Severe winter weather costs Alaska Airlines in first quarter

Alaska Airlines muddled its way through unusually bad winter weather on its home turf to lead its parent company to a $4 million profit to start 2019. Seattle-based Alaska Air Group Inc. operates Alaska Airlines and regional carrier Horizon Air. Company leaders said during an April 25 first quarter earnings call with investors that February storms made for the most significant winter weather the Pacific Northwest has seen in almost 50 years and led to roughly $15 million in forgone revenue. “Our teams went above and beyond to keep our guests and each other safe and to minimize the number of flights we had to cancel,” CEO Brad Tilden said while noting Alaska and Horizon canceled approximately 1,100 flights as a result of the winter storms. Tilden also said lower than expected market rates for last minute tickets on transcontinental flights challenged revenue generation as well. The $4 million net income in the first quarter — easily the slowest period in the airline business — matches Alaska Air Group’s results to start 2018 when the company was focusing on integrating Virgin America employees and aircraft into its network. The profit equates to 3 cents per diluted share of Alaska Air Group stock, which has rebounded from a 2.9 percent post-earnings call dip since April 25 and opened trading May 1 at $62 per share. Alaska Air Group paid a dividend of 35 cents per share and repurchased approximately $13 million worth of shares during the quarter. Tilden said the work to blend Virgin America into Alaska Airlines that has been ongoing since late 2016 is pretty much complete and the company is “on track to realize $330 million in revenue synergies this year.” Virgin and Alaska flight attendant crews were fully integrated as of Jan. 31 and the last of Virgin’s fleet of 71 Airbus aircraft will be repainted in Alaska livery by June, according to Air Group leaders. Alaska Airlines also added four new Boeing 737-900ER aircraft to its fleet in the first quarter. The airline, which for years before buying Virgin solely flew the popular 737 series, does not have any of the 737 MAX aircraft that have been grounded worldwide. The $4 million profit stemmed from nearly $1.9 billion in quarterly operating revenue, a 2 percent year-over-year increase on 0.2 percent capacity growth. While Alaska Air Group saw small growth in its passenger and smaller ancillary revenue segments, the company enjoyed 22 percent growth in its cargo business, which generated $50 million during the quarter. Alaska Airlines has used the formerly Virgin America Airbus fleet in part to expand its Lower 48 cargo offerings. Last summer it also began flying three cargo-dedicated Boeing 737-700s across Alaska. The new cargo jets are more fuel efficient than the much older Boeing 737-400 “combi” aircraft that were well known to in-state Alaska travelers for years and collectively offer 20 percent more cargo capacity, according to the airline. Alaska Air Group’s two largest expenses, wages and fuel, increased by 4 percent and 3 percent respectively, compared to 2018. The company generated $470 million in operating cash flow and held roughly $1.4 billion in cash at the end of the quarter, according to the earnings report. Its debt-to-capitalization ratio held steady at 47 percent. Looking ahead, company executives said near-term growth will be slower and more work needs to be done to control costs but they are generally positive about the future. Tilden said the previously stated goal of consistently hitting profit margins in the 13 percent to 15 percent range is achievable and “viewed through that lense our first quarter results were solid.” “On factors we can control that drive long-term value we’re headed in the right direction,” he added. Chief Financial Officer Brandon Pedersen said the company continues to renegotiate agreements with vendors for greater cost containment and thanked the companies Air Group works with that have been willing to make those adjustments. For the second quarter Air Group expects costs per seat mile to increase about 5 percent on a 1 percent increase in capacity because of capacity growth weighted to regional flights and aircraft maintenance that is often frontloaded to the first half of the year. Full-year consolidated capacity growth is forecasted at about 2 percent with per-unit costs expected to increase 2.1 percent. “We’ve slowed our growth to let recent investments mature and to focus our energies on making better use of what we have,” Tilden said. “We’re investing in our people, our product and we’re coming together as one team to realize the great potential of our platform.” ^ Elwood Brehmer can be reached at [email protected]

FWS wants most conservative ANWR option

The federal agency tasked with managing the Arctic National Wildlife Refuge is recommending the most conservation-minded option available for oil and gas development in the Coastal Plain. The U.S. Fish and Wildlife Service Alaska officials asked the Bureau of Land Management to select Alternative D-2 from the draft environmental impact statement published in December for leasing areas of the roughly 1.5 million-acre Coastal Plain. The alternative request and other management recommendations were made in 59 pages of comments on the draft EIS submitted to BLM March 13. Alternative D-2 would open just more than 1 million acres to oil and gas leasing; however, activity on 708,000 of those acres would be restricted by a “no surface activity” designation and another 328,000 acres would be subject to some limitations on type and timing of use to minimize development impacts on wildlife. The D-2 management option would meet the requirements of the tax reform bill while also best preserving the wilderness features prescribed in the 1980 Alaska National Interest Lands Conservation Act, according to the memo signed by FWS Alaska Director Greg Siekaniec. The act, best known as ANILCA, doubled the size of the refuge and also opened the door to potential oil and gas activity in the Coastal Plain. Additionally, the FWS preferred alternative would maintain the natural qualities of rivers within the refuge that could qualify to be added to the National Wild and Scenic River System and best aligns with Endangered Species and Marine Mammal Protection Act management requirements, the memo states. For comparison, the least restrictive alternative would open all 1.5 million acres for leasing and just 359,000 acres — mostly along rivers in the refuge and near Kaktovik — would fall under the designation for no surface occupancy. BLM Alaska officials noted that winter exploration activities could be conducted on no surface occupancy areas, which could be developed using directional drilling from adjacent facilities, but permanent infrastructure would be prohibited. Alternative D-2 would place areas across the Coastal Plain under the no surface occupancy designation and 526,000 acres mostly in the southeast portion of the refuge would be off-limits to leasing to protect Porcupine caribou herd summer calving grounds. The eastern Alaska-western Canada caribou use large swaths of the Coastal Plain as calving grounds and what impact oil development could have on the herd has been a primary debate point in the battle over ANWR oil exploration. The ANWR rider to the Tax Cut and Jobs Act passed in December 2017 directs the Interior Department to hold two oil and gas lease sales, each covering at least 400,000 acres of the coastal plain before 2025. It limits permanent development to 2,000 acres of federal land. FWS and BLM are sister agencies under the Interior Department umbrella. The Alaska Native village corporation Kaktovik Inupiat Corp. also owns about 92,000 acres around the coastal village of Kaktovik within the refuge that would also be open to development. FWS Alaska officials also stressed a desire for in-depth consultation with their BLM counterparts to reach a consensus on oil and gas decisions that would impact the wildlife and aquatic resources managed by the service. Interior spokeswoman Molly Block noted in response to questions about how the BLM will weigh the FWS comments in the final EIS that more than 1 million comments were submitted on the draft Coastal Plain EIS. “BLM has an obligation to consider all of these comments — including those from its sister agency and the federal family — and anticipates they will inform the final EIS in multiple ways,” Block wrote via email. Interior leaders have stressed a desire to hold a Coastal Plain lease sale late this year and public meeting presentations indicate the final draft of the EIS could be released in late summer. Exactly what level of interest industry will have in the Coastal Plain leases is also unknown. The most recent U.S. Geological Survey assessment of the oil and gas underneath the coastal plain, done in 1998, put the mean oil estimate at 7.6 billion barrels for the Coastal Plain 1002 area. A plan for a 3-D seismic survey over much of the Coastal Plain last winter was scuttled by the extended government shutdown and a lengthy review by Fish and Wildlife regarding the impacts of the survey on denning polar bears. The FWS comments also detailed a strong belief that polar bear denning habitat should be given significant consideration when lease offerings and associated stipulations are made. The Coastal Plain is a primary area of the Slope the bears use for denning and surveys of denning habitat should be required under all development options, according to FWS officials. The importance of those surveys will likely continue to escalate as land-based denning increases while sea ice declines, the memo states. FWS officials are also requesting that the final EIS explain how BLM will define the areas of the Coastal Plain with the highest hydrocarbon potential because the law authorizing exploration explicitly states that the 400,000-plus acres offered in each lease sale must correspond to the areas deemed to have the best resource potential. “Specifically, it is not clear how the draft EIS arrives at delineating an area of moderate potential and how this area meets the high (hydrocarbon potential) criteria set forth in the Tax Act for lease sales,” the memo states. The draft environmental review also lacks sufficient description of how BLM plans to prevent or deal with the introduction of invasive species to the refuge from oil development, according to the memo. Finally, FWS officials want more examination of how the rapidly warming Arctic climate will impact the Coastal Plain and oil and gas infrastructure in particular. Their memo cites a recent study that concluded melting permafrost “will be an engineering hazard to (North Slope) infrastructure by mid-century.” “Effects of these changes have shown to be more severe in areas with topographic complexity such as the (Coastal Plain),” it states. “We recommend that studies like these be included in the analysis of potential impacts to various development scenarios.” Elwood Brehmer can be reached at [email protected]

Emerging mariculture industry seeks to streamline permitting

Alaska may be famous for its wild fish, but some are working to make room in the state’s waters for more shellfish, kelp and crabs on aquatic farms. Mariculture is a hot topic in fisheries right now. Essentially, mariculture can be defined as the cultivation of plants or animals in controlled saltwater environments, but in Alaska it doesn’t include finfish, as that’s illegal in the state. So mariculture farmers have stuck to primarily kelp and oysters so far, but they’re starting to get more adventurous. As of December 2018, 58 aquatic farms were operating in the state along with five hatcheries and seven nurseries, though only 41 of the farms documented production in 2017, according to the Alaska Department of Fish and Game. Oysters are still the most widely grown product, though kelp is gaining ground; after the first operations for kelp were permitted in 2016, four farms had produced 16,570 pounds of ribbon and sugar kelp by the following year. A major obstacle remaining, though, is the regulatory hurdle to get an aquatic farm permitted. A bill in the Legislature — House Bill 116 — would trim down some of that procedure with an eye toward getting more operations out the gate. The bill, sponsored by representatives Andi Story, D-Juneau, and Jonathan Kreiss-Tomkins, D-Sitka, would fast-track permit renewals for farms in good standing for their first renewal cycle, which covers 10 years. Story clarified in a hearing before the House Fisheries Committee on April 23 that it would make no changes for salmon hatcheries, which operate in the state largely without saltwater net pens. There’s been a recent surge in license applications to the state for aquatic farms, increasing the wait time, Story said. “Because of the recent increase in the number of aquaculture farm leases … it now takes on average 18 months or more to approve an aquatic farm lease,” she said. To obtain a permit, the applicant first has to apply to the Alaska Department of Natural Resources for the use of the tidelands, which requires a 30-day public review and comment period and may require a site survey by ADFG. After the public comments are compiled and evaluated, DNR and ADFG issue a final decision. If the permit is denied, the applicant can appeal; if it’s approved, the permit is good for 10 years. The DNR permit’s annual fees are $450 or $875 for the first acre and $125 for each additional acre, with a $2,500 minimum performance bond required and a commercial use requirement by the fifth year with $3,000 per acre or a $15,000 max per farm site. ADFG requires an annual operating report for each species cultured as well as permits to acquire and transport wildlife. On top of that, to harvest and sell food products, the Alaska Department of Environmental Conservation requires that the operator obtain a water qualify classification, conduct shellfish sampling for paralytic shellfish poison and obtain shellfish processing permits, according to documentation submitted to the Legislature. It can be expensive and time-consuming. Meta Mesdag, co-owner of Salty Lady Seafood Company in Juneau, told the committee members that it’s taken about $150,000 of investment so far for her family’s approximately 1-acre operation growing geoduck clams and oysters. “(Oysters) take about three years to grow, and the geoduck will take seven,” she said. “Unfortunately, we only have five years left on our lease so we won’t see any revenue from our geoducks before we have to go through the renewal process all over again.” The Alaska Fisheries Development Foundation, which promotes the exploration and development of fisheries throughout the state, credited the work of the state Mariculture Task Force with the growth in interest. In a letter of support for HB 116, the foundation noted that the vetting process for renewing a permit slows down the process for new applicants. “HB 116 is important step toward efficiently developing a mariculture industry in Alaska,” wrote AFDF Executive Director Julie Decker in the letter. “HB 116 will allow for one renewal of an aquatic farm site through a simpler internal process which does not require public comment, if the lease is in good standing/compliance. However, the second renewal would still be required to go through the extended process similar to a new application.” The Mariculture Task Force, established by Gov. Bill Walker in 2016 after the Alaska Fisheries Development Foundation obtained a federal grant in 2014 to fund its Alaska Mariculture Initiative, developed a strategy released in March 2018 aiming to make Alaska’s mariculture industry worth $100 million in the next 20 years. The industry produced about $1.5 million in sales annually in the state in 2017. In the future, the primarily revenue drivers would be oysters, seaweed and geoduck clams, with smaller markets in mussels, sea cucumbers and king crab, according to the group’s Mariculture Development Plan. The primary recommendations the group produced are securing seed supply through hatcheries, passing state legislation to help fund hatcheries through the mariculture revolving loan fund and allow shellfish enhancement and filling several research and coordination positions for mariculture, among other goals. Alaska is significantly behind the Pacific Northwest in mariculture development. Some farms in Washington operate thousands of acres and employ hundreds of people. Taylor Shellfish Farms, which has been operating in the Seattle area since the 1890s, employs about 500 people and holds leases on more than 10,000 acres of tidelands in Washington. Some commenters raised a concern about the size of farms in the future. DNR does not currently have a size cap, other than that a farm cannot take up more than a third of the bay or inlet where it is located. Though the DNR considers risks like navigation hazards when reviewing farm permits, the agency is starting to consider ways to address concerns about farm size, said Christy Colles, who manages the shore leasing program for the Division of Mining, Land and Water, during the House Fisheries Committee meeting. “These new farms at this magnitude are by and large new to the state,” she said. “We haven’t really had much of a chance to think about how we can address those.” “Large” is a relative term in Alaska compared to the enormous operations in the Lower 48, said Mark Scheer, who operates Premium Aquatics near Craig, farming kelp and Pacific oysters. Though he said his lease is for more than 100 acres, he doesn’t use all of it at once. “I think it’s important to recognize that this is a new transition for Alaska,” he said. “The relative scale of what we’re doing here is modest at best.” HB 116 was passed out of the House Fisheries Committee to the House Resources Committee, scheduled for its next hearing on May 3. Elizabeth Earl can be reached at [email protected]

Cook Inlet setnet buyback program gains support

Cook Inlet fishermen are again pushing for a bill that would authorize a commercial set gillnet permit buyback, but with the budget battles ongoing, it may not advance this year. Senate Bill 90 is the latest version of the plan to set up a buyback program for setnet permits on Cook Inlet’s east side. About 440 permits exist on the east side, targeting primarily sockeye salmon with secondary catches of king salmon headed for the Kasilof and Kenai rivers. The bill, sponsored by Sen. Peter Micciche, R-Soldotna, aims to permanently remove up to 200 permits and their shore leases from the fishery. The fishermen have been debating a way to reduce the fleet for about four years, surveying stakeholders for support and working with Micciche to authorize a program to do so. The latest version of the bill would require a confirming vote by the fishermen, a voluntary signup for the program and would seek funding other than the state General Fund. With a set price of $260,000 per permit, the whole program would cost $52 million. “There are some private endowments that have mentioned some interest because of the conservation; there are federal programs that participate in conservation efforts,” Micciche told the Senate Resources Committee in a hearing April 22. “This is going to take some time to be ready with the election and settling any of the appeals and whatever goes with it, but the state is not paying for any of this. This is going to come from other sources that we’re not sure of at this point.” The conflict between fisheries user groups in Cook Inlet is notorious statewide. The Kenai River draws thousands of anglers from all over the world for its salmon runs, while commercial fishermen ply both the beaches and the Inlet. Personal-use dipnet fishermen come from all over the state each summer for the fisheries at the mouths of the Kenai and Kasilof rivers. As king salmon runs declined and both commercial and sport fisheries have been restricted in response, the allocation conflicts have become more pitched. Micciche said this bill is intended to help reduce the allocation conflict, allow more king salmon to make it through to spawn and make the remaining setnetters more economically viable. In an example of rare cooperation, multiple groups have come together to support the effort, he said. If the Legislature approves the bill, the initiative would go to a vote among permit holders. If they approve it, permit holders could put their names into a lottery to be drawn for the buyback. The bill also redefines the areas of the buyback, sectioning off the Cook Inlet East Side setnetters as Upper Subdistrict fishermen that are distinct from setnetters in the Northern District or on the west side of the Inlet. In the past, the Kenai Peninsula Fishermen’s Association, which represents the East Side setnetters, has been wary of bills establishing a buyback program. After taking surveys and working with Micciche on the language, the association offered its support for Micciche’s version of the bill, said Andy Hall, the president of the association’s board. That doesn’t mean every person in the fleet supports the concept, but the survey brought back about 70 percent to 80 percent support, he said. The price tag for the buyout may seem high to some people, Hall said, but it’s based on 10 years of average earnings and was closed to adjustment at the end of December 2018. Removing gear from the fishery will likely have an immediate financial benefit for the fishermen who are left. “We’re not looking to be martyrs; we’re business people,” he said. “If we’re going to step away, we want to be remunerated for it.” One source of contention is how so many fishermen wound up on the east side of the Inlet to begin with. Commercial fishermen are issued permits for Cook Inlet in general, and though they were more widely distributed across the west side, east side and Kalgin Island before the 1980s, they began migrating to the east side because of the accessibility of the fishery and the proximity of processing facilities in Kenai, Kasilof and Ninilchik. Fate Putnam, the chair of the Commercial Fisheries Entry Commission, told the Senate Resources committee that the days of the East Side fishery being highly profitable are gone, though. “I will say this: There was a time about 20 years ago that these fishermen were making about $100,000 (per permit),” he said. “Now they’re making about $11,000.” However, the Senate Resources committee members expressed some hesitation about forwarding the bill on. Senate President Cathy Giessel, R-Anchorage, who sits on the committee, proposed an amendment requiring anyone participating in the buyback to have held the permit for at least 10 years and have fished actively at least five of those years. Her goal was to prevent speculation or system-gaming, she said. Micciche said the amendment could effectively kill the program, as many of the fishermen who want to participate have held their permits for less than 10 years. Permits are swapped every year in fisheries; according to information provided by Putnam to the Legislature, an average of 58 setnet permits in Cook Inlet in general are transferred each year. The ratio of permits being transferred is similar to other fisheries and hasn’t changed much over the years, suggesting that there isn’t much speculation going on about the buyback, Putnam wrote in a memo to the Senate Resources Committee. Speculation may happen, but that’s normal in fisheries, Micciche told the committee. “People speculate on fishing permits. That’s what they do,” he said. “We don’t care which permits they are — we just want 200 out. And if you don’t pass the vote, you don’t get the buyback and you don’t get the extra fish in the rivers.” During an April 29 hearing, the Senate Resources Committee moved SB 90 out of committee after amending it to require anyone participating in the buyback to have held the permit for at least four years and have fished for two of those years. The new amendment, proposed by Giessel, was intended to be a middle ground to prevent speculation but to still allow the program to continue. Micciche said the adjustment better served the intention to prevent speculation, and the committee passed the amendment and the bill without objection. Ken Coleman, who fishes a setnet site near the Kenai River and is one of the proponents of the buyback program through the East Side Consolidation Association, said he hopes to see the bill climb through the Legislature this year, but it still has a long way to go through even the Senate before it goes to the House. Several committee members expressed concern about funding, and though Micciche said the fishermen have no intention to seek state funding, they need a program established by a bill first before they can apply for funding elsewhere. Konrad Jackson, Micciche’s chief of staff, said he plans to keep working to get the bill heard, but with less than three weeks left before the Legislature’s 121st day and major budget items still to be debated, it’s unlikely the bill will make it far this year. Coleman said they may be able to seek federal funding, even though the fishery is not in federal waters. “I’ve had several talks with the federal delegation about funding, and also had talks with (The National Oceanic and Atmospheric Administration) about their capacity reduction program,” he said. “To the extent we can seek funding, we have to have a work product. I’ve been in discussion with the federal delegation, and they’re amenable to seeking funding, but we need a bill.” Elizabeth Earl can be reached at [email protected]

Fed likely to underscore a message: No rates hikes in 2019

WASHINGTON (AP) — The Federal Reserve this week will likely reinforce a theme that has cheered consumers and investors since the start of the year: No interest rates hikes are likely anytime soon. The prospect of continued low rates is keeping borrowing costs low for households and companies. It is helping drive record highs in the stock market. It is supplying fuel for a U.S. economy that’s growing steadily but fairly modestly and until recently was seen as facing the risk of a recession. And with inflation remaining unusually mild, the Fed is seen as able to stay on the sidelines through year’s end and perhaps beyond. The Fed will likely express that belief in a statement when its latest policy meeting ends May 1 and in a news conference that Chairman Jerome Powell will hold afterward. “The Fed will recognize the brighter economic outlook, but there will be no change at this meeting,” said David Jones, an economist and author of books about the Fed. The generally brighter view of the economy and the stock market represents a sharp rebound from the final months of 2018, when concerns about a possible global recession and fear of further Fed rate increases had darkened the economic picture. Stock prices tumbled in the final quarter of the year, especially after the Fed in December not only raised rates for the fourth time in 2018 but suggested that it was likely to keep tightening credit this year. Yet beginning in January, the Fed engineered an abrupt reversal, suggesting that it was finished raising rates for now and might even act this year to support rather than restrain the economy. In characterizing its stance, the Fed’s new watchword became “patient.” And investors have responded by delivering a major stock market rally. The market gains have also been fed by improved growth prospects in China and some other major economies and by the view that a trade war between the world’s two biggest economies, the United States and China, is moving closer to a resolution. On April 26, the government reported that the U.S. economy grew at a surprisingly strong 3.2 percent annual rate in the January-March quarter. It was the best performance for a first quarter in four years, and it far surpassed initial forecasts that annual growth could be as weak as 1 percent at the start of the year. If economic prospects were to brighten further, could Fed officials rethink their plans to suspend further rate hikes and perhaps resume tightening credit? Possibly. But investors don’t seem to think so. According to data tracked by the CME Group, investors foresee zero probability that the Fed will raise rates anytime this year. And in fact, their bets indicate a roughly 64 percent likelihood that the Fed will cut rates before year’s end. One factor in that dovish view is that the economy might not be quite as robust as the latest economic figures suggest. The first quarter’s healthy 3.2 percent annual growth rate was pumped up by some temporary factors — from a surge in restocking of companies’ inventories to a narrowing of the U.S. trade deficit — that are expected to reverse themselves. If so, this would diminish the pace of growth and likely hold down inflation. “We are still confronting a global slowdown, with 70 percent of the global economy slowing,” said Diane Swonk, chief economist at Grant Thornton. Indeed, for all of 2019, growth is expected to total around 2.2 percent, down from last year’s 2.7 percent gain, as the effects of the 2017 tax cuts and billions of dollars in increased government spending fade. At the same time, the Fed is still struggling to achieve one of its mandates: To produce inflation of roughly 2 percent. On April 29, the government reported that the Fed’s preferred inflation gauge rose just 1.5 percent in March from 12 months earlier. Many analysts say they think the Fed won’t resume raising rates until inflation hits or exceeds its 2 percent target. Too-low inflation is seen as an obstacle because it tends to depress consumer spending, the economy’s main fuel, as people delay purchases in anticipation of flat or even lower prices. It also raise the inflation-adjusted cost of a loan. “They will express concerns about the low inflation numbers,” Sung Won Sohn, finance and economics professor at Loyola Marymount University in Los Angeles, predicts of Fed officials this week. Sohn foresees a roughly 50-50 chance that the Fed will end up cutting rates before year’s end, at least in part over concerns about low inflation. President Donald Trump and Larry Kudlow, head of his National Economic Council, have urged the Fed to cut rates. Last week, Trump asserted that annual economic growth would have reached 5 percent last quarter, instead of 3.2 percent, had the Fed provided rates as low as the ones that prevailed during the Obama administration, when the economy was recovering from the devastating 2008 financial crisis. In recent months, Trump tapped two conservative political allies for vacancies on the Fed’s influential board in hopes that they would push for lower rates and counter the influence of Powell, whose leadership Trump has repeatedly attacked. One of them, Herman Cain, has since withdrawn. But the other, Stephen Moore, is aggressively campaigning for the board seat despite criticism of his qualifications and sometimes inflammatory writings. As recently as December, Moore was publicly calling for Trump to try to fire Powell. Most analysts say they think Powell will stick to his public position that the Fed will keep pursuing its goals of maximum employment and stable inflation without regard to outside influence. “This pressure will not affect the Fed’s decisions, but it does undermine confidence in the Fed, and that sets a dangerous precedent,” Swonk said.

US consumer spending surges 0.9 percent in March

WASHINGTON (AP) — U.S. consumer spending surged 0.9 percent in March, the biggest gain in nearly a decade, as inflation pressures remain non-existent. The March gain was the biggest monthly increase since August 2009, the Commerce Department reported April 29. That’s a marked improvement after three months of lackluster readings in this key segment of the economy. Consumer spending accounts for 70 percent of economic activity. Incomes grew 0.1 percent in March while inflation rose just 0.2 percent and has risen only 1.5 percent over the past 12 months, far below the Federal Reserve’s 2 percent target for inflation. The big jump in consumer spending is encouraging because it suggests that the overall economy had solid momentum going into the April-June quarter. The government reported April 26 that the economy, as measured by the gross domestic product, grew at a surprisingly strong 3.2 percent, helped by the March surge in consumer spending. However, economists noted that about half of the first quarter strength came from a big rise in inventory stocking by businesses and by a sharp narrowing in the trade deficit. Both of those gains were expected to be temporary and that could subtract from growth in the current quarter. The 0.9 percent March jump in spending followed a sharp 0.6 percent drop in December and tiny gains of 0.3 percent in January and 0.1 percent in February. The slight 0.1 percent rise in incomes in March followed a modest 0.2 percent rise in February and a 0.1 percent decline in January. With the big rise in spending and the small increase in incomes, the household saving rate fell to 6.5 percent of after-tax income in March, the lowest level since November when it was 6.2 percent. The 1.5 percent year-over-year increase in consumer prices was up from a 1.3 percent 12-month gain in February but still well below the Fed’s target. The absence of inflation pressures was a key reason that the central bank did an about-face this year and announced that after boosting its benchmark interest rate four times in 2018, it planned to be “patient” and expected that it would not raise rates at all in 2019. That change has helped spur a big rally in the stock market as investors stopped worrying that the Fed was in danger of over-doing its credit tightening campaign and might drive the economy into a recession.

ConocoPhillips boosts Alaska output by 20% in 1Q

ConocoPhillips continued its run of strong returns to start 2019 with its third consecutive quarterly profit of $1.8 billion as its Alaska oil production increased nearly 20 percent. The Houston-based explorer and producer netted $384 million in the first quarter from its North Slope operations compared to $445 million in 2018, according to its earnings report released April 30. In turn, ConocoPhillips paid $249 million in taxes and royalties to the State of Alaska, according to spokeswoman Natalie Lowman. The $1.8 billion first quarter profit companywide was a drastic improvement over the $888 million ConocoPhillips earned in the first quarter of 2018. The recent profit translates to $1.60 per share and came on the back of $10 billion in revenue. ConocoPhillips generated $1.3 billion in free cash flow and with that repurchased roughly $800 million worth of stock shares and paid another $300 million in dividends, according to a company release. It ended the quarter holding $6.5 billion in cash. Venezuela was also ordered to pay ConocoPhillips $8.7 billion via a ruling issued during the quarter from the International Centre of Investment Disputes for its previous expropriation of the company’s assets in the country. CEO Ryan Lance said in a formal statement that the company’s efforts to better insulate itself from volatile oil and gas markets are paying off. ConocoPhillips leaders Alaska have said they set a “breakeven” goal of $40 per barrel for their operations in the state after the 2014-15 oil price decline, in large measure to compete with ever-cheaper to produce Lower 48 shale oil prospects. “We continue to execute and deliver on a plan that’s resilient to lower prices, while offering investors upside at higher prices. We approach the business with an aim to level-load our investment and distribution programs, rather than chase cycles up or down, because we believe that is the best way to create sustained value in the energy sector,” Lance said. “By focusing on free cash flow generation and distributing a significant portion of cash flows to shareholders, we offer the market a path to value creation in this cyclical business.” ConocoPhillips stock sold for $63.12 per share when markets closed April 30, up slightly from a pre-earnings report April 29 closing price of $62.65 per share. Specifically to Alaska, ConocoPhillips produced an average of 210,000 barrels of oil per day in the state, up significantly from an average of 174,000 barrels per day to start 2018, according to the report. The company operates the large Kuparuk River and Alpine oil fields on the North Slope and oil production at its Greater Moose’s Tooth-1 project — an Alpine satellite with peak production near 30,000 barrels per day — began last October. GMT-1 startup marked the first oil produced from federal leases within the massive National Petroleum Reserve-Alaska on the western Slope. ConocoPhillips Alaska oil and gas production accounted for 16 percent of the company’s worldwide production, while its earnings from the state accounted for 21 percent of its quarterly profit. Work is ongoing at its slightly larger GMT-2 project. The company is also in the midst of permitting its large Willow oil prospect, also in the NPR-A, which has been estimated as a roughly $5 billion undertaking to fully develop. ConocoPhillips spent $410 million on North Slope capital investments during the quarter — about 25 percent of its overall investment portfolio. Alaska investments have accounted for about 20 percent of the company’s capital budget in recent years. BP, which operates Prudhoe Bay, reported a $2.4 billion replacement cost quarterly profit April 30 and ExxonMobil also netted $2.4 billion to start 2019, according to an April 26 release. Elwood Brehmer can be reached at [email protected]

Multiple bills aim to expand telehealth services in Alaska

Medical providers may have more options for offering services digitally if the Legislature approves a set of bills targeted at expanding telehealth availability. Telehealth includes a variety of services delivered by the provider communicating digitally with a patient or transmitting data such as imaging scans. In a state like Alaska, where much of the population is spread thin and medical providers are concentrated in urban areas, telehealth has the potential to connect those who live in rural areas or without reliable or affordable transportation to regular medical care. When the Legislature reformed the Medicaid program in 2016, one provision required the state Medical Board to create regulations for physicians to diagnose, prescribe and administer prescriptions without conducting a physical examination on a patient. That allowed doctors to begin offering a broader array of services. In the intervening years, a number of telehealth services have popped up in the state and some insurers, including Premera Blue Cross Blue Shield, offer coverage for telehealth services for members in Alaska. A suite of bills in the Legislature would expand telehealth services further. House Bill 29, sponsored by Rep. Ivy Spohnholz, D-Anchorage, would allow providers to bill state-regulated insurers for health care services delivered by telehealth without an initial in-person appointment. HB 97 and its companion legislation Senate Bill 44 would allow physician assistants to deliver telehealth services under the same statutory regulation as physicians. None of the bills have received much opposition, and providers and insurers have come out in support. Telehealth is billed as a way to improve access to care and potentially decrease costs by delivering them more effectively and through preventative care visits. “We need to look at the overall cost of health,” said Division of Insurance Director Lori Wing-Heier in a House Labor and Commerce Committee hearing on April 24. “We need to look at ways to reduce the cost of health care while expanding access … This is an excellent way to do that.” Spohnholz told the House Labor and Commerce Committee that the bill allows for reimbursement to any provider who delivers services via telehealth, not just telehealth-specific companies. Teladoc, a New York-based telemedicine company, already offers services in Alaska and supports the bill. The company contracts with Premera and the AlaskaCare Employee Health Plan, which covers State of Alaska employees, among other health plans. Claudia Tucker, the vice president of government affairs for Teladoc, told the committee in an April 29 hearing that telemedicine services saved Alaskans $3.5 million in health care costs in 2018. One of the concerns committee members had is where the doctors who are answering the calls are located. Tucker said while the company has a preference in the state for doctors who live in Alaska, they aren’t always available. “About 30 percent of (Alaska-based) calls were answered by physicians who lived in Alaska,” she said. “All of them are answered by physicians licensed in Alaska.” Robin Minard, the chief communications officer for the Mat-Su Health Foundation, said two of the major barriers to care identified in the Mat-Su Regional Medical Center’s Community Health Needs Assessment are lack of access to care and transportation. Expanded telehealth options would help address both, she said. The Alaska Commission on Aging also noted this in a letter of support. Medicare does not currently allow for telehealth visits to be reimbursed, but an expanded program from the Centers for Medicare and Medicaid Services called Medicare Advantage would allow telehealth services delivered in a recipient’s home to be reimbursable, commission chair Gordon Glaser and executive director Denise Daniello wrote in the letter. “Medicare Advantage is not yet available in Alaska, however, there has been growing interest in exploring managed care plans as a means to control costs in our State,” they wrote. “The Commission on Aging will be following these developments.” HB 97, sponsored by Rep. Jonathan Kreiss-Tomkins, D-Sitka, and SB 44, sponsored by Senate President Cathy Giessel, R-Anchorage, both seek to include physician assistants in the regulations on telehealth delivery. The intent of the original revision to Medicaid was to include them, but the state Medical Board wanted specific mention of physician assistants, according to a letter to Giessel from board President Catherine Hyndman. Most of Interior Alaska is considered a medically underserved area with a health professional shortage, according to the Health Resources and Services Administration. Physician assistants are allowed to prescribe schedule 2 to 5 substances and be supervised by a doctor in order to practice medicine. The House Labor and Commerce Committee passed HB 29 out of committee but was waiting for amendments on HB 97, which were due May 2. The Senate Finance Committee passed SB 44 out of committee on April 15. ^ Elizabeth Earl can be reached at [email protected]

UAF Blue Economy Center designed to develop marine resources

The University of Alaska Fairbanks recently established the Alaska Blue Economy Center to help advance new research, education and economic opportunities for Alaska. “I am thrilled to have this new center approved by UAF Chancellor White. This represents an opportunity to help spur innovation and technology development in Alaska’s burgeoning blue economy,” said UAF College of Fisheries and Ocean Sciences Dean Bradley Moran. “The launch of ABEC comes at a critical time as the state seeks to diversify and grow its economy and workforce.” The term “blue economy” refers to the use of ocean resources for economic growth, including traditional sectors such as fisheries, coastal tourism and oil and gas exploration, as well as the rapidly growing areas of ocean technology development, renewable energy and marine biotechnology. With more than half of the nation’s coastline and roughly one-third of the country’s Exclusive Economic Zone, Alaska is well-positioned to be a leader in the blue economy. A central goal of ABEC is to help grow and diversify Alaska’s marine workforce. For example, the center will facilitate collaboration and innovation to address ocean economic challenges and opportunities. ABEC combines expertise in research, instruction and public engagement related to Alaska’s aquatic resources and ecosystems. “Alaska has the opportunity to add tremendous value to our fisheries resources, bringing needed dollars and jobs into Alaska,” said UAF Chancellor Dan White. In addition to supporting Alaska’s existing sectors, the center seeks to find sustainable options for growth that preserve and protect Alaska’s thriving marine resources. Researchers at the UAF College of Fisheries and Ocean Sciences, or CFOS, are already actively engaged in projects and activities that benefit Alaska’s fishery and aquaculture industries around the state. One current project investigates the reproductive rates of seaweed in Southcentral Alaska to help determine whether changes in regulations could make it easier to sustainably harvest seaweed near Homer. Another looks at the causes and consequences of whale predation on hatchery-released salmon in Chatham Strait near Sitka. Researchers at the Kodiak Seafood and Marine Science Center are developing a technique and recipe to process fish skins from seafood processors into dog treats, a unique and innovative way to eliminate seafood waste. These projects highlight the role of research in developing sustainable ocean industries to benefit the state of Alaska. UAF also supports Alaska’s blue economy in ways outside of its traditional research programs. One such avenue is through training the next generation of blue economy leaders. In 2018, UAF established the nation’s only online Blue MBA degree to provide leaders with the tools to work at the intersection of business and aquatic resources. The program, designed for students with a background in science, technology, engineering and mathematics, will give students the knowledge and skills needed to develop business models to ensure the sustainable use of marine and freshwater resources. ABEC will serve as the umbrella organization for these research and teaching activities, relying on strong collaborations with research and agency partners at UAF and around the state. “We look forward to partnering with CFOS to ensure that our blue economies and industries have the necessary ocean observations, data and information products they need to make wise decisions about the sustainable use of our ocean and coastal resources,” said Molly McCammon, director of the Alaska Ocean Observing System. CFOS has also partnered with the Bering Sea Fisheries Association and the Alaska Ocean Cluster to implement a new Blue Pipeline Incubator, a think tank geared at promoting ocean-related businesses that support the resiliency of coastal economies around the state. Based at the CFOS Seward Marine Center, the new program will seek out innovative leaders and businesses aiming to increase revenues, expand their workforce and mentor new programs around the state. In 2017, the CFOS Kodiak Seafood and Marine Science Center received a half-million-dollar federal grant to partner with Blue Evolution — a private company that cultivates and markets seaweed products — to improve methods of growing, harvesting and transporting farmed sugar kelp, a common edible seaweed. Seaweed farming is a multibillion-dollar industry worldwide that presents a new economic opportunity for coastal Alaska. ABEC aims to be on the frontlines in providing research and workforce opportunities to catalyze Alaska’s participation in this burgeoning industry. ABEC will help unify organizations that already advocate for sustainable use of marine resources, such as Alaska Sea Grant and the UAF Alaska Center for Energy and Power. “The very essence of the blue economy is to promote sustainable use of ocean resources for economic growth, jobs and ecosystem health, and this is a mirror of Sea Grant’s mission,” said Alaska Sea Grant Director Heather Brandon. “Essentially all the work of Alaska Sea Grant supports and grows the blue economy. The new center will amplify Alaska Sea Grant’s impact, and vice versa.” Gwen Holdmann, director of ACEP, said, “Access to affordable and reliable energy sources to support the blue economy, and tapping into the vast potential Alaska has in tidal and current energy as one possible growth area, is something the Alaska Center for Energy and Power is very interested in supporting.” These projects and programs represent UAF’s commitment to grow Alaska’s blue economy, spur innovation and sustain the marine and inland aquatic resources that Alaskans depend on. With the new Alaska Blue Economy Center, we will be better equipped to capitalize on Alaska’s coastal energy and environmental resources.

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