Kenai borough outlines budget impact of losing oil property taxes

Though the community of Nikiski on the Kenai Peninsula only has about 6,500 residents, its fire department boasts a $5 million budget. Most of that hinges on the fact that it’s the seat of the oil industry on the Kenai Peninsula. The community has reaped the benefits of local property taxes levied on the oil and gas properties nearby to pay for services since the first oil boom in Cook Inlet in the 1960s. That would change should the Legislature pass Senate Bill 57, Gov. Michael J. Dunleavy’s request to repeal municipalities’ ability to tax oil and gas infrastructure. The Kenai Peninsula Borough would lose out on about $14.7 million, or about 11 percent of its annual revenue. Impacts would ripple all over the borough, according to Borough Mayor Charlie Pierce. Nikiski’s fire department would lose about $3 million of its budget; to recover those expenses, the property taxes there would have to be raised to about 17 mills, or $17 on every $1,000 of property value. “You could see a Nikiski fire department with 17 mills to pay for the current level of services or a fire chief, an assistant fire chief and a bunch of volunteers,” he said. “…You cannot tax your way out of this.” The Kenai Peninsula Borough Assembly passed a resolution requesting that the Legislature amend SB 57 to simply reduce municipalities’ tax authority on oil and gas properties from 20 mills to 15 mills rather than eliminate it entirely. SB 57 has not yet been scheduled for any hearings in the Legislature. A second-class borough, the Kenai Peninsula is divided up into service areas, where property taxes are applied at different rates to pay for services like hospitals, emergency medical services and roads for its approximately 57,000 residents. Nikiski’s fire and emergency service area contains the oil platforms in the Inlet as well as Marathon’s refinery and the former Agrium plant, allowing it to collect taxes from that infrastructure and serving those platforms. But cutting 11 percent its total revenue would mean cuts elsewhere in the borough as well, Pierce said. The road service area, which incorporates the entire borough, also draws funds from the oil and gas infrastructure and would take a hit. Pierce noted the cuts would likely mean staff cuts, reduced services and delayed construction projects. While the Kenai Peninsula Borough is affected by many of the cuts, it’s not hit as hard by the oil and gas tax change as the North Slope Borough. The borough is home to the lucrative Arctic oil and gas fields and expected to collect about $313.7 million in property taxes from the 17.99 mill levy it applied to them in 2018, according to the North Slope Borough’s budget. The borough has to approve its draft budget by March 30, before it knows what the Legislature will do, so it’s planning for status quo at present. If SB 57 passes in its current form, the borough’s property tax revenue will fall to about $14.3 million, said Fadil Limani, the deputy finance director for the North Slope Borough. Much of the borough’s 95,000 square miles of area is on federal land and many of the residents live on Native allotments, making them exempt from property tax. The borough’s obligation to the North Slope Borough School District alone is $15 million, Limani said. “We’re facing extinction,” Limani said. “We won’t be able to survive if we don’t have the ability to tax … there’s nowhere else for us to tax.” The North Slope Borough is a high-cost place, with its villages scattered far and wide with no roads to connect them. The borough provides a number of services that others in the state don’t, including its own police force, search-and-rescue and wildlife management departments. The reductions in state services in Dunleavy’s budget and the cuts to its own revenue would send the villages back into a pre-modern lifestyle, Limani said. It would also limit the borough’s ability to issue bonds by damaging ratings; they likely wouldn’t be able to issue bonds at all, he said. D.J. Fauske, the government and external affairs manager for the North Slope Borough, said Dunleavy’s office did not discuss its plans with the municipalities before introducing them on Feb. 13. Instead of correcting the entire budget gap this year by cutting hard into the borough’s budget, he said the governor should take a slower approach and noted that the Permanent Fund Dividend paybacks included in the budget consume an enormous chunk of the state’s revenue. “They know the damage this will do to bond ratings,” Fauske said. “He’s not making any cuts. Where are some of the cuts (to operations) … if we don’t have a ferry system, why do we have state offices open in Southeast?” Municipalities all over the state have objected that the governor’s budget cuts at the state level but, instead of entirely eliminating expenses, shifts them to municipalities to provide. For those municipalities, that may mean local tax hikes to maintain the current levels of service. But for others, there is no way to make up that revenue. The Alaska Municipal League identified a number of items of concern in its response to Dunleavy’s budget, with some as cost-shifts and others as state preemption of tax collection. SB 57 is an example of state preemption, as is the proposal to stop sharing the fisheries business tax and fisheries landing tax, said Nils Andreassen, the executive director of the Alaska Municipal League. Dunleavy’s budget also proposes cutting the school debt reimbursement program and not funding the entire formula for public schools. Both of those are cost-shifts, Andreassen said, which the boroughs will have a hard time making up. The cuts to Medicaid are also likely to hit locally owned hospitals hard, especially in rural areas where Medicaid patients make up a higher percentage of the payer base. Not every municipality has the same types of taxes available, and some also have voter-imposed taxed on rates. The Kenai Peninsula Borough, for example, has a voter-imposed cap of $500 on taxable sales. Such limits reduce municipalities’ abilities to find revenue elsewhere, and many already struggle with deficits, Andreassen said. Some costs are fixed, such as municipalities’ participation in the Public Employee Retirement System and having to fund schools between the minimum and maximum funding allowed. “There’s already a struggle at the municipal level to have stable budgets,” he said. “I think we looked at (fiscal year 2017) budgets and roughly a third of municipalities budgeted for more expenses than revenues.” There’s no precedent in the state for boroughs ceasing operations, but cities have, Andreassen said. If the state preempts collection of certain taxes, the boroughs and cities will have to find other ways to make up the revenue, which may mean new taxes on industries, he said. “There’s not a precedent, but boroughs are statutorily required to tax, and if the state takes away one tax, it only means they have to find a different tax,” he said. “It means that industries and residents in those regions will have a different burden based on that. If you look at the petroleum tax and fisheries tax being preempted by the state, you can imagine that those industries would have other taxes levied on them.” The governor intends the impact on municipalities to be a conversation, one which began on Feb. 14, said Matt Shuckerow, press secretary for Dunleavy. “Where we are as a state is that we have spent $14 billion (from savings) in four years,” Shuckerow said. “We can no longer spend money that we don’t have, and we cannot spend on all programs … Municipalities have the option to do what the governor has done and find efficiencies and programs and find programs that may be no longer best serving their residents.” He said the governor has already talked with a number of municipalities and plans to continue to do so, including with the North Slope Borough. The hope with SB 57 is to find a fair and equitable distribution of the state’s wealth with the oil and gas property tax, he said. Dunleavy’s message is that the topic is “open for discussion,” he said. The budget was built on the principle of reducing state spending to match revenues without implementing any new taxes, and the governor is “fairly serious” about getting it done this year, Shuckerow said. “Here we are (six years after oil prices began to decline) and we’ve made very little changes to the amount of that we spend,” he said. “We’re up against the fiscal cliff, and we have to make a choice. The governor in the priorities of his campaign (said) that we have to put Alaska on a permanent fiscal plan. There’s no question Alaskans are now engaged. We hope that they continue to engage.” ^ Elizabeth Earl can be reached at [email protected]

Ag industry frets over end of Alaska Grown, loan fund in budget

Some of the cuts in Gov. Michael J. Dunleavy’s budget would fall hard on Alaska’s farmers, even as they try to grow their sector into a larger part of the state economy. Farming is nothing new in Alaska. However, as Sen. Lisa Murkowski noted in her address to attendees at the Alaska Food Festival and Conference in Homer on March 8, most of the nation has no idea that there is any agriculture at all in the state. Farming in Alaska dates back to at least the 1920s, with people keeping their own gardens before and after that. But in the past three decades, farmers have been pushing harder to innovate and increase their presence with an eye toward providing more of Alaska’s food supply locally and toward exporting their goods. Farmers now grow everything from peonies to massive tomatoes to oysters in the state. However, Dunleavy’s budget includes a number of cuts to programs that would affect the industry. One of the major items is to significantly reduce funding to the state Division of Agriculture, which includes the highly visible Alaska Grown program. The budget would also zero out funding for the Agriculture Revolving Loan Fund, a state-administered fund issuing small loans to farmers for business-related expenses, and would eliminate the state agricultural veterinarian. Dunleavy campaigned on the promise that he would cut the state budget to match revenues without raising new broad-base taxes. His proposed budget cuts more than $1.2 billion, forgoing a number of federal match programs. “It was difficult to arrive at these decisions and it is certainly not easy news to share,” wrote Alaska Department of Natural Resources Commissioner Corri Feige in a Feb. 13 letter to staff. “However, it speaks far more to the state’s very significant fiscal challenges than it does to the good work performed by each of you.” The Alaska Food Policy Council, a group of food policy advocates, has been working on policies to advance food safety and local food availability for the past eight years. This year, members of the council were working on a farming pilot plan when the governor’s budget came out, at which point the focus shifted toward the impacts. “This year, I think everyone’s priority is the budget,” said Amy Seitz, a member of the Alaska Food Policy Council’s board and the executive director of the Alaska Farm Bureau. With significant cuts to the Division of Agriculture, the industry would lose an important link to creating opportunities to export their goods. Because of its geography, Alaska has long relied on trade partners in Asia; individual farmers may not have the ability to create those partnerships on their own, especially as foreign government entities may only deal with other government entities, Seitz said. Similarly, the Alaska Grown program is an important go-between for farmers to get their produce onto local grocery store shelves. Large grocery chains like Fred Meyer and Costco may not work with individual farmers who want to put their products on shelves there, and without that shelf space, farmers won’t be able to reach as many consumers. Alaska Grown has been an important partner to talk with the grocery chains and to help farmers with the paperwork, Seitz said. The “farm-to-institution” program would also disappear, as would the federal-state Crop Block Grant program. Accepting federal grants coming to the state would be difficult, as the Division of Agriculture usually accepts and distributes those — and with $16 million over the next four years provided to the state through the most recent farm bill, who would handle those funds will be unclear. The state dairy certification program would also be cut, impacting some operations already ongoing. The only operations that could then distribute local milk in the state would be through herdshares, which are fairly limited in scope. Essentially, the industry would be pushed back from its movement toward professionalism. “It would go back to hobby farming,” Seitz said. Outside the landscape of the proposed state budget, there’s optimism in the farming sector. The conference, attended by about 200 people from all over the state, featured items like connecting farms and consumers as a community food system, marketing, accepting food stamp benefits at farmers markets and food business financing. Discussions focused on opportunities to increase consumption and awareness of local foods and value-added products. The Alaska Food Policy Council advocates for state law changes that make food more affordable and available across the state, preferring local when possible. Bills like HB 16, which would allow for the sale of raw milk products in the state, would further the distribution of local foods, and the council is working on a farm pilot project that would allow farmers trying to get going to have access to shared kitchen facilities and other resources. The greatest obstacles aren’t necessarily getting people into farming, Seitz said, but rather “logistics and changing the attitude of people who are making policies.” The most recent farm bill, a sprawling piece of federal legislation passed in December, provides some other reasons for optimism. The reauthorization of the specialty crop grant program provides more funding for farmers in Alaska, who often grow crops like fruits, vegetables and tree nuts. Sen. Dan Sullivan, who gave a brief speech at the conference Friday, said his office supported that provision and hopes to continue facilitating farming in Alaska. “There’s a lot going on, and it’s positive, really positive,” Sullivan said. “We’re working on a lot of sustainable food security, but there’s a lot of areas where I think we’re just scratching the surface, particularly if you look at not just the farm on land but also … our oceans.” Elizabeth Earl can be reached at [email protected]

Economists struggle to calculate impacts of cuts to budget vs. PFD

While economics is so far from perfect science it’s often referred to as an art, lawmakers are still asking leading state economists to quantify the economic effects of Gov. Michael J. Dunleavy’s budget proposal. One thing is clear: Filling Alaska’s $1.6 billion budget deficit without new taxes and at the same time paying each Alaskan a Permanent Fund dividend of roughly $3,000 adds up to a net negative for the state’s economy. University of Alaska Anchorage Institute of Social and Economic Research Economist Mouhcine Guettabi said in testimony to the Senate Finance Committee that the administration’s plan to cut approximately $1.2 billion of state agency and program spending and divert another $440 million in historically local tax revenue to state coffers would extend the current recession and result in a net loss of more than 7,100 jobs statewide. According to Guettabi’s calculations, the spending reductions would cost Alaska approximately 16,900 jobs. Those losses, equating to about 5 percent of Alaska’s current workforce, would be partially offset by a temporary employment boost of nearly 9,800 jobs stemming from a larger 2019 PFD and the eventual payback of forgone PFD amounts over several years. “How communities respond to these cuts will determine the actual size of the job losses,” he said, adding that if local governments raise taxes to offset the loss of current revenue the impacts to the workforce could be mitigated somewhat. He also noted that the North Slope Borough, for example, would have to impose taxes in excess of $30,000 per resident per year to fully recoup the gap left by shifting about $370 million in annual borough oil and gas property tax revenue to the state. Longtime Alaska economist Jonathan King said in February he believes the combined state and federal funding cut of approximately $750 million proposed for the state’s Medicaid program would result in 8,000 jobs lost across the state. Guettabi and other economists have said they believe the current recession — three years and running — is likely to end late this year absent complicating factors such as significant government spending cuts. Overall, Alaska has lost about 12,300 jobs since 2015, according to the state Labor Department. Office of Management and Budget Chief Economist Ed King testified the budget proposal would likely result in about a 5,000-job reduction statewide, but he emphasized that Alaska’s economy is more resilient than at any time in the state’s history and any solution to the state’s budget troubles is going to be felt at some level. “There’s going to be a negative impact regardless of how you solve this problem. That impact is either going to be an impact on the current economy or it’s going to be a negative impact on future generations, but there’s going to be an impact,” King told the senators March 7. “At some point we need to pay the piper and the economy needs to adjust to the new normal.” He suggested that private sector entities could backfill some of the direct cuts to state and local government positions. The administration’s budget would directly eliminate 714 State of Alaska positions, according Office of Management and Budget. Finance Committee members from both parties contended King, who downplayed Guettabi’s job loss projections, tried to avoid their questions about specific impacts of the governor’s proposals. He said the best way to analyze the health of the state’s economy is not to focus on job numbers but rather to track the money circulating through it. Many politicians in recent years have lamented the fact that Alaska’s unemployment rate has been the highest in the nation — largely due to a highly seasonal workforce — while the Lower 48 economy has been booming. At the same time, according to Labor Department figures, Alaskans’ personal income has generally increased despite the job losses throughout the recession, with the exception of 2016. Alaskans earned or received a total of $42.3 billion in 2017, the latest full-year data available. “The whole picture that somehow we’re on the precipice of economic calamity is just not consistent with the demographics of the state,” King insisted. Sen. Peter Micciche, R-Soldotna, insisted the administration’s stance that the private sector will step in to fill the void left by a major reduction in government spending is largely a myth because there is no corresponding benefit, such as a tax cuts for private industry or individuals. The structure of Alaska’s economy generally prohibits the benefits of the traditional conservative “trickle down” economy theory, Micciche said. Guettabi said in an interview that because the budget cuts would not be accompanied by a corresponding cut to state corporate or personal taxes — the latter of which does not exist — there is no “counteracting effect” that would be likely in other states where government spending is tied to taxes. “If you’re saying the money has to come from somewhere and I’m taking it from person A and giving to government then obviously the impact is going to be smaller, because that person potentially would have spent it better or at least spent some of it,” Guettabi said to describe the typical relationship between taxes and government spending in other states. “The Alaska economy is fairly diversified; its revenue sources are not,” he said to the committee. As is often the case, regardless of the issue, Alaska is different. According to the Fall 2018 Revenue Sources Book published by the Department of Revenue, just $867 million, or 14 percent, of the more than $6 billion in spendable revenue the state is expected to collect in fiscal year 2019 will come from non-petroleum or investment sources, mostly in the form of various industry-specific taxes. That means the vast majority of the State of Alaska’s funding, whether from resource extraction or Permanent Fund investment returns, is additive to the economy as opposed to recycled tax revenue. “On the state level we are an ownership state and the resources that we partner with industry to develop through the lease structures that we have in place, the royalty share that we take and then the taxes that we take are in effect new money injected into our economy,” Anchorage Economic Development Corp. CEO Bill Popp said in an interview. For that reason and others, the large AEDC board of directors, comprised mostly of the city’s business leaders, does not support Dunleavy’s budget plan, according to Popp. As has been the case for several years, the AEDC board is advocating for “a balance of measured, targeted cuts, identifying new income streams to fund government and to include the Permanent Fund as part of the solution,” he said. “We’re focusing on the Legislature as being where a balance of different aspects of a long-term fiscal plan can be developed that will not take our state backwards.” In addition to the state budget reductions, the administration’s proposal would forgo approximately $730 million in federal revenue, much of which would be cut from the Department of Health and Social Services Medicaid program budget. King in a follow-up interview agreed with the premise that government spending in Alaska has been an economic stimulant — at least since the income tax was repealed in 1980 — but going forward, “the revenue’s not there,” he said. The alternatives to cutting the budget, such as taxes or PFD reductions, would have the negative corresponding economic impacts Alaska has avoided for nearly four decades, King noted. He added that spending Permanent Fund investment revenue could alleviate the budget problem without immediate negative consequences, but those consequences are then put on future Alaskans in the form of reduced dividends. “The governor is very focused on that balancing act between supporting the current economy and protecting future Alaskans and the proposal he put forward best solves that problem,” King said. ISER economists have said a broad-based tax would have a less negative impact on the economy than direct budget cuts because, whether a sales or income tax, it would capture revenue from nonresident workers or visitors. ‘PFD jobs’ Senators also questioned the economists on how they believe the PFD impacts the economy and how changes to it compare to other budget-solving options. Guettabi said his estimate that the large PFD payments would induce nearly 9,800 jobs is based on an impact analysis done in 2016 when the debate about how to solve the state’s budget problems ramped up. He acknowledged it is a fairly “generic” analysis given no firm solutions have been implemented. At the time, he suggested Alaska would give up 558 to 892 jobs for every $100 million in cumulative PFD reductions. The range indicates an open question as to how much of each Alaskan’s PFD is spent in the state economy, how much is saved, and how much is spent elsewhere. For comparison, Guettabi forecasts broad-based state spending cuts would result in losses of 980 to 1,260 jobs for every $100 million reduction. Economists have generally said determining how Alaskans use their PFDs is an extremely challenging exercise. He said in an interview that a recent causal analysis he and other ISER economists did regarding PFD spending found that about 2,700 temporary jobs are generated for every $1,000 in per person PFD payments in the three months immediately following the distribution. “The way I think about the jobs that are created is that they are ‘demand induced’ jobs, meaning retailers or people that are in businesses that depend on household spending basically make short-term hires in order to deal with the rush or increase in demand,” Guettabi explained. The months immediately following the early October PFD distribution are also the prime holiday shopping period, which is a boon for retailers Outside as well. While King attempted to rebut Guettabi’s estimates in regards to job losses, he asserted in his presentation that injecting money into the economy would spur more spending and create additional labor demand to the tune of 14,272 jobs — a figure based on the high-end of Guettabi’s PFD jobs projection. However, Micciche — while emphasizing that it is appropriate to advocate for the PFD as a policy matter —noted that King discounted the impacts the dividend has on Alaska’s economy when he was a private economist. King wrote in an article published on the website for his firm King Economics Group last September that his study of the issue concluded that up to 90 percent of PFD income bypasses Alaska’s economy. “I was surprised to find that there is no statistically significant relationship between PFD payments and changes in jobs,” King wrote. “Not even if I try to find one by lagging the time periods.” Most PFD money goes towards college savings accounts, vacations, federal taxes and other non-stimulating sources, according to King. Micciche acknowledged that King is now in the very different role of advocating for Dunleavy’s policy priorities. For his part, King told the Finance Committee that while the PFD may not have a big influence on Alaska’s economy as a whole, it is a big deal to many individuals in the state. “When you look at what the PFD does, it doesn’t just create jobs, it also creates value to people. It allows them to improve the quality of their life. It allows people to buy fuel for the winter, or food for their kids, or send their kids to college or take a vacation or whatever it is they want to do,” he said. “Those PFDs have a much bigger impact on people’s individual lives than the job numbers indicate.” Elwood Brehmer can be reached at [email protected]

ADFG advances logbook repeal; OMB takes director salaries

Alaska Department of Fish and Game officials want input on a proposal to repeal rules requiring sport fish guides to report their clients’ catch. ADFG issued a public notice March 7 requesting public comments on eliminating the Freshwater Sport Fish Guide Logbook program. The department currently mandates all fishing guides and charter operators to complete detailed summaries of each fishing trip they run in logbooks provided by the department. Freshwater guides are required to record the time and location of each trip; the number of each species caught and harvested or released; as well as the sport fishing license number of each guide and client that participated in a given outing. Those logbooks must then be turned in to the department each week during the fishing season. Saltwater fishing guides would still be required to record their trips in the state logbooks. While ADFG monitors fish stocks in many popular commercial and sport fisheries across the state with fish weirs, sonar, and various other survey methods, many other fisheries, even on large, heavily used waters, are not tracked. The logbooks offer fisheries managers a frame of reference for how fisheries typically not actively managed in-season are performing by tracking catch rates and angler effort. Logbook data can also be used in gathering other harvest information as well. The popular Kenai River coho fishery, for example, largely occurs after the sonar focused on enumerating the river’s sockeye run is pulled in mid-August. Questions about the reasons behind repealing specifically the freshwater logbook requirement were referred to the Office of Management and Budget despite being a regulatory proposal and were not answered in time for this story. Acting Fish and Game Administrative Services Director Samantha Gatton told the House Fish and Game budget subcommittee March 5 that repealing the program would save approximately $100,000. Gatton previously said the overall saltwater and freshwater logbook program costs the state $650,000 to $690,000 per year. Overall, the department is facing a $4.5 million cut from a roughly $200 million budget under the Dunleavy administration’s proposal. Incoming Kenai River Sportfishing Association Executive Director Ben Mohr said the group is fairly ambivalent about the proposal to repeal it. The freshwater logbook program is scheduled to sunset in October and, according to Mohr, has not been used for in-season management as much as intended. On March 12 ADFG Commissioner Doug Vincent-Lang also clarified in response to questions from legislators on the House budget subcommittee that the department is cutting the Habitat and Subsistence Division director positions so the PCNs, or position control numbers, can be transferred to the Office of Management and Budget for director-level positions there. He stressed that the department will continue to operate the Habitat and Subsistence aspects of its work as it has done; the difference will be that division operations managers leading each area will report to a deputy commissioner. The Habitat and Subsistence director positions are vacant and not required by statute, according to Vincent-Lang. “I’d rather not lose two permitters; I’d rather lose a vacant director and figure out how to oversee that division by a deputy commissioner,” he told the committee. Rep. Geran Tarr, D-Anchorage, questioned the plan for putting science-based permitting decisions on an appointee-level position. Rep. Jonathan Kreiss-Tomkins, D-Sitka, said OMB needs to explain the rationale behind transferring the positions out of Fish and Game. Elwood Brehmer can be reached at [email protected]

Board votes down personal-use priority proposal

The Board of Fisheries has voted down a controversial proposal that would have given personal-use fisheries priority in its allocation criteria as well as two proposals to change the way the Alaska Department of Fish and Game sets and manages escapement goals. All three proposals attracted testimony from stakeholders across the state, both for and against, during the board’s Statewide Finfish and Supplemental Issues meeting in Anchorage from March 9-12. Though the board turned down several proposals related to escapement goals and allocation priorities, the members indicated they’d be open to longer discussions on those subjects in the future. Proposal 171, submitted by the Kenai River Sportfishing Association, would have changed the criteria in the board’s allocation policy to include a priority for personal-use fisheries. The personal-use fisheries in the state, most notably the Chitina, Kenai River, Kasilof River and Fish Creek dipnet fisheries, attract thousands of participants every year. Because they do not have participation limits and harvest sockeye, a valuable species to the other user groups, they are a frequent source of allocation conflict, especially in Cook Inlet. The Board of Fisheries uses the allocation criteria as a checklist for considerations when making allocative decisions about fisheries issues. Subsistence users always get a priority, but in nonsubsistence areas, the board can weigh the different user groups and factors equally. In its proposal, KRSA asked that the board rewrite its allocation criteria in nonsubsistence areas with a number of changes, including considering the number of residents and nonresidents participating in the fishery, the importance of each fishery to provide residents with fish for personal and family consumption and the history of the fishery within the last 20 years. During public testimony at the meeting, KRSA fishery biology consultant Kevin Delaney told the board that the criteria does not block the board from making decisions in favor of other user groups but would add weight to the criteria when making allocative decisions in nonsubsistence areas. “If the desire is to prioritize historical use as it has been, rather than generating broad public support and maximizing economic value, that decisions would still be possible,” he said. “It would just be transparently obvious that that’s the reason.” Large numbers of commercial fishermen, particularly from Cook Inlet, came out to oppose the proposal. Many cited feelings of being marginalized by regulations in Cook Inlet, where families have generations of commercial fishing history, while others cited concerns about the biological wisdom of prioritizing the personal-use fisheries. Duncan Fields, who represented the communities of Ouzinkie and Old Harbor on Kodiak and as the chairman of the Kodiak Salmon Workgroup, testified against proposal 171, saying it would tie the hands of future boards on allocation decisions and that it would set a precedent for allocation based on the number of users. “That goes to the very heart of what we believe in as Americans with a constitutional government where we protect aspects of minority rights, people who are not in the majority,” he said. “We have a common use clause, which means that the resources are to be used for the good of all the people, not just those who happen to have a majoritarian point of view. I think I’m most offended by the change in language that would change your criteria based on sort of a numerical hierarchy.” The board voted down the proposal 2-5, with members Israel Payton and Reed Morisky supporting it. Payton, who lives in the Matanuska Valley, said many people in the area have “given up” on policies improving the quality of their fisheries. The board is charged with making allocation decisions, which are difficult, but it’s important to consider the needs of a growing population in Cook Inlet, he said. “I sympathize with commercial fishermen in Cook Inlet who have a long history in commercial fishing that feel like they’re getting squeezed out,” he said. “But the population has grown … we’re not providing the opportunity for that growing need.” Board member Fritz Johnson noted there are biological issues in the Susitna River impacting salmon returns there as well, and there are ways to remedy that using board processes, but said he would oppose the proposal because of the majority of users being against it. Both Morisky and board member Robert Ruffner noted that they would be willing to discuss the issue further in the future, as it’s a common issue brought up between user groups. It continued the thread of the meeting, as the board held an entire special meeting Friday to discuss issues related to hatcheries. No regulatory action was taken, but the board listened to public comment and information from ADFG about current hatchery programs and research to gather more information after several years of the public raising concerns about hatchery operations in the state. Two other proposals, 169 and 170, also raised long-term issues. Both dealt with the way ADFG sets salmon escapement goals in rivers, which impact how managers are able to open fishing and regulate harvest. The department sets a variety of different types of goals, including sustainable escapement goals, or SEG, biological escapement goals, or BEG, and optimum escapement goals, or OEG, and develops them based on the data available. Proposal 169 would have rewritten the state’s policy for developing escapement goals and required the department to release them earlier, before in-cycle Board of Fisheries proposals are due, and proposal 170 would have changed how escapement goals are set and required management targets based on maximum sustained yield. The board turned down both proposals unanimously, but several members noted that the escapement goal setting process may be due for a review. Currently, the department reviews and sets escapement goals, presenting information to the board at each three-year meeting cycle, but the board does not necessarily vote on setting individual escapement goals. Ruffner noted that the process of how Fish and Game decides whether to set an OEG, BEG or SEG can be confusing and could use clarification. “I think if we ignore this, I think in a couple of years we’re going to be right where we are with hatchery issues, where we have to do something,” he said. “I’d much prefer to get ahead of that now with a committee process or something.” Jensen said he agreed with Ruffner about the long-term considerations on the escapement goal policies. Payton said he thought the escapement goal policy is one of the stronger documents the department has but there could be some improvements to the board’s action on goals. “Process-wise, I think we could work on some things,” he said. ^ Elizabeth Earl can be reached at [email protected]

Jones Act leaves New England out of LNG boom

Western Canada, the U.S. Gulf Coast, West Texas and Appalachia are all overflowing with natural gas. So much so that prices are down and occasionally have turned negative in some areas, when producers actually had to pay someone to take their gas. Too bad there is no easy way to move more of that gas to the U.S. East Coast, New England and Canada’s Maritimes provinces, where natural gas customers are paying the highest prices in North America. The obstacles are by land and by sea. There is not enough pipeline capacity to reach the Eastern Seaboard. And a 99-year-old federal law, the Jones Act, requires that only U.S.-built and U.S.-flagged ships can move cargo between U.S. ports. The problem is, no such liquefied natural gas carriers exist. Examples of too much supply in gas-producing regions and too little of it reaching the gas-consuming coast are economically painful. Next-day natural gas prices at the Waha hub in the Permian Basin in West Texas tumbled to their lowest on record Nov. 27 because of limits on the amount of gas that could move out of the region by pipeline, Reuters reported. Prices fell to an average of 25 cents per million Btu that day. Even worse than a measly quarter, traders said small amounts of fuel were sold at negative prices as producers struggled to get rid of their gas. That compares to the U.S. benchmark price at Henry Hub, Louisiana, which averaged about $4 per million Btu in November. The Permian is the biggest oil-producing shale basin in the country, and because gas is associated with much of the oil coming out of the ground, it is also the nation’s second-biggest shale gas region, behind Appalachia. Permian drillers want the oil, which is much more valuable than gas, so they deal with the gas as best they can. New pipelines are being built or planned to move Permian gas production to the Gulf Coast, where a growing number of liquefaction plants can turn it into LNG for export, and to Mexico, which needs U.S. gas to cover its own production shortfall. But until the new lines are up and running, West Texas producers will have to take what they can get. The imbalance is just as noticeable in Canada, where last May 3 spot prices at Alberta’s AECO pricing hub closed at just 5 cents per million Btu, about $2.50 less than the U.S. benchmark price that day. Then in October, gas prices in Western Canada went into a freefall as a ruptured pipeline limited producers’ ability to get their gas to market. With one less conduit to move Canadian gas to customers south of the border, spot prices at Alberta’s AECO trading hub fell to 8 cents per million Btu on Oct. 19. At the other end of the price spectrum in November, gas prices at the New England trading hub rose to $13.70 per million Btu for Nov. 21, about triple the year-to-date average, Reuters reported. And when gas costs more, so does electricity. Next-day power prices in New England on Nov. 21 were about four times the national average. When winter hits New England, power and gas prices can spike quickly because most consumers use gas to heat their homes and businesses, and most of the region’s electricity usually comes from gas-fired power plants. Companies have tried to build more pipelines to bring gas from the Marcellus shale basin in Pennsylvania and other plays, but they have encountered objections from residents in Virginia, Massachusetts and New York, and denials of state permits in New York. Pipeline developers, however, are not giving up. Calgary-based operator Enbridge will continue to push federal, state and local regulators to allow new gas pipelines that could serve New England with production from nearby Appalachian basins, CEO Al Monaco said Feb. 15. “It’s never been more clear that we need additional gas infrastructure and nowhere is that more evident than in the U.S. Northeast,” Monaco said during a conference call with analysts to discuss fourth-quarter financial results. “This is actually an unbelievable irony when the Marcellus is sitting right next door to this market,” Monaco said. The LNG story in New England is just as ironic. The U.S. shale boom keeps breaking records, producing more gas than the country needs and triggering billions of dollars of investments in export terminals. LNG carriers are leaving the docks for Europe, South America, Asia, even Canada this month. But without a U.S.-flagged LNG carrier, there is no way to move affordable Gulf Coast LNG to the East Coast. Instead, New England has to import LNG from overseas to meet peak winter demand. The LNG import terminal in Boston harbor received about 24 cargoes in 2018, with all but one coming from Trinidad and Tobago. The other cargo was Russian LNG. Dominion Energy’s Cove Point, Md., terminal took in a Nigerian cargo in December 2018. And then this month, a load of U.S. gas left the dock at Cheniere Energy’s export terminal in Sabine Pass, La., headed to the Canaport LNG import terminal in New Brunswick. It was the first delivery of U.S. LNG to Canada, where the Atlantic seaboard provinces have become a customer for U.S. gas to replace domestic supplies since the Sable Offshore Energy Project ceased production in December 2018 after 19 years of serving the region. The Canadian Maritimes “will transform from being an exporter of domestic gas to being an importer of gas from the U.S.,” said Canada’s National Energy Board. Before the U.S. cargo, Canaport received six LNG deliveries in 2018 from Trinidad, Norway and elsewhere. And like New England, there is not enough pipeline capacity to move prolific supplies of U.S. shale gas or Western Canadian gas into the Maritimes. Which means high prices for consumers. Maritimes’ consumers already pay the highest average residential gas bills in Canada, according to the National Energy Board, with bills averaging $160 a month, roughly double British Columbia, Alberta and Saskatchewan. Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide.

Premera uses AI to identify customers at risk of high-cost care

Premera Blue Cross is betting that new technology can predict future health problems, thereby giving patients and medical providers the ability to react before potential issues become severe. The large Seattle-based health insurer in February announced a partnership with Cardinal Analytx Solutions to use Cardinal’s Cost Bloom predictive modeling program to identify Premera members with the highest probability of needing high-cost health care over the coming year. It’s generally understood in the health insurance industry that a small portion of any population accounts for the vast majority of health care costs associated with that population. According to a Premera paper on the program, research at Stanford University found that approximately 10 percent of an insured population typically accounts for 70 percent of the costs. The challenge is in predicting who will be in that 10 percent pool in a given year, Premera Data and Analytics Director Colt Courtright said in an interview. That’s because, according to Cardinal Analytx, 60 percent of the high-cost pool changes year-to-year, and most analytics programs focus on identifying and providing managed care to only the 40 percent long-term portion of the high-cost pool. Cardinal Analytx Solutions is a Palo Alto, Cali.-based data analytics firm. “Really, what we’re trying to do is help people avoid those (high health care) costs in the first place. The challenge using classical statistics is that it was impossible to find a large portion of that 10 percent and be able to predict who they might be, so you couldn’t really intervene,” Courtright said. “You couldn’t offer support programs; you couldn’t perform outreach; you couldn’t encourage provider visits.” The key to the program is employing artificial intelligence with the ability to parse out much more subtle indicators of future high-cost health care users. When a potential high-cost individual is flagged, Premera can then notify that person and suggest preventative or early treatment methods. The artificial intelligence can identify patterns in members’ use of medications, or a constellation of health conditions and discern if a social support program, for instance, could improve the condition before a major procedure or other intensive care is required, Courtright said. Cardinal Analytx estimates the Cost Bloom program can result in 15 percent savings across an insured group over two years. The condition forecasting is an addition to Premera’s existing clinical care management and care coordination programs and when a member is identified as someone who is likely to need high-cost care in the next year a case manager can reach out through those programs, according to Courtright. He also said the predictive modeling works using data insurance companies have traditionally gathered; however, the artificial intelligence analysis of that data is driven by the interaction of more than 50,000 data points or variables processed through a predictive algorithm, according to Premera. “It’s less about a specific data point as these are attributes that are often combined across data points,” Courtright said. Premera Blue Cross Blue Shield Alaska is the lone insurer in Alaska’s individual health insurance market. A reinsurance program first started by the State of Alaska in 2016 and then approved by the federal Centers for Medicare and Medicaid Services in 2017 has allowed Premera to reduce its individual market insurance rates by 26 percent in 2018 and 6.5 percent in 2019. The Alaska Reinsurance Program is in the middle of receiving $332 million in CMS grants over five years to support the program. Premera returned $25 million in reinsurance money to the State of Alaska in late 2017 after the company determined there had been a significant reduction in the use of medical services by members in the individual market. Elwood Brehmer can be reached at [email protected]

Movers and Shakers for March 17

The Outdoor Heritage Foundation of Alaska has elected new members to its executive board including a new president. The following changes were made to the executive board on Feb. 13: Jennifer Yuhas was seated as a board member representing hunting interests and elected president, and Julianne Curry was seated as a board member representing commercial fishing interests. Eddie Grasser, previous president, and Ben Mulligan, previous board member, remain involved through seats designated by Alaska Department of Fish and Game Commissioner Doug Vincent-Lang. Jordan Adams has been named business manager/secretary treasurer of the Public Employees Local 71 Bargaining Unit at the recommendation of Dennis Moen, effective upon his March 1 retirement, by the Local 71 executive board. Adams is a long-time member, taking his first union position with Alaska Department of Transportation and Public Facilities in Healy as a heavy equipment operator in December 2005. He has served as a shop steward and became the Northern Region Business Representative for Local 71 in 2013. His last year-and-a-half was spent working directly under Moen as assistant business manager in Anchorage. Adams is also the new chairperson for the Local 71 Health Trust. Covenant House Alaska CEO Alison Kear was recently selected as one of 15 leaders from across the U.S. for the 2019-21 class of the Annie E. Casey Foundation’s Children and Family Fellowship. The year’s class is made up of accomplished leaders in the public, nonprofit and for-profit sectors. As a fellow, Kear will utilize Annie E. Casey Foundation resources to work within Covenant House Alaska to make improvements for young people and families in Alaska. The Annie E. Casey Foundation, based in Baltimore, works across the country to develop a brighter future for millions of children who are at risk of poor education, economic, social and health outcomes. The foundation focuses on building stronger families and communities to ensure that children have access to opportunity. The foundation’s Children and Family Fellowship is a 21-month program that develops the leaders of nonprofit, philanthropic and public organizations through professional development opportunities, including executive seminars, peer consultations and individual coaching. In addition to the 21-month fellowship, Kear will have the long-term benefit of being a part of the network of Casey Fellows across the country. The Koniag Inc. board of directors has selected Ron Unger as CEO. Marty Shuravloff has been appointed to fill Unger’s seat on the Koniag board. As Interim CEO and board chairman, Unger was instrumental in helping Koniag through a successful leadership transition resulting in a strong team and sustainable earnings growth. Prior to being hired as the CEO, Unger served on the Koniag board for 14 years, with six years as chairman. Twice during his time on the board, Unger stepped in as acting CEO, in 2013 and then again in 2017. In order to ensure leadership continuity, the board has asked Unger to serve as a non-voting chair until the board votes in a new chair. Linnzi Doerr has been promoted to controller and Courtney Maillet to project accountant in R&M Consultants Inc.’s Accounting Group. Doerr has been with R&M since 2007 in the role of Accounting supervisor and has 17 years of business management and accounting experience. Doerr has a bachelor’s degree in accounting and an MBA, both from the University of Alaska Anchorage. Maillet joined R&M in 2011 as an accounting technician. She has 12 years of financial experience and is knowledgeable in all aspects of business accounting. Maillet has a bachelor’s degree in accounting from the University of Alaska Anchorage.

FISH FACTOR: Trade war takes big bite out of Alaska seafood sales

So how’s that trade war with China going? Up until last July, China was Alaska’s biggest trading partner for seven years running. In 2017, China bought 54 percent of Alaska’s fish and shellfish products, valued at $800 million. The initial U.S. tariffs on Chinese imports were followed by a retaliatory 10 percent tariff from China last September that included U.S. seafood exports; U.S. tariffs against $200 billion worth of Chinese imports were to increase to 25 percent on March 2, but that deadline was extended by 60 days late in February as trade negotiations continue. All the tariff tit-for-tat has taken a big bite out of Alaska’s seafood market share and sales continue to sink. The new taxes have tamped down Alaska seafood sales to China by one-fifth through 2018, said Jeremy Woodrow, acting director of the Alaska Seafood Marketing Institute. In a presentation this month to the House Fisheries Committee, Woodrow said “sales so far this year are off by more than 20 percent and we expect to take a big hit from China this year.” Woodrow said a survey of Alaska processors and industry stakeholders revealed that “65 percent reported they had immediately lost sales from the increase of these tariffs, 50 percent reported delays in their sales, and 36 percent reported they lost customers in China. Another 21 percent said they had unanticipated costs because of the trade conflict.” He added that the taxes have caused inventories to pile up in freezers as Alaska seafood sellers seek markets to fill the China shortfall. Sales inroads are being made in other countries like Spain and Brazil, Woodrow said, but the loss of China would leave a lasting hurt. Meanwhile, state general fund dollars have been zeroed out for ASMI’s budget by the Dunleavy Administration and its travel budget slashed by more than half to $158,000. Other trade impacts A new report by economists from Columbia, Princeton, and the New York Federal Reserve explores the impacts of the Trump Administrations trade policy on prices and pocketbooks. In the short term, it says the U.S. has experienced substantial price increases, large changes to supply chain networks, a drop in the availability of imported varieties, and complete passthrough of the tariffs to domestic consumers. While the long-run effects are still to be seen, the economists said, “we also see similar patterns for foreign countries who have retaliated against the U.S., which indicates that the trade war reduces real income for the global economy as well.” Seaweed to the rescue “They are coming to take our cows away!” yelped critics of the proposed Green New Deal that’s cropped up in Congress. The deal calls for major investments in clean-energy jobs and infrastructure to help the U.S. transform to a more earth friendly economy. The GND is making farmers uneasy because fingers are pointing at cows as big polluters from the methane gas they pass. Most of the gas is actually belched from the cow’s mouth and not released from the back end. Cow burps account for 26 percent of the nation’s total methane emissions according to the EPA. Seaweed can help put the brakes on all those burps. Researchers in Australia started investigating after a dairy farmer noticed cows that grazed on washed-up seaweed along the shore were healthier and more productive than those in the field. Another study five years ago confirmed those results and 20 different kinds of seaweed were tested in cow feeds. Overall, they reduced methane production by up to 50 percent but required high doses of seaweed, almost 20 percent by sample weight. Enter Asparagopsis, a red seaweed found throughout the Pacific. The Queensland researchers found that adding less than 2 percent of that particular seaweed to a cow’s diet reduced its methane output by up to 99 percent! The cows have good taste; asparagopsis is one of the most in Hawaiian cuisine and used traditionally in poke. The problem now is producing enough of the methane suppressor. Wild harvesting is not sustainable, the researchers said, and it will take financial and industry backers to cultivate production to an industrial scale. Meanwhile, that dairy farmer has sold his farm and is selling kelp and rockweed infused livestock feed full-time with a Prince Edward Island company called North Atlantic Organics. Fish gals on the job Women at work in the seafood industry is the focus of an international video competition that’s now open for entries. The scope includes all segments of the industry: fishing on boats, fish farming, processing, selling, managing, research, monitoring, teaching and any related services. It’s the second round for the contest that was launched last year by the Paris-based group Women in the Seafood Industry. “Women are very numerous in the industry, but not very visible,” said Marie Christine Monfort, WSI president and co-founder. Studies show that one in two workers in the seafood industry is a woman, but most are over-represented in low skilled, low paying positions. Montfort said women account for less than 10 percent of company directors and just 1 percent of CEOs. A WSI international survey last year revealed that 61 percent of women reported perceptions of gender inequality in the seafood industry compared to 48 percent of men. Raising awareness of gender biases is the first step towards making positive changes, Montfort said. And that is what the film contest is all about. Last year’s winner showcased women who mend nets for a living in Vigo, Spain. Second place went to a film about California women who formed a clam farming cooperative. Tied for third place were films about female fishing mentors in Newfoundland and women in India who started food trucks to sell their husbands’ catches. One entry from Alaska called Copper River featured veteran Cordova fisherman, Thea Thomas. Individuals and groups are invited to contribute videos of up to four minutes showing women at work in the industry. Winners receive 1000 euros along with two 500 euro prizes. Deadline to enter is Aug. 2. Learn more at Laine Welch lives in Kodiak. Visit or contact [email protected] for information.

GUEST COMMENTARY: Follow reform recommendations to save ferry system

On Sept. 12, 2018, then-candidate Mike Dunleavy delivered a speech to the Southeast Conference in Ketchikan, in which he committed to protecting the Alaska Marine Highway System’s 2019-20 budget. On Feb. 13, Gov. Dunleavy reversed himself and presented the Legislature with a budget that gutted the ferries. If enacted, it will will shut the system down Oct. 1 of this year and call for another study of the system. From the first meeting of the committee to its final report and the introduction of legislation last session it was apparent to the committee that reforms were needed if the system was going to meet the transportation needs of Alaska in a sustainable manner. Since the first ferries were commissioned in the 1960s, there have been numerous economic reports that document the economic benefit the AMHS brings to Alaska. For more than two years, a group of committed Alaskans has reviewed the management and economics of the AMHS and developed a set of recommendations that would reform the current ferry system. The AMHS Reform Committee engaged Alaska’s leading economic consultants, the McDowell Group, and one of the world’s leading marine engineering and consulting firms, Elliott Bay Design, to lead the effort. From the first meeting of the committee to its final report and the introduction of legislation last session, it was apparent to the committee that reforms were needed if the system was going to meet the transportation needs of Alaska in a sustainable manner. The committee studied other ferry systems. It looked at the finance, management and employee relations of these systems. The committee looked at the ferry system, fleet age, fleet configuration, route structure, management and Coast Guard policies and rules. After two years of study, public hearings and meetings, the committee recommended moving the AMHS out of direct control of the Department of Transportation and Public Facilities and setting up a state-owned public corporation to manage it. The committee made its case for this type of structure in order to isolate the AMHS from political wars and turf battles while stabilizing its finances. The public corporation model is similar to other Alaska public corporations, specifically the Alaska Railroad. The mission of the proposed public corporation is threefold: manage the Alaska Marine Highway and its assets in a safe and efficient manner; provide essential marine transportation services, connecting rural communities with economic and service hubs while supporting the overall transportation needs of the state; and provide for continuity of operations and public accountability. Alaskans know that the ferry system needs reform, but the governor’s “beach the boats” budget is not the way to do it. We cannot eliminate the AMHS just because the Office of Management and Budget doesn’t understand that it is a critical part of our transportation network. Shutting down the AMHS would have the same economic impact on coastal communities as shutting down the Glenn Highway at the Palmer interchange would have on communities from Palmer to Tok. It is the responsibility of the administration to support a transportation plan that will keep communities connected and businesses open, not just one that eliminates our transportation infrastructure and devastates our rural and coastal Alaska communities. A plan to do this has been presented to the state. It deserves special consideration before more studies are undertaken. If that means we need to use Permanent Fund earnings for what they were set up to provide, we need to use them. One way or the other, education, health care, senior services and transportation have to be paid for. One way or another, the citizens of Alaska will pay for services cut by the proposed budget. It is time to stop using smokescreens and studies on services that have been studied to death. We do not need another study. The governor should start with the plan presented last fall to reform the AMHS and build from it. For those interested in the AMHS Reform Study, go to ^ Greg Wakefield is a member of the Marine Transportation Advisory Board, AMHS Reform Committee and a business owner. He lives in Anchorage. Dave Kensinger is a member of the AMHS Reform Committee, former chairman of the MTAB and a business owner. He lives in Petersburg. Michael Anderson is a member of AMHS Reform Committee and an artist. He lives in Cordova.

Genetically-engineered salmon cleared for US sales by FDA

The Food and Drug Administration last week cleared the way for genetically engineered salmon to be sold in the U.S. The agency on March 8 deactivated a 2016 import alert on such salmon, FDA commissioner Scott Gottlieb said in a statement. That ban restricted the sale of genetically engineered salmon in the U.S. until the agency issued labeling guidelines. The change has alarmed some in Alaska about what genetically engineered salmon on the market might mean for Alaska’s salmon industry, which harvests wild fish. Alaska Sen. Lisa Murkowski, a Republican, pushed back in December 2015 against the market introduction of genetically engineered salmon and called for stricter labeling requirements on such products. The import ban was put in place the following month. “I’m extremely disappointed in the FDA’s shortsighted decision,” Murkowski said in a statement Friday. “It is wrong-headed and a bad idea, simple as that. I am not going to back down and will continue my fight to ensure that any salmon product that is genetically engineered be clearly labeled.” At the end of last year, the U.S. Department of Agriculture put out rules for genetically engineered foods, Reuters reported, and “consumer groups criticized the USDA for saying companies need to use the term ‘bioengineered’ rather than the more commonly used terms ‘genetically engineered’ or ‘GMO.’” The Alaska Seafood Marketing Institute supports Murkowski’s position, said Jeremy Woodrow, the institute’s communications director. The group’s research shows that consumers “want to know where their seafood comes from,” he said. Alaska Republican Sen. Dan Sullivan also opposed the change. The FDA’s decision “to allow genetically modified ‘salmon’ for sale to everyday consumers without clear, discernible labeling is wrong and totally unjustified,” he said in a written statement. “American families deserve to know when they’re serving their families wild Alaskan salmon versus some genetically tampered fish.” It’s not yet clear what genetically engineered salmon could mean for Alaska. The way that such products may affect pricing for Alaska salmon has yet to be seen, Woodrow said. “That would be the concern: If you can raise a salmon faster and be able to deliver this product for potentially less overhead, is that going to affect the price of salmon in the marketplace?” Woodrow said. “And that is something we will continue to watch.” In 2015, the FDA approved an application related to genetically engineered salmon from a Massachusetts company called AquaBounty Technologies. But the import alert prevented the company’s products from entering the U.S. Lifting the ban means the company’s AquAdvantage salmon eggs “can now be imported to the company’s contained grow-out facility in Indiana to be raised into salmon for food,” the FDA said. The company has a facility in the province of Prince Edward Island in eastern Canada, where the salmon eggs are produced, according to the FDA. AquaBounty’s technology integrates a chinook salmon growth hormone gene into the genome of Atlantic salmon, resulting in a fish that grows faster than a standard Atlantic salmon, according to the company’s website. The FDA determined in a 2015 review that the fish is safe to eat. With its technology, AquaBounty wants to “spur a radically more responsible and sustainable way of farming Atlantic salmon,” its website says. The product is already sold in Canada. The United Fishermen of Alaska referred to the genetically engineered salmon as “frankenfish” in a statement March 8. The group said the FDA lifting the ban without requiring clear labeling for the product is a “disservice” to consumers and a blow to the state’s fishing communities. It’s not clear when genetically engineered salmon might hit the market, said Woodrow. A phone call and email to AquaBounty were not returned March 11. Instead of mandatory labeling for genetically engineered salmon, Murkowski’s office said, producers will be allowed to use QR codes or 1-800 numbers that would refer customers to more information. “So let’s say you’re in a grocery store and you see a 1-800 number. Are you going to pick up a phone and call that 1-800 number before you check out?” said Karina Borger, a spokeswoman for Murkowski. “The senator has been pushing for clear labeling from the get-go.” Another one of Murkowski’s concerns, Borger said, is about a man-made fish that could outgrow natural stocks. The senator has introduced legislation over the years to mandate the labeling of genetically engineered salmon. “When we talk about GE salmon, it’s separate from the larger GMO debate,” Borger said. “Genetically engineered animals are not crops.” Frances Leach, executive director of United Fishermen of Alaska, is concerned that genetically engineered salmon on the market could potentially mean consumers will buy less Alaska salmon. “The consumer … is going to see wild Alaska salmon and this other salmon that they don’t know what it is. They just know it’s salmon, and likely it’s going to be cheaper because they can create these GMO salmon for cheaper than we go out and fish for salmon,” she said. ASMI won’t be specifically targeting marketing efforts against genetically engineered salmon, Woodrow said. ASMI sees it as another farmed product to which wild-caught Alaska salmon is superior. “In the retail space or food service space, it’s another farmed salmon product, and we’ll be competing against this product like we have with other farmed salmon,” he said.

AGDC scales back as it moves project forward

Alaska’s new gasline leaders offered some insight Wednesday into their plans to continue building on the progress that has been made on the $43 billion Alaska LNG Project while at the same time reevaluating its viability and doing so at a lower cost to the state. Interim AGDC President Joe Dubler told the corporation’s board of directors that a primary emphasis is returning to the “stage gate” process used by the producer companies to advance Alaska LNG before the state took it over in late 2016. BP, ConocoPhillips and ExxonMobil and the State of Alaska collectively spent roughly $600 million in the 2013-16 timeframe to get the megaproject through the preliminary front-end engineering and design, or pre-FEED, stage. At that point, with depressed oil and LNG markets, the companies offered to either hand the project over to the state or slow it down until global energy markets improved. Narrowing the Alaska LNG Project cost from a $45 billion to $65 billion range down to the current estimated $43 billion was a primary product of the pre-FEED work. Gov. Bill Walker chose for the state to continue the effort and under former AGDC President Keith Meyer — who was hired in June 2016 and fired by the board this January — work was focused on selling to project to LNG customers and investors while also initiating the federal permitting process to get approvals for early construction in 2020. AGDC will now focus on determining whether or not it’s worth advancing to the up to $2 billion FEED stage gate, which would get the Alaska LNG Project to about a 40 percent design level and is necessary to make a subsequent final investment decision, according to Dubler. Given that, he said a 2020 start to construction is not realistic. A desire to reinstitute the stage gate approach and get the producers directly involved in Alaska LNG again were priorities of Gov. Michael J. Dunleavy during his campaign. “What’s needed to make a final investment decision — we don’t have everything in place at this time. We think it will probably be two years or so but we haven’t worked the schedule all the way out,” Dubler said. “If you’re going to fail on a project you want to fail when you only have $500 million or a billion dollars into the project and not $4 to $5 billion into the project, so you stop at each gate and make a decision.” Dubler said during a Feb. 27 legislative hearing on AGDC’s budget that corporation leaders are prepared to shut down operations if the Alaska LNG Project is not determined to be economically viable. Under the previous approach, AGDC planned to hire one or more large firms to develop the project under an engineering, procurement and construction, or EPC, contract and that included the final technical development. The corporation will also go through a new economic analysis of the project, according to Dubler, who noted the last time the project’s economics were assessed was in 2016. That evaluation, done by the international energy economics firm Wood Mackenzie, concluded low global LNG prices challenged the viability of a producer-led Alaska LNG Project and suggested state control could benefit it’s economics but did not draw firm conclusions on the viability of the current project structure. Dubler said he doesn’t believe the changes will deter the potential LNG customers and investors AGDC has preliminary agreements with, adding that the corporation has sent letters to them explaining the changes and corporation officials will meet with several of them at the large LNG2019 conference in Shanghai in early April. However, he did say the nonbinding joint development agreement framework AGDC has with three nationalized Chinese companies to finance up to 75 percent of the project costs in exchange for purchasing up to 75 percent of its LNG production capacity puts too much control in one place. “We’re looking to diversify into more companies — get more people involved. We’re just looking to expand participation by investors and offtakers,” Dubler said. AGDC officials have previously said the corporation has formal letters of interest from 15 potential customers entities; but those documents are confidential. Commercial and Economics Vice President Leiza Wilcox said feedback from prospective customers remains positive because of Alaska’s location in relation to Asian LNG buyers. On the investor side, she said indications are the initial Alaska LNG investors would likely require returns “in the mid-double digits.” “Somewhere between 12 to 15 percent, that would be my feeling,” Wilcox told the board of directors. “For a long-term infrastructure project the expected rate of return can be lower and in the long-term the project can be put into the hands of infrastructure investors that expect a lower rate of return. It’s just a matter of who invests up front and who invests for the long-term; that’s part of the structuring of the financing package.” Securing those infrastructure investors, such as pension funds, with lower return hurdles was a cornerstone of the approach AGDC took to the Alaska LNG Project under Meyer, who often cited the higher return requirements of the major oil producers as an impediment for developing the project based on their investments. As for AGDC’s internal finances, Dubler said the corporation could complete its mission on a smaller budget to do its part to close the state’s $1.6 billion budget deficit. The corporation has already cut $5 million out of its current year budget — mostly by cutting its contractor and legal expenses — and is downsizing its Anchorage offices. The Dunleavy administration’s fiscal year 2019 supplemental budget request includes transferring that $5 million back to the General Fund. “We’re right-sizing for the narrower marketing focus and we’re advancing the FERC (permitting) process,” Dubler said. However, he went on to say that with the $5 million reduction, AGDC expects to have roughly $15 million at the end of the current, 2019 fiscal year, but expects to need about $29 million in 2020 to complete the Alaska LNG environmental statement and keep the reduced scope of commercial work ongoing. Agency officials are working on a resolution to the funding issue, Dubler said. “I’m not sure we can reduce enough to get there but we’re going to see what we can do,” he added. House Resources Committee co-chair Rep. Geran Tarr, D-Anchorage, said in a statement offered to the Journal that she was pleased to hear AGDC is continuing with the Federal Energy Regulatory Commission environmental impact statement process started in 2017 under the Walker administration. “This is the right decision. The state has invested hundreds of millions of dollars, and that investment must be maximized by achieving this critical regulatory approval,” said Tarr, who added that she’s looking forward to “closely evaluating any new proposals to change the ownership model to ensure the state’s strong position is maintained.” There is a general consensus among industry experts and Alaska LNG observers that completing the project’s EIS would be beneficial in the long-term even if the project is not sanctioned in the coming years. To date, AGDC has spent more than $260 million on the Alaska LNG Project. AGDC leaders are scheduled to present to legislators March 22 in a joint House and Senate Resources Committee meeting. Outside help AGDC on Friday announced new partnerships with BP and ExxonMobil in which the companies will help the quasi-state corporation “identify ways to improve the project’s competitiveness and progress the Federal Energy Regulatory Commission authorization to construct the project,” according to a statement from the corporation. Last year BP and ExxonMobil signed binding term sheets, which include pricing terms, to sell their respective shares of North Slope natural gas into the Alaska LNG Project. “BP and ExxonMobil possess world-class LNG expertise which may help AGDC responsibly advance this project with maximum efficiency for the benefit of Alaskans, and I welcome their collaboration,” Dubler said in a formal statement. BP previously supplied AGDC with technical assistance under an agreement from late 2016. According to AGDC officials, the latest agreements ostensibly provide free volunteer help from the companies on value engineering and answering federal agency questions for the Alaska LNG environmental impact statement. FERC officials said Feb. 28 that issuance of the draft Alaska LNG EIS would be pushed back about four months to June of this year due, in part, to responses the federal regulators still need to get from AGDC, according to FERC documents. Additionally, Dubler said during the Wednesday board meeting that AGDC would seek third-party help from “quality, experienced LNG project owners and operators to build, own, and operate the project” if it reaches that point. “We realize this is not something the state does. The state’s very good at some things; running integrated LNG projects is not one of them,” he added. Former AGDC head Meyer often noted that AGDC would likely hire a firm to operate the project while it remained under state ownership. That state ownership has been recognized by many, including Dubler, as a crucial economic benefit because it would likely exempt Alaska LNG operations from federal income taxes based on a 2016 ruling from the Internal Revenue Service. Elwood Brehmer can be reached at [email protected]


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