Gov, challengers square off for support at oil and gas conference debate

Two challengers for governor took their swings at the incumbent during the Alaska Oil and Gas Association’s gubernatorial debate on Thursday afternoon yet the mood was generally light and there was even a fair amount of laughter. But then again, it is still early in the campaign and the full field wasn't yet set as former U.S. Senator and Anchorage Mayor Mark Begich entered the race on Friday according to Matt Buxton at Midnight Sun, sending Walker out of the Democrat primary and into an independent bid for reelection. Later, former Lt. Gov. Mead Treadwell also announced he was entering the GOP primary. Journal Managing Editor Andrew Jensen moderated the hour-long debate that focused on oil and gas production, government regulation, the Alaska LNG Project and a few non-related topics submitted from the audience and those watching on Facebook Live. Republican hopefuls Scott Hawkins, an Anchorage businessman, and former state Sen. Mike Dunleavy of Wasilla also stressed continued budget cuts and the prospect of growing the state’s resource development economy by making permitting more efficient. Walker noted the reduction in future deficits via the passage of his landmark legislation to employ a 5 percent structured annual draw on the Earnings Reserve Account of the Permanent Fund and his efforts to lobby federal officials on behalf of ConocoPhillips regarding the company’s North Slope projects. “We closed 80 percent of the fiscal gap. That’s a significant step for the future of (the oil) industry and the future of this state,” Walker said in his opening remarks, adding that he ran for governor in 2010 and 2014 on a resource development platform. Dunleavy and Hawkins are vying for the Republican nomination. Gubernatorial candidate and longtime Republican Kenai Peninsula Rep. Mike Chenault was unexpectedly absent from the debate and announced late Thursday night he is withdrawing from the race. Dunleavy and Hawkins also questioned the role Chinese state-owned companies might play in the $43 billion Alaska LNG Project if it is built. In November Gov. Bill Walker and Alaska Gasline Development Corp. President Keith Meyer signed a nonbinding framework agreement to have oil and gas giant Sinopec buy LNG from the project with the Bank of China and China Investment Corp., the country’s sovereign wealth fund, financing up to 75 percent of the project’s cost. The deal also leaves open the prospect of Sinopec having engineering and construction roles in the project. Dunleavy said he voted for gasline legislation in 2014 that made the state a partner in the project with BP, ConocoPhillips and ExxonMobil, but he questioned how Walker’s administration has handled it now that the state is leading the gasline effort. “I don’t have faith in the administration that they’re going to be able to pull it off,” Dunleavy said of Alaska LNG. He added that if the state is not cautious in negotiating contracts with the nationalized Chinese companies “they’ll tie us in knots.” Hawkins said it is very important for the private sector to lead construction and management of the gasline. Walker responded that China is already Alaska’s largest trading partner, buying much of the state’s seafood, minerals and timber. “When we start drawing lines and saying 'you can invest, you can’t invest,' I think that’s a dangerous road to go down,” the governor said. Hawkins, the former CEO of the Anchorage Economic Development Corp. and the owner and founder of Advanced Supply Chain International, a logistics firm, contended the state has a “toxic reputation on Wall St.” because Walker vetoed full payment of oil and gas tax credit certificates in 2015 and 2016. The vetoes, totaling $630 million — and followed by the Legislature’s statutory minimum tax credit appropriation in 2017 — caused small explorers and producers that took out loans underpinned by the credits to default on their payments, ostensibly leading to a credit freeze on the industry in the state. Hawkins called the credits a “tremendously successful” program. He said the credits, which in some instances had the state fund more than two-thirds of oil and gas projects, were probably overly generous but he would be open to a similar program in the future. In response to a question regarding whether the state’s royalty share of North Slope gas should be sold to in-state consumers at a discount to maximize the public benefit if the gasline is built, Hawkins said it would need to be sold at market rates. “Generally, it’s a bad idea to subsidize things,” he added. Walker noted that his administration led the push to pass House Bill 331 this year, allowing the Department of Revenue to sell bonds to pay off the nearly $1 billion outstanding credit obligation once the Legislature passed a long-term solution to the state’s deficit. HB 331 requires the companies to accept a discount of up to 10 percent on the value of the certificates they hold to prevent the state from incurring additional interest costs. A lawsuit has been filed against the administration challenging the constitutionality of the tax credit bonds, as well. Walker hasn't signed the bill yet. Hawkins also expressed concern over the Alaska Industrial Development Authority’s strategy for getting more natural gas to the Fairbanks area since Walker took office. AIDEA purchased Fairbanks Natural Gas for $52 million in 2015, a deal that set the stage for consolidating the area’s gas utilities, which Interior Energy Project leaders believe will result on operational efficiencies, economies of scale and ultimately lower gas prices to consumers. He said the project is important but it’s become “too government driven.” Dunleavy called it a “work in progress,” while Walker highlighted that regardless of the economic challenges of the project brought on by lower oil prices it is a fundamental way to improve air quality in Fairbanks, which is often the worst in the country during the winter months. Elwood Brehmer can be reached at [email protected]

Of Mutual Interest: Reacting to rising inflation and rates

NEW YORK (AP) — Investors are fearfully watching for signs that inflation is picking up. Stocks tumbled in February when Wall Street thought a big increase was coming, and since then, stocks have rallied when the market received signs that inflation was in check. Most experts agree that inflation is going to speed up eventually as the economy expands, and that the Federal Reserve will keep raising interest rates in order to keep inflation pressures from getting out of control. While it’s not clear exactly when greater inflation will arrive, Steve Wood, chief market strategist for Russell Investments, says it’s not too soon to prepare. Also, Wood says investors need to pay attention to a global disconnect in interest rate policy. Even as the Federal Reserve, under Chairman Jerome Powell, raises borrowing costs in the U.S. to stave off inflation, central banks in Europe and Japan are still keeping interest rates low and buying bonds in order to stimulate their own economies. Answers have been edited for length and clarity. Q: What trajectory do you expect for inflation? A: The goal is to figure out where inflation is going within the context of Fed policy. The underlying data is that inflation is increasing toward the Fed’s target of 2 percent. The improvement in inflation is going to give the Fed confidence that it can remove much of the emergency accommodation it afforded following the global financial crisis. One ignores the Fed and Fed policy at one’s own peril. Since February, the market is beginning to process the policy positions of a Powell Fed, which is looking at an improving economy, improved labor markets, and inflation that they feel is on target. As we all know, it’s not inflation, it’s inflation expectations which are important, and the Fed wants an environment where inflation expectations are anchored at that 2 percent range. Q: What kind of adjustments are you making as you see signs inflation is on the rise? A: To many the most obvious would be the impact of rising rates in fixed-income, and over a shorter time environment that’s true. In a rising rate environment, the price of fixed income assets (like bonds) drops. There are also implications in asset classes with an equities base. Also there are implications in terms of the economic cycle. It’s global, too. (Central banks) are using similar policy tools, but they’re not using them at the same time. That creates cross currents, and from a global investors’ outlook that creates an opportunity to manage risk more robustly. Q: How would you advise investors to respond? A: In the U.S., we see an economic cycle which is aging, earnings are going to look excellent this year but again aging, and a Federal Reserve that has made clear that they will follow a disciplined path to pursue rate hikes and remove accommodation. It’s an opportunity for a U.S. dollar-based investor to balance into other parts of the world that are in a younger economic cycle. We’ve been telling U.S. dollar-based investors that the last several quarters have been an opportunity for them to rebalance globally, for example in Europe. Europe has a younger economic cycle, valuations are attractive relative to the U.S., and the European Central Bank is still in an accommodative, easing policy cycle. After a very strong nine-year bull market in the U.S. equity space, they can rebalance that in a global and multi-asset portfolio. Q: Does that mean you’re more focused on geographies rather than asset classes? A: I think we’re looking at asset classes and geography simultaneously. If one were to look at the economic cycle of the U.S vs. the euro currency zone, one would say that the U.S. would have a much older economic cycle. A tightening central bank in the U.S. would be compared to a European Central Bank that is still providing accommodation and has rates very low. Earnings and valuations in Europe look relatively more attractive than they would in the U.S. The risk-adjusted return picture for an investor would suggest that rebalancing from an asset class and a geography that has done quite well, where valuations are high, to areas where asset prices are relatively low and monetary policy might be a tail wind.

AJOC EDITORIAL: Net neutrality fight misses the bigger problem

The May 16 vote in the U.S. Senate to reverse the Federal Communications Commission repeal of “net neutrality” rules produced a split from Alaska’s delegation with Sen. Lisa Murkowski joining 49 Democrats and Sen. Dan Sullivan voting with his Republican colleagues. The Democrats’ rare victory in the Senate was a small one, however, as there is not support in the GOP-controlled House of Representatives or from President Donald Trump, who appointed FCC Chairman Ajit Pai, to restore the 2015 net neutrality rules. Democrats want to make a campaign issue out of net neutrality with tech-savvy millennials by portraying it as a battle of David vs. Goliath with giant internet service providers in one corner and would-be innovators supposedly in danger of being throttled or blocked in the other. In fact, net neutrality boils down to a battle of Goliath vs. Goliath with the ISPs facing off against the dominant content providers known as FANG: Facebook, Amazon, Netflix and Google. According to Canadian bandwidth management systems vendor Sandvine, those four companies combine to take up some 56 percent percent of all internet traffic during peak periods, with Netflix taking the lion’s share of that number at about 36 percent. Next up is YouTube, owned by Google, at about 15 percent. Netflix had become such a bandwidth hog by 2014 that ISPs such as Comcast and Verizon started slowing down its streaming video; that forced Netflix to sign deals with them to pay a toll so its customers could enjoy faster speeds. Those deals were voided under the 2015 net neutrality rules that required all traffic to be treated the same regardless of whether it was a blogger or a corporate behemoth like Netflix with 125 million customers. That was a huge win for content providers who were able to go back to free-riding on the infrastructure built by the ISPs while continuing to charge customers for the services they provide over that same infrastructure. In practice, so far as the content providers are concerned, net neutrality is akin to “highway neutrality” if all road traffic was treated the same regardless of weight, length, value, etc. Of course we all understand that not all road traffic causes the same impact and therefore users pay different fees, tolls, taxes and the like. Google doesn’t pay anything for using about one-sixth of the available bandwidth during peak hours, but it definitely charges for YouTube TV and for ad placements on that content flowing through the ISPs. Netflix is using more than a third of the available broadband and likewise pays nothing for the privilege while raking in billions per month in subscriber revenue. If anything leads to “throttling” of internet speeds it would be two companies who are using almost half of the available bandwidth. The fears of ISPs throttling or blocking content are overblown to be sure, but speaking of net “neutrality,” does anyone believe companies like Google, Facebook or Twitter are “neutral”? Google manipulates search results. Facebook and Twitter have gotten into the speech censorship business by blocking users and the practice of “shadowbanning.” The corporate leadership and culture of these companies are overwhelmingly, outwardly, proudly, left-wing in nature. They are by far the dominant platforms for search and social interactions and there is no shortage of incidences of them using their clout for ideological purposes. In 2012, President Barack Obama’s reelection team was praised for its ability to microtarget voters by scraping data from millions of Facebook profiles, and the company did nothing about it. In 2016, that became a scandal when Cambridge Analytica did the same thing on behalf of then-candidate Trump. YouTube has “demonetized” conservative users; Facebook curtailed the page for the popular duo of African-American Trump fans Diamond and Silk; Twitter similarly polices progressive speech far more loosely than it does that of the right. So-called “net neutrality” does nothing to address the lack of neutrality when it comes to political speech exhibited by the Silicon Valley titans who claim to be for a free and open internet with them as champions of open public platforms. They have revealed themselves to be anything but. Andrew Jensen can be reached at [email protected]

Healthcare price disclosure aimed at high costs, but is no silver bullet

Patients curious about what health care costs won’t have to guess anymore after the Alaska Legislature followed 30 other states in passing a law requiring providers to disclose their prices. House Bill 123, sponsored by Rep. Ivy Spohnholz, D-Anchorage, awaits Gov. Bill Walker’s signature after it passed the House by a 34-6 vote in 2017 and was folded into Senate Bill 105 to pass both bodies on the last day of the 2018 session. Among the states that have passed similar measures, Florida and Colorado are most similar to Alaska’s, Spohnholz said. She was able to learn from Colorado legislative collegues that they regretted not building an enforcement mechanism such as fines.  The bill requires health care providers to publish price information in public spaces and on their websites. They will also need to submit the price information to the Alaska Department of Health and Social Services. A good faith estimate needs to be provided within 10 days of the request. Each listing will include 10 most commonly-performed procedures from six different sections of medical code for a total of 60 procedures. The six sections are medicine, pathology and labs, anesthesiology, surgery, radiology, and evaluation/management. No small amount of hope is pinned on the measure to help reduce health care costs, advocates have said. Alaska has the second-highest health care costs per person in the nation, Spohnholz noted when she proposed the legislation in January 2017. Simply having the price information and then a discussion between consumers can start bringing health care costs down, she said. According to her research, medical price transparency across the nation could save the U.S. $36 billion in health care spending. Colorado’s law went into effect Jan. 1, calling for hospitals and providers to post self-pay prices of their top 50 diagnosis-related group codes and self-pay prices of 25 leading current procedural technology, or CPT, billing codes. In shaping the Alaska legislation, Spohnholz started with the same 25 categories as Colorado but simplified it at the recommendation of the Alaska State Hospital and Nursing Home Association. “Transparency can also begin the public dialogue between stakeholders in the healthcare industry regarding the variation of health care costs within Alaska,” she said. Whereas several states, such as New Hampshire, require only the good faith estimates, Alaska’s law carries the posting requirement and a separate provision that within 10 days of non-emergency services, doctors, hospitals and insurers need to respond to a customer’s price request. The Municipality of Anchorage passed a similar measure last year that carries a fine for non-compliance. The law outlines how penalties for providers, facilities and insurers cannot exceed $10,000. Failing to comply by posting information carries a fine of $100 per day and failure to comply with a good faith estimate also carries a $100 per day fine beginning after the 10 days have passed. Becky Hultberg, the president and CEO of the Alaska State Hospital and Nursing Home Association, said she worked extensively with Spohnholz on the legislation. “We appreciated her willingness to consider our feedback. ASHNHA supports the concept of price transparency and consumer engagement in health care decision-making,” Hultberg said. “However, the structure of the health care payment and delivery system makes price transparency difficult to implement even when all parties agree on its desirability.” ASHNHA supports requiring health care providers and facilities to provide good faith estimates. Hospitals already have systems in place to help patients get estimates for what their care will cost, Hultberg said. Yet, while it seems logical that the health care provider would have access to the best information in helping consumers to understand price, the insurer actually has access to the best data, Hultberg said. “For those patients with insurance, working with their insurer remains the best way to get accurate information on out-of-pocket costs,” she said. Jim Grazko, president of Premera Blue Cross Blue Shield of Alaska, said he’s all in favor of price transparency. Premera rolled out an app earlier this year called Premera Pulse to help its 20,000 insured Alaskans track their health care costs in a year-long pilot program that will record results. “Everyone benefits from price transparency,” Grazko said. At the end of the year-long pilot program, Premera will analyze the data collected, perhaps modify it, and introduce it to the much larger pool of Washington state customers. Hultberg said her organization of hospital members also “appreciated the addition of the provision that limits municipalities from enacting an ordinance that is inconsistent with or imposes additional price disclosure requirements.” She was referring to the Anchorage ordinance that went into effect last year. Ketchikan also considered a price transparency measure. The city council created a committee to consider the requirements, but the committee “decided to wait to see how it turned out on the state level,” said Ketchikan City Clerk Katy Suiter. “This bill creates one statewide standard and that will help both consumers and providers,” Hultberg said. Opponents of the bill argued that pricing health care is a complex process and nothing like going to a car lot and picking out a vehicle based on the listed sticker. Fresenius Medical Care, which has nine Alaska facilities, specializes in kidney dialysis. Of the 300 people on dialysis in Alaska, only 11 percent have commercial insurance coverage, wrote Wendy Funk Schrag, the vice president of state government affairs for Fresenius. Others are on Medicare, Medicaid or Veterans Administration care. If they aren’t on one of the federal coverage programs when they begin, they may be switched over soon after, she said, and that will make a difference in the overall costs. “Posting price information for dialysis serves little, if any useful or relevant information to the patient,” Schrag wrote. The Alaska State Medical Association also warned of pitfalls in the bill. “For almost all patients, knowing the ‘rack rate’ or ‘cash rate’ for medical care would be very misleading as to what the actual charge would be… the rack rate will almost never provide price transparency and will almost always provide misleading information,” wrote Graham Glass, president of the ASMA. For example, one provider might charge $500 for an office visit, while another lists $400. “The seemingly more expensive provider may have a contract with Premera in which the negotiated rate is only $350 while the seemingly cheaper provider may have a contract with Premera in which the negotiated rate is actually $380,” Glass wrote. In other words, a doctor’s visit cost depends on whether you’re in that insurance pool or not and then what price your insurance company negotiated. To help with price variation understanding, Glass recommended that each estimate refer to the CPT code when working up potential invoicing. That way, you “create a culture of using CPT codes in documents that over time increase the ability to pre-inform patients of costs,” he wrote. The code comparison shows an apples-to-apples approach versus two people comparing their costs for knee surgery, he said. The bill is just one way to help achieve better price transparency, Hultberg said. “Health care price transparency is a complex topic and it is important to have realistic expectations about what this bill will achieve,” she said. “Consumers are usually only engaged in price shopping up to the point of their out-of-pocket expenses and have often met their deductibles when planning expensive hospital procedures. We appreciate that the Legislature took this step toward price transparency, but we do not expect that this bill alone will lead to lower health care costs.” Naomi Klouda can be reached at [email protected]

FISH FACTOR: Salmon fishermen should see strong prices

Forces are aligned for a nice payday for Alaska’s salmon fishermen. There is no backlog from last season in cold storages, a lower harvest forecast is boosting demand, prices for competing farmed salmon have remained high all year, and a devalued U.S. dollar makes Alaska salmon more appealing to foreign customers. “Over the past year the dollar has weakened 11 percent against the euro, 9 percent against the British pound, 5 percent against the Japanese yen, and 7 percent against the Chinese yuan. That makes Alaska salmon and other seafood more affordable to those top overseas customers,” said Garrett Evridge, a fisheries analyst at the McDowell Group. Last year Alaska seafood exports set records in terms of volume and value: 1.1 billion metric tons valued at $3.45 billion. Alaska salmon accounted for 22 percent of the volume and 36 percent of the value. On the home front, the weaker dollar will make imports from Chile, the largest farmed salmon importer to the U.S. followed by Norway, more expensive. That also will apply to imports of competing wild salmon from Canada where — if it materializes — a big sockeye run is predicted at nearby British Columbia. “About every four years we expect a relatively large harvest from the Fraser River run in B.C. In 2014 they produced about 83 million pounds of salmon and sockeye was the largest component,” Evridge said. “Likewise, a weaker dollar will make wild salmon imports from Russia and Japan more expensive for U.S. buyers.” Russia, which had grown from a $10 million customer of primarily pink salmon roe to $60 million in 2013, has banned all imports of U.S. seafood since 2014. Meanwhile, that country continues to send millions of tons of salmon and other seafood into the U.S. For example, 2017 trade data from the National Marine Fisheries Service show that Russia sent nearly 4 million pounds of frozen sockeye salmon to the U.S. valued at just more than $13 million, a $2 million increase over the previous year. Alaska’s salmon forecast for 2018 calls for a harvest of 149 million fish, down 34 percent from last year. Salmon starters Copper River salmon fishermen were beached for a third scheduled opener on May 24 due to concerns over low numbers of sockeyes. The first fishery on May 17 produced a catch of just 1,900 reds out of an expected 38,600. For the second opener on May 21 the sockeye catch was 3,900 fish – predicted landings were 80,000. The king salmon take from the two 12-hour fisheries totaled 4,000 fish. Fishery managers said it’s too soon to say if the low numbers indicate a delay or a much smaller run than expected. The breakup of the Copper River is behind schedule and water levels are low. They also blame cold ocean temperatures for the delay in sockeye returns. “We will know soon where we are in the early run, which usually peaks on June 1,” said longtime fisherman Jerry McCune. Latest prices at Copper River were reported at $14 per pound for king salmon and $10.50 for sockeyes after the second opener. That’s down from $15.65 for kings and $10.65 for reds (or higher), plus delivery bonuses on opening day. More salmon fisheries around the state will start kicking off within days, with other areas in Prince William Sound opening on May 31. Districts at Lower Cook Inlet open June 1 with Upper Cook Inlet fisheries starting on June 18. Togiak at Bristol Bay also opens on June 1 with other Bay districts opening on June 4; the Nushagak district opens on June 11. Chignik also is set to open for sockeyes on June 1. Yakutat gillnetters will get to fish starting June 7, as will salmon fishermen at the South Alaska Peninsula. Kodiak’s first opener for sockeyes is tentatively scheduled for June 9 but could open as early as June 1 depending on runs to the west side. Southeast Alaska drift gillnet openings start on June 17. Once again there is unlikely to be any commercial salmon fishing at the Kuskokwim due to a lack of buyers since the new plant at Platinum stopped operating a few years ago. Norton Sound opens to salmon fishing on June 25 and Kotzebue on July 10. At the Yukon River, commercial fishing for chums will be based on in-season run estimates. As many as 1.4 million chums could be available to Yukon fishermen this summer, and 1.2 million in the fall. Find links to regional salmon summaries at the Alaska Department of Fish and Game’s Commercial Fisheries page. Big chill in the Bay Salmon fishermen at Bristol Bay set a record last summer for chilling their fish. Despite an unexpected hit of one of the biggest sockeye runs in 20 years, 73 percent of the salmon deliveries by the region’s 1,447 driftnet boats were chilled, adding up to a record 130 million pounds of salmon. That’s a 5 percent increase over the previous year and compares to a 24 percent chilling rate from 2008. In addition, chilled raw product purchase amounts from the set net fleet increased by more than 33 percent. That good news came from the annual 2017 Processor Survey done by Anchorage-based Northern Economics for the Bristol Bay Regional Seafood Development Association. The RSDA is operated and funded by the drift fleet with a one percent tax on their catches. The better fish quality meant most of the salmon shifted away from the low value canning line into pricier products. Last year a record 83 percent of the sockeyes were put up whole/headed and gutted, or as fillets; only 14 percent of the Bay’s sockeye salmon last summer went into cans. That compares to upwards of 75 percent being canned 20 years ago. When asked if there are any notable quality improvements gained from chilled, floated fish in RSW systems (refrigerated sea water) compared to chilled, non-floated fish in slush ice, all respondents said the quality of RSW salmon is typically better. Consistent chilling combined with lower brailer weights (500 to 600 pounds or less per bag) were reported as the best practices having the largest impact on the quality of delivered fish. So what’s the big deal about Bristol Bay salmon if you fish or live elsewhere? “The sockeye resource at Bristol bay is very unique because of its size. Typically, it’s 35 to 40 percent of the global sockeye supply, and it is a huge chunk of Alaska’s salmon value overall,” said fisheries economist Andy Wink. Last year, Bristol Bay’s catch of nearly 37 million sockeye accounted for fully half of the value of Alaska’s entire salmon fishery, and a similar harvest is expected this summer. The size of that harvest, Wink said, has a big impact on salmon prices elsewhere. “Certainly in 2015 when the base price was just 50 cents at Bristol Bay and they had a large harvest, we saw coho prices come way down and sockeye prices in other areas were down quite a bit too,” he explained. “It’s a market moving fishery and that is why it affects so many other Alaska fishermen even if they don’t fish in the Bay.” The 2017 sockeye salmon price at Bristol Bay averaged $1.02 a pound, a six-cent increase over the year before, and the price is expected to be higher this summer. Laine Welch lives in Kodiak. Visit or contact [email protected] for information.

Explore Fairbanks signs deal on gov’s China trade trip

Alaska travel industry leaders have long been trying to establish a presence in China, and Explore Fairbanks now has its proverbial foot in the door. The lead promoters of the Golden Heart City announced May 25 that a day prior they inked a deal with East West Marketing Corp. to represent them in the largest, mostly untapped visitor market on the planet. Explore Fairbanks CEO Deb Hickok signed the contract in Beijing while part of Gov. Bill Walker’s 12-day “Opportunity Alaska” trade mission to the country which wrapped up May 30. “This contractual relationship between Explore Fairbanks and East West marks another quantum leap for tourism from China to Alaska and for cultural exchange among our citizens,” Walker said in an Explore Fairbanks release. Walker said prior to the trip that the trade mission was largely spurred by China President Xi Jinping’s extended layover in Anchorage on his way home from a meeting with President Donald Trump in April 2017. That same meeting laid the initial groundwork for the ongoing partnership between three large Chinese companies and the Alaska Gasline Development Corp. to collaborate on the Alaska LNG Project, according to Walker. Explore Fairbanks Tourism Director Scott McCrea said in an interview that the tourism arrangement will not only help Explore Fairbanks make traditional business connections with tour operators, travel agents and the like in the country’s top cities, but will also give the Alaska organization a presence on Chinese social media platforms such as WeChat and Sina Weibo, the Chinese version of Twitter. “We think here in the U.S. that we’re tied into our social media — within China I think it’s even more so, and it’s very difficult for us here in the U.S. to know now to use it properly without someone who, one, speaks the language, but is familiar with how to use those platforms to reach out, not just to travel trade (businesses) but to consumers as well,” McCrea commented. The arrangement will also build on the business missions to China that Explore Fairbanks has coordinated with Visit Anchorage and other travel trade companies, such as the Alaska Railroad over the past three years, according to McCrea. Explore Fairbanks officials will certainly welcome visitors traveling to the Interior at any time and for any reason, but in particular they hope partnering with East West Marketing can help raise awareness among Chinese travelers that Fairbanks is the premier place on Earth to see the northern lights. “The Chinese visitor mix is changing and a majority of tourists are now fully independent travelers and seeking unique personal travel experiences,” East West Marketing CEO Alina Xiang said in an Explore Fairbanks release. “Fairbanks offers visitors a fascinating opportunity to experience the northern lights and create a lasting travel memory.” Aurora viewing is the driver behind the direct charter flights that Japan Airlines has operated for about 15 years out of that country to Fairbanks, McCrea noted, and the goal is to eventually establish a similar network in China, he said. China Airlines has flown charters from Taiwan to Fairbanks for three years, but a direct link from China to Alaska has yet to be established. “Without question, for us in Fairbanks, (the aurora) is pretty much the main attraction,” McCrea said. “That’s a big part of our marketing message within China is to promote ourselves as an aurora destination and trying to help position ourselves over other aurora destinations that we know are attracting other Chinese visitors” such as Iceland, Norway and Canada, he added. “These are places that have pretty robust marketing budgets that we can’t quite match, but having this on-the-ground representation is certainly going to help us compete better with those other places.” Elwood Brehmer can be reached at [email protected]

GUEST COMMENTARY: Alaska telecoms committed to open internet

We are writing to assure you and all Alaskans that we are committed to the principles of net neutrality. We do not block websites. We do not censor content. We do not throttle, discriminate, or degrade network performance based on content. These core tenets of Net Neutrality define our networks and the internet access we offer Alaskans. The internet has become essential to most Alaskans. And it’s done so, for the most part, with very few—but often changing—rules. Regulators under four different presidents have taken four different approaches. Courts have overturned regulatory decisions. Regulators have reversed their predecessors. This continual back and forth is especially difficult for Alaska’s providers, many of which are small businesses and cooperatives, who find themselves whipsawed by this parade of regulatory regimes. They struggle to assess and meet ever-changing regulations, while continuing to build and operate critical networks in some of the most challenging environments on Earth. Attempting to ensure net neutrality through the Congressional Review Act will not appropriately address the uncertainties surrounding net neutrality, it will compound them. Solidifying the FCC’s 2015 order does not guarantee privacy and risks imposing tremendous regulatory burden on Alaska’s broadband providers, which would divert critical resources from broadband service across rural Alaska to regulatory compliance. We join Alaska’s congressional delegation in calling for legislative action by Congress. Only legislation can ensure consumers’ rights are protected and provide consistent rules of the road for all internet companies across all websites, content, devices and applications. It is time for Congress to end the debate once and for all, by writing new laws that govern the internet and protect consumers. Until Congress acts, be assured of the commitment of all Alaska Telecom Association members to provide an open internet to Alaskans. Christine O’Connor is the executive director of the Alaska Telecom Association. Dave Goggins is the president of ATA. Alaska Telecom Association members include Adak Telephone Utility, Alaska Communications, Alaska Power &Telephone Company, Arctic Slope Telephone Association Cooperative, Bristol Bay Telephone Cooperative, Bush-Tell, Copper Valley Telephone Cooperative, Cordova Telephone Cooperative, GCI Liberty, KPU Telecommunications, Matanuska Telephone Association, Nushagak Cooperative, OTZ Telephone Cooperative, Summit Telephone Company, TelAlaska and United Utilities.

Pebble files revisions to mining plan

Pebble Limited Partnership has made changes to its mine plan that would slow its mining rate but increase its ore processing while potentially lessening the project’s environmental impact, according to a document filed with the Corps of Engineers May 11. The Corps published the five-page overview of the plan changes on the project EIS website May 21. The revisions would cut the peak mining rate from 90 million tons of ore per year to 75 million tons; at the same time the milling rate would grow from 160,000 tons per day in the original plan submitted to the Corps to 180,000 tons per day. Pebble had planned to stockpile up to 330 million tons of low-grade ore mined during the first 14 years for processing in the latter years of the initial 20-year mine. The mining-milling adjustments mean the project would now mine roughly 1.5 billion tons of material — with about 200 million tons of that being waste rock — up from the original plan of 1.2 billion tons. From that, annual production should increase by about 10 percent to 660,000 tons of copper-gold concentrate and 16,500 tons of molybdenum concentrate. Mining more material means the pit dimensions “will increase slightly” from the 6,500 feet long; 5,500 feet wide and up to 1,750 feet deep mine contemplated in the plan submitted in December, according to the five-page summary of the changes. The specific changes to the pit dimensions are not detailed. The onsite power plant will also need to grow from 230 megawatts to 270 megawatts of capacity to accommodate the increased mill throughput, according to Pebble. By not storing the potential acid-generating low-grade ore Pebble will not have to treat runoff water from the stockpile, the document notes. Further changes are also being made to the tailings storage facility. Originally, Pebble designed a single storage facility with two segments, one for bulk tailings and another to hold pyritic tailings. The updated plan includes separating the bulk and pyritic storage areas and moving the bulk tailings storage about 2,000 feet south to incorporate more of the existing terrain into the tailings dam construction, according to Pebble. Oxidization of pyritic tailings can lead to acid rock drainage depending on the amount of sulphur in the tailings. A new, lined pyritic tailings storage facility located closer to the pit will also house potentially acid-generating mine waste during operations. That waste will then be moved into the pit when the mine is closed, allowing the harmful waste to be permanently stored under water and below ground level. The tailings storage changes also eliminates the need for perpetual water treatment of the pyritic tailings and storing the material below-ground also removes all risk of downstream impacts related to a pyritic tailings storage facility failure, Pebble notes. The original plan for two water management ponds has also been changed to a single, much larger lined pond built using rock fill similar to how the tailings storage dams will be built. Pebble spokesman Mike Heatwole wrote via email that the changes were made to enhance the overall project and make environmental improvements to the plan. Milling the low-grade ore throughout the project versus waiting until the end makes for a more efficient mining process, while the other adjustments will help during mine closure, according to Heatwole. He said Pebble couldn’t discuss how the changes impact the project’s economics until the company publishes its preliminary economic assessment, which is expected later this year. Heatwole added that the project’s wetlands impact — pegged at 3,190 acres in the original submittal — has not been fully quantified but Pebble doesn’t expect it to change significantly. Corps of Engineers Project Manager Shane McCoy said as of May 24 Pebble had not submitted engineering designs of the proposed changes, but agency officials expected to get more detailed documents on the new plans soon. “Everything that they have proposed to date is a reduction in the proposed impacts to aquatic resources or navigable waters, so the Corps does not believe these are major changes other than the fact that it’s a reduction in scope,” McCoy said. Finally, Pebble has concluded after further study of its shipping plan that it no longer needs a deepwater port. The company is now proposing to shuttle concentrate containers with barges from the Amakdedori port site to bulk freighter vessels that could moor at two locations 12 and 18 miles offshore from west Cook Inlet port. Consumable materials and fuel would go directly to the port on barges without being lightered, according to Pebble. Cargo is lightered to reduce a vessel’s draft, making the individual portions of the overall bulk shipment lighter to allow for travel in shallower water. Keeping the bulk freighters offshore will end the need for channel dredging and storing up to 20 million cubic yards of dredged material at the port. Pebble is also evaluating the possibility of a “high-tide only” access port to further reduce dredging requirements, according to the outline document. Elwood Brehmer can be reached at [email protected]

FCC funding shortfall spurs rural rate review

The delay in federal payments that allow Alaska’s rural hospitals and clinics access to affordable telecom services has been caused by a national rate review by the Federal Communications Commission. The state’s biggest broadband providers, GCI Liberty and Alaska Communications haven’t received payments since last year from the Rural Health Care program that pays the difference between urban and rural rates for medical customers. In 2016, the last year full RHC funding was paid, Alaska telecoms split an allocation of $122 million paid to state carriers out of a total funding pool of $400 million available nationwide, according to the FCC. National demand for the funding outstripped availability for the first time during the 2016-2017 funding year and has exceeded the $400 million limit again for the current funding year. The shortfall has led the FCC to demand more information from telecoms throughout the country to justify or explain their rates, according Healthcare-Informatics, an organization that has been tracking the issue over the past several months. The FCC took up the matter at its Dec. 14, 2017, monthly meeting when the $400 million ran out before eligible telecoms could collect on their invoices.. The five-member commission didn’t come to a conclusion at the meeting on whether to increase the size of the RHC funding from $400 million by as much as $171 million to account for inflation over the past 20 years, or to consider rolling funds over from the years when the full limit wasn’t claimed. But at the end of the meeting, the FCC sent out a notice of proposed rulemaking that sought public comment. One of the proposals is to “establish a process for evaluating outlier funding requests and reforming the calculation of urban and rural rates in the Telecom Program to improve fairness and transparency.” The public comment period on the new rules proposal just closed March 5, with no placement yet on the agenda this summer, said FCC spokesman Mark Wigman. But the FCC has begun to evaluate rates charged by the telecoms. That’s where Alaska is now, along with telecoms throughout the nation, in justifying their rates. The FCC is scrutinizing each submittal and requesting more information in some cases. In the meantime, the Universal Services Administration Co., or USAC, which pays out the RHC funds, has alerted the carriers across the nation they will be paid 84.4 percent on their 2018 bill submittals. According to FCC spokesperson Tina Pelkey, Chairman Ajit Pai fully recognizes the importance of the FCC’s Rural Health Care program and supports connecting Alaskans with broadband access. “Unfortunately, some carriers have not provided the FCC with sufficient information under the Commission’s rules to justify the funding requests that the carrier has submitted,” Pelkey wrote in an email. “Agency staff have been working diligently with those carriers to correct their non-compliant submission, and those carriers are now working on providing the FCC with additional information in support of the funding requests. “In the meantime, the Commission has made clear to carriers that they may not lawfully request that any rural healthcare provider pay more than the urban rate or cut off service to any rural healthcare provider if it fails to pay such a higher amount.” Critical problems with the delayed RHC funding came to light when Alaska Communications sent a letter to the Cordova Community Medical Center on May 6 threatening to cut off its internet service if nearly $1 million wasn’t paid by June 30, which represents the difference between the urban and rural rate that has gone unpaid by the USAC. Two days later, Pai wrote to Alaska Communications CEO Anand Vadapalli and told him it would be illegal to cut off service to Cordova, or any other rural health care customer, or to start charging more than the urban rate. The Cordova facility’s monthly internet bill is typically around $1,000 a month, with the remainder of the $80,000 monthly bill to be paid for by the RHC program. Alaska Communications officials stated that the company has covered the rural health care customers’ costs from its own revenue to keep 40 medical facilities on broadband for the last 11 months. Through the first quarter of 2018, Alaska Communications calculates it is owed $11.8 million in RHC funds dating back to the start of the funding year last July and it has blamed layoffs in December on the shortfall. The company is paying the costs for Cordova to a third-party carrier, the Cordova Telephone Cooperative. GCI Liberty is out $5.5 million in RHC compensation for 2017, and is still racking up additional receivables in 2018, according to company’s first quarter report. As Pelkey referenced, the FCC sent letters through its Enforcement Bureau to request the additional information from Alaska Communications and GCI Liberty in late March. All the filings by Alaska’s telecoms have been confidential so far, Pelkey said. Both GCI Liberty and Alaska Communications acknowledged the letters from the FCC Enforcement Bureau in their first quarter reports. GCI Liberty wrote in the report that on March 23, “we received a letter of inquiry and request for information from the Enforcement Bureau of the FCC, to which we are in the process of responding. This inquiry into the rates charged by us is still pending and we presently are unable to assess the ultimate resolution of this matter. The ongoing uncertainty in program funding could have an adverse effect on our business, financial position, results of operations or liquidity.” GCI Liberty has been working with the FCC to answer all the questions, said spokeswoman Heather Handyside. “The FCC is responsible for ensuring rates are justified and we welcome the opportunity to demonstrate the unique challenges of delivering broadband service in rural Alaska,” she wrote in an email. “GCI has invested $327 million in the TERRA network, which provides access to more than 45,000 Alaskans who live across an area comparable to the state of Texas. Building a network to deliver broadband to such a remote, sparsely populated areas was a risk but GCI is committed to doing everything we can to keep Alaskans connected. That’s why GCI has invested more than $3 billion in Alaska infrastructure over the past three decades and continues to invest today.” GCI Liberty’s rates for services are adopted through competitive bidding, Handyside wrote. “As an extra step to ensure that our rates are appropriate, GCI undertook a rate-of-return cost study, which was reviewed by a third party economic consultant,” she added. The study concluded that, based on the costs to build and operate the TERRA network in western Alaska, “GCI’s rate of return is less than would be expected for an incumbent local provider delivering service to the region. GCI provided the findings of this study to the FCC and has complied with all FCC requests for information,” Handyside wrote. Both the telecoms and the healthcare customers are in a bad situation due to the unpaid bills. Cordova Community Medical Center Administrator Scot Mitchell said the hospital would have to shut down if it lost its internet. “For us, if this does happen (a broadband cutoff) we will probably have to close our hospital,” Mitchell said. “Our electronic health records are on the cloud. We rely on it for X-ray and CAT scans, our entire telemedicine system. Our payroll system uses the internet. We won’t even be able to pay our staff.” Alaska Communications had to lay off 30 workers in December and rework employee compensation in order to absorb the revenue losses in RHC funding, said Leonard Steinberg, the company’s vice president of legal, regulatory and government affairs. The hope was that the 2017 RHC funding would be allocated eventually, Steinberg said. “Every month we’ve taken money out of our pockets. This company and its employees have put their lives on the line to subsidize health care services. We’ve been willing to do it for a while to resolve funding issues, but we can only go so long,” he said. The Alaska Telephone Association, an organization that serves its 20-some Alaska telecom members, is also concerned about the situation, said executive director Christine O’Connor. The FCC description of “non-compliant submissions” does not mean the telecoms committed any violations, she said. “That’s how they are characterizing it but we are all very careful about complying with rules. If the FCC finds any telecom out of compliance they are out of the program. It’s very disrupting and can stop funding,” O’Connor said. The RHC program was created in 1996 and has been funded at the $400 million level since that time. Meanwhile, the world of broadband and the tools in telemedicine grew exponentially each year. “The real problem is that the budget for the RHC program was exceeded and (the FCC) hasn’t adjusted the budget for over 20 years. They are overdue to fix the funding gap,” O’Connor said. “It’s been 11 months since the companies were paid and it’s a hardship. Both talked about it on their earnings calls. For ACS, it’s cash out that they have to pay to maintain the rural providers. Third parties are involved.” Alaska costs Alaska Communications officials are working with Pai and FCC staff on a solution to the funding challenge, said director of external and corporate communications Heather Cavanaugh. “We have provided the FCC with multiple rounds of the requested information regarding rural rates in Alaska. Of course, rates are different in Alaska than the Lower 48 because of our vast geographic distances, challenging terrain and small population,” Cavanaugh wrote in an email. The law provides that a carrier serving a rural healthcare provider is entitled to the difference between the rural rate and the urban rate. The FCC or USAC has the right to ask for more information about any carrier’s costs, but this generally didn’t occur until the 2016 funding year when, for the first time, demand for support from this fund exceeded the $400 million budget that the FCC adopted in 1997, Cavanaugh said. “So for funding year 2016 and 2017 (when demand again exceeded the budget, this time by an even greater amount) the FCC asked USAC to more closely scrutinize the rural rates and this has held up funding for a number of carriers, in Alaska but in other states, too,” she said. One problem is that the FCC is asking for measures Alaska telecoms cannot supply. “We believe our rates as submitted are compliant,” Cavanaugh said. Under FCC rules, the rural rate for telecommunications service provided to a health care provider, or HCP, must be the average of rates being charged to commercial (non-HCP) customers for identical or similar services in the rural area where the HCP is located; or the average of the published rates charged by other carriers to commercial customers for identical or similar services in the rural area where the HCP is located; or a cost-based rate approved by the FCC. “As we told the FCC and USAC more than a year ago, the first test cannot be met in most of Alaska Communications’ rural HCP locations because there is no commercial customer in the area buying the same or similar services; the second test cannot be met in many of Alaska Communications’ rural HCP locations using a single published rate for this type of service from a competing service provider. The third test is very difficult to comply with — in fact, no one ever has done it — because the advanced services we provide (high-speed IP-based managed broadband services) never were offered at tariffed or published rates, and never were the subject of cost-based ratemaking,” Cavanaugh said. “So we have to invent a cost justification acceptable to the FCC if we are to obtain FCC approval. To date, the FCC has rejected the several attempts made by Alaska Communications to demonstrate the reasonableness of our rates.” Funding short of demand, inflation Following the 1996 Rural Health Care Act, the FCC established the RHC Program to facilitate healthcare delivery in rural and remote parts of America in 1997. As a result of RHC Program funding, a variety of healthcare providers — ranging from not-for-profit hospitals to local health departments to rural health clinics, to name a few of the eligible healthcare provider types — have provided vital healthcare services in areas with limited or no access to many types of doctors and specialists. At its meeting Dec. 14, 2017, on the same day FCC commissioners officially repealed net neutrality regulations, the agency also voted to waive the RHC’s $400 million funding cap for the 2017 funding year, which runs from July 1, 2017, to June 30. The idea was to carry forward any unused funds from prior years when the fund wasn’t exhausted. Many groups, including the American Hospital Association and the National Rural Health Association, called for an increase to the $400 million annual cap, according to FCC records. Because the annual cap has not changed since the program’s inception in 1997, one consideration proposed by the FCC going forward is to adjust for inflation over that 20-year period, which would bring the cap to $571 million. The FCC also proposed reforming the agency’s definition of “rural” and prioritizing funding within the RHC program based on the remoteness of an area served by an organization requesting funding. Public comment ended on March 5, said FCC spokesman Wigman. The new rulemaking proposals could show up on the FCC meeting agenda later this summer, he said. The main answer is increasing the RHC budget, said the American Hospital Association, as even more strains are coming to the program. “Funding for broadband-enabled healthcare is needed today more than ever, and the $400 million cap established 20 years ago is no longer sufficient to meet burgeoning demand,” wrote Ashley Thompson, AHA’s senior vice president of public policy analysis and development. “The inclusion of a new class of provider — skilled nursing facilities — beginning in 2017 will place additional demands on funding and should be accompanied by an increase in the cap to accommodate them. Since the release of the National Broadband Plan in 2010, the Commission has increased the cap or budget for every Universal Service Fund program but the RHC program.” Ron Duncan, co-founder of GCI and the CEO, said during the first quarter 2018 results earnings call that he’s optimistic that there is a better way going forward, “but there are regulator processes that have to occur between here and there.” Naomi Klouda can be reached at [email protected]

Railbelt utilities continue work toward unified structure

Leaders of the largest Alaska electric utilities are inching closer to finalizing an overhaul of how the state’s primary power grid is managed despite continued skepticism from within the group regarding the necessity of the changes. The collection of officials from the state’s Railbelt electric utilities told the Regulatory Commission of Alaska May 23 that they are about six months behind schedule but are hopeful they can reach final decisions on forming a Railbelt transmission company. Known in the industry as a transco, the company would be a transmission-only utility aimed at simplifying the tariff structure in the Railbelt and investing in long-haul electric infrastructure upgrades. The Railbelt region includes the service areas of six electric utilities from Fairbanks to the Kenai Peninsula. Chugach Electric Association CEO Lee Thibert said the formation of a transco, when joined with a proposed Railbelt Reliability Council, would help consolidate expertise currently spread amongst the utilities that face the challenge of attracting qualified technical personnel. “If we can pull these like functions together — the more we can do that and spread the cost of doing it once rather than six ways — I think we’re better off,” Thibert told the RCA commissioners. “That’s going to take a lot of planning and a lot of effort but I think we’re headed in the right direction.” A major selling point of a transco has been the prospect of a single Railbelt transmission tariff to eliminate “rate pancaking” for producers needing to cross multiple service areas to get power to a buyer. Independent power producers have argued the stacked transmission tariffs are an economic barrier to developing low-cost renewable energy in the state’s most populated region. Partially because ownership of the transmission lines is fragmented to each utility’s service area, a utility that owns a segment of transmission and thus is on the hook for it may not be the entity to benefit from an upgrade or new line altogether — therefore eliminating the willingness to invest. Last August, the utility general mangers and CEOs told the RCA they planned to develop a transco business plan towards the end of 2017 and file for a certificate of public convenience and necessity, or CPCN, which is essentially a business license for a regulated utility, in the first half of this year. On May 23, they informed the RCA that they have now targeted the end of the year for having established a governing board to make the final decisions needed to form a transco and subsequently apply for a CPCN. Eric Myers, a business development manager for Milwaukee-based American Transmission Co., said the group has a few tasks to analyze and negotiate through before it can come back and ask the RCA for approval. He described the transco as “essentially a collaboration through service agreements,” meaning the transmission network would continue to be serviced by the utilities that own and maintain the given segments of it today. “(It) is both an efficient and effective way to transfer both those skills and knowledge to make sure the network continues to be reliably maintained,” Myers said. In December 2014, American Transmission Co., or ATC, a transmission-only utility, inquired about the possibility of developing a Railbelt transmission company to spur investment in the system. The utilities ultimately signed a memorandum of understanding with ATC to investigate the feasibility of a Railbelt transco. ATC has experience with the transco model and would provide access to capital through its Lower 48 investors. Subsequently, in June 2015, the RCA demanded the Railbelt utilities move to establish a united electric system. In a letter to legislative leadership, the commission stated it would seek the authority to mandate the utilities to take action if they failed to heed the warning on their own. Myers said discussion regarding a system-wide transmission rates and tariff structures are still ongoing, as are talks about equity participation in future transmission investments. However, he said most topics are down to just a couple alternatives. “We’re not out beating the bushes for alternatives at this point,” Myers commented. “We’re down to the point of figuring out what final ingredients are going to go into this recipe.” The Railbelt Reliability Council would, as its name implies, set a single standard of reliability metrics for the myriad of mechanical and infrastructure pieces that make up a complex electric grid stretching over extremely challenging terrain and environments. The council would also act as an enforcement arm of the system to ensure open-access to the network and that the benefits of economic dispatch — using as much of the lowest-cost power as possible across the system — are realized. The transco would use the reliability standards as an independent benchmark to determine whether or not a given transmission infrastructure project is appropriate, according to Myers. A draft version of a study examining how to establish the council concluded that its board of directors should balance the interests of the utilities and non-utility stakeholders such as independent power producers . The study was commissioned by the Alaska Railbelt Cooperative Transmission and Electric Co., or ARCTEC, and was conducted by Georgia-based GDS Associates, an engineering and consulting firm. It was published May 11. The GDS study also suggests the council be staffed lean, starting with just five employees including an executive director, a finance official, an information officer, an engineer and an administrative professional. It lays out a starting annual budget of just more than $1.5 million. “You need to be efficient and effective in how you implement the RRC because we’re tapping the same pool of resources to get that work done,” Myers said. Chris Rose, the founder and executive director of the nonprofit Renewable Energy Alaska Project known as REAP, said during public testimony to the RCA that such an independent system operator needs to be established in concert with a transco because region-wide planning is a primary aspect to improving the overall power system. Rose, along with smaller, mostly renewable power producers in the region have pushed the RCA and the utilities to form an independent system operator on the belief it would greatly aid in economic dispatch, which, in the Railbelt, generally means giving Fairbanks’ Golden Valley Electric Association more low-cost power options to choose from. Disconnected from the natural gas supply of Southcentral, Golden Valley relies on diesel or fuel oil-fired generation for the lion’s share of its generation capacity. “I don’t want the public or anyone else to think that we didn’t at Golden Valley yesterday call around to find out who the cheapest generator is and buy as much of that power as possible,” CEO Cory Borgeson stressed. “So to the extent that we can kind of perfect that, we have a more efficient market in the dispatch and better coordination is what this is about, but there is economic dispatch going on.” MEA chief still skeptical Matanuska Electric Association General Manager Tony Izzo said he is still skeptical of the near-term necessity of a transco; he instead insists that the utilities set up the reliability council or a system operator in some form and measure what materializes before revisiting the transmission issue. MEA officials believe the real value to ratepayers will come through system-wide economic dispatch and not infrastructure investments. “I’ve looked at a number of capital work plans over the next three to five years and I don’t see a project that is region-wide that meets the cost-benefit test,” Izzo said, noting if state or federal funding were available some transmission projects could be viable for broader economic development purposes. He emphasized that the wheeling tariff must not distort economic dispatch decisions and also needs to provide for equitable cost sharing across the system, which could be a challenge. Izzo and prior MEA leaders have dismissed studies commissioned by the Alaska Energy Authority that contend the Railbelt needs upwards of $885 million of transmission upgrades over the next decade-plus to provide unlimited access to lowest-cost power and fully realize the benefits of economic dispatch. In January 2017, MEA, Chugach Electric and Anchorage Municipal Light and Power signed an agreement to pool their generation resources in an effort to maximize the benefits of the new, more efficient gas-fired power plants each has brought online in the last five years. They contend the voluntary, or loose, power pool will save their ratepayers up to $16 million per year simply by burning less fuel. “I support the transco construct completely; I believe it is something the Railbelt needs. My difference is I’m questioning when we need it and in what order,” Izzo said. He suggested following up on the transco plan a year or so after the Railbelt Reliability Council is formed, adding he wants to see what impacts the possible Chugach-ML&P merger approved to advance by Anchorage voters in the April municipal election could have on the immediate need for a transco. However, Izzo said that MEA would not stand in the way of a transco if the other utilities continue to push forward. ML&P General Manager Mark Johnston contended the reliability council and transmission organization are co-dependent in that the transco needs the operating standards set by the council, which needs the transco as its “boots on the ground” to implement the best economic dispatch. Chugach’s Thibert said that the delta in generation fuel prices between Fairbanks and Southcentral is what will ultimately determine the viability of transmission projects and a large part of the debate over what is needed boils down to how long one wants to plan — for years or for decades. The utilities’ leaders said AEA, which owns 170 miles of transmission lines between Willow and Healy, would be best situated with a long-term planning role in the council. AEA spokeswoman Katie Conway said in a response to questions that the state-owned authority agrees that “a stakeholder-driven, consumer-oriented single operator entity that includes AEA as a board member and active participant is a good idea and is what’s needed in the Railbelt.” She said further that authority officials think any new organization should focus on merit order dispatch as a high priority. “We are pleased with the general progress and direction of the conversation so far and look forward to continuing to participate to bring this idea to a meaningful conclusion — one that results in reduced costs to ratepayers across the state,” Conway concluded. AEA officials point to the fact that the current Kenai Peninsula transmission system, which is a single line between Soldotna and Anchorage, limits the availability of Bradley Lake power when the hydro plant is operated at above 65 megawatts, or just more than half of its capacity. Located across Kachemak Bay from Homer, the Bradley Lake hydro project is also owned by AEA. The oldest part of the line was built originally in 1961 to move power from the small Cooper Lake hydro plant near Cooper Landing to Anchorage, according to the study. It’s that inability to maximize the use of Bradley Lake whenever the utilities want it — at about 4 cents per kilowatt-hour; the hydro plant is the cheapest power source in the region — that limits its usefulness. Additionally, AEA is pursuing a $50 million project to divert part of nearby Battle Creek into the Bradley Lake system, which would increase Bradley’s generation capacity by about 10 percent. Myers said ATC and the utilities would provide monthly updates to the RCA going forward. Commissioner Bob Pickett said the RCA would likely draft a report for the Legislature on the utilities’ progress in carrying out the commission’s 2015 directive sometime near the end of the year. Elwood Brehmer can be reached at [email protected]

Small business owners still uncertain about tax law impact

NEW YORK (AP) — Five months after massive federal tax changes became law, many small business owners still don’t know whether they’ll be winners or losers. Mike Kaeding would like to know how his real estate development and management company will be affected by two big changes — the deductibility of business meals, and a 20 percent income deduction for many owners of what are called pass-through businesses. Big corporations already know their tax rates are falling, and all businesses can get bigger deductions for equipment purchases. But small business owners and tax advisers are still waiting for the IRS to write regulations and guidelines explaining and enforcing many parts of the law that is itself more than 500 pages long. “We have a high level of uncertainty and that makes it difficult,” says Kaeding, president of Norhart in Forest Lake, Minn. The American Institute of Certified Public Accountants, a professional group, has asked the IRS to expedite regulations on business meals and the 20 percent deduction. Ken Rubin, a CPA with Rubin Brown in St. Louis, says clients have been asking his opinion about what is and isn’t deductible. “These are unclear, significant items that small businesses are worried about,” says Rubin, who is also a member of the AICPA’s tax executive committee. Small corporations structured like General Motors or Apple know they’ll have a 21 percent tax rate, compared to a previous range of 15 percent to 35 percent — the same change the big companies are getting. And many small manufacturers and construction companies will be able to use what’s known as the cash basis method of accounting, a much simpler system than the method required before. But a survey of 603 owners taken in early April by Wells Fargo and Gallup showed many owners were still in the dark. Thirty-nine percent said they don’t know how the law will affect their companies. A third said it had already helped their companies or would do so, and 27 percent didn’t expect it to benefit their businesses. For owners of pass-through businesses — sole proprietors, partners and owners of companies structured as S corporations — the uncertainty around the 20 percent deduction comes from the list of ways they could be disqualified. For these companies, the business income is “passed through” to the owners’ 1040 forms, and they pay tax based on individual rather than corporate rates. Certain business owners like lawyers, accountants, doctors and consultants won’t qualify for the full deduction unless their taxable income is below $157,500 for single filers or $315,000 for joint filers, and the amount of the deduction will decline as taxpayers’ incomes rise. The same goes for business coaches, public speakers, therapists — according to the law, any trade or business whose principal asset “is the reputation or skill of one or more of its employees.” But the IRS has yet to weigh in on a number of issues, including the calculations businesses must make to determine the income that can qualify for the deduction. Some owners know they will get the deduction and plan to make the most of it, including Larry Patterson, who owns a Glass Doctor repair franchise in Carrollton, Texas. “I have more money to invest in growth,” he says. He plans to expand his company’s premises and do some hiring. But Ted Ma, who has two businesses, one as a public speaker and the other in sales, says he’s in limbo. “The lack of clear information available to determine exactly what applies to my situation has been both confusing and frustrating,” says Ma, who lives in Point Richmond, Calif. He’s not sure as he makes quarterly estimated tax payments whether he’s overpaying or underpaying. He also wonders as he takes prospective clients and customers out for meals whether he’ll be able to deduct them. “The meal is a major part of how I do business,” he says. “That’s another source of frustration and confusion.” The uncertainty as the IRS writes the regulations could last into 2019 and beyond. “Regulation projects can range from months to years — if ever finalized. And each project takes a different amount of time,” says Steve Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center. Many accountants have started making educated guesses. CPA Angela Dotson expects most small businesses to pay less in taxes. Owners who have multiple businesses will have more uncertainty, but “the bread-and-butter companies that hire most people, they’re not going to have the most issues,” says Dotson, who’s with the accounting firm Aprio in Atlanta. But smaller corporations aren’t guaranteed a windfall. David Arena’s real estate photography and marketing company had a profit last year low enough to give Alcove Media a tax rate of 15 percent. He’s expecting a 6 percentage point jump this year. “I would have liked to maybe see a tiered (corporate tax) system again,” says Arena, whose company is based in Bala Cynwyd, Pennsylvania. Owners who are uncertain or who know they’re not likely to get a break can take steps to lower their tax bill, says Loreen Gilbert, owner of WealthWise Financial Services, an advisory firm based in Irvine, California. Gilbert points to herself as an example: She doesn’t expect to get the 20 percent deduction, so she’s putting more money in her retirement account. Business owners should also meet as soon as possible with accountants to get a sense of how they could be affected, says Monic Ramirez, a CPA with Sensiba San Filippo in Morgan Hill, California. “So much has changed in the new law. You need to sit down with your tax preparer and see what parts of this are going to benefit your company and how can you position yourself to take advantage of it,” she says. Kaeding, though, is concerned about the cost of complying with the law — he expects a higher bill from his accountant. And the confusion is a distraction from running his business. “All the time we spend understanding the tax system does not help our customers,” Kaeding says.

Movers and Shakers for June 3

Bristol Bay Industrial Fuels LLC has selected Sean P. Thomas, PMP, RES, as senior vice president, chief operating officer. He will assume oversight of Bristol Alliance Fuels, an Alaska-based distributor of fuel products to commercial and residential customers in the Dillingham area of the Bristol Bay region. Thomas comes to the organization with deep experience in the Western Alaska fuel market as the former vice president of Crowley Fuels’ marine division. A former Alaska Journal of Commerce Top Forty Under 40 award recipient, Thomas graduated summa cum laude from the University of Alaska Anchorage with an MBA. He also holds a master’s degree in marine resource management from Texas A&M University, where he graduated magna cum laude, and a bachelor’s degree in environmental sciences from the University of Notre Dame. Sitnasuak Native Corp. announced that Vera Eggerman has joined Sitnasuak Applied Technologies LLC based in Anchorage as the new proposal manager, effective May 8. She oversees all applied technologies company proposals with federal and commercial customers. Eggerman has more than 20 years of experience in business development and marketing, with a primary focus on developing and managing competitive bids ranging in value from $5 million to $250 million. She brings valuable experience with Alaska Native corporations, including Arctic Slope Regional Corp., Calista Corp., and Bering Straits Native Corp. Eggerman has an associate’s degree in business administration and is originally from Emmonak. Alaska Regional Hospital CEO Julie Taylor has joined First National Bank Alaska’s board of directors. Taylor arrived at Alaska Regional in December 2013. Before then, she was the CEO of West Valley Medical Center in Caldwell, Idaho. Prior to that, Taylor was the chief operating officer at The Medical Center of Aurora in Denver. Kelley Groth has joined Evergreen Business Capital as senior vice president and sales manager. Groth was most recently the senior vice president and Small Business Administration portfolio manager at Banner Bank, successor to AmericanWest Bank, where she was the manager of the SBA Department since 2012. Based out of Washington state, Groth will oversee all activity of Evergreen’s 504 sales activity in Alaska and the rest of the Pacific Northwest. With more than 15 years of small business lending experience specializing in sales, credit administration, and portfolio management, she is a graduate of Lewis-Clark State College, the Washington Banker’s Executive Development Program and a recipient of the Washington State SBA Financial Services Advocate of the Year award. Evergreen Business Capital has been originating loans in Alaska since 2002. Chugach Electric Association members re-elected Jim Henderson and elected Rachel Morse to the utility’s board of directors. Henderson and Morse will serve four-year terms. Of Chugach’s 68,822 members of record, 6,789, or 9.9 percent, cast ballots in the 2018 election. Henderson was first elected to the board in 2011 and re-elected in 2014. Morse was appointed to the board in December to fill a position left vacant when then-Chair Janet Reiser stepped down after serving for 10 years. First Alaskans Institute announced three new hires and a promotion. Inuuteq Stotts was hired as indigenous and governmental affairs strategist; Kacey Purruq Qunmigu Hopson as indigenous knowledge advocate to advance the work of FAI’s Alaska Native Policy Center; and Jacqui Igluguq Lambert as assistant to the president/CEO. Prior to FAI, Stotts worked with the Voice of the Arctic Iñupiat in the role of research and project assistant. Prior to this role, he worked as an anthropologist for ASRC Energy Services doing archaeology research and documentation and stakeholder engagement in the North Slope area. Stotts holds bachelor’s and master’s degrees in applied anthropology with experience in project management, qualitative research, and advancing cross-cultural communications through facilitating public information sessions. Hopson was born and raised in Utqiagvik and Anchorage and graduated from Pomona College with a bachelor’s degree in public policy analysis. Hopson recently served as an AmeriCorps VISTA Volunteer at FAI where she was focused on helping to diversify and increase the long-term sustainability of the organization. Prior to FAI, she was a Summer Policy Associate with the Environmental Equity team at the Greenlining Institute, where she developed her skills in race equity advocacy and public policy research. Lambert grew up in Kotzebue and has roots in Kiana and Noorvik. She studied psychology at the University of Idaho and is the owner of EsquiMedia, which runs The Qargizine, a quarterly print publication aimed to promote knowledge and pride of Alaska Native cultures within today’s generations. Prior work experience includes working as a production artist with Northwest Strategies, language nest assistant in the Native Village of Kotzebue and Arctic youth representative for the Indigenous Peoples’ Center for Documentation. Elizabeth Uyurucian David has been promoted to finance director. Born and raised in Bethel with an extensive career within the financial institution industry, David recently joined FAI as finance manager. She graduated from University of Alaska Fairbanks last month with an MBA focused on general management. NANA Regional Corp. recently appointed four individuals to new positions within the family of companies. In addition to the employees listed below, John Hendrix will step in to the role of president of NANA’s Commercial Group. Hendrix most recently served as Gov. Bill Walker’s chief oil and gas advisor. Harold Hollis has been selected for the new position of vice president, engineering and construction within NANA’s Commercial Group. Hollis will be accountable for Kuna Engineering in addition to NANA Construction. Jay Hermanson has been selected to lead Kuna Engineering as the operations manager. Hermanson has worked within NANA companies for 14 years in various roles including director of energy and infrastructure, energy and resources project manager, and business development manager. Fred Elvsaas has been selected as the general manager for NANA Construction. Elvsaas, a lifelong Alaskan from Seldovia, has been with the company since 2009 and has 18 years of oilfield construction and fabrication experience. Märit Carlson-Van Dort has been hired as the director of external and government affairs for NANA. Carlson-Van Dort has extensive background in external affairs including regional engagement, client relations and engaging with legislative and regulatory bodies.

INSIDE REAL ESTATE: Anchorage construction activity down sharply

The Municipality of Anchorage building safety report, which compiles all new construction activity requiring a building permit, was recently released for the first four months of 2018 and it is not good news for the construction industry. All construction activity is down 19.7 percent when compared to the same time span in 2017. The report categorizes all residential types as well as commercial activity, including alterations (remodeling) and change orders. The permits value the cost for vertical construction only according to a formula internal to the department and does not necessarily reflect market value. It also does not include any valuation for the land. Its purpose is to provide fee income to development services and to assure the public of its health and safety in both commercial and residential construction. Most of the 19.77 percent decline has come from the commercial sector. Residential construction permits have actually stabilized with even a slight increase in activity. Unfortunately, this new bottom of “normal” still doesn’t help Anchorage’s housing crisis. Eight new single-family starts in 2018 have increased the number to 54 from 2017. Duplex permits are down 50 percent and 67 new multi-family permits were obtained year-to-date, an identical number to 2017. A multi-family permit is categorized as any building with three or more units. Spinell and Hultquist Homes remain the largest builders in Anchorage, clearly outpacing all other builders with 14 permits for Spinell and 13 for Hultquist Homes. Combined they make up 50 percent of all residential activity for single family and duplexes. Spinell also builds in the Matanuska-Susitna Valley and Eagle River while Hultquist Homes has a division in the Seattle area. In single family, the owner/builder outpaces both of Anchorage’s leading builders with 12 permits. An owner/builder is usually someone from the trades who does not have a residential endorsement. An owner builder may also be someone who hires a general contractor to build their home but obtains the financing and permit in order to keep more control of the project. The permits also track elevator applications which are down from 82 to 43, almost a 50 percent drop. No mobile home permits have been issued so far this year, which clearly indicates a lack of consumer confidence in the long term financial sustainability of trailer parks which are, ultimately, an interim land holding use. Structural, electrical and mechanical/plumbing permits have all increased substantially. Given the overall decline in permit valuations, perhaps that is an indication that now is a good time for owners to consider remodeling as general contractors try to keep their employees engaged and prices reasonable while waiting out the third year of Alaska’s real estate recession. ^ Connie Yoshimura is the Broker/Owner of Dwell Realty. Read more columns by Connie at Contact her at 907-229-2703 or [email protected]


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