Senators call for cannabis clarity

Whether or not a fear of federal marijuana crackdown is justified or overblown, Congress isn’t happy with the White House. Only days after remarking that “we don’t need to be legalizing marijuana,” Attorney General Jeff Sessions has evidently assured Congressional Republicans including legalization supporter Sen. Rand Paul that the Department of Justice will support states rights, according to Politico. Still, on March 2, a group of U.S. senators including Alaska’s Lisa Murkowski wrote a letter to Sessions asking for assurance that the federal government will not take any actions against those states that have legalized adult use cannabis. The senators come from both sides of the political aisle, both from states that have legalized adult use marijuana and some that have not, including Sens. Elizabeth Warren (D-Mass.), Lisa Murkowski (R-Alaska), Patty Murray (D-Wash.), Ron Wyden (D-Ore.), Jeff Merkley (D-Ore.), Maria Cantwell (D-Wash.), Ed Markey (D-Mass.), Brian Schatz (D-Hawaii), Catherine Cortez Masto (D-Nev.), Cory Booker (D-N.J.) and Michael Bennet (D-Colo.) "It is essential that states that have implemented any type of practical, effective marijuana policy receive immediate assurance from the DOJ that it will respect the ability of states to enforce thoughtful, sensible drug policies in ways that do not threaten the public's health and safety," the senators wrote. "This ensures that state infrastructure, including tax revenue, small businesses, and jobs, can be protected; DOJ resources can be used most effectively; and most importantly, that marijuana can be properly regulated to improve public health and safety." The senators point to the Cole Memorandum, a guidance letter which among other things told the Department of Justice to not prioritize marijuana enforcement where complies with state law. “We respectfully request that you uphold the DOJ's existing policy regarding states that have implemented strong and effective regulations for recreational marijuana use and ask that the Cole Memorandum remain in place,” the letter reads. “It is critical that states can continue to implement these laws under the framework of the Cole Memorandum. In addition, we request that state and local elected officials, and public health and safety officials, be afforded an opportunity to comment on any shift in policy from that expressed in the Cole Memorandum, to avoid disruption of existing regulation and enforcement efforts.” The letter comes during a bombastic time in the cannabis conversation. Trump’s press secretary Sean Spicer caused a panic attack in states where recreational marijuana is legal when he suggested last week that states would see “greater enforcement” of federal marijuana laws. Spicer said that even though Trump has been on record supporting both medical marijuana and states rights, the eight states that have legalized recreational marijuana may have crossed a line. “There is a big difference between that and medical marijuana,” Spicer said in reference to medical marijuana, which is currently legal in 29 states. Attorneys general and representatives from several states including Alaska were forced to take a “wait and see” approach to Spicer’s comment. A Congressional Cannabis Caucus committee responded to Spicer’s comments as well, hoping that they didn’t indicate a shift in policy. "The federal law is one thing and the state has the right to enact laws in this area and those are perfectly constitutional," Cory Mills, the Department of Law spokesperson, told the Associated Press. "Our law wouldn't be overturned. But there is a different federal law, and how they want to enforce the federal law is up to the federal government. We'll just wait and see what sort of actions they take." Only days later, Sessions denied some of the claims that medical marijuana helps curb opioid abuse and claimed that cannabis trade contributed greatly to violent deaths in the U.S.   DJ Summers can be reached at [email protected]

Marijuana Control Board rules on CBD oils

Regulators ruled on Alaska's CBD seizures on Feb. 17, maintaining that the products are indeed marijuana, not hemp, and therefore under control of the Marijuana Control Board. The seized CBD products will not be destroyed, but rather the board will retain them until a hemp legalization bill moves through the Legislature. The owners of the shops from which they were seized will not be disciplined.  The Marijuana Control Board met with Alcohol and Marijuana Control Office enforcement officers and director Sara Chambers on Feb. 17 to invite representatives from each of the raided stores. Board members then called a closed meeting with legal counsel and Chambers to deliberate. "In a unanimous vote, the Marijuana Control Board determined the CBD (cannabidiol) oil seized last week by the Alcohol and Marijuana Control Office (AMCO) to be marijuana product, except that which is labeled as made exclusively from seeds and that does not also include the term 'CBD,'" reads a press release from AMCO. "However, in light of Senate Bill 6, a proposal currently before the Alaska State Legislature that would legalize industrial hemp and modify the definition of marijuana in AS 17.38, the board voted to retain possession of the inventory until the end of the current legislative session. Otherwise, in accordance with 3 AAC 306.830, the board would be forced to destroy the seized items. The board also elected not to pursue further action on Notices of Violation that were issued by AMCO staff."  Each company was issued a violation for activity not allowed in a marijuana store, and having product that is manufactured outside the state of Alaska, not in the state tracking system, not tested in state, and not packaged or labeled as required by Alaska regulation. Company representatives either apologized and pled ignorance or stuck by their claim that industrial hemp products are perfectly legal and not under the control of the Marijuana Control Board, an argument firmly dismissed by AMCO director Sara Chambers. “Just so we’re all clear, we all know that hemp products aren’t marijuana products, right?” said Craig Aglietti, co-owner of Dankorage, during an interlude. “Yes, according to state statute, they are,” answered Chambers. Several had issues with how marijuana enforcement handled the seizures. “These were not seized from a licensed company,” claimed Aaron Ralph, owner of Alaska Cannabis Exchange, through which many of the raided stores received their CBD products. Though cited for violating regulation, Alaska Cannabis Exchange did not have their products seized from their licensed store, though they may have intended eventually to receive and sell them. U.S. Postal Service workers alerted AMCO when boxes of CBD product were leaking. The products were addressed to Geneva Cowen, owner of ACE Holdings, which has a licensing agreement with Alaska Cannabis Exchange for CBD products. Cowen herself is the wife of an affiliate of an Alaska Cannabis Exchange licensee. Enforcement officers acknowledged that the violation letter, which was a boilerplate letter sent to each company, was an “oversight” on the part of AMCO and could have been worded better. Others claimed a similar scenario applied to them, in which officers seized product for a non-marijuana store. Kerby Coman’s seizures happened in a non-marijuana business, Green Degree, that was attached to a licensed marijuana facility. Coman’s non-marijuana business markets itself under the name Green Degree but is owned under a separate LLC name. Many of the testifiers were apologetic to the board, claiming they would not have sold the products if they had known they were under MCB control. “We no longer sell any CBD or hemp containing products, and will not do so,” said Caleb Saunders, co-owner of Green Jar. “It was never our intention to violate any of the regulations. We were fully under the impression that the hemp products did not fall under the jurisdiction of MCB.” Saunders explained that he bought the product from a Colorado industrial hemp pilot program through ACE Holdings by way of Alaska Cannabis Exchange.  “These products have been available at health food stores for many years, so we did not assume there would be a problem,” said Craig Aglietti from Dankorage, an Anchorage retail store. “We will not stock this product again until is it enforced through METRC (the state’s cannabis tracking system).” “This was unintentional,” said Jane Stinson, co-owner of Enlighten Alaska. “We didn’t realize hemp grown CBD products were not allowed in the system we’re in.” Others like Coman, said AMCO’s actions were “morally and legally wrong.” Kerby claimed to prove that CBD is legal, and then asked to get his products back. “Legal opinions have told me I have a lawsuit. But that’s not the route I want to go,” he told the board. Ralph, a member of the Hemp Industries Association, stood by his original claim that nothing illegal happened with his company or the others involved. The seized products, he said, are firmly in line with federal regulations that authorize industrial hemp products and their interstate transport. “There is a legal and defining difference between hemp and marijuana,” said Ralph. “In my opinion, nobody has broken the law here or should be deserving of a notice of violation.” CBS oils and extracts have been hurtled into national morass of confusion after the U.S. Drug Enforcement Administration added them to the Schedule I controlled substances category in January. Though widely available as hemp oils online and in department stores, CBD products are as illegal as marijuana under federal law unless obtained through a licensed pilot program. In Alaska, Chambers says the matter is clear cut becuase Alaska statute does not make hemp legal or distinct from marijuana. “As defined in statute and regulation products derived from the marijuana plant are regulated under AS 17.38,” reads a release from AMCO following the seizures. “There is no separate provision under state law that allows oil with any particular composition of CBD or THC to be regulated outside of AS 17.38 and 3 AAC 306.” The definition in statute does include certain parts of the plant, but also does not make a distinction between hemp and marijuana as it does in federal code. “’Marijuana’ does not include fiber produced from the stalks, oil, or cake made from the seeds of the plant, sterilized seed of the plant which is incapable of germination, or the weight of any other ingredient combined with marijuana to prepare topical or oral administrations, food, drink, or other products,” reads statute. DJ Summers can be reached at [email protected]

Eklutna, muni settle gas dispute for $5.75 million

Eklutna Inc. and the Municipality of Anchorage have agreed to settle a dispute over millions of dollars claimed by the Native corporation for natural gas generated at the Anchorage Landfill and sold to Joint Base Elmendorf-Richardson. Under terms of the agreement – which must still be approved by the Anchorage Assembly – the municipality will pay Eklutna $5.75 million to settle the dispute. In a lawsuit filed in 2013, Eklutna claimed the municipality could owe it as much as $24 million over two decades. If the new deal is approved, Eklutna will agree to give up all future claims to revenue from the gas. At a news conference announcing the deal Wednesday at Eklutna’s Eagle River headquarters, Anchorage Mayor Ethan Berkowitz said the settlement allows the two sides to move forward with other issues. Eklutna is the largest private landholder in the municipality. “We ought to be neighbors and partners,’ Berkowitz said. Anchorage’s landfill generates methane, which the municipality began selling to the Fort Richardson power plant in 2012. In 1982, Eklutna and Anchorage signed the North Anchorage Land Agreement, which was reached after the two parties realized they had competing claims for the land on which the 274-acre landfill sits. The Native corporation has argued the agreement gives it the right to half of any income generated from the land. The dispute had caused a rift between the city and Eklutna that both parties wanted to get past. “This dispute become a choking point,” Berkowitz said. Now that the dispute is settled, the two groups can work more closely on issues such as land development in the area. “We’re all on the same page,” said Eklutna CEO Curtis McQueen, who was flanked by several members of the Eklutna board as well as Eklutna Vice President and tribal Chief Lee Stephen. According to Berkowitz spokesperson Myer Hutchinson, landfill gas sales have generated over $6 million and is expected to continue producing gas for decades. In addition to relinquishing future claims on the gas, Eklutna also agrees to move forward with development of two large parcels of land near Eagle River. Known as Powder Acres and Powder Hills, McQueen said the land will be developed with both single-family and higher density housing. The deal also spells out a timeline for development of the residential properties. Hutchinson said in an email that Anchorage Water and Wastewater Utility (AWWU) will seek approval to build needed water and sewer lines to the parcels near Eagle River. Once those lines are completed, Eklutna will have three years to complete Powder Acres and five to complete Powder Hills. McQueen said plans haven’t been finalized for any development, but said Eklutna’s track record of building livable neighborhoods in Eagle River speaks for itself. “I think everyone has been impressed with what Eklutna has done,” he said. This is a developing story; check back for details.

Marijuana board chair gathers signatures for borough ban

The recently elected chairman of Marijuana Control Board, Peter Mlynarik, is a registered signature gatherer for a Kenai Peninsula Borough petition that would put a commercial cannabis prohibition ballot initiative onto the borough’s 2016 ballot. Ballot Measure 2, which legalized commercial cannabis statewide in 2014, allows for local governments to submit their own controls on cannabis, including ballot initiatives that ban commercial activity. Several localities including the Mat-Su Borough, Wasilla and Palmer have already opted out. The borough ban, like that of the Mat-Su Borough, would only apply to unincorporated areas. Those cities that already have their own laws, like Kenai, would still have legal commercial cannabis.  Mlynarik and the board’s legal counsel said Mlynarik’s involvement with the borough initiative is simply a private exercise of citizenship, while others think it crosses a line. Mlynarik, who serves as the Soldotna Chief of Police, where commericial cannabis is banned, said he doesn’t feel his involvement as a signature gatherer should color his board chairmanship any differently than in the past. His actions as a private citizen, he said, should be viewed in context. “I think the main thing is to look on my roll and how I voted,” said Mlynarik. “I’m not always the most conservative vote on the board. All the licenses went through. I’m not trying to hold anything up.” Despite his chairmanship, he said, he still has personal concerns about young people's cannabis usage in his home borough. “My particular concern about the youth,” he said. “That’s always in the back of my mind. As a borough citizen, it was my concern that the people at least have a right to vote on it.” Mlynarik was elected as chair during the board’s June 9 meeting, replacing Bruce Schulte, one of two designated cannabis industry representatives on the board, sparking some industry fear that the board’s policies and regulations could change. The record supports Mlynarik’s claim that he has supported license issuance since the board began approving licenses on June 9, which another board member said is the most important part of the situation. The fact that Mlynarik gathers signatures for a citizen’s initiative “don’t mean (expletive deleted),” according to Mark Springer, a board member. “It’s a local government issue," said Springer. “He can do whatever he wants. He has voted to approve every license that’s been approved. He hasn’t expressed a deep prejudice against the licensing process. He’s not the sponsor of the petition. At the higher level, we’re issuing licenses. We’ve had Kenai (Peninsula Borough) applications. He voted yes on them too.” Other board members from the industry don’t like the development, saying a member should respect the duty of the board to encourage, not prohibit, the industry. “Although it’s legal to do this, it seems somewhat poor spirited to be in the position of highest authority on the board and also be attempting to end the industry for significant portions of the state,” said Brandon Emmett, an industry seat on the board. “It’s disheartening. I was very surprised.” Mlynarik consulted Harriet Milks, the board’s legal counsel, before gathering signatures. Milks said board members are within their rights to engage in local politics that involve the subject of their respective boards, and that she doesn’t think there is any legal issue with Mlynarik’s doing so. “I think it’s perfectly fine,” said Milks. “We are a representative democracy. We don’t expect our board members to check their opinions at the door when they enter. Participating in the election process is something we’re all for.” Cases of conflict of interest, Milks explained, are outlined in the Alaska Executive Branch Ethics Act. She said in the case of the Marijuana Control Board, behavior away from the board is irrelevant unless the board member has something to personally gain from an issue on which the board is taking action. “That act gets down to undue influence as a public official,” said Milks. “If we wanted people to have completely blank minds, we wouldn’t have people, we’d have a computer. We don’t want people to have their votes be bought or to have a sway in influence.” Milks and Mlynarik both compare signature gathering for the initiative to industry members Schulte and Emmett, saying his involvement with the petition shouldn’t be any more concern than their pro-industry actions are as they develop their own respective cannabis businesses. “It’s just as appropriate to do that as it is for a member of industry to do industry related things when they’re away from the board,” Mlynarik said. “And they stand to benefit. There is a monetary gain there. For me, there isn’t one. I’m not making any money from this.” Emmett does make a distinction, saying board members’ personal actions should not undermine the mission. “I think the MCB was formed to implement a regulated industry,” he said. “The overall perception is that marijuana is legal, and we need to implement it responsibly. Even though there are some diverse viewpoints, I feel that when he took the job as a regulator for the industry, it’s responsible implementation he should have in mind.”   DJ Summers can be reached at [email protected]    

Senate approves federal check bill for marijuana licenses

The Senate approved a bill on April 22 that would allow the state to request federal background checks for marijuana license applicants. The bill’s main focus revises alcohol regulations to streamline enforcement, a measure in review since 2012. The bill, sponsored by Sen. Peter Micciche, R-Soldotna, also changes statutory language to allow the Department of Public Safety to request federal background checks for commercial marijuana license applicants. Marijuana Control Board director Cynthia Franklin has held current marijuana license applications, saying the federal background checks are necessary to comply with statute, which forbids a marijuana license to anyone with a felony conviction in the last five years.  The bill will now move to a vote in the House. The bill has not yet been scheduled for a House hearing. The House will next reconvene at 2 pm, April 23. The original request for federal checks was in House Bill 75, sponsored by Rep. Cathy Tilton, R-Wasilla. HB 75, however, has foundered in conference committee after the Senate and House could not agree on other bill provisions concerning unorganized borough commercial marijuana. During the last week, in which the Legislature is in overtime past its 90 day mark, a conference committee on HB 75 has cancelled hearings for the bill four times. The sticking point concerns rural Alaska villages. The Senate bill would automatically opt unorganized borough villages out of commercial marijuana, as opposed to the rest of the state where statute makes commercial marijuana legal unless localities opt out. Village elders would have their own discussions about whether or not to allow marijuana businesses and decide whether or not to allow them. DJ Summers can be reached at [email protected]

Marijuana, tobacco public smoking ban passes Senate

A bill that would ban onsite marijuana consumption passed the Senate on March 30, before a House companion bill has a hearing in the Health and Social Services Committee. In public comment and in Senate testimony and debate over the legislation aimed at tobacco products, none of the public or senators addressed its affect on state marijuana industry regulations. Both Senate Bill 1 and its House companion, House Bill 328, come from American Cancer Society pressure to ban smoking statewide, rather than Alaska’s current local control system. Both bill’s definitions include any “plant intended for inhalation,” and would apply to chemical vaporization in addition to actual smoking. The bill also defines what constitutes a “public place” in a manner that would criminalize marijuana social clubs, which are currently in legal limbo, as well as currently legal onsite consumption at marijuana cafes allowed by the Marijuana Control Board. Sen. Pete Micciche, R-Soldotna, introduced the bill, which would prohibit tobacco or e-cigarettes in enclosed public spaces including places of employment, apartment buildings, hotels, and at schools and universities. It grants certain exceptions to tobacco stores where 90 percent of revenue comes from tobacco sales, but includes no language to exempt marijuana retail stores with the same sales configuration. The bill is at odds with state marijuana regulations, which explicitly grant onsite marijuana consumption to retail stores if the Marijuana Control Board approves the request. Alaska is currently the only state with such provisions for some kind of marijuana consumption outside the home. These “marijuana cafes” ignited considerable industry excitement as an allowance for Alaska tourists, who currently have no designated area to smoke cannabis. Micciche’s bill would effectively isolate marijuana consumption to private, stand-alone homes, giving tourists nowhere to consume. The bill would also outlaw the existing marijuana social clubs. Anchorage’s Pot Luck Events and Fairbanks’s The Higher Calling offer cannabis users a place to consume, but in which no marijuana is sold, in exchange for a membership fee. Onsite consumption provisions for retail stores are explicitly legal, but marijuana social clubs are in limbo. The Marijuana Control Board issued a ruling on marijuana social clubs in 2015, declaring that the board had no authority to either prohibit or to enable such clubs unless the Legislature created a social club license type in statute. Since then, clubs have continued operations, and no legal actions have been taken against them or their members. The bill passed the Senate by a 15-5 vote. The concurrent HB 328, as widely cosponsored in the House as Micciche’s bill was in the Senate, has already been moving through committee hearings. Rep. Adam Wool, D-Fairbanks, had not yet offered an amendment that would grant the same exceptions to marijuana retail stores as to tobacco retail stores, as the bill’s last hearing before the committee ran short on time. The House Health and Social Services Committee will review HB 328 at 3 pm, March 31. Now that it has passed the Senate, Micciche’s bill will move to the House for consideration. Because a companion bill is in the House, SB 1 will not need to be reviewed in any committee in which HB 328 has already been heard. The bill will need final House passage and gubernatorial approval.   This is a developing story. Check back at the Journal for updates.   DJ Summers can be reached at [email protected]  

State projects $2B investment loss

Not surprisingly, Alaska’s fiscal picture got worse with the March 21 release of the 2016 Spring Revenue Forecast. Total state revenue for the 2016 fiscal year, which ends June 30, is now projected to be about $3.6 billion, down more than 60 percent from the $9.5 billion of income estimated in the Fall 2015 Revenue Forecast released last December. The fall outlook for investment revenue had the state taking in $3.8 billion in fiscal year 2016, while the spring forecast expects the Fund to take a loss of just more than $2 billion for the year. In the first two quarters of fiscal year 2016, or from last July 1 to Dec. 31, 2015, the Fund lost $1 billion according to reports released by the Permanent Fund Corporation Feb. 12. The vast majority of the turnabout in the revenue forecast is attributable to poor financial market performance since the start of the New Year, which for the State of Alaska translates into lost income from Permanent Fund investments. The Dow Jones Industrial Average lost 5.5 percent in January and is currently down nearly 3 percent from one year ago. The Permanent Fund, which includes the principal of the Fund and the Earnings Reserve, ended fiscal year 2015 last June 30 with $55.9 billion in total assets and fell as low as the $48 billion range in January. However, Revenue Commissioner Randy Hoffbeck noted in a press briefing that markets have been on the rebound even since the spring forecast was compiled. In the most recent quarter ended Dec. 31, 2015, the Permanent Fund returned 2.1 percent, bringing the fiscal year-to-date return through two quarters to a loss of 2.2 percent according to reports released Feb. 12 by the Permanent Fund Corporation. The Fund held $52.7 billion as of March 18, according to the Alaska Permanent Fund Corp. Total state revenue was $8.5 billion in fiscal year 2015 and is expected to rebound near that amount to $8.2 billion in the 2017 fiscal year that starts July 1. Unrestricted General Fund revenue for 2016 was also revised down by $277 million, to about $1.3 billion in the latest forecast, as lower-than-expected oil prices more than offset an upward bump in the state’s oil production projection. The spring estimate for the average price in fiscal year 2016, is $39.50 per barrel for Alaska North Slope crude, compared to the fall estimate of $49.50 per barrel. The 2016 production estimate, on the other hand, increased about 3 percent from just more than 500,000 barrels per day in fall to 516,700 barrels per day in the latest calculation based on data provided by the producers, Hoffbeck said. In 2017 production is expected to fall back to about 506,000 barrels per day. Unrestricted revenue will fall as well, according to the forecast, to just more than $1.2 billion on a price projection of about $40 per barrel for next fiscal year, which is $564 million less than the fall forecast. Depending on how much is cut from the final state budget, if the lower 2017 revenue projection holds true it could increase the budget deficit that has been pegged at $3.5 billion to nearly $4 billion for next fiscal year. Diminishing oil income has also diminished the state’s dependence on it as a revenue source from supplying nearly 90 percent of all unrestricted state funds in prior years to 55 percent to 60 percent going forward, according to Hoffbeck. Long term, the Revenue Department expects oil to stabilize in the $60 per barrel range by 2021, which Hoffbeck said partially reflects the historical inflation-adjusted average price as well as the range where shale oil, which can be brought into production quickly, becomes profitable. “It makes sense that $60 would be kind of a ceiling we would bump into on oil price,” he said. The annual spring revenue forecast is typically released in early April, but Gov. Bill Walker said the preliminary forecast was released March 21 to better inform the Legislature and the public as major structural changes to how the state manages its money are contemplated during the last weeks of the legislative session. “The more information that’s available sooner, the better,” Walker said during the press briefing. The announcement comes as legislators are planning to tap into the Permanent Fund Earnings Reserve to bridge the current budget deficit. The last time the Fund lost money was during the Great Recession of 2009, when it lost $2 billion. Elwood Brehmer can be reached at [email protected]

Army officially delays plan to slash Arctic Warrior force level

The U.S. Army has officially announced that it will delay the proposed reduction of 2,600 “Arctic Warriors” stationed at Joint Base Elmendorf-Richardson. Army officials first announced plans to cut 2,600 soldiers from the 4th Airborne Brigade Combat Team of the 25th Infantry Division, also known as the 4-25, last July as part of an Army-wide cut of 40,000 troops. Alaska’s congressional delegation and state political leadership hailed the delay as a win for national security. The full division stationed in Alaska is about 4,000 troops. All three members of the Alaska congressional delegation were sharply critical of the proposed withdrawal as short-sighted and potentially dangerous give current tensions on the Korean Peninsula and chilly Russian relations combined with that country’s military buildup in the Arctic. “This is good news for Alaska — from the moment the Army proposed to eliminate the 4-25 Airborne Brigade I knew that it was shortsighted and the direction of world events would ultimately prove that,” said Sen. Lisa Murkowski in a release. “Whether measured by North Korea’s provocative actions this month, our discomfort with Russia’s military path, the need for troop strength to support the strategic balance to the Pacific, or emerging challenges in the Arctic, maintaining Army strength in Alaska right now is the right answer.” Rep. Don Young praised the delay, but said Alaskans should not get too excited until the possibility of a troop withdrawal is completely off the table. “While today’s announcement comes as great news for Alaska and the nation, we must not rest on our laurels,” said Young in a release. “Instead, we must continue to fight to ensure this reduction is overturned so JBER’s 4-25 can continue its status as the only airborne brigade in the Pacific.” The announcement comes on the heels of U.S. Army Chief of Staff General Mark Milley’s public announcement that he wants to delay proposed force reductions at least a year in testimony to a Senate committee Feb. 24, and statements by Secretary of Defense Ash Carter to Sen. Dan Sullivan that he would support such a recommendation to halt the reduction if one were made by Milley. Sullivan also succeeded last December in adding an amendment to the defense spending bill requiring the Defense Department to draft a formal Arctic Operations Plan, which is a complex undertaking. He received verbal assurances from Army brass that the 4-25 would not be moved until the plan was complete, Sullivan told the Journal in December. Milley, who visited Alaska military installations in February, told Murkowski on Feb. 24 that increasing aggression and force buildup by Russia, particularly in the North Pacific, along with an “increasingly assertive” China and “very provocative North Korea” create heightened conditions for potential conflict in the region. “I think it would be contrary to U.S. national security interests to go ahead and pull out the 4-25 at this time,” Milley said to Murkowski. “My thought is that we should extend them at least a year to see how the strategic situation develops and then move from there.” He added that those beliefs were confirmed in conversations with on-site commanders and the troops themselves. “There’s a great joint strategic deployment capability with the Air Force up there. (The 4-25) can move by air; they can move by sea. We’ve got a national capability up there (in Alaska) that I think is worth keeping,” Milley said. The 4-25 also just completed a training exercise at Fort Polk in Louisiana with a full Airborne Task Force of nearly 1,600 troops to show the value of the full force, according to a U.S. Army Alaska press release. U.S. Army Alaska officials asked branch leaders to consider training with the full force last year after the Army directed the 4-25 to downsize to an Airborne Task Force of 1,046 soldiers as part of the effort to restructure to a smaller, more agile force, the release states. The release stated that the exercise at Fort Polk validated the 4-25 as “the only U.S. airborne unit in the Pacific region capable of performing forcible entry operations.” DJ Summers can be reached at [email protected]

Cultivation dominates marijuana applicants

The first batch of marijuana business licenses is available to the public, and so far Alaskans have more interest in growing than selling. The Marijuana Control Board began accepting license applications on Feb. 24, but only made them available to the public March 14. Public figures from various marijuana industry and political groups have filed, including members of the Marijuana Control Board itself and the Alaska Marijuana Industry Association. The Marijuana Control Board received 198 different applications as of March 17, but many applicants submitted duplicates, an issue raised by Marijuana Control Board executive director Cynthia Franklin the first week after submissions began.  After duplicates are removed, the board received applications for 175 individual licenses, submitted by 136 individuals or groups of individuals acting as a single agent. By far, more Alaskans have applied for cultivation licenses than any other license type. Of 175 licenses, 117 are for cultivation: 40 for limited cultivation, which applies to grow operations 500 square feet and under, and 77 for standard cultivation, which has no upward limit.  Retail licenses number 43. Marijuana product manufacturing licenses — which include edibles — number six, while concentrate manufacturing facilities number seven. Only three people have submitted applications for testing facilities, which all cannabis products must pass through to be legally saleable. Both are located in Southcentral Alaska: two in Anchorage and one in the Mat-Su area. The numbers expose several cracks in the ongoing struggle for marijuana businesses to get their establishments running quickly in spite of zoning regulations and local government actions. Some applications are submitted in unincorporated Mat-Su Borough areas, which could outlaw commercial marijuana as soon as October by ballot initiative, while others are using only tentative addresses. The numbers put Alaska to roughly half the concentration of marijuana licenses in other states. As of now, if every license were approved, Alaska would have one recreational marijuana license per every 4,200 residents. Colorado has one marijuana license per every 2,200 residents, though that ratio includes medical facilities, which do not exist in Alaska. Many applications are co-located with retail marijuana dispensaries and cultivation facilities a popular duo. Several license applicants even go for a triple, co-locating product or concentrate manufacturing with retail and cultivation. The Marijuana Control Board received 50 of these stacked license applications, or 25 pairs. Notable applicants Among applicants is Brandon Emmett, one of two designated industry representatives on the Alaska Marijuana Control Board. Emmett has applied with two associates for three separate licenses in Fairbanks, including limited cultivation, standard cultivation, marijuana product manufacturing, and marijuana concentrate manufacturing. Kim Kole, a member of both the Alaska Marijuana Industry Association and the Coalition for the Responsible Legislation of Cannabis, has applied for seven licenses, all in Anchorage, more than any other individual or group of individuals statewide. These include five applications for retail establishments, each located at different addresses throughout Anchorage. Two include co-locations with standard retail cultivation facilities. Rather than trying to dominate the Anchorage market, Kole said she’s only trying to keep her place in line by getting the ball rolling on all potential locations. She said she didn’t end up securing several of the addresses for which she applied, which she expected. Licenses cost nothing to initiate, and potential landlords are constantly pulling out of potential leasing opportunities to marijuana businesses. “Honestly I’m surprised more people didn’t seem to do that,” Kole said. Among other notable applicants is Sherman Ernouf, law partner of Anchorage attorney and former Anchorage mayoral candidate Dan Coffey, has applied for an Anchorage standard cultivation license. Coffey also acts as filing agent for other marijuana license applicants. Regional preferences Of 175 licenses, Anchorage claims the largest interest for marijuana business, with 50 licenses in Anchorage and one in Girdwood. In Anchorage, more interest lies in cultivating than in selling, but only by a hair. The board received applications for 21 retail stores, 18 standard cultivation licenses, and four limited cultivation licenses. Anchorage will feature quite a few of the brewpub-style co-located marijuana outlets. Of Anchorage’s 46 license applications, 18 are located at the same address, meaning nine retailers in the area will be growing their own product on premises. Two of the three applications for marijuana testing facilities are located in Anchorage. The Interior has a clear preference for cultivation. Of 22 license applications located in Fairbanks, 12 are for cultivation: 11 standard cultivation licenses and one limited cultivation license. Only five individuals have made applications for retail outlets. The two applications for North Pole businesses are both for cultivation, one standard and one limited. Fairbanksans also submitted four product manufacturing applications and one concentrates manufacturing application. A dozen of Fairbanks’s licenses are concentrated in only four addresses. The Mat-Su Borough will have a measure on the October 2016 ballot that would ban all commercial marijuana activity in the unincorporated borough, but evidently, would-be marijuana entrepreneurs in the area are optimistic it won’t pass. Both Wasilla and Palmer have already passed bans on commercial cannabis activity, but a number of licenses have been filed for addresses in each area. Most are attached to addresses that fall outside city limits. Wasilla, like the rest of the state, focuses primarily on growing, with eight standard cultivation licenses and five limited cultivation licenses. Only three retail outlets have been applied for, along with two concentrate manufacturing facilities and one product manufacturing facility. Palmer reflects the same balance, with two limited cultivation licenses, two standard cultivation licenses, two retail stores, and one testing facility. DJ Summers can be reached at [email protected]

After record price year, construction loans and permits dip

Editor's note: this article has been updated to reflect that the current 2016 average home sale price only includes January and February, which are historically the lowest priced months of the year.  Alaska housing prices peaked in 2015 – and according to statistics, so did homeowners’ willingness to pay them. With layoffs on the North Slope and a precarious fiscal situation for the state government, homeowners in Anchorage appear less willing to fund new residential construction projects than in 2015. Anchorage’s land shortage, along with new municipal land use rules, make the Anchorage market spendy, particularly for new construction. An existing home in Anchorage cost $368,012 in 2015, while a new home cost $574,333 to build, according to municipal data. Karen Kissik-Michelsohn, vice president of Michelsohn and Daughter Construction Inc., said her company is beginning to see a new reticence for home building projects. “We’re seeing a real hesitation,” said Kissik-Michelsohn. “Once they hire us and we get done with design and get to the costing component, they are so cautious.” Kissik-Michelsohn said the “cold feet” some of her potential clients get near the end of a contract negotiation loops back to concerns over the state economy and the oil industry. She said one Anchorage customer, a Slope worker asking for a large custom-built house, is waiting until April to finalize plans. He needs to make sure he has a job first. “Anybody in the oil industry…they’re all scared,” Kissik-Michelsohn said. “The state of the Alaska economy in general has really had a big impact.” Indeed, municipal records show a drop in new home building interest. In Anchorage, building permit records from the municipality show a decline in building projects from the same time in 2015. To date, only 13 single-family home building permits have been submitted for 2016, down from 21 during the same time period in 2015. Totals reveal an even bigger gap. In January and February 2015, applicants filed for a total of $66.6 million in building permits. In 2016, they applied for $35.7 million. The lack of enthusiasm for new construction collides with state fiscal woes and the highest housing prices on record for Anchorage. According to statistics, 2015 was the most expensive year ever for Alaskans looking to buy homes, with some of the lowest interest rates. According to the Freeman-Reed Index, an analytical tool used by the Alaska Multiple Listings Services, the average Anchorage residential price peaked in 2015 at $366,585, lower than the average provided by municipal data but still greater than any year in Alaska history and roughly double the average price in 2000. In Juneau, the average price for an existing single family home was $377,620 in the third quarter of 2015, and $414,717 for new construction. In Fairbanks, homes were cheaper, at $265,884 for existing homes and $287,833 for new construction. According to the National Association of Realtors, the average single-family home sale price for existing homes in 2015 was $267,300. Condominiums followed the same path as homes, with an average sale price of $213,071 in 2015, also the highest in Alaska history. Anchorage’s residential prices are now coming off their record highs. The lack of new construction coincides with the first dip in average housing prices this decade. The average residential sale price has declined for the first time since 2011. So far, Anchorage’s average residential price is $353,729, a 3.5 percent decline from last year. However, these numbers only include January and February - historically, the lowest point of the seasonal ebb and flow of home sale prices, as people are more willing to move in summer months. January and February combined have declined $2,000 compared to the January and February total from 2015. January itself actually increased in price compared to last year.  Going by three-year average, the prices of Anchorage homes peaked at $356,652 in 2015. That average has lowered to $353,729 in 2016. Similarly, condos’ three-year average lowered from $216,952 to $214,821 in 2016. Statewide, a steady roll in interest rates coincided with the housing prices climbing. Over 7 percent in 2000, the average Alaska mortgage interest rate came to 4 percent in 2015. Key indicators from the Alaska Housing Finance Corp. indicate that new construction took a downward bend at the end of 2015. Statewide, there were 14 percent fewer condos, single and multi-family homes, and mobile homes built in 2015 than in 2014, with each category declining year-over-year. Loan activity started strong in 2015, but went down in the back half of the year. In the first and second quarters, total loans for single family loans — the largest segment of the housing industry — increased from the same quarter in 2014 over $24 million for the first quarter and over $21 million in the second quarter. Loan activity for condominiums increased in both quarters, while multi-family homes lost in the first quarter but gained over $3 million in the second. That turned around in the third quarter. Loans activity for single-family homes dropped in the third quarter of 2015 by $55 million, and by $18 million in the fourth quarter. Loans for condominiums dropped by $14 million and $2 million in the third and fourth quarters. Only multi-family homes kept the momentum, increasing loan activity by $400,000 and $5 million. Anchorage took the biggest hits, posting loan declines as early as the second quarter of 2015. In total, the Anchorage real estate market saw a $73.2 million reduction in single-family home loans in 2015. In Fairbanks, single-family home loan activity declined in every quarter, resulting in an overall $29.2 million reduction in 2015. Single family loan activity fell by $3.5 million in Juneau. Loans for new construction of single-family homes increased despite the loan reduction. Statewide, $400,000 more worth of loans were used to build new single-family homes, but those numbers skew declines in home building activity in the state’s two largest population centers. In Anchorage, $8.4 million less in loans was used to fund the new construction of single-family homes compared to 2014. In Fairbanks, $1.6 million less was used. Juneau, however, saw an increase of $2.6 million in loans used for single-family home construction in 2015. DJ Summers can be reached at [email protected]

Analysis finds buying Anchorage LIO close to moving cost

An independent review of the Legislative Council’s options to deal with the Anchorage Legislative Information Office building found the cost of purchasing the building to be nearly on par with moving the Legislature’s Anchorage offices elsewhere. San Francisco-based Navigant Consulting Director Nigel Hughes concluded in a report dated March 14 that purchasing the Anchorage LIO would cost 4 percent more, on a per square-foot present value basis, than moving to the nearby Downtown Atwood Building, which houses state executive branch agencies. The conclusion is first based on a $37 million purchase price, which Anchorage real estate developer Mark Pfeffer, managing member of the building owner group, 716 West Fourth Avenue LLC, has said he would be willing to sell for. It also assumes the purchase would be financed over 20 years at 3.1 percent interest, which was the going rate for tax exempt bonds on March 7, according to the Alaska Housing Finance Corp. 716 West Fourth Avenue is the Anchorage address of the LIO building. Subsequently, the analysis takes into account that the 42,900 square feet of usable space in the LIO is significantly greater than the 34,100 square feet of space available at the Atwood Building. While purchasing the LIO for $37 million equates to a 20-year net present value cost of $31.7 million and the 20-year cost to move would be $24.2 million, according to Hughes, the additional usable space in the LIO closes the per square-foot cost gap to $3.08 per square foot to stay and buy the LIO versus $2.95 to move to the Atwood Building. Included in the Atwood scenario is the $3.5 million in renovations the Legislative Affairs Agency estimates it would cost to make the available Atwood space suitable for legislative offices. The Legislative Affairs Agency handles business and legal matters for the council. Extending the existing 10-year, $3.3 million per year lease on the building to 20 years would cost $61.8 million in today’s dollars, or an even $6 per square foot, the analysis concludes. “Our goal from the beginning of our conversations with the ALaska Legislature and the Legislative Council has been to find an agreement that is good for Alaska,” 716 spokeswoman Amy Slinker said in a statement. “The Navigant analysis provides a solid step forward. We will continue to discuss in good faith options that can achieve savings.” The Legislative Council has found itself in a political bind over the current lease at a time when the state is trying to manage its way out of a $3.5 billion-plus budget deficit. On Dec. 19, the Legislative Council unanimously recommended the full Legislature vote not to fund the lease at a meeting in the Anchorage LIO unless a solution that is cost-competitive with moving to the Atwood Building could be resolved within 45 days with help from state finance agencies. With the issue being a political hot potato, that help didn’t come. Navigant’s Hughes notes in his analysis that there are issues for the council to consider beyond simply the bottom line cost. If the council decides not to fund the current LIO lease, it “will need to consider the wider financial and legal implications between the state and the business community,” Hughes wrote. The Legislature could terminate the lease seemingly without legal ramification because of a clause in nearly all government contracts stating fulfillment of the agreement is “subject to appropriation,” in this case, by the Legislature. If the Legislature doesn’t fund it, for any reason, the lease or contract falls apart. Pfeffer has hinted intent to sue if the Legislature walks away from its obligation. The Legislative Council, then led by Rep. Mike Hawker, R-Anchorage, decided to rebuild on the old LIO building site in 2013 after attempts to find existing suitable space that meets the unique needs of a public government body in Anchorage failed. The Legislature contributed $7.5 million towards the construction cost, so Pfeffer and his company ultimately funded $37 million, about $28 million of which is long-term debt and $9 million is Pfeffer’s cash equity position in the property, he has said. Appraisals of the six-story building plus its underground parking facility have been as high as $48 million, but numerous estimates put its value at $44 million. The customized office space cost $44.5 million to build in 2014, according to Pfeffer. A Nov. 24 cost analysis done by AHFC and the Department of Revenue with information provided by the Legislative Affairs Agency put the 10-year cost of purchasing the LIO for $37 million with fixed-rate bonds at $48.8 million when financing and operating costs were included— translating to $8.97 per square foot. The comparable cost to move to the Atwood Building was found to be $10.1 million, including the $3.5 million for tenant improvement costs. AHFC Deputy Executive Director Mike Buller sent an email to Legislative Affairs Agency Executive Director Pam Varni Dec. 3 contending the analysis should not be considered when evaluating the council’s options because, among other reasons, it used a 10-year amortization for the purchase a longer-term assets and ignored the residual value of owning the building after it would be paid for. “Unfortunately, I cannot support the analysis of the options presented in your report to the council and a public discussion at this time will only embarrass everyone involved,” Buller wrote. He declined to comment further. Varni said in an interview that Legislative Council chair Sen. Gary Stevens was made aware of Buller’s concerns; however, neither Stevens nor Varni brought the issue up in discussions, according to a transcript. Questions to Stevens’ office regarding the Nov. 24 analysis were directed to Chief of Staff Katrina Matheny, who also serves as council staff. Matheny said Stevens waited until Feb. 11 to recommend an independent analysis of the council’s options because he was concerned more with the Legislature’s direct cash outlay on a 10-year basis, which is equivalent to the current lease, and less so with the inflation-adjusted present value cost or other issues. “We had no intention at that point (in early December) of hiring an independent third-party; we didn’t think one was needed,” Matheny said. When a Jan. 29 proposal from 716 West Fourth Avenue contended purchasing the LIO for $37 million would save the state money over moving to Atwood was quickly disputed by Varni for overstating moving costs by up to $16 million over 30 years, Matheny said the “dueling comparisons” pushed council members towards an independent review. Settlement passed Ultimately, waiting to hire outside help could have cost the council an opportunity to settle a lawsuit challenging the legality of the current Anchorage LIO lease. 716’s Jan. 29 proposal for the Legislative Council to purchase the building included a settlement in the lawsuit brought against the building owner and the Legislative Affairs Agency by Anchorage attorney Jim Gottstein, who also owns the Alaska Building adjacent to the LIO. Gottstein contends the lease violates state law because the council did not follow proper procurement code when it contracted with Pfeffer’s development team in 2013. He and 716 agreed to settle by Feb. 12 if the council and Legislative Affairs agreed to not attempt to recoup attorney fees from Gottstein in the settlement. The settlement, from 716’s perspective, was also contingent upon the council funding the current LIO lease or agreeing to purchase the building, according to the Jan. 29 document. Matheny said the settlement “fell by the wayside” because of the deadline and that Stevens wanted the state Superior Court to decide whether the lease is legal or not before making a decision on the building. Judge Patrick McKay heard partial summary judgment arguments March 22. He indicated an intent to issue a ruling by the week of March 28. Elwood Brehmer can be reached at [email protected]

No bonds means bare-bones capital budget

With little appetite from legislators for a general obligation bond package, bare bones capital budgets the next couple years are probably a harsh reality of the state’s fiscal situation. The administration’s proposal for a $500 million general obligation, or GO, bond package to fund up to $250 million of capital appropriations in each of the 2017 and 2018 fiscal years received, seemed possible, if not likely, to pass the Legislature based on reactions when the idea was first offered by Gov. Bill Walker in December. Attitudes have changed, however, as the session has worn on. Revenue Commissioner Randy Hoffbeck said during a March 21 press briefing that there was growing concern in the Legislature about taking on additional debt at a time when the state’s budget is upside down to the tune of a $3.5 billion-plus deficit. “The consensus seemed to be with legislators that they would like to wait until we get a stabilized fiscal plan in place because bonding will have to dovetail with whatever plan that we come up with,” Hoffbeck said. An administration plan to bond for future state pension obligation payments also fell on deaf ears and was subsequently scrapped. When first proposed, the bonding plans were pitched as a way to leverage the state’s low-interest borrowing capacity under the premise that the state can get a better percentage return on its savings over the long-term than the interest on the bonds would cost. The leaders of the capital budget in both chambers of the Legislature largely echoed Hoffbeck’s conclusions in interviews. Senate Finance co-chair Sen. Anna MacKinnon, R-Eagle River, said she heard through public testimony to the committee that many Alaskans feel the state operating budget is still too large, and therefore it wouldn’t be prudent to add spending for capital projects. Walker floated the GO bond proposal as a way to pay for critical and incomplete infrastructure projects across the state, but House Finance co-chair Rep. Steve Thompson, R-Fairbanks, said his primary concern lies in the prospect of “Christmas treeing” on a bond package. That is, a fear that numerous, nonessential projects would end up decorating the bond legislation. Both MacKinnon and Thompson said the sentiment towards capital spending could change next year if the Legislature works out a fiscal plan that stabilizes state revenue and substantially reduces annual deficits through some use of the Permanent Fund’s investment earnings, taxes and budget cuts. Thompson added that it will be a new Legislature next year, which could bring with it new priorities. MacKinnon also cited the State Bond Committee’s January Debt Affordability Analysis report, which concludes Alaska has the capacity to take on about $175 million in additional GO bonds without further impacting its credit rating. Multiple ratings agencies have slightly lowered the Alaska’s formerly sterling credit ratings this year because of the messy budget situation, and, so far, a lack of a plan to address it. “The issue is we absolutely could use debt to finance some projects that we think are viable and that would benefit the state long-term, and I believe that may still be a conversation going forward, but the issue is that currently we are structurally imbalanced and if we don’t change the way that we are structurally balances I can’t in good conscience go forward and recommend a bond package to anyone,” MacKinnon said. The hitch in holding off on a bond package is that waiting one year means waiting at least two. GO bond proposals must be approved by the public on a general election ballot — if not this November then not again until November 2018 — that also means approval from the electorate is far from a sure thing. While GO bonds often pass in better budget times, the prospect of voters signing off on state debt when cuts are being made to other areas of government spending is more uncertain. Hoffbeck said that when the next window for GO bonds opens up it would be something the state “would need to strongly consider.” MacKinnon did not rule out the possibility of funding high-priority projects — namely those that address safety issues — through direct appropriations next year. As for the 2017 budget, she said the capital budget, which will come out of the Senate first, will take center stage in the last couple weeks of the session, with the state’s priority being “to squeeze every dollar of matching money” out of federal capital programs. Much like last year, the governor’s proposed capital budget uses about $180 million of state general funds to match more than $950 million of federal money mostly for highway and airport improvement programs. All in, Walker’s capital budget totals more than $1.2 billion thanks to the federal support. As recently as fiscal 2013, when oil prices averaged close to $100 per barrel and translated into full state coffers, Alaska spent more than $2 billion of its own money in a capital budget. The drastic change in capital spending is exemplified simply in the size of the actual budget bills — 194 pages in 2013 versus 20 pages from the administration this year. Because it takes up to six years for most state appropriations to fully “hit the street” in the form of work for contractors, Alaska’s construction industry is still relying on the larger capital budgets from days gone by for much of its work. Significant contraction from the oil and gas sector led the Associated General Contractors of Alaska to project a decline in construction spending this year of about 18 percent, which would take the industry roughly back to the activity level seen 2013. Cut from the administration’s initial capital budget was $5 million for the Alaska Energy Authority’s popular Renewable Energy Fund grant program that supports projects across the state focused on getting rural communities off of diesel and fuel oil for home heating and electric generation. Since 2008, the Legislature has committed $271 million to the Renewable Energy Fund. It received $11.5 million in the budget passed last year, one of the few state programs to be funded in the state’s slim 2016 capital spend. AEA contends completely cutting Renewable Energy funding this year will impact its ability to administer prior-year grants. MacKinnon said the authority should expect to be “touched” by changes in state spending habits, but also noted she is working on a way for surplus funds from the Power Cost Equalization Program, also administered by AEA, to support renewable energy projects. The premise behind the idea being that rather than spending PCE money each year to subsidize electric costs, the money could be used to permanently reduce rural energy prices through generating renewable energy. Power Cost Equalization is an endowment-style state subsidy that buys down the cost of electricity for rural Alaska residents and small businesses. “It’s a theory we need to do the math on,” MacKinnon said. Elwood Brehmer can be reached at [email protected]

Bills propose adding legislators to AGDC board of directors

JUNEAU (AP) — Two Republican lawmakers want to add legislative oversight to the board of an organization that plays a key role in Alaska’s natural gas pipeline project development. Both Sen. Mia Costello, R-Anchorage, and House Speaker Mike Chenault, R-Nikiski, have proposed adding two non-voting lawmakers to the board of the Alaska Gasline Development Corp. The state-owned gasline corporation holds the state’s 25 percent interest in the Alaska LNG Project. The Senate was expected to consider Costello’s bill on March 23. As lawmakers, stakeholders and the governor’s office look for ways to move the project ahead amid low oil prices, Costello said the Legislature struggled to discern Gov. Bill Walker’s vision for the gasline. Calling the gas line the “bright spot on the horizon,” Costello said during a March 21 Senate majority press conference that the aim of her legislation is to improve communication and move the project forward. The Alaska LNG Project is the latest attempt to develop natural gas found on the North Slope. If it proceeds, the project, which includes an 800-mile pipeline, would be one of the largest projects of its kind. But low oil prices have been a concern for the state and its oil company partners in the project, with Walker announcing last month that the state and its partners would look at different options for moving forward. “It’s a viable project at this point but we’ve got to get to a point where we know whether it’s really economical or not,” said North Pole Republican Sen. John Coghill. Costello wrote in her sponsor statement that having legislators on the board would helpful for discussing project financing and understanding the types of budget decisions needed to meet the state’s cash obligation for a gasline project. Chenault’s bill goes farther than Costello’s, in laying out requirements for the public board members. It requires that the governor appoint board members who have experience and expertise in natural gas pipeline construction or other experience that is relevant to gas line projects. “Most of the board members, whom I respect, do not have the qualifications of previous board members,” Chenault said in his statement. Adding legislators to the gas line corporation board would give lawmakers better insight into issues facing the board, he said in the statement.

Supreme Court overturns appeals court in Sturgeon case

The U.S. Supreme Court on March 22 overturned a National Park Service ban on the use of hovercraft by a moose hunter within a national preserve in Alaska, but in a narrowly focused ruling, sent the case back to a lower court for additional consideration. The justices unanimously ruled that the 9th Circuit Court of Appeals erred in interpreting federal law. However, they did not rule on whether the Park Service can regulate hovercraft use, or whether the agency has regulatory authority over a river within that preserve for which the state claims ownership. Justices ruled that such state sovereignty issues should be first argued in lower courts. Alaska Gov. Bill Walker at a news conference called the decision “a step in the right direction” toward asserting control over state-owned rivers and other lands in dispute with federal agencies. “It’s a long way from over but I’d rather be where we are today than where we were yesterday,” Walker said. The ruling came in the case of John Sturgeon of Anchorage, a moose hunter who in 2007 was ordered off the Nation River within the Yukon-Charley Rivers National Preserve in northeast Alaska. Sturgeon had used hovercraft since 1990, but while stopped on a gravel bar to make a repair, was told by three rangers that it was illegal to operate the noisy craft that can navigate shallow water or even mud. Sturgeon sued in 2011. Alaska also sued, hoping for a ruling that could limit the federal government’s authority over state-owned, navigable waters in national parks. The Park Service had denied the state a permit to use a helicopter to conduct salmon research on state land, a gravel bar, on the Alagnak River within Katmai National Preserve. The case focused on interpretations of Alaska National Interest Lands Conservation Act, which created or expanded 19 conservation units, including Yukon-Charley Rivers National Preserve. One provision of the law specifies that no state or private parties within the conservation units shall be subject to regulations applicable only to federal land in the conservation unit. In the 8-0 decision, Supreme Court justices rejected the 9th Circuit Court’s ruling that the Park Service could apply national regulations on hovercraft to state and private land within the conservation unit but not the Alaska-specific exceptions that apply to federal land within the unit. Roberts called that a “topsy-turvy” approach. The law carves out numerous Alaska-specific exceptions to the Park Service’s general authority over federally managed preserves, such as snowmobile and airplane travel between villages, he noted. The Supreme Court did not decide whether the Park Service has authority to regulate Sturgeon’s hovercraft on the river or whether the river was federal public land for regulatory purposes. “We leave those arguments to the lower courts for consideration,” Roberts wrote. Trustees for Alaska, an environmental law firm that filed a friend-of-the-court brief in the case on behalf of 13 conservation groups, said there are centuries of law supporting federal authority over navigable waters and other public lands. “We are optimistic that the Ninth Circuit will clarify the Park Service’s authority over navigable waters so that Alaska’s national parks are protected as Congress intended,” said attorney Katie Strong.

Board of Fisheries hopefuls, legislators playing nice in 2016

The 2016 Board of Fisheries appointees represent no one, and everyone, they insist. 2015 and 2016 took a toll on fisheries leadership. The last 12 months include one botched interview, one forced resignation, three failed nominations – including one denied by the Walker Administration – a fistful of felony charges, and two recent resignations – one of which chairman Tom Kluberton said comes from political burnout and stress, the other, Bob Mumford, coming before he even had the chance to be confirmed by the Legislature.  Gear group and regional allegiance bubbled underneath it all, and what the board should look like to best reflect them all. This year, Gov. Bill Walker’s appointees are eager to explain what little bias they carry onto a board that oversees Alaska’s largest source of private employment. Legislators offer none of the fire seen last year, public comments are gentle, and none of last year’s regional and gear group tensions have boiled over. The Senate Resources Committee forwarded Israel Payton on March 21 to a joint session hearing, moving the Mat-Su resident one step closer to being confirmed as a board member. Payton, along with former Alaska Wildlife Trooper Al Cain and Kenai area conservationist Robert Ruffner, was nominated to fill one of three available positions on the board left Kluberton, Mumford, and Fritz Johnson. This leaves Bristol Bay without a representative. Bay groups are angry, but so far haven’t led the same kind of campaign that derailed board nominations last year. Payton came out of the gate speaking directly of a lack of allegiance to user groups, gear types, and regions, describing a good board member as neutral above all else. A good board member, he said, “should be careful not to be seen as one user’s advocate,” and “realize that board members do not represent any specific interest group, fishery, but represent all Alaskans equally, and we all have very unique differences and perspectives.” Payton’s fisheries involvement extends to subsistence and sport, and he currently serves on the Board of Fisheries’ Mat-Su Fish and Game Advisory Committee. The committee, public commentators, and Payton himself focused mostly on affiliation, specifically, which if any he holds. Payton insists his time as a sportfishing guide has no bearing on his Board of Fisheries plans. “I’ve worked as a sportfishing guide in the past,” said Payton, “but it’s been 11 years since I’ve made any money related to any type of fisheries resource, and it does not define who I am or how I will vote.” Though he has little direct commercial fishing experience, Payton claims he will benefit commercial fisheries. Without any connections, he has no loyalties or prejudices. “I will not bring any preconceived ideas or conflicts between different commercial users or fisheries,” he said. Sen. Pete Micciche, R-Soldotna, the only committee member to question Payton, probed for Payton’s backbone, asking whether he would have trouble making tough allocative calls when needed. “You know the pressure that comes on you in the Board of Fisheries,” Micciche said. “Do you have any hesitation on limiting harvest opportunities to any or all of the four user groups to meet the (maximum sustainable yield) requirement?” Payton said his alliance was to Alaska’s Constitution first, not to user groups. “If there’s a biological concern, and there’s a resource in crisis or not meeting the MSY, I think that it’s time to act accordingly,” he said. “I realize the amount of pressure that the commissioners and managers currently face when they do things like emergency orders, but we are mandated by the statues, by the Legislature, and we have to follow it.” In the midst of the interview, Payton acknowledged the pressure Micciche spoke about. “I would be lying if I told you I wasn’t nervous about serving on this board,” he said, but that he could only try. Along with the committee itself, the public had little input. Only three people called in to the committee, two in support of Payton and one neutral. A March 10 hearing was similarly mild compared to last year. A Senate Committee Hearing for Al Cain and Robert Ruffner met calm receptions from Sens. Bill Wielechowski, D-Anchorage, and Bill Stoltze, R-Chugiak. Both senators counted among the most vociferous of Ruffner’s critics during his 2015 confirmation hearing, but recanted their earlier opposition. In 2015, they said, Walker had nominated Ruffner to fill a seat they feel sportfishermen had traditionally held. This time around, that’s not a problem. Both Stoltze and Wielechowski said they were glad to see Ruffner back and nominated for a commercial fisherman’s spot. The senators, representing the largely sportfishing and personal use interests of Southcentral Alaska’s largest urban population centers, had opposed Ruffner’s appointment on the grounds that it should go to an Anchorage resident and a sportfisherman. Wielechowski acknowledged that Ruffner’s failed confirmation – the joint committee failed to confirm him by a single vote – had less to do with Ruffner’s undisputed credentials and more to do with fish politics. “Last year was rough and it really had nothing to do with you at all, it was just simply concern over the seat designation,” Wielechowski said. “I’m certainly more open to this entry now that you’re applying for a different seat,” Stolze said. “The seat you are applying for is traditionally thought to be a commercial seat.” Ruffner, director of the habitat restoration focused Kenai Watershed Forum, reaffirmed what he’d said last year. The health of the fish and habitat are first and foremost in his mind. Likewise, Cain responded to committee questions maintaining a neutral position in the endless Cook Inlet fisheries allocation battles. “I’d like to hear input on all sides, and if we can improve something, make something more sustainable, I’m not interested in disenfranchising any user group or individual but seeing that the allocations … are as equally distributed as they can be is my goal,” Cain told the committee. “That is why I’m not opposed to listening to suggested changes for any user group.” DJ Summers can be reached at [email protected]

GUEST COMMENTARY: Sustainable budget doesn’t require onerous taxes, PFD cuts

The Fairbanks North Star Borough Assembly just passed a resolution asking the Legislature to implement a sustainable budget. I voted against it since it specifically asked for taxes, and those aren’t helpful or necessary for the present situation. During the testimony it was shown that there were a lot of misconceptions about our state budget situation, so I wanted to clarify some of the details. First, the state will be entering an economic downturn, or recession. It has nothing to do with the legislature making cuts; the state spending more dollars will not stop the recession. We should all be prepared for this natural response to low oil prices. Please understand that the lingo about “don’t cut too much or we’ll get a recession” is just a political ploy by big spenders in the legislature who don’t want the gravy train to stop. They’ll use it in the elections the next few years to try and sell the voters that any legislator that made cuts caused the recession. Please think for yourself and don’t buy it. Remember, if taxes or Permanent Fund Dividend cuts go into effect, that money will be taken out of the economy. So any government spending from that was with money already withdrawn from the economy, so it gives no help to the economy. Actually, it makes it worse because government can’t redistribute money without using some, so less gets back to the economy than came out of it. Second, most of the proponents of taxes or PFD cuts are targeting a goal of having a zero deficit. This isn’t needed, and in fact goes against having a sustainable budget, since it has a mindset that we should spend all we get. Since the large money started coming in from high oil prices the state has budgeted based on high oil. The governor’s plan is now reacting to that and budgeting based on low oil. To achieve a sustainable budget, we need to realize that oil prices are cyclic, the will rise and fall over and over again. We can therefore create a budget that is the same (indexed for inflation) ongoing by knowing that fact. Once you get to this sustainable budget number (around $4.3 billion now), you can have a structured deficit in the lean years, and build your savings back up in the good years. Isn’t that why we have savings accounts, to handle unexpected crises? Third, a sustainable budget plan I’ve described has already been worked out by Economist Scott Goldsmith with ISER (University of Alaska Anchorage Institute of Social and Economic Research). It is based on using our two current primary revenue streams, oil and investment income. With that revenue and cutting to a sustainable budget number, we won’t have to implement onerous taxes or PFD cuts. Fourth, the investment income is mostly put into the Earnings Reserve of the Permanent Fund. It doesn’t affect the Permanent Fund, and it doesn’t have to touch the PFD at all. We can completely protect the PFD while implementing this plan. I agree that we need to appeal to the Legislature to implement initiatives to achieve a sustainable budget, and I would encourage everyone to do that. Please remember when doing so, that it can be done with a structured deficit, without taxes or PFD cuts, by using our existing revenues. I was here in the late 1980s when we had our last big recession, and while it was miserable, we survived, and we can do it again. Hopefully this time we learn our lesson and stop increasing government spending constantly in the future. Lance Roberts is a member of the Fairbanks North Star Borough Assembly.

FISH FACTOR: Economist: Many factors involved in retail salmon prices

If a fisherman gets 50 cents a pound for his reds, how can the fish fetch $10, $15 or more at retail counters? “It’s all the other stuff that happens after he sells the fish. A lot of costs, margins and profits are included in that retail price,” said Andy Wink, a fisheries economist with the McDowell Group in Juneau. It’s an “apples and oranges” comparison when it comes to using weights paid for the raw goods and the end product. A lot of weight is lost going from a whole fish, which fishermen are paid on, to a fillet at retail counters. “Most sockeye fillets amount to 40 to 50 percent of the round fish weight. If fishermen sold sockeye at $0.50 per pound, there’s about $1.10 of raw material cost in a $10 per pound fillet sold at retail,” Wink explained. “This might seem like a high mark up, but it’s a decent reflection of all the costs and acceptable margins built into the product.” The average wholesale price Alaska processors received for sockeye salmon (round) at the end of 2015 was $2.40 per pound, according to the state Department of Revenue; and $5.73 per pound for fillets. Costs add up as the fish makes its way to retail counters, where most will tout a “full retail price,” and then tweak it throughout the year using discounts and promotions. “A retailer will run sockeye promotions of say, $9.99 a pound. That way they can say they have discounted the product $8 so it looks like a big saving for the consumer. Instead of promoting the fish for four weeks, maybe they will run it for 10 or 15 weeks out of the year. It just depends on how much success they have with it,” he explained, adding that processors and distributors often have to pay (or reduce their prices) to get a retailer to promote product at a discounted price. The increased supply of sockeye from back to back bumper years at Bristol Bay also has had a big impact on what buyers are willing or able to pay. The big harvests mean more of the reds must be sold through discounts; that leads to a lower wholesale price, which affects the exvessel (dock) price. “Promotions and discounts are a double-edged sword,” Wink said. “They lead to lower prices, but are a necessary tool to move larger volumes of product through the supply chain. Without them, inventories would swell and product would go to waste.” Grundens for gals Grundens, the go to brand for heavy-duty rain gear, has launched a line for women. “Women would send us emails saying, ‘We love your gear, we wear it all the time, but it’s built for guys, said Eric Tietje, Global Product Director. “Either the sleeves are too long or they are too big in the shoulders. It was really just uncomfortable and cumbersome for women to wear.” Tietje credits a push by the social media site Chix Who Fish, for getting the new gear rolling. “All these women really banded together and became a loud voice, telling retailers that they are a market that is not being served,” he said. “We heard from lobster women in Maine, female marine researchers, and women in Alaska.” The result: Sedna Gear, designed for a fishing woman’s dimensions. The new line of rain gear has brought a wave of good responses, beyond the better fit. “The women have told us that by creating this product, it recognizes and validates what they do in the industry, and that means something,” Tietje said, adding that it’s made a big difference on deck. “It’s not just a piece of clothing,” he said.” We view these as pieces of equipment that people use to do their job.” Coming soon from Grundens: light weight gear and base layers for women, ceramic coatings on outer gear for added safety, and fabrics using Alaska crab shells that absorb sweat and eliminate odor. (That product is produced by Juneau-based Tidal Vision LLC.) ComFish flash Big names, hot topics and fish competitions are headlining the 36th annual ComFish Alaska trade show, hosted March 31-April 2 by the Kodiak Chamber of Commerce. In the line up: Alaska Senators Murkowski and Sullivan both are scheduled to hold open meetings; as are state commercial fisheries director, Scott Kelly, and Rep. Louise Stutes (R-Kodiak), who also chairs the legislative Fisheries Committee. Gunnar Knapp, director at the Institute of Social and Economic Research at the University of Alaska/Anchorage, will discuss salmon markets and how the state’s fiscal crunch might affect fisheries. Alex Stone of the Washington, D.C.-based consulting firm Booz Allen Hamilton will provide updates on Navy training exercises in the Gulf of Alaska. Presentations also include: impacts of ocean acidification on crab fisheries, slow growing halibut, better trawling methods, new fishing vessel safety regulations, the “graying of the fleet,” challenges in access to Alaska fisheries, a cannery history and much more. ComFish wraps up on April 2 with the annual fish-filleting contest organized by Ocean Beauty Seafoods. It includes contestants from each of Kodiak’s seven processing plants who are timed and judged on fillet and trimming speed, form and quality. New to the ComFish line up is an Alaska Sea Grant Fishermen’s Showcase featuring contests in knot tying, net mending, hook throwing, coiling and more. The ComFish dates are March 31-April 2 in downtown Kodiak. www.comfishalaska.com. Visit www.alaskafishfactor.com or contact [email protected] for information.

Enstar, Furie seal gas deal through April ‘21

Enstar Natural Gas Co. appears to have locked up 90 percent of its gas supply needs into 2021 after finalizing a deal with Furie Operating Alaska. The gas supply and purchase agreement filed March 14 with the Regulatory Commission of Alaska is for a firm supply of 6.2 billion cubic feet, or bcf, of natural gas per year from April 2018 through March 2021. During the first year of the contract the gas price would be $6.70 per thousand cubic feet, or mcf, nearly 20 percent less than the price the utility will pay — based on Consent Decree pricing — under a contract it has with Hilcorp Energy that expires at the end of March 2018. The contract has a price escalator of 2 percent per year, which is half of the annual price increase allowed under the Consent Decree. Base gas in the last year of the deal would be $6.97 per mcf. Daily calls for extra gas during peak winter demand periods would be about $1 more per mcf than the base price for the life of the contract. Enstar also has the option to extend the gas supply contract for two additional years through March 2023, but it must notify Furie of its intent to do so by April 1, 2018, according to a letter from the utility submitted to the RCA. The 2012 Consent Decree, agreed to by the State of Alaska and Hilcorp, set price caps on Cook Inlet natural gas through 2017 to prevent a monopoly situation when Hilcorp became the dominant player in the market through its purchases of Marathon Oil and Chevron assets. The ending Consent Decree price for base load gas in 2017 is $7.72 per mcf. Enstar estimates its average gas cost, when higher priced variable load gas is included, will be $8.33 per mcf under its Consent Decree-based contract with Hilcorp set to expire March 31, 2018. The utility also recently reached a gas supply deal with Hilcorp for 70 percent of its firm demand from early 2018 through early 2023. The initial gas price in that contract is $7.56 per mcf, a 9.2 percent price drop from the end of Consent Decree pricing. It also has a 2 percent price escalator. Both of the deals are pending RCA approval. Enstar projects its latest contract with Hilcorp will save Southcentral natural gas customers $14 million in the first year as the lower gas price is passed through to consumers. On the demand side, the utility is forecasting flat demand for gas at about 33 bcf per year through 2023 due to increased efficiency and conservation efforts by consumers offsetting small growth in its customer base, Enstar leaders have said. Furie’s deal with Enstar is the Houston-based independent’s second contract with Southcentral utilities since entering Cook Inlet. Furie agreed last September to supply Homer Electric Association with a base load of 4 bcf per year through 2018, with options to extend through 2020. That deal kicks in April 1 at a $6.50 per mcf base price. HEA will pay $7.00 per mcf for base load gas in 2018. Furie started exploratory drilling in the Kitchen Lights Unit offshore from Nikiski in 2011. Since, the company has spent over $700 million to bring Kitchen Lights online, according to company executives in testimony to the Legislature. Much of that money was invested in the first new production platform to be installed in the Inlet since the 1980s. Elwood Brehmer can be reached at [email protected]

Committee bill cuts Cook Inlet credits, not much more

Legislators began putting their imprints on Gov. Bill Walker’s oil and gas tax credit overhaul with the first committee version of the legislation released March 19. The House Resources Committee substitute of House Bill 247 is a mild version of the original bill; it gradually reduces the value of credits companies could claim for capital expenses, but does not address the minimum production tax rate or “tax floor.” Tax Division Director Ken Alper said in testimony March 21 that the bottom line savings to the state from the committee bill would be roughly $45 million to $65 million per year versus the status quo credit program. The administration’s bill would save an expected $400 million in fiscal year 2017 mostly by eliminating a 20 percent credit on capital expenditures and a 40 percent credit on drilling expenses, both in the Cook Inlet basin. Walker also proposed raising $100 million in new revenue through increasing the minimum production tax from 4 percent to 5 percent and preventing North Slope producers from using credits to take their tax liability below the minimum tax floor. The House Resources Committee is co-chaired by Reps. Benjamin Nageak, D-Barrow, and Dave Talerico, R-Healy. The committee version was promptly passed to House Finance late March 22 after 43 of 45 amendments to the bill were dismissed. They were brought primarily by Anchorage Democrat Reps. Geran Tarr and Andy Josephson. The lone amendment to pass from the Minority members was introduced by Tarr to ensure a legislative working group the bill would establish to evaluate the future of the Cook Inlet oil and gas tax regime includes members of the minority caucuses in the House and Senate. Rep. Paul Seaton, R-Homer, also introduced numerous amendments to the committee substitute mostly focused on further reducing the state’s direct cash outlay for refundable credits for existing producers. Of the seven Majority caucus members on the Resources Committee, Seaton has been the most critical of the state’s current industry tax credit program through the lengthy hearing process. “Once you’re giving people a lot of monetary support they want to keep giving to even if it’s not necessary,” he said in an interview. Tax credits should focus on helping companies develop new projects rather than producers working on existing fields that are already profitable with the basins high natural gas costs, he said, which the committee bill doesn’t adequately do. The only amendment of Seaton’s to make the bill requires companies engaged in exploration or development to file a $250,000 surety bond with the state to cover its unsecured creditors. It grew from Buccaneer Energy filing for bankruptcy in 2014 after developing the small Kenai Loop gas field, which left several Buccaneer small contractors on the Kenai Peninsula high and dry. He described the bond as a “small insurance policy” for businesses providing goods and services such as fuel or camp services to explorers. So far in fiscal 2016 the state has paid $473 million in refundable oil and gas tax credits for work that predominantly occurred in 2014, according to Alper. The total 2016 refundable tax obligation is expected to reach $700 million, but the state will be able to pay the remainder of that in the 2017 fiscal year, he said. To date, the State of Alaska has paid out roughly $3.5 billion in refundable oil and tax credits, Alper said, since the subsidy program took off in the 2007 fiscal year. Walker introduced HB 247 and its Senate mirror bill, SB 130, as a way to significantly reduce what he characterizes as an unsustainable expense that is a large part of the state’s $3.5 billion-plus budget deficit. Company representatives have said the administration’s policy changes would pile on an industry that is already losing money on every barrel it produces at current prices. The cost of producing North Slope oil and getting it to market is approximately $46 per barrel, according to the Revenue Department, while Alaska North Slope crude sold for $41 per barrel March 21, the first time it was above $40 this year. The committee’s HB 247 focuses on Cook Inlet and “Middle Earth” refundable credits. The Middle Earth region is anywhere in Alaska other than the North Slope and Cook Inlet geologic basins. It would reduce the current 40 percent Well Lease Expenditure credit to 30 percent in 2017 and 20 percent in 2018. The Net Operating Loss, or NOL, credit for those areas south of the Slope would also be cut from 25 percent to 10 percent on Jan. 1 2017. The committee bill also replaces a $25 million per company annual limit on refundable credits proposed by the administration with a $200 million annual repurchase cap. Alper said the $200 million cap would likely come into play only for companies executing major development projects requiring annual spending approaching $600 million. A requirement to make public the companies receiving refundable tax credits pushed by the governor was also left out of the substitute bill. Alaska Oil and Gas Association Executive Director Kara Moriarty said in an interview that the committee bill is recognition of the industry’s position in that it doesn’t make structural tax changes, but that changes to the Cook Inlet credits are still a concern. “Regardless of the (fiscal) situation the state is in, raising taxes on an industry in our situation only makes the situation worse,” she said. Tarr and Josephson, on the other hand, described the version of HB 247 that is moving on as a missed opportunity to save the state hundreds of millions of dollars per year in a Minority caucus press release. “I want to support the oil industry and in some cases can see the usefulness of co-investing in exploration and development projects,” Tarr said in a statement. “However, the (credit) current system is out of balance and needs to be reformed. House Bill 247 in its current form is unrecognizable from the original bill.” The two versions of HB 247 do align on eliminating a loophole in current statute that allows North Slope producers of new oil — production brought online in recent years — to compound a 20 percent new oil credit known as the Gross Value Reduction with a 35 percent NOL credit to produce a refund greater than the company’s actual loss. The Gross Value Reduction credit lowers the taxable wellhead value of new oil by 20 percent before other considerations are added to the oil’s taxable value. Alper said closing the Gross Value Reduction plus NOL loophole was first projected to save the state about $13 million next fiscal year, but that figure continues to go up as low oil prices force more producers to claim operating losses. Members of the committee and the Walker administration have noted throughout the tax policy debate that the loopholes allowing companies to take their tax liability below the 4 percent floor and grow their operating loss credit are a consequence of current oil prices below $50 per barrel that were not modeled when Senate Bill 21, the broader oil tax structure, was passed in 2013. According to the Tax Division, the committee bill would not impact tax structure for major North Slope producers — companies with over 50,000 barrels per day of production. It would impact new entrants to the Slope or small producers only at low prices through closing the NOL loophole. For Cook Inlet producers and companies developing production, however, the final impact of the latest version of HB 247 would be a reduction in state support that is now up to 55 percent for development costs to the 20-30 percent range by the time the credit reductions are fully implemented in 2018, Alper said. The Senate Oil and Gas Tax Credit Working Group held last year and headed by Sen. Cathy Giessel recommended hardening the production tax floor, which the committee substitute does not, and making any changes to the credit program forward looking, which it does. Elwood Brehmer can be reached at [email protected]

Hawaii Air Force unit getting own power grid that uses trash

JOINT BASE PEARL HARBOR-HICKAM, Hawaii (AP) — The Air Force unit that defends Hawaii skies will get experimental energy technology that uses trash to generate power and relies on its own small electrical grid — a system intended to keep the unit operating if a bomb, cyberattack or natural disaster knocks out the local utility. The Air Force Research Laboratory is spending $6.8 million on a facility that will produce electricity for the Hawaii Air National Guard unit that flies F-22s, the nation’s most advanced fighter jet. Under the plan, the facility and accompanying microgrid would be able to break off and operate independently from Hawaiian Electric. The project will mark one of the first such uses of a microgrid on an Air Force base and the largest test yet of the trash-to-power system. The system is being tested on a small scale in Illinois. U.S. Cyber Command chief Adm. Michael Rogers has warned it’s a matter of when, not if, attackers will target U.S. power systems. A cyberattack on Ukrainian power companies last year highlighted the vulnerability of power grids. Retired Brig. Gen. Stan Osserman, a former Hawaii Air National Guard commander who leads a state agency working on renewable energy technology, said the airmen must be able to do their job regardless of the circumstances. “If their buildings go off power, or if (Hawaiian Electric) has a cyberattack, or if we have a big hurricane that wipes out all their power lines, these guys still have the mission to do,” Osserman said. “It doesn’t stop.” The ability to generate power independently is key because utilities normally must shut down the entire grid to safely repair a damaged part. The Hawaii waste-to-energy facility would take plastics, green waste and other trash from the sprawling joint Air Force and Navy base that includes Pearl Harbor and Hickam Field. It could process as much as 10 tons of trash each day, providing a convenient way to dispose of trees, shrubs and other organic waste that currently must be kept on base to avoid spreading an infestation of coconut rhinoceros beetles, an invasive bug that bores into palm trees. The facility would also reduce the use of fossil fuel in a state that generates most of its electricity from oil imported on container ships, something that gives Hawaii some of the highest energy costs in the nation. A similar system could be used on battlefields, said Lt. Col. Scott V. Fitzner, chief of the research laboratory’s acquisitions systems support branch. It could allow the Air Force to consider all consumer products sent into a battlefield as fuel and reduce the need for diesel supply convoys that are susceptible to roadside bombs. Loren Thompson, a defense analyst at the Lexington Institute, noted the military’s response to the cyber threat against electrical utilities is very uneven. “The single most important thing that needs to be done is the military must have senior guidance as to what its cyber defense plans are for assuring electrical power. As of today, the utilities are not going to be reliable protectors of their grids because most of them don’t think this is a big problem,” Thompson said. The military also doesn’t have the authority to tell private utilities what they should do to protect themselves. Fitzner said the Hawaii project will allow the Air Force research lab to evaluate different technologies and determine what makes sense in other areas of the world. “We just can’t tolerate not having energy in certain circumstances,” Fitzner said. Smaller electrical grids, or microgrids, are used commercially and in some towns, but military application is more unusual, Fitzner said. Osserman said the 154th Wing that flies Hawaii’s F-22s has a diesel generator and five to seven days of diesel fuel. The waste-to-energy facility and grid project aims to extend the wing’s ability to operate independently by weeks or even indefinitely, said Osserman, currently the director of the Hawaii Center for Advanced Transportation Technologies.


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