring about 600 yards of a total of 2,000 yards of concrete. Once electrical and other systems are installed, the final concrete section for the pool deck will be poured just before the project is finished, he said.Financing for the estimated $6.25 million to $7 million indoor water park originates from local investors and KeyBank, Prendeville said. The project developer continues work on the financing equation."We’re still tuning up financing with more equity dollars," he said.Prendeville started planning H2Oasis about five years ago. Site preparation began at the corner of O’Malley Road and the New Seward Highway in March 1999. Once Prendeville retired from Alyeska Pipeline Service Co. in May 1999, he stepped up efforts on the project.Prendeville earned a electrical engineering from the University of Alaska Fairbanks and a master’s degree in engineering management. Other owners of the project also are engineers, he said.Some construction is being handled by crews based in Florida and Texas who specialize in building water parks, he said.Once completed H2Oasis will employ about 25 full-time staff members with several part-time employees, although operators will determine the exact number once they open, he said.Prendeville believes nearing enclosure of the structure marks a major milestone for the project."What we’ve done is the impossible," he said. "There are many aspects to the whole thing. It’s a complex project, but it’s not rocket science."

This Week in Alaska Business History December 16, 2001

Editor’s note: "This Week in Alaska Business History" revisits events that shaped our past."Those who cannotremember the past arecondemned to repeat it."-- George Santayana, 1863-195220 years ago this weekAnchorage TimesDec. 16, 1981Hoverbarge increases explorationOffshore exploration activity in the Beaufort Sea can be extended beyond the five month period imposed by the state and federal government, a study by Sohio Alaska Petroleum Co. indicates.Sohio officials said a demonstration project showed air-cushion vehicles can support such activity, which has been limited to between Nov. 1 and March 31, the five months between freezeup and breakup.An ice-strengthened tug pushed a large hoverbarge through frozen sea ice during a four-day demonstration, Oct. 30 to Nov. 2. Ice more than 2 feet thick was measured, and some 22 nautical miles of ice near Prudhoe Bay were broken.The largest air-cushion transport in the state, an ACT-100 owned by VECO/Global Marine Inc., was used for the demonstration, according to Dave Reid.He said the barge, which has a capacity of 100 tons, at times broke through ice more than 2 feet thick."But overall, we found that it could travel most efficiently through about 18 inches of ice, without slowing or backing up for a run."Anchorage TimesDec. 16, 1881Western suspends Prudhoe routeBy Deb DavidTimes WriterIn another attempt to clean up its finances, Western Airlines suspended its infant Prudhoe Bay route Tuesday because the planes flew only 5 percent full; too empty to make the flights pay off.Western began the Anchorage-Prudhoe flights Dec. 2. It was competing with Alaska Airlines and Wien Air Alaska for the route, which largely serves the oil industry.Wien and Alaska Airlines both have lucrative contracts with oil companies to transport workers between the Deadhorse Airport near Prudhoe Bay and Anchorage.Alaska Airlines started its Prudhoe service Dec. 8. Wien, which may become the subject of the takeover attempt by Western, has been offering scheduled Prudhoe service since 1970."When you are in the shape we are in, you can’t afford to continue flying routes that are not making money," said Western spokesman Linda Dozier.Western expects its fourth quarter losses to be between $50 million and $60 million.10 years ago this weekAlaska Journal of CommerceDec. 16, 1991Bad checks plague retailersThree times worse than last year,’ one business owner saysBy Margaret BaumanAlaska Journal of CommerceShopkeepers already weary of the growing number of bad checks expect more of the same during the holiday season.It’s an uphill financial struggle that nearly put one merchant out of business."It’s three times worst this year than last year," said Kurt Marsch, owner of Radio Shack stores at two Anchorage malls. "They are more brazen, more angry, sometimes even violent."Credit card fraud also persists with the latest scam being, "I can’t make it in, so I’m sending my brother down," said Doug Minert, president in charge of retail television stores for Stolt’s. "We got hit by two of them last Christmas. The police have been helpful in letting us know the latest scam."Check-Rite of Alaska is handling at least 250 bad checks a day through its Anchorage office, with more and more names being added all the time.Alaska Journal of CommerceDec. 16, 1991Hong Kong connectionCargo airline wants to serve U.S. via Anchorage InternationalBy Ray TysonAlaska Journal of CommerceAir Hong Kong wants to break into the lucrative U.S. cargo market using Anchorage International Airport as its gateway to cities in the Lower 48.Ned Wallace, the airline’s executive vice president, said Air Hong Kong could begin service through Anchorage by late summer or early fall, pending approval of its license by Hong Kong’s Air Transportation Licensing Authority.Air Hong Kong is the seventh foreign cargo airline in recent months to name Anchorage as a refueling stop, welcome relief to an airport that’s lost numerous international passenger flights to long-range jets and to more direct routes through Soviet air space."Anchorage is the optimum point for us in terms of range and mileage, allowing us to carry a maximum amount of cargo," Wallace said.-- Compiled by Ed Bennett.

Merrill's runway caters to pilots with tundra tires, skis

A new $1.5 million gravel runway at Merrill Field is the only one of its kind in Anchorage that caters solely to airplanes with tundra tires in the summer and skis in the winter.At a ceremony Dec. 1, pilot Ed Apperson was honored with the first take-off and landing using runway 3-21 with his ski-equipped Cessna 172.A formal dedication ceremony for the runway is being planned for March.For Apperson and other Bush pilots, the retro-style runway has been a long time coming.Twice over the years, Apperson needed to be flown to Anchorage from his cabin near Rainy Pass for medical emergencies, but he couldn’t because there was nowhere to land a ski-equipped airplane.On Thanksgiving eight years ago, Apperson was having serious heart-related problems and a few years later he was impaled on a ladder after falling off a roof. Both times, Apperson’s neighbor and fellow pilot Doug Sanderlind attempted to land at Lake Hood, but ice was not thick enough or there was overflow. The airplane had to be landed in Big Lake, where Apperson was transferred to a car and driven 90 minutes to an Anchorage hospital.That’s a long ride with severe chest pain or a severe laceration."When your condition’s like that, timing is everything,’’ Apperson said.Dave Lundeby, manager of the city-owned airport, said demand for a ski strip has been around since 1975, when the existing north-south runway began being snowplowed to bare asphalt to accommodate increased flight training operations at Merrill Field.Demand for a gravel runway dates back to early 1970s when the north-south runway was paved, Lundeby said.Huge, balloonlike tundra tires are made of a soft rubber compound and wear quickly on asphalt, Lundeby said. Some Bush planes use slicks designed for dragsters.While tundra tires work well on bumpy, unpaved airstrips, they are dangerous on smooth tarmac. If an airplane comes in for landing the least bit sideways, or "crabbing,’’ one of the tires can stick, causing the airplane to flip forward or onto its wing, Lundeby said."If one of the tires adheres to the strip, the airplane can go into a ground loop real easy,’’ Lundeby said.Gravel is much more forgiving, Lundeby said.Lake Hood has a gravel strip, but all nearby parking is reserved, and what may be available is about a half-mile taxi away, Apperson said.The new 2,000-foot runway, on the south side of Merrill Field, is 60 feet wide and has enough parking spaces along its apron for 37 aircraft. All spaces have been leased at $50 a month, and a waiting list for about 40 more spaces has been established, Lundeby said.The airport received federal grant money for the runway, which was augmented with state and city matching funds, Lundeby said.Construction on the runway began last summer and was completed just before the first snowfall in October, Lundeby said. Other work, including new fencing and tie-down areas were completed in late November.Reflectors are used to outline the runway and on taxiways at each end. Lundeby said lights may be added later.The new runway will be good for business, as ski-equipped airplanes can be put on dollies and wheeled to any of the various aircraft maintenance shops at Merrill Field.Before the new runway opened, Bush pilots were limited in where they could go for repairs. Sometimes, mechanics from Anchorage traveled to the airplanes needing repair, Apperson said."There are more mechanics and parts available in Anchorage,’’ Apperson said, adding that more dollars will be spent in Anchorage on shopping and entertainment. "It’s going to give people, especially in the villages, much more of an option than they had before.’’Lundeby expects up to 20,000 take-offs and landings annually at the new strip, a number projected to double in the next two decades, he said.Some of those numbers represent tundra tire-equipped aircraft already landing on the paved runway, Lundeby said.The new runway, between 15th Avenue and Taxiway Quebec, uses the same flight pattern as existing runways at the airport."Aircraft won’t overfly any new residential areas,’’ Lundeby said.

Ketchikan plant finds stable veneer market

Despite start-up financial problems, Gateway Forest Products Inc., the Ketchikan-based company manufacturing wood veneer from low-grade timber, is finding good markets for its product in the Pacific Northwest.On Dec. 6, Alaska Industrial Development and Export Authority’s board approved participation by the state authority in a $10.6 million refinancing for the company, which will also involve Wells Fargo Bank, KeyBank Alaska and the U.S. Department of Agriculture.Meanwhile, the company is operating one shift, having cut back from two shifts earlier this fall when sales slowed for wood chips, a byproduct of the manufacturing process. When low-grade logs are used to make veneer, what’s left is made into chips.With slower sales, Gateway ran out of storage space for chips and was forced to cut back. The company hopes to return to two shifts this spring, according to Cliff Skillings, the company’s marketing director.Gateway, a local company formed in 1999, purchased land and industrial properties from Ketchikan Pulp Co. when it closed its pulp mill and built a plant to make wood veneer, a product used in making many manufactured wood products."We’re still in our start-up mode," Skillings said. "It takes 10 to 12 months to start a plant like this," to work through the inevitable kinks in operations, he said. The company has had to do some upgrades in its computerized plant process, and the softening of the chip market has also adversely affected Gateway.In the midst of its construction and start-up, the company ran into financial problems when construction costs came in higher than expected and the start-up of the plant was delayed.Just after beginning operations early this year, Gateway filed for bankruptcy protection and has been working on a reorganization and refinancing plan since.Meanwhile, the plant has continued to operate. Unlike lumber and wood chips, the markets for veneer, the company’s main product, are good and stable, Skillings said.Operating at one shift, Gateway ships a barge load of veneer product every three weeks from Ketchikan to the Port of Seattle’s Terminal 7.The company has a three-year contract to sell its veneer to Timber Products Inc., of Eugene, Ore., which then markets the product to a variety of other customers in the Northwest.Most of the veneer traditionally used in the Northwest has been made from Douglas fir, the most common softwood in the region. The veneer made in Ketchikan is mostly from Western hemlock, but it has compared well with Douglas fir in strength tests, Skillings said.Some veneer has also been made from spruce, which has a lighter color that has pleased some customers, he said.When Gateway returns to two shifts, it will put another 20 people back to work, Skillings said. With one shift and maintenance and administrative support staff, Gateway now employs about 70 people in Ketchikan, he said.Taking into account the softening of the chip market and the cutback to one shift, "Gateway is basically on its business plan," said Jim McMillan, deputy director of Alaska Industrial Development and Export Authority, a state development corporation that is involved in a refinancing plan for the company.KeyBank Alaska, Wells Fargo, AIDEA and the U.S. Department of Agriculture have agreed to a $10.6 million refinancing plan for the company.A recent foreclosure action by the Ketchikan Gateway Borough on some of Gateway’s assets involve another part of the company, not the mill itself, McMillan said.In its bankruptcy reorganization, Gateway essentially split into two companies. One operates and owns the veneer plant and property related to it. A second owns other industrial properties acquired from Ketchikan Pulp Co., including warehouses and dock facilities.Gateway’s reorganization plan, which is expected to be approved soon in U.S. Bankruptcy Court in Anchorage, has these properties held as collateral against $14 million in loans by the borough to Gateway, and remaining debt held by Ketchikan Pulp, a subsidiary of Louisiana Pacific Corp.The foreclosure action by the borough against that property, which doesn’t include the mill, is mainly an effort to position the municipality as a creditor in the bankruptcy proceeding, McMillan said.Meanwhile, the refinancing of the veneer mill venture itself should be concluded by the end of the year, he said.KeyBank and Wells Fargo have agreed to share the loan. KeyBank asked AIDEA to participate in a part of its share of the loan. The loans would be for 10 years.The U.S. Department of Agriculture would guarantee these loans under the federal agency’s rural development loan programs. In addition, KeyBank and Wells Fargo will also share a $1 million operating loan. KeyBank asked AIDEA for an 80 percent guarantee of its share of this loan under the authority’s business and export assistance program.KeyBank and Wells Fargo approved their share of loans and AIDEA’s board approved the deal Dec. 6, McMillan said.The entire refinancing, however, depends on a favorable decision on guarantees by the U.S. Department of Agriculture. This is expected in mid-December, McMillan said.

Movers & Shakers December 16, 2001

ValenoteMcMillan The architectural and planning firm of Bezek-Durst-Seiser has hired Victor Valenote. Valenote is a registered architect with nine years of experience. Valenote was awarded the American Institute of Architects’ Bronze Medal for All Around Excellence in Architecture in 1999. The firm has hired Carrie McMillan as receptionist. McMillan has three years office experience, including working on the state Legislature support staff. McMillan is planning to graduate from the University of Georgia with a business degree in June.In its first year of participation in the Alaska Universities Legislative Internship program, Alaska Pacific University is sending student Marleah LaBelle to Juneau for 17 weeks coinciding with the duration of the Alaska state legislative session. LaBelle is majoring in business administration at APU and will work in a legislator’s office as well as complete a senior-level internship seminar as part of the program.Two University of Alaska Anchorage students, Michael Dingman and Androniki Mei Lagos, represented the university at the 53rd annual Student Council on United States Affairs in West Point, New York in November. Dingman is UAA’s student body president and is majoring in both political science and journalism. Lagos recently returned from a two year studying abroad program in Taipei, Taiwan. Dingman and Lagos discussed and debated U.S. foreign policy concerns at the conference.Johnson The Alaska Region of the U.S. Forest Service has hired Linda Rae Johnson to serve as director of acquisition management. Johnson recently served as a contract specialist with the Department of Energy in Idaho Falls, Idaho. Previously Johnson held contracting positions with the U.S. Air Force in Albuquerque and Alamogordo, N.M., and Ogden, Utah.David Scherer and Christopher Davis have joined AMC Engineers. Scherer, a professional engineer, is registered as a professional mechanical engineer in New Mexico. Scherer specializes in heating, ventilating and air conditioning systems. Davis, a professional engineer, has specialized in many facets of electrical engineer and project design.OfficeTech Inc. has hired Chris Cook as account manager for South Anchorage. Cook has sales and customer service experience and previously worked for NYE Frontier Toyota and Johnson Nissan Jeep. Cook is responsible for sales of all Xerox products, including copiers, network printers and fax machines. Amy Jackman has joined OfficeTech as account manager for the Kenai Peninsula and will be working in the company’s Kenai office. Jackman was recently elected to the Kenai City Council and was previously employed at KSRM Radio as marketing consultant. Jackman is responsible for sales of all Xerox products on the Kenai Peninsula.The Alaska Hotel & Lodging Association recently announced its 2001-2002 directors. The executive committee includes: chairman, Terry Latham, Best Western Golden Lion Hotel; president, Jeff Butcher, Goldbelt Hotel; vice president, Frank Rose, Denali Bluffs & Grande Denali Lodge; and secretary/treasurer, Jack Reiss, Denali Park Resorts. Regional directors include: Chris von Imhof, Alyeska Prince Hotel; Brad Snowden, Best Western Hotel Seward; Gene Sheehan, Inlet Tower Suites; Jeannette Duenow, New Management Services, Hotel Division; Lloyd Huskey, formerly with Pikes Waterfront Lodge; Luanne Pelagio, Bristol Inn/ Quvaq Inc.; Bill Wasowicz, Land’s End Resort; and Vicki Parrish, Fairbanks Princess. Allied directors include: Walt Leffek, Hospitality Resources & Concepts; Randy Comer, GCI Cable Inc.; and Clayton Halverson, Bond, Stephens & Johnson.Carter Crawford has assumed the responsibilities of station manager for KATN-2 Fairbanks. Crawford also will retain the duties of general sales manager for the television station. Crawford was the recent recipient of the Alaska Broadcaster of the Year award.The Anchorage Chamber of Commerce has hired Liz Heisler as membership director. Heisler’s responsibilities will include increasing chamber membership and retaining current members. Heisler is the staff liaison for the Chamber Ambassadors Committee which is responsible for organizing the monthly Business After Hours mixers, assisting with citywide cleanup, and putting together a membership appreciation event. Heisler has 20 years experience as a small business owner and as a marketing manager for a computer firm.The Carnegie Foundation for the Advancement of Teaching and the Council for Advancement and Support of Education has chosen Ping-Tung Chang the 2001 Professor of the Year in Alaska. Chang teaches mathematics at the University of Alaska Anchorage’s Matanuska-Susitna College. Chang has taught at UAA since 1988. Chang was selected from among 384 entries nominated by colleges and universities throughout the country.

Southeast marine shuttle offers service in Puget Sound

HAINES -- A marine shuttle service that moves passengers between Haines, Skagway and Juneau during summer months is using its vessels this winter in Puget Sound.Chilkat Cruises last month began offering weekend shuttle service between Port Townsend, Wash., and Seattle.Chilkat Cruises is owned by Klukwan Inc., a Native village corporation.The Chilkat Express, a 63-passenger vessel, makes the 34-mile trip from downtown Port Townsend to Seattle’s Pier 69 in slightly less than an hour, according to a company press release.The boat will offer single Port Townsend-based round trips on Fridays and twice-daily trips on weekends through March.Klukwan President Ron Gelbrich told the Chilkat Valley News of Haines that the service will keep at least one of the company’s three-vessel fleet busy through the winter."If the demand is there, we’ll use more," he said.The company’s 150-passenger Fairweather Express and Fairweather Express II also are based in Port Townsend this winter.The Fairweather ships provide daily summer shuttle service between the three upper Lynn Canal cities. The Chilkat Express was custom-built for runs between Skagway, Haines and Glacier Point, where a Haines company provides excursions.If the Puget Sound runs are successful, Gelbrich said, the company may build an additional vessel to continue the service.All three ships are available for charters in the Puget Sound area through March.

Five-year, $27.5 million energy research to be run through UAF

Fairbanks -- University of Alaska Fairbanks will be administering a five-year energy technology research and development program, funded with a $27.5 million federal appropriation.Much of the money, received through the U.S. Department of Energy, will be dispersed in grants to firms working on new power generation projects for rural Alaska or to companies working on fossil fuel development, according to Dennis Witmer, director of the university’s new Arctic Energy Technology Development Center.Requests for proposals have just been published by the university, soliciting ideas for projects. About $1 million to $1.5 million will be available for grants this year, Witmer said.The university will form one of two advisory committees of people qualified to review and screen the proposals, he said. The review committee will make recommendations to the Arctic Energy Technology Development Center, which will forward them to the Department of Energy.A total of $3 million will be available during the program’s first two years, with $5 million for each of the following three years, Witmer said. The money is subject to annual appropriations by Congress, and some funds are being used to fund other Department of Energy projects in the state.Also, the DOE has established a temporary office at the University of Alaska Fairbanks to help coordinate this and other DOE programs, and some of the program money will be used to pay expenses for that office.Brent Sheets, from the Department of Energy, has been at UAF since September.The Arctic Energy Technology Development Center is an outgrowth of UAF’s small Energy Center, which has been up and running for three years now. Many universities elsewhere have energy centers, working mainly on applied energy research and development, not so much basic research, Witmer said.The goal in Alaska has been focused on taking new technologies developed in laboratories and doing demonstration-type testing, to see if there are commercial applications, he said.A project the center has had under way for three years now is evaluation of fuel cells fueled by diesel, Witmer said.A manufacturer of fuel cells had reported that diesel could be a fuel for one of its units, and the Alaska congressional delegation was interested in whether the system could be used in rural Alaska, where diesel is now used to power conventional power plants.Most fuel cells use hydrogen extracted from natural gas.Research at UAF focused on two types of reformers and a fuel cell, Witmer said. The reformers extract hydrogen from diesel, with the hydrogen then used to power the fuel cell.The results of the testing so far haven’t been encouraging, and the project is now winding down, Witmer said.It’s possible that continued technology improvements in fuel cells and in reformers will someday allow diesel to be economically used by fuel cells, he said.The testing showed that hydrogen can be extracted from diesel and used in fuel cells, but the process is not energy efficient and would be far more costly than generating electricity with diesel, Witmer said.The diesel fuel cell project involved three research engineers and UAF graduate students, with involvement of university faculty.

FCC allows rural villages to tap into school or library Internet

A recent ruling by the Federal Communications Commission aims to increase Internet services in some rural Alaska communities that lack local dial-up or toll-free connections.The FCC granted a waiver Dec. 3 to Alaska’s portion of a federal program that provides funds to eligible schools and libraries to reduce the cost of providing Internet services at those facilities.The state submitted its petition to the FCC last January, led by Lt. Gov. Fran Ulmer, who is a member of the FCC’s Local and State Government Advisory Committee.The move allows community members at home to use a broadband connection for schools and libraries, including noneducational use during hours when those facilities are closed.FCC concluded that approving the waiver was in the public interest."We find that good cause exists to allow members of rural remote communities in Alaska, where there is no local or toll-free dial-up Internet access, to use excess service obtained through the universal service mechanism for schools and libraries when not in use by the schools and libraries for educational purposes," FCC officials wrote in their findings.Regulators listed several conditions governing the waiver. They include no local or toll-free Internet access available in the community, the school or library has not requested more services than necessary for educational purposes and that no additional costs will be incurred as a result of the waiver.Other conditions are that any noneducational use will be limited to hours when the school or library is not open and the excess services are made available to all capable services providers in a neutral manner.Ulmer said equipment needed to manage this local and toll-free dial-up service will have to be acquired by one or more Internet service providers, which will supply the service. Local school districts select ISPs through a neutral selection process, she said in a statement.The ruling took effect immediately, said John Greely, special assistant to the lieutenant governor.Some communities will require more infrastructure changes than others to provide the service, he said.Connections between libraries and schools to homes will have to be worked out within each community, he said."This is a way in which the Internet can be available to everyone," Greely said.In its petition Alaska officials told the FCC that there are about 240 communities that lack local or toll-free dial-up access to the Internet.Access to information services is limited and expensive in these communities since they are remote and isolated by harsh climate, Alaskans said in the petition."Of the communities without local or toll-free dial-up access to the Internet, 135 have available, nonusage sensitive Internet access at local schools or libraries," the FCC said in its report.During a public comment period for the waiver request, the Alaska Telephone Association voiced concerns about such a change in the rules. However, Jim Rowe, executive director of the association, believes the waiver could provide some opportunities to members."Our concerns were based on the fact that if an area gets part-time Internet service there will be less of an incentive for entities to pursue full-time Internet service," he said.

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