Alaska Journal of Commerce

Feds file to dismiss suit over Kenai River subsistence gillnet

The Ninilchik Traditional Council filed a response March 3 to a motion by the Federal Subsistence Board and U.S. Secretaries of the Interior and Agriculture seeking to dismiss a lawsuit filed last October. NTC filed the complaint after requests were denied by the board to remove federal fishing manager Jeff Anderson and to approve a subsistence gillnet on the Kenai River. According to the motion seeking dismissal by the federal defendants filed Jan. 25, the court should not take up the lawsuit because the Kenai River approval is ongoing. “Plaintiff lacks standing, and its claims are unripe,” reads the motion, “because its claims center around the (Federal Subsistence) Board and the in-season manager’s actions related to a gillnet fishery on the Kenai river, and the decision to authorize that fishery is not yet final.” NTC filed the complaint against Federal Subsistence Board Chair Tim Towarak, U.S. Secretary of Agriculture Tom Vilsack and U.S. Secretary of the Interior Sally Jewell. NTC disputes federal actions that closed subsistence fishing for chinook salmon last summer on the Kenai River because of conservation concerns and the refusal of Anderson to approve an operational plan for a gillnet on the Kenai River within the federal Kenai River Wildlife Refuge. In a divided vote, the Federal Subsistence Board approved the use of a subsistence gillnet on both the Kenai and Kasilof rivers in January 2015, drawing strong opposition from other stakeholders linked to Cook Inlet commercial and recreational fishing. So many people have challenged the proposal, the defendants argue among other administrative points, that the board still hasn’t authorized the operational plan for the fishery. “The board has not yet completed the process of determining whether to authorize the gillnet fishery,” reads the motion. “While it initially decided to authorize the fishery, multiple parties have filed requests for consideration, and that reconsideration process is still underway.” According to a previous Supreme Court decision, “when a motion for reconsideration is pending, an order under reconsideration is nonfinal.” NTC denies this argument on several grounds. First, NTC challenges that the 700-plus requests for reconsideration already filed don’t meet the criteria for the legal definition of a request, which can only be filed by a party “aggrieved by a (board) failure…to provide the priority for subsistence uses.” Because none of the request filers are subsistence communities directly impacted by Federal Subsistence Board actions, their requests cannot hold the process, according to the NTC response. “Defendant’s interpretation…would deny NTC the right to a meaningful subsistence fishing opportunity merely because someone who disagrees with the board, and who has no right to a judicial review, takes advantage of an ambiguous administrative position to delay the fishery for year,” the response reads. Further, NTC argues that the board characterized its two early special action requests as requests for reconsideration, and denied them. That makes the matter final, and the complaint timely. “The claims in NTC’s complaint stem from these final administrative actions…NTC’s claims relate to final actions and are ripe even under defendants’ reading of the applicable regulations,” the motion argues. NTC argues that the dismissal motion is disingenuous as the approval of the Kenai and Kasilof gillnets regulation already appeared on the Federal Register. “Indeed, the 2015 Federal Register notice in which the final gillnet fishery regulations were published makes the Board’s position clear: the gillnet regulations were effective, and thus final and ripe for the purposes of this litigation, on the date they were published,” according to the NTC motion. The denial is the latest in a back-and-forth between the federal government, NTC, and non-subsistence fishermen on the Kenai River. In January 2015, the Federal Subsistence Board, a multi-agency board that governs Alaska subsistence users, allowed NTC two community subsistence gillnets, one each on the federally managed portions of the Kasilof and Kenai rivers in the Kenai National Wildlife Refuge. As a condition, NTC would have to submit operational plans for each gillnet. The federal in-season manager Anderson, who works for the U.S. Fish and Wildlife Service, must approve the plan before either net can go in the water. The proposal passed 5-3, with the U.S. Fish and Wildlife Service voting against. Few besides NTC itself appreciated the gillnets. State and federal biologists opposed the gillnet idea on conservation grounds. More than 700 requests for reconsideration have flooded the Office of Subsistence Management urging a repeal; the previous record for such requests of a single proposal was six. Anderson reviewed and approved an operational plan for the Kasilof River sockeye gillnet on July 13, but did not approve the operational plan submitted for the gillnet on the Kenai River. In an emergency order, Anderson also closed all chinook fishing in the area, including subsistence fishing. Anderson argued that while the early chinook run did meet the lower end of the escapement goal, the low statewide numbers for chinook returns merited a conservation-minded approach. NTC Executive Director Ivan Encelewski said there were no conservation concerns, and that Anderson unfairly halted the fishery for political reasons. With a week to go in July, the Alaska Department of Fish and Game liberalized commercial fishing time for sockeye salmon and allowed the recreational take of Kenai River chinook salmon based on estimates that the minimum escapement goal would be met. The Ninilchik Traditional Council submitted two requests on July 17 and July 21 asking the subsistence board not only to rescind Anderson’s orders, but to remove Cook Inlet area subsistence fishing from the federal in-season manager’s authority. Further, NTC wanted to rewrite the proposal, requesting that the federal manager be forced to accept their operational plan. At a July 28 meeting in Anchorage, the board upheld Anderson’s decision to deny the operational plan and kept him as the manager of the fishery despite the council’s request to remove him. The special action request failed on a tie vote. Ninilchik Tribal elder and Council President Greg Encelewski later spared no venom, describing the board and Anderson’s management as “shameful.” DJ Summers can be reached at [email protected] Follow him on Twitter @djsummersmma.

Federal Subsistence Board restores Saxman’s rural status

The Federal Subsistence Board has ended a decade-long struggle for the Southeast Alaska village of Saxman by restoring its rural designation. As a formally recognized rural village, Saxman residents now regain subsistence hunting and fishing rights they lost in 2007 when the board declared the village “nonrural.” Tribal leaders expressed relief, saying their practical survival and cultural survival depend on subsistence rights. “The importance of being recognized as a rural community is acute for Saxman and is crucial to survival,” said Lee Wallace, Tribal President of the Organized Village of Saxman, in a release. “Subsistence is an essential cultural practice, a traditional worldview that is at the heart of surviving and thriving in Saxman,” In 2013, the Village of Saxman in Southeast Alaska filed a lawsuit against the board, the Department of Interior, and the Department of Agriculture over a 2007 board ruling that stripped the village of federal subsistence rights with a nonrural designation. A key part of qualifying for federal subsistence rights means having a rural designation. In 2007, the Federal Subsistence Board ruled that Saxman and its largely-Tlingit inhabitants would incorporate into the Ketchikan urban area two miles north and lose rural status, and therefore not qualify for federal subsistence rights. The Department of the Interior updated regulations in November 2015 defining which parts of Alaska are designated as rural. The new regulations restore Southeast Alaska’s village Saxman as rural, and establish a new process for making rural designations. The Federal Subsistence Board voted unanimously to adopt the rule proposed by the Secretaries of the Interior and Agriculture giving the board the authority to restore subsistence rights to Saxman under a new flexibility to make the numerous designations in Alaska that require rural or nonrural designation as a matter of policy. DJ Summers can be reached at [email protected]

University cuts could damage fisheries, Arctic research

A state fiscal crisis looms, and some of the Legislature’s budget cuts could send ripples into Alaska’s largest private employer and international political affairs. Rep. Tammie Wilson, R-North Pole, passed a series of university budget cuts out of her subcommittee on March 4 that would lop $50 million from the university budget, largely from research and outreach funding. The subcommittee ended up with a final university unrestricted general fund budget of $300 million, a $50 million cut from last year’s budget. The equivalent Senate subcommittee, chaired by Sen. Pete Kelly, R-Fairbanks, proposed a $325 million budget. The House and Senate will likely make amendments to the budget during a conference committee later in March. University of Alaska research functions reach far into trade and key political discussions. Alaska research plays a vital role in state and federal fisheries management as well as Arctic research, now in the political spotlight as the U.S. holds the chair of the eight-nation Arctic Council. Alaska Bering Sea Crabbers, an industry group that represents 70 percent of all crab harvested in the North Pacific, penned a letter to both the House subcommittee and the House Finance Committee urging legislators not to cut research funding. “If the proposed subcommittee recommendation is adopted,” the letter reads, “it will seriously jeopardize UA’s continued ability to support fisheries in Alaska. Everyone in the state will suffer as a result. Commercial, recreational, and subsistence users will have fewer harvest opportunities.” Mark Gleason, the organization’s director, calls the university research cuts a “one-two punch” combined with Alaska Department of Fish and Game budget reductions — proposed at 15 percent less than last year. Together, the cuts to fisheries management and research spitball into more conservative management, he said, resulting in lower fishing quotas in a time when Alaskans need income the most. Gleason said the cuts seem far too broadly focused, and didn’t solicit industry input. “I think the legislators pushing for this aren’t taking a targeted approach, they’re just slashing,” said Gleason. “No one’s talking about being creative. It’s just cut, cut, cut.” Fisheries management has private funding components; to partially fund the Alaska Seafood Marketing Institute, fishermen pay a voluntary landings tax. With general funding to ASMI cut and the state running a negative balance sheet for fisheries management, fishermen could consider what they can pay voluntarily to compensate for state reductions. Gleason, however, said he hesitates to go too far down that path, as science and industry politics make bad bedfellows.  “It would be somewhat problematic to do this,” said Gleason. “It’s important to have independent science. If the industry is funding scientists to be involved in the fisheries management process, at what point is that going to cease to be independent? When you start having industry fund scientists, you open up a can of worms. You don’t want the cure to be worse than the disease.” Federal matching funds in peril The University of Alaska Fairbanks School of Fisheries and Ocean Science is a leader in marine research, regularly ranked in the top three nationwide according to Gordon Kruse, director of the school’s fisheries division. As director, Kruse said most of his research concerns industry, not academics. “All of my work is focused on the commercial industry in Alaska,” said Kruse. “There’s nothing I do that isn’t related to them.” Most of the university’s research funding comes from Outside grants. A 2012 study by Juneau-based economics firm McDowell Group linked $1 billion in competitive grants to the University of Alaska system in the decade between fiscal years 2002 and 2011. Federal funds, however, require a direct state match. A drop off in state contributions could jeopardize them. “In (fiscal year) 2015, approximately $24.2 million was allocated from the state to UAF organized research,” reads a letter from UAF to the House subcommittee. “For every $1 of state general fund investment, UAF was able to leverage this investment and generate an additional $4.10 of external funding. This is a substantial return on investment. If state funds are not available for match, UA’s ability to receive external funding is severely limited.” Apart from the loss of programs themselves, Kruse is concerned about the potential impacts to staff and to research infrastructure. Faculty comes to the University of Alaska system in part because of the research opportunities, he said. As the line between academic work and research work gets drawn, Kruse anticipates that faculty will leave the university. “If they’re cutting state funding for research, that also cuts down on the amount of time researchers can write proposals,” said Kruse. “Without a doubt, we’d be losing people.” The university would not only use people, but necessary equipment those people use to carry out research. The University of Alaska uses the Sikuliaq, a marine research vessel, to perform field studies. One of the few ice capable research vessels in the nation, the 261-foot research Sikuliaq is owned by the National Science Foundation but under current use by the University of Alaska Fairbanks. Home-ported in Seward, it is in its first year of operations in the Arctic, including a test voyage to the ice regions of the Bering Sea and projects in the Aleutians and in the Beaufort and Chukchi seas. The Sikuliaq, Kruse said, falls into a “use it or lose it” scenario. As a prerequisite, he said, the university has to put down a $5,000 match on the vessel or else the National Science Foundation will accept bids from other parties looking to perform research. “There’s other universities that would snap that up,” he said. State and federal fisheries management Both state and federal fisheries managers rely on collaborations with university research faculty to craft regulations and set harvest quotas. Routine research functions play a large role in management for the Alaska Department of Fish and Game, which manages state fisheries up to three miles offshore, and for the North Pacific Fishery Management Council, which manages federal fisheries from three to 200 miles off the shore. ADFG and the council co-manage the crab stocks, with the federal Scientific and Statistical Committee creating models and adopting overfishing limits while ADFG ultimately sets the harvest quota. Virtually all management decisions on the North Pacific council depend on intensive quantitative studies. Economic and environmental impact analyses, stock assessments, and myriad biological studies all form the basis for the council’s regulatory scheme. The North Pacific council has two support groups, the Advisory Panel, or AP, and the Scientific and Statistical Committee, or SSC. Before either the Advisory Panel or the council even begin reviewing proposed regulations, the SSC vets each proposal to ensure it meets scientific muster. University of Alaska faculty comprises five members – a full third – of the SSC, two from Anchorage and three from Fairbanks, including Gordon Kruse. The council pays for travel, but university faculty look to research funding to foot the bill for their time. Kruse said cutting research funding could prevent university faculty from fulfilling their duties on the SSC, leaving the North Pacific council without any Alaskan scientists. “We would create a huge vacuum,” said Kruse. “Outside of us, there is a representative from ADFG. But all the others come out of state.” North Pacific council Executive Director Chris Oliver said he couldn’t guess how research cuts will affect the dozens of ongoing research projects the council is involved with. However, he said the potential impact to SSC membership alone is troublesome. “In this case there certainly are implications for our management,” said Oliver. “That would be a very direct and significant concern.” Like Kruse, Oliver is not only concerned with federal/university cross pollination, but that actual structure by which research is done. Many of the North Pacific council’s research projects depend on the Sikuliaq. Similarly, ADFG relies on university researchers for evaluations of quantitative studies. ADFG Deputy Commissioner Charlie Swanton said the department sends off for university assistance when it needs to review one of the many studies on which it bases management decisions. ADFG pays overhead costs for all its university research, so these collaborations would only be hindered by the department’s own substantial fiscal challenges. However, Swanton echoes Kruse’s concerns about research staff thinning out as budget cuts make the University of Alaska less attractive. “There’s levels of technical specificity that only they have,” said Swanton. “If you want a review of sonar program or a stock assessment, we go to the university and find the right person. If there’s not research dollars to support some of those functions, those researchers are going to go elsewhere.” Faculty and staff turnover translate to ADFG’s employment pool as well. The department’s Sportfish Division hires three university graduate students every year to study specific ADFG issues in collaboration — for credit — with the university. After they’ve completed the project, many come onto ADFG as full time staff, already having been trained during their graduate research. Arctic Council University cuts come at a bad moment for the Arctic, according to John Farrell, executive director of the U.S. Arctic Research Commission. “The timing is not good,” said Farrell. The Arctic Research Commission is an independent federal agency of presidential appointees that advises the White House and Congress on Arctic research matters and works with executive branch agencies to establish and execute a national Arctic research plan. The commission is an important gear of the international Arctic Council, an international study group of the eight countries that touch the Arctic Circle, founded by the Ottawa Declaration of 1996 to provide a means for its members to work on mutual Arctic-centric issues. The United States entered the chair position of the Arctic Council in April 2015, taking over for Canada. The chair position is held for two years before being taken by another of the eight member countries. The U.S. is a member thanks only to Alaska, along with the Russian Federation, Canada, the Kingdom of Denmark (including the Faroe Islands and Greenland), Iceland, Norway, Finland and Sweden. It makes no grants and builds no projects, focusing its efforts mostly on information gathering, sharing, and disseminating, both through collaborations among government bodies and working relationships with private advocacy groups, academic organizations, or any other organization who wants to contribute to Arctic study. In addition to leading fisheries and marine research, the University of Alaska Fairbanks has one of the premier Arctic research programs in the world. For Arctic research, no university is cited more that UAF. “The work of the Arctic Council is done largely by working groups and task forces. The working groups do assessments,” said Farrell.  “A fair bit of this is done in University of Alaska.” The U.S. is already a year into its Arctic Council chairmanship; Farrell said whatever research cuts eventually take place will not impact the current Arctic Council. Rather, Farrell worries how cuts will affect U.S. contributions later. “There’s a long lead time on science,” said Farrell. “It’s not going to be the end of the world for the U.S. chairmanship, but it could significantly diminish our contributions down the road.” Farrell said Alaska will have a high profile for the remainder of the U.S. Arctic Council chairmanship; up to a thousand scientists and government officials will attend a UAF Arctic meeting — actually dozens of meetings and workshops — over the university’s spring break in March. Among other meetings, Secretary of State John Kerry will be in Fairbanks for an Arctic Council meeting in 2017. With Alaska in the spotlight, Farrell said a lack of research capability could be bad optics. “The council has two pillars: sustainable development and conservation,” said Farrell. “What feeds those things is knowledge economy…those all link back to research. It would be an acute message to other member nations when they come here for research purposes and the locals have to say, ‘Well we really wish we could help you out but we’ve got no research funding.’” DJ Summers can be reached at [email protected]

IEP talks advance with Cook Inlet gas partner

The Interior Energy Project took a big step forward March 3 when the Alaska Industrial Development and Export Authority announced it is negotiating with a sole project partner to supply Cook Inlet natural gas to the Fairbanks area. IEP Manager Bob Shefchik said to the AIDEA board that the proposal by Salix Inc. to build a small natural gas liquefaction facility on Point MacKenzie in the Matanuska-Susitna Borough is the best option for the project as it faces viability challenges brought on by low oil prices. Salix is the last standing of 13 companies that offered 16 ideas to get an alternative space heating energy source to the Interior in response to a June 2015 request for proposals, or RFP, issued by the state authority. According to an analysis by the global consulting firm Arcadis Inc. of Salix’s proposal, the plan for a $68 million, 3 billion cubic feet per annum natural gas liquefaction plant should equate to gas delivered to Interior customers for $15.74 per thousand cubic feet, or mcf. That price would nearly meet the project’s stated goal of $15 per mcf, which is roughly the energy equivalent price of $2 per gallon fuel oil. Salix and Spectrum LNG, a small Oklahoma-based LNG company with a North Slope-sourced proposal, were the finalists in the RFP process started this past summer. Salix is a subsidiary of Avista Corp., a Spokane, Wash.-based utility company that operates electric and natural gas utilities in Idaho, Oregon and Washington. Avista also purchased Juneau’s Alaska Electric Light and Power Co. in 2014. Avista spokeswoman Jessie Wuerst said the company is very pleased to have been chosen as a partner to this point but declined to comment further because project negotiations are ongoing. The basic financing structure for the plant would start with a $30 million equity investment by AIDEA and a $28 million, long-term, low-interest loan from the state Sustainable Energy Transmission and Supply Fund. Salix would post a $10 million equity stake; requiring an 11.7 percent rate of return. Shefchik said the $3.24 per mcf tolling fee identified by Salix for the LNG plant  — the first major cost layered on the wholesale gas price to add up to the final “burner tip” cost of gas for consumers — could fall in negotiations. “As we work with Salix on both the term sheet and the financing, our effort is to push that $3.24 down to the $2 range and we believe that’s possible,” he told the AIDEA board. AIDEA’s first attempt at the project in 2014 was limited to North Slope gas by legislation passed in 2013 that funded the project with $332.5 million with primarily low-interest loan and bond authority, as well as a $57 million grant appropriation. Financing for the Salix plant would come from that pot of funding, as the legislation was amended last year to support a Cook Inlet-sourced Interior Energy Project. The ability for Cook Inlet producers to supply another market long-term was unclear in 2013, but the Inlet’s available gas reserves have grown since, as new companies have entered the market and Hilcorp Energy’s work on existing gas fields has also greatly improved the situation. Further buoying Salix’s proposal is a $6 per mcf Cook Inlet wholesale gas price, and the prospect of even lower-cost natural gas to feed the LNG plant, according to the project evaluation. Southcentral utilities have signed gas supply contracts in recent months for base demand in the $7.50 per mcf range, less than a current state-mandated price cap that expires at the end of 2017. Shefchik said in an interview the project team is negotiating with multiple producers for gas supply. He also noted the unavoidable reality of high capital costs on the Slope as a main reason for moving forward with Salix over Spectrum. That was evidenced in the first IEP go-round, which was scrapped by the authority just prior to making an investment decision because construction costs for a larger plant kept final projected gas prices in the $18 per mcf and higher range — too high to continue. Now, oil in the $30 per barrel range has pushed fuel oil down to the $2 per gallon range, challenging the IEP from any gas source, as potential customers are less likely to make upfront investments to convert to natural gas. However, Shefchik said the energy price reprieve has also given AIDEA the time to develop a project durable across a range of energy prices rather than rushing to complete a less optimal solution. Larger LNG trailers should also play directly into improving the final cost of gas in Fairbanks, Shefchik said. Pentex Alaska Natural Gas Co., the parent company to Fairbanks Natural Gas owned by AIDEA, has been testing a 13,000-gallon capacity LNG trailer for suitability along the route from Southcentral the Fairbanks. Positive results from those test runs means the larger LNG trailer could lower transportation costs by about 30 percent versus the 10,500-gallon capacity trailers currently used to supply Fairbanks Natural Gas from the small LNG plant on Point MacKenzie. Additionally, building the Salix plant on the same pad as the plant run by Pentex subsidiary Titan LNG could offer operational savings by running both plants with a single operator. Shefchik said the location the Salix plant isn’t yet settled but he hopes it can be built alongside the existing plant to minimize capital costs and maximize operational efficiencies. Besides the economic benefits of a potentially lower- and stable-cost energy supply, a successful Interior Energy Project would significantly improve the region’s winter air quality — some of the worst in the country due to low-level atmospheric inversion that occurs in the area and traps wood smoke and emissions from fuel oil furnaces. Detailed negotiations are with Salix are ongoing, according to Shefchik, and an official recommendation from the AIDEA board to continue is expected at its March 31 meeting. Fairbanks rates drop 10.4 percent Fairbanks Natural Gas President Dan Britton told the AIDEA board that changes to the utility’s pricing structure implemented Jan. 1 have largely been successful, resulting in ratepayers bills being lowered by an average of 10.4 percent during the first two months of the year. AIDEA took ownership of the utility last year through the authority’s $52 million purchase of FNG’s parent company Pentex. Transfer of the private, unregulated utility to a public entity allowed for lower rates of return and tax savings among other items that were first expected to result in 13 percent rate reductions for FNG customers. At the same time, Britton wrote in a brief operational report to the AIDEA board that the warm Interior winter and low fuel oil prices have combined in a gas sales volume that is 17 percent, or about $700,000 below budget for January and February. “We will be watching expenses very closely,” Britton said, adding capital projects may be deferred if the trend continues. He said in an interview that margins were already thin after the rate reduction but that the utility is still on solid financial footing. With the forecast showing no sign of a cold snap, Fairbanks seems to have escaped this winter without hitting minus-30 degrees Fahrenheit. Most winters the city sees more than 20 days colder than minus-30, Britton said, which simply means customers burn less natural gas. The number of heating degree days — a temperature-based metric for determining how much energy is required to heat a structure during cold weather — in Fairbanks has also been off 17 percent from FNG’s budget in the first to months of the year, according to the report to the board. Piling on the warm weather is cheaper fuel oil that has led some Fairbanks Natural Gas customers to revert back to the fuel the city has so badly wanted to get off of. At about $2 per gallon delivered, fuel oil is about 25 percent cheaper on an energy equivalent basis than FNG’s current price for natural gas, which is about $20 per mcf, according to Britton. He said 12 of the 14 school district buildings that the utility had budgeted to be on natural gas switched to fuel oil in January and February, along with the state’s Ruth Burnet Sport Fish Hatchery. Many of the utility’s large customers are interruptible, which allows FNG to supply them with gas when it is available. That also means interruptible customers must have a backup fuel source — and when the backup fuel is cheaper it is their prerogative to switch. Elwood Brehmer can be reached at [email protected]

Museum exhibit to celebrate century of Alaska banking

The Alaska Heritage Museum will feature exhibits and speakers on March 14 at Wells Fargo’s Northern Lights Boulevard headquarters to celebrate a century of banking in Alaska. Event speakers will include Ed Rasmuson, chairman of the Rasmuson Foundation, Terrence Cole, a professor of history from the University of Alaska Fairbanks, former Wells Fargo Alaska Regional President Richard Strutz, and current Wells Fargo Alaska Regional President Joe Everhart. The event will begin at 5:30 p.m. on the first floor of 301 Northern Lights Blvd. Museum manager Tom Bennett said the exhibit and speakers fall back on a rich history of financial institutions in Alaska that distills the patterns and attitudes of Western banks in the Lower 48, and marks the rise of the Rasmuson family, National Bank of Alaska and eventually Wells Fargo in the history of Alaska’s key developers. Wells Fargo traces its roots in the state back to the Gold Rush days, and National Bank of Alaska opened as the Bank of Alaska on March 20, 1916, in Skagway. Before the modern world of banking regulations, any frontiersman looking to earn extra cash could get into the business. “The banking history in Alaska is so complex it’s amazing,” said Bennett. “At the time of the gold rush, anybody could own a bank. If you were a barber, you could own a bank. You could just put a sign on your door that said, ‘I’m a bank.’” The territorial Legislature allowed branch banking, and the Bank of Alaska opened offices in Skagway, Wrangell and Anchorage. Edward “E.A.” Rasmuson moved to Skagway in 1916 after passing the bar and becoming an attorney in the then-territory, then took over Bank of Alaska in 1918 despite no banking experience. As World War I funneled resources towards the national war effort and shaky banks struggled even harder to stay afloat, Rasmuson bought up the boutique banks, enlarging the Bank of Alaska’s footprint. Wells Fargo at the time established itself as a transportation provider for the gold and furs coming from the Interior. When the federal government took over such transportation services at the onset of World War I, Wells Fargo shifted to a purely financial institution elsewhere. It wouldn’t resurface in Alaska until purchasing National Bank of Alaska in 2000. Wells Fargo is the largest bank in the state with 49 branches and 53 percent of total deposits totaling more than $6 billion according to the most recent FDIC reports. After passing away in 1949, E.A. Rasmuson left the bank to his son Elmer Rasmuson, and his widow Jenny Rasmuson established the foundation bearing the family name in 1955. Elmer Rasmuson eventually served as mayor of Anchorage and his interest in fisheries led him to the chair of the North Pacific Fishery Management Council, which governs the federal waters off Alaska’s coast. When Elmer Rasmuson passed away in 2000 not long after his son Ed negotiated the sale of National Bank to Wells Fargo, he left his personal fortune of some $400 million to charity and much of it to the family foundation. Until the 1960s, Alaska’s banks and its economy stood on shaky ground. Bennett said E.A. Rasmuson’s early lending practices foreshadowed his namesake foundation’s charity, signing loans on a handshake and even bartering goods and livestock for loans before statehood prohibited the practice. The spirit of Alaska solidarity, formed by mutual dependence in a harsh environment, remains in Alaska’s banking world today, Bennett said. “Even looking at other states, National Bank of Alaska and the Rasmuson family really stands out as extraordinary,” said Bennett. “Even if someone couldn’t afford a loan, they’d find a way to get them a loan. That bled its way into the whole banking industry.”

Fishing industry: Maximize existing rates before raising taxes

Gov. Bill Walker’s fisheries tax bill is still lingering in committee as fishermen and legislators try to stave off new taxes by turning the discussion to maximizing collections at existing rates. By this point, several of the state’s largest fishing industry trade groups — including the United Fishermen of Alaska, Alaska Salmon Alliance, and the Pacific Seafood Processors Association, or PSPA — sent letters to legislators supporting the concept of fishing taxes but calling the bill too simple and too rushed to not harm the fishing industry unfairly. The bill would raise taxes on all segments of the commercial fishing industry by 1 percent. During a House Fisheries Committee hearing on March 8, the conversation veered into existing tax territory, probing for more opportunities to increase existing tax revenues instead of raising rates. “It’s really a question of auditing,” said Department of Revenue Tax Division Director Ken Alper. “This is really one of those things where we don’t want to raise our existing taxes until we know we’re getting all the taxes we could have.” In particular, Specifically, offshore catcher processors harvesting yellowfin sole, Atka mackerel, and other groundfish are being taxed at the statewide average for those species instead of the market value specific to that vessel. “There is an offshore catcher processor fishery that catches yellowfin sole that right when they come out of the water that value is between 12-16 cents a pound (as opposed to the statewide average of 2 cents a pound),” said Vince O’Shea, vice president of the PSPA. “So the difference is potentially 14 cents a pound. In yellowfin sole, that overall tonnage is 298 million pounds. Another species, Atka mackerel, the statewide fish price is 10 cents a pound. But there’s estimates that the at sea is 32 cents a pound. That total tonnage there is 69 million pounds.” Nobody is gaming the system, O’Shea said. Instead, the state’s tax collection methodology creates such pockets of undervalued species. “It’s not an issue of underreporting,” said O’Shea. “The system is set up that the Department of Revenue operates off the statewide average price list. Let’s get everyone on a level playing field and get everyone paying the same rate.” PSPA’s notice is similar to an earlier Department of Revenue finding that a tax rate glitch let groundfish trawlers off the hook for more than $10 million of fishery taxes in the last half-decade. The fishery resource landing tax assesses groundfish based on ex-vessel price. Processors turn flatfish caught as bycatch into low-value fishmeal, so the only known ex-vessel price for certain flatfish species is artificially low. Nine species have this price uncertainty, but most flatfish volume comes from yellowfin sole and Atka mackerel. According to state research estimates, the state has lost out on $1.8 million to $2.5 million per year, or more than $10 million over the last five years. “That $2 million is serious money,” in an environment of nickel and dime tax raises elsewhere, Rep. Jonathon Kreiss Tomkins, D-Sitka, said. Alper said during the committee that the state is nearer to establishing a more reliable way tax rate for the offshore groundfish processing sector. Committee chair Rep. Louise Stutes, R-Kodiak, also questioned the practice of bonus or retroactive pay for fishermen part of a limited liability corporation or cooperative. “When they first deliver their fish, you get the minimum amount for your fish,” she said. Later when fish may have sold for a higher price, fishermen can receive retroactive pay for the difference. “That’s not a return on investment, that’s being paid for the fish,” Stutes said. “Call it whatever you want, those fish need to be accounted for tax dollar wise.” PSPA, along with Ocean Beauty Seafoods and Icicle Seafoods, proposed an equalization of taxes for each fishery sector by setting every sector’s tax rate to 4 percent. This would be a raise for some sectors but would lower the tax rate for others, including the floating processors and canned salmon sectors. The committee was lukewarm on the proposal; Alper insisted the administration’s intent was to support the bill as written. “I don’t see that there’s a need in this environment to cut those taxes,” said Alper. The bill’s next scheduled hearing on March 10 was canceled. It has not yet been scheduled for another. DJ Summers can be reached at [email protected]

Laukitis, Peterson nominated for North Pacific council

Gov. Bill Walker submitted nominations to fill two seats of the North Pacific Fishery Management Council on March 9. Walker has nominated Buck Laukitis and Theresa Peterson to replace Duncan Fields and David Long among the 11 voting members of the council, one of eight regional councils established by the 1976 Magnuson-Stevens Act to oversee federal fisheries from three to 200 miles off the coast. Fields has served his maximum of three, three-year terms, while Long has served just one. As alternates, Walker forwarded Eric Olson, Paul Gronholdt, Linda Behnken, and Art Nelson. “I am pleased to recommend Theresa Peterson, Buck Laukitis, and the four alternate nominees to the North Pacific Fishery Management Council,” said Walker in a release. “Each of these individuals provides balanced and insightful experience that will benefit the council, and contribute to fisheries management and conservation in the North Pacific region.” The U.S. Secretary of Commerce must confirm each nomination. Council seats are held for three years and may serve up to three terms. Of 11 voting members, six seats are reserved for Alaskans, including the commissioner of the Alaska Department of Fish and Game, currently held by Sam Cotten. The remaining seats are reserved for the fish and game officials from Washington and Oregon, as well as a designated seat for the National Marine Fisheries Service Alaska Region. Laukitis is a commercial fisherman from Homer and the owner of Magic Fish Company. While he has no previous fisheries management experience on either the Alaska Board of Fisheries or the council’s Advisory Panel, Laukitis said his experience dealing with proposals to the board and counci, and serving on various fisheries advisory groups has prepared him for the council membership. Laukitis holds permits for several fisheries, including salmon, halibut, and an inactive rockfish trawl license. “I’m pleased and happy and look forward to working with the other members of the council, particularly the other Alaska members,” said Laukitis. Laukitis said he views himself as a small boat Alaska fisherman first, and plans to lend that viewpoint to the council. Laukitis’ daughter and son-in-law both operate the family fisheries with him, and looking out for the next generation of fishermen will be paramount in his council actions. “I have the next generation right in my household who want to be a part of this, and so that’s always first and foremost in my mind how council decisions will affect them,” said Laukitis. Peterson, a Kodiak resident and commercial fisherman, currently serves on the council’s Advisory Panel. Peterson has been a vocal supporter of regulations that would directly benefit Alaska coastal communities and a critic of those she feels would damage them. Most recently, Peterson expressed opposition to a proposal to establish rationalization programs in the Gulf of Alaska groundfish fisheries she felt would impact Kodiak residents not tied to large-scale fishing operations. Instead, Peterson voted to have the council further examine a set of proposals that are universally unpopular with trawl industry representatives.

Enstar to save $14M in first year of new gas deal with Hilcorp

The eventual return to a free Cook Inlet natural gas market is looking good for consumers as the latest round of gas supply contracts are signed by utilities. Enstar Natural Gas Co. has reached a deal with Hilcorp Energy to fuel the lone Southcentral gas utility through March 2023 at prices more favorable than those outlined under the Consent Decree that regulates Inlet gas contracts through 2017. Filed with the Regulatory Commission of Alaska Feb. 29, the gas sale and purchase agreement between Enstar and Hilcorp would kick in April 1, 2018, at an average price of $7.56 per thousand cubic feet, or mcf, for firm gas deliveries. That would amount to a 9.2 percent price decrease compared to contracts under Consent Decree terms that will expire at the end of March 2018 — an overall $14 million savings in the first year. Enstar Vice President and General Counsel Moira Smith said that savings will be passed on directly to utility’s customers. “It’s a nice discount off of Consent Decree prices,” Smith said in an interview. “We thought it was a big win for our customers.” The firm gas price at then end of the deal in 2023 is $8.19. The tentative agreement, which is subject to RCA approval, also calls for an annual 2 percent price increase, versus the 4 percent yearly escalation allowable under the Consent Decree. The Consent Decree is the deal reached by the Attorney General’s office and Hilcorp in late 2012 that set price caps for Inlet gas contracts from 2013 through 2017, thus allowing Hilcorp to purchase gas and oil interests from Marathon and Chevron and become the majority gas supplier in the basin. At more than 22 billion cubic feet, or bcf, per year, Hilcorp would supply about 70 percent of Enstar’s projected demand under the contract — a demand forecast that is flat at 33 bcf for the foreseeable future. Smith said Enstar’s customer base grows a little more than 1 percent a year, but increasingly energy efficient homes using less natural gas offsets new customer demand. Regional electric utilities that use natural gas as primary fuel source have made similar comments regarding their own demand forecasts. Last year Chugach Electric Association and Homer Electric Association signed gas supply contracts extending beyond 2017 at prices less than Consent Decree prices as well. Enstar was able to combine firm, base delivery and peak volume demand prices in the deal, which will cover for contacts of each type the utility had with Hilcorp that are expiring in 2018, according to Smith. Higher prices for peak demand purchases add about 15 cents to the average yearly gas price paid by Enstar under the agreement. Utilities typically hunt hard for the longest-term contracts they can to provide customers with security of fuel supply, but there were other factors that led to the five-year term. “Our goal was to get some stability and five years gives us some stability while simultaneously allowing other producers time to get on their feed and get some real production up and going and also allow room for a (pipe)line from the North Slope that we could purchase from,” Smith said. “It was not Hilcorp saying they did not want to negotiate for more than five years.” If seen to fruition on its current schedule, the Alaska LNG natural gas export project would begin shipping North Slope gas to Southcentral in late 2024 or 2025, but the state and its partners have announced they won’t have key agreements in place for approval by the Legislature this year, likely delaying the effort. As to the large share of the contract — filling upwards of 70 percent of Enstar’s total gas demand through one producer — Smith said frankly, “It’s because nobody else could do it.” While there is little doubt gas reserves in the basin could supply Southcentral for at least several decades, limited local demand continues to hinder the market for Inlet gas. Producers could develop the resource, but they would have no one to sell it to. Thus, the market has narrowed to one with a single, dominant producer in Hilcorp, despite having some of the highest wholesale natural gas prices the world currently. Hilcorp’s near exclusive control of Cook Inlet natural gas supply spurred the Consent Decree — a way for the state to limit the monopoly power over a critical commodity. Smith said the Consent Decree did its job in that it ended exorbitant high bidding for peak demand gas sales and added a “degree of functionality” to the market. For its part, Hilcorp has been a reliable partner and provided good service to its utility customers, she said. “Without engaging in hyperbole, (Hilcorp has) acted as very good stewards of the state resource to ensure stability for utilities,” Smith said. She added that Enstar would still like to see more players, on either side, in the market. Since Agrium Inc. shut down its Nikiski fertilizer plant in 2007, Enstar has become the major buyer, accounting for a third to half of all gas demand from the Inlet. Just three years ago Enstar resisted the idea of new Cook Inlet customers because the market was strained on the supply side, Smith said. Hilcorp’s work to improve supply from existing fields has flipped the market challenge. Now, the utility would prefer to be “noise” in a much larger gas market, Smith said, under the premise that a larger market would spur more production leading to better security of supply and price competition. Sporadic sales from ConocoPhillips’ Nikiski LNG export facility have increased gas demand slightly over the last couple years, but depressed worldwide LNG prices have put the immediate viability of future exports in question. Furie Operating Alaska LLC is finishing early development of its Kitchen Lights Unit and has one small contract in place with Homer Electric, under which gas sales are set to start in April. The base load gas price in that deal is $7.42 per mcf, according to RCA filings. Elwood Brehmer can be reached at [email protected]

Alaska Communications posts positive net income to close 2015

Alaska Communications Systems Group Inc. posted strong final quarter for 2015 closing the year after the sale of Alaska Wireless Networks to General Communication Inc. in a move that reduced the company’s debt by $240 million and primed it to focus on increasing business revenues. Balance sheets still reflect the sale and the departure of wireless revenue. Total operating revenue for fourth quarter 2015 declined, from $77.5 million in 2014 to $56.6 million in 2015. For the year, operating revenue declined from $315 million to $233 million. Operationally, the divestiture of wireless expenses led to an income bump. Net income increased for the quarter compared to last year. In 2014, Alaska Communications had a $5.4 million loss, while fourth quarter 2015 produced a net income of $339,000. For the year, ACS had a net income of $13 million in 2015, rising above a $2.8 million loss in 2014. Since selling its one-third share of the Alaska Wireless Network, which combined the wireless infrastructure of Alaska Communications and GCI, the company made strides focusing on business broadband and managed IT services. Total broadband revenue reached $19.4 million from $17.5 million, up 10.4 percent. Business and wholesale service revenue grew to $32.2 million from $27.8 million, a 15.7 percent gain.  The company’s business services focus does come with a cost, as consumer revenues have dropped. Consumer revenue declined 6.3 percent and consumer broadband revenue declined 7.6 percent. Alaska Communications expected the dip in customer revenue, CEO Anand Vadapalli said. Consumer services – less than 20 percent of the total revenue – rely heavily on consumer broadband. More and more households cut traditional broadband and cable connections in favor of streaming directly from their wireless connections. Vadapalli said Alaska Communications’ consumer revenue drop comes in part from a service change. Rather than a host of packages, ACS now only offers one broadband package serving 10 megabytes per second, the fastest connection speed available. “We have dramatically simplified our product,” said Vadapalli. “We have one product, one price, the maximum speed you can use, and all the data you can use.” The trend of declining consumer revenue will continue in 2016, Vadapalli said, but he expects to stabilize in 2017. Vadapalli said Alaska Communications’ contract as broadband provider for ConocoPhillips, in partnership with wireline provider Quintillion, has yielded positive results since it began in 2015. Alaska’s market is unlike Lower 48 broadband markets in that it has only two major providers, ACS and General Communications Inc. Vadapalli said the company hopes to leverage this market scenario for a greater presence in oilfield and state government operations. DJ Summers can be reached at [email protected]

GCI posts record revenue, but net income loss, for 2015

General Communication Inc. finished the fourth quarter of 2015 strong, with record revenues but negative income, courtesy of the purchase of Alaska Wireless Network. GCI posted a $10 million net income loss for 2015, following a $7.6 million net income in 2014. Alaska Communications Systems Group Inc. sold its wireless subscriber business and its 33 percent share of the Alaska Wireless Network to General Communications Inc. for $300 million in cash in a deal finalized Feb. 2, 2015. In the second quarter of 2015, GCI folded the 87,000 acquired wireless subscribers into its coverage. The purchase has increased revenues, particularly in the consumer wireless segment in which GCI no longer competes for business with ACS. Total revenue increased from $910 million in 2014 to $979 million in 2015. Between 2014 and 2015, GCI wireless lines in operation increased from 149,600 to 227,800. The increase yielded expected results. Revenues for consumer wireless plans spiked in 2015 to $75.8 million, $45 million more than in 2014. Business wireless revenue increased $4 million from 2014 to $8.1 million in 2015. Wireless data plans for consumers also increased by $27 million, along with a $22 million bump in managed broadband data plans for businesses. During an earnings call, an investor asked whether GCI plans to use its existing TERRA fiber optic network to potentially increase presence on the North Slope now that ACS and Quintillion provide broadband services for ConocoPhillips. Chief Financial Officer Peter Pounds said GCI will continue to explore North Slope opportunities, and that GCI was not aware enough of Quintillion’s operations to comment. “The Slope, in spite of the low oil prices it’s still a very important region for us, both for wireless and for commercial customers,” said Pounds. “It’s one of the few places in the state where we have a non-redundant network, and much of our investment this year both on the TERRA Network and on the North Slope fiber designed to eliminate the remaining of pockets of single thread service.” CEO Ron Duncan, when asked about whether the state economy would eat into GCI’s bottom line, said he expected to see the economy contract quickly if the Legislature cuts too deeply into the state budget. “Right now the outlook for the industry is that it’s going to see some shrinkage in the economy,” said Duncan, who has co-founded the group Alaska’s Future to advocate for using Permanent Fund earnings to close the state’s massive budget deficit that’s nearing $4 billion for the current fiscal year. “This could be a very mild recession and we could have a reset and continue to build a core economy, or if the Legislature takes irresponsible actions and drives the budget off the cliff, you could see much more adverse results on the state economy probably before the end of this year.” DJ Summers can be reached at [email protected]

Plan for Southeast alternative fuel revived with propane

Alaska has a love affair with natural gas, but Frank Avezac says rural areas of the state should at least consider a date with its little sister, propane. Avezac is CEO of Alaska Intrastate Gas Co., a startup utility that March 4 announced plans to provide 17 coastal communities — from Kodiak to Metlakatla — with propane as an alternative to fuel oil with construction starting as soon as this year. The aggressive proposal by Alaska Intrastate Gas Co. would start in Cordova with infrastructure buildout in 2016 and then move to Juneau, Valdez and Ketchikan. Residents of the communities planned for gas development could see fuel cost savings of up to 30 percent from a switch from fuel oil to propane for space heat, according to Alaska Intrastate Gas Co. The full list of communities Alaska Intrastate Gas hopes to serve includes Kodiak, Valdez, Cordova, Yakutat, Klukwan, Haines, Skagway, Juneau, Angoon, Sitka, Kake, Petersburg, Wrangell, Klawock, Craig, Ketchikan and Metlakatla. Larry Head, vice president of power and energy for Alaska Intrastate Gas’ global engineering partner AECOM, said both the physical and market characteristics of propane make it a better option for remote Alaska communities. “The capital cost for producing, shipping and storing LNG is many times higher than that of propane,” Head said. Propane is a byproduct of sorts in natural gas reserves. It is typically separated from the methane that is pure natural gas. Cook Inlet’s natural gas is “clean” or “dry” gas, meaning it is almost pure methane, while North Slope natural gas is “dirty,” with a host of vapor fuels and carbon dioxide that must be pulled off before the gas can be shipped and sold. The project would buy Canadian propane and barge it from Prince Rupert to the coastal towns at a delivered price of about $1.10 per gallon to $1.30 per gallon, up to 50 percent cheaper than delivered LNG, according to Head. At that point, the vaporized propane would be mixed with air to produce a blended gas known as syngas, which has virtually the same burn characteristics as natural gas, he said, meaning the two can be used interchangeably in distribution pipes and appliances. The advantages of propane over LNG for small-scale use “go on and on,” Head said. Natural gas has to be chilled below minus-260 degrees Fahrenheit to make it LNG for ease of transport. When done on a small scale, the liquefaction process can add $2-$3 per gallon to the cost of LNG. Propane, on the other hand, liquefies at minus-44 degrees and can be kept liquid at warmer ambient temperatures for transport with relatively little compression. It has also historically been cheaper than diesel, or fuel oil, on an energy equivalent basis, Head said, and likely always will be because there just aren’t enough backyard grills to use it all. Delivered fuel oil is selling in small quantities for about $2.60 per gallon in Cordova, according to vendors. “Right now there’s a major glut of propane and there’s going to be a major glut for many years ahead because there’s not outlets for its use,” he said. Cordova was chosen as the starting point for the project because its fish processing facilities can act as market anchor tenants to supply the base demand needed to make the development of propane and propane accessories economically viable from the get-go, according to Head. “Our analysis shows we don’t need heavy adoption, we simply need the anchor clients to sign up and then residential clients will be provided, based on their interest in having a change-over (from fuel oil),” he said. Commitments to convert from a majority of residents and small businesses will likely be needed in the smallest communities without large anchor market tenants, Head added. Changing home heating systems from fuel oil to propane or natural gas can cost as little as $1,000 to $1,500 for newer boilers, in which just the burner must be replaced, or up to nearly $10,000 for a complete replacement boiler. The project has tentative agreements with fish processors in Cordova to buy gas that should be finalized soon, Head said. The first step is getting the infrastructure in place. “Right now, all we want to do is get pipe in the ground, because without pipe getting in the ground you’re never going to bring any type of gas to anybody,” Avezac said in an interview. Outgoing Cordova Mayor Jim Kasch said Alaska Intrastate Gas first came to Cordova with a plan to supply LNG nearly 10 years ago when energy prices in Alaska were at record highs. At that time, the claim was natural gas for half the cost of fuel oil, he said. The Cordova City Council approved a land sale to the utility for a landing facility, but the deal was rejected in a public vote. Kasch was on the city council when the people of Cordova rejected the deal. This time, Kasch said he was first made aware of the revived plan March 7 and sees it as a “cart before the horse scenario,” because Alaska Intrastate Gas and AECOM have yet to apply for permits to build the necessary storage, vaporization and distribution infrastructure while wanting to start building this year. “If they can do something to mitigate (high energy costs) and reduce the cost of daily life here in rural Alaska, boy, I’m all for it but they need to sell themselves to the communities where they plan on doing this and I’ve yet to see that,” Kasch said. Avezac said the holdup on the land sale years ago was opposition to filling in tidelands, which Alaska Intrastate Gas doesn’t intend to do this time around, not an opposition to the overall plan. “We’ve never met anybody that doesn’t want gas, ever,” he said. As for working with the city, Head said, Alaska Intrastate Gas has certificates of public necessity and convenience that give the utility access to right-of-ways for piping, and while permit applications have not been filed, discussions have been had and he sees no issues in getting the paperwork squared away. He said further information about project financing and detailed construction timelines would be made public soon. Elwood Brehmer can be reached at [email protected]

Bleeding cash, still exploring on the North Slope

It might not be a great time to be an oil company, but independents across Alaska are saying “the show must go on” through their exploration and development work this winter. One of the newest players on the North Slope, Australia-based junior 88 Energy Ltd. announced Feb. 29 that positive results from its first well Icewine No. 1 have led the company to start a two-dimensional seismic survey this month. 88 Energy plans to drill a second, horizontal exploration well, Icewine No. 2H, this year on its leases south of Prudhoe Bay, according to a company release. 88 Energy Managing Director Dave Wall said in a statement the results from Icewine No. 1 met and exceeded expectations. The well was spudded Oct. 15. “As a consequence of these continued good results, we have tailored our seismic acquisition to focus on mitigating risk for the next well,” Wall said. The company is focused on shale plays in the Icewine prospect. It is estimated to hold a mean unconventional resource of 492 million barrels, according to investor reports. Anchorage-based Great Bear Petroleum is also exploring shale prospects just north of Icewine. 88 Energy and its minority partner Burgundy Xploration of Houston began acquiring leases on the central North Slope in November 2014. The partnership will hold more than 270,000 acres of state leases about 35 miles south of Prudhoe once its 2015 lease sale awards are final, 88 Energy states. An existing gravel road off the Dalton Highway makes the area accessible for year-round work. The lease position is also bisected by the trans-Alaska Pipeline System, providing easy access to markets should Icewine be seen through to production. 88 and Burgundy are working under the joint venture Accumulate Energy. Wall said the 2-D seismic program will give a broader picture of the acreage and should identify any large conventional features that would be economic at lower oil prices. 88 Energy had first planned for a 3-D seismic program to follow drilling of Icewine No. 1. While Alaska North Slope crude is currently selling for just more than $30 per barrel, it is costing producers about $46 per barrel to extract and ship to market, according to the state Department of Revenue. The cost for Icewine No. 1 came in on budget at $16.1 million, according to 88 Energy, and was drilled by Kuukpik Drilling’s Rig 5. Overall, the budget for both wells and the seismic program is projected at $60 million to $75 million. The State of Alaska is expected to cover upwards of 75 percent of the exploration costs through its refundable tax credit incentive program, according to 88 Energy. To the north, Dallas-based Caelus Energy is digging into the remote Smith Bay prospect, which holds “true billion-barrel potential,” according to the company. Smith Bay is about 150 miles northwest of Prudhoe, far west of the developed areas of the Slope. Alaska Division of Oil and Gas Director Corri Feige said in a Feb. 24 House Resources Committee hearing that Caelus has shifted attention from its Nuna development this winter and is currently drilling the second of two exploration wells at Smith Bay from a grounded, shallow water ice pad. Caelus’ Nuna project is progressing on schedule to meet an October 2017 deadline for first oil agreed to in a royalty modification deal with the state, Feige said. At its adjacent producing Oooguruk Unit, development is continuing. “Caelus has done a lot of work recently to optimizing the frack and to optimize their recovery and increase production from those wells,” Feige said. All of Caelus’ work on the Slope is using fracking techniques. Oooguruk has produced about 23 million barrels since 2008. Arctic Slope Regional Corp.’s exploration subsidiary AEX also spudded the Placer No. 3 well in late January, Feige said. The Placer Unit just west of the large Kuparuk Field. Placer No. 3 will delineate a reservoir first explored with Placer No. 1 and No. 2 wells drilled by other companies in 2004, according to an ASRC release. Feige said the exploration work by a range of small and mid-sized independents, on top of continued infill drilling being done by the “big three” producers reveals the strength companies still see in Slope prospects. “I think fundamentally what this tells us is that the industry still views the resource endowment (on the Slope) and the environment of investing in Alaska as being a good place to be,” she said. To the large producers, Feige said BP continues to be “very aggressive” at expanding and maintaining production from Prudhoe Bay, while ConocoPhillips is in the midst of drilling eight new wells at its CD5 development this year. Production from the $1.1 billion CD5 development started ahead of schedule in October. ConocoPhillips spokeswoman Natalie Lowman said early production has met expectations, while the reservoir quality beneath part of the development exceeded expectations. Peak production from CD5 is estimated at 16,000 barrels per day. The $4 billion Point Thomson natural gas development led by ExxonMobil is also on schedule to meet its mid-May production deadline, Feige said. Natural gas liquids should begin flowing from the eastern Slope project to TAPS in early May, she said. BP is a minority owner in the large Point Thomson gas field, which is a lynchpin to the Alaska LNG Project. Elwood Brehmer can be reached at [email protected]

DOD to spend $325M on Clear missile defense radar

Another big chunk of the roughly $1 billion the Defense Department is spending to upgrade the country’s missile defense system is headed to Alaska. Missile Defense Agency Director Vice Admiral James Syring said Feb. 23 to during a presentation to the Fairbanks Chamber of Commerce that more than $325 million will be spent at Clear Air Force Station over the next six years to install a new power plant and missile detection radar. Clear Air Force Station is a radar base located near Nenana along the Parks Highway southwest of Fairbanks. Much of the construction spending will begin in 2017, Syring said, when $155 million of work on the mission control facility and related infrastructure is started. In 2019, another $150 million will be spent on the station’s new power plant and fuel storage facilities. This year, the Missile Defense Agency plans to spend about $25 million building a 350-person man camp and decommissioning the Ballistic Missile Early Warning System, among other things, Syring said. That work will be contracted through the Alaska District of the U.S. Army Corps of Engineers. Syring said he expects much of it will be done by local contractors. Long Range Discrimination Radar, or LRDR, being developed by Lockheed Martin in New Jersey, will replace the early warning system. The LRDR will then be shipped to Alaska and installed at Clear. Syring said the man camp will be used from 2017 to 2021, with peak occupancy in 2019. Clear Air Force Station is on the electrical grid; however, the upgraded power plant is a backup facility that will be protected against electromagnetic pulse weapons that could be used to render electrical systems useless, Syring explained. “Everything we are doing here in Alaska is to expand our defense against that North Korea threat,” he said. Early in 2013 the Pentagon announced plans to add 14 interceptors to the 26 currently installed at Fort Greely near Delta Junction by 2017. Those interceptors are the country’s main defense against the intercontinental ballistic missile (ICBM) threats primarily coming from North Korea and Iran, according to Syring. He said the impetus for adding interceptors to Greely was a rocket launched into orbit by North Korea in 2012. A similar test several weeks ago demonstrated the temperamental country still has the capability to reach orbit and is still pursuing an ICBM feet. Repeating nearly every Defense official who references Alaska, Syring noted the state’s global position as key to its role in the missile defense program. “Why we are here is (Alaska’s) strategic and geographic location and there’s no two ways about it,” he said. Army Chief of Staff General Mark Milley said to Sen. Lisa Murkowski in testimony before a Senate committee Feb. 24 that he wants to delay a force reduction from Joint Base Elmendorf-Richardson planned for 2017 by at least a year because of increasing threats — North Korea included — in the North Pacific. Milley cited the ability of Alaska forces to reach East Asia within hours of deployment as a primary reason for keeping strong military resources in the state. Elwood Brehmer can be reached at [email protected]

Tax credit changes show unpredictability, consultant says

A consultant to the Legislature reviewed the oil and gas tax credit changes proposed by Gov. Bill Walker and concluded the State of Alaska needs one thing above all else: fiscal stability. Janak Mayer, chairman of the petroleum industry consultant firm Enalytica, said in a marathon session of presentations before the House Resources Committee Feb. 25-27 that the administration’s proposals to reduce state expenses and increase revenue are not individually drastic. However, they collectively make significant changes to the industry-favored tax structure known as Senate Bill 21 that was implemented less than three years ago. “It is said over and over again, but stability is the most important element in any fiscal system,” Mayer said. House Bill 247, the administration’s bill to change Alaska’s oil and gas credits, is not a tax policy overhaul, but incremental changes to the credits with the goal of more revenue could give industry the impression the state is headed down a “slippery slope” of tax tweaks, he said. Collectively, Mayer said the small tax changes would likely have a significant adverse impact on producers, particularly at the low oil prices of today’s market. Soldotna Republican Kurt Olson commented that the Legislature changes oil tax policy virtually every two years. “That’s not (HB) 247’s fault, it’s just the newest one,” Olson said. The Alaska Oil and Gas Association contends the bill amounts to drastic changes in the state’s oil tax system that will directly impact production and investment if enacted. Walker’s suite of oil tax revisions was introduced along with tax increases on other prominent industries as part of an overarching fiscal plan to pull the state out of annual budget deficits that have grown to more than $3.5 billion as fast as the price of oil fell to the current $30 per barrel range. The tax changes include raising the minimum production tax rate from 4 percent to 5 percent, as well as “hardening” the tax floor to prevent companies from claiming losses against tax liabilities in order to pay less than the minimum tax. Among closing other loopholes, HB 247, and its companion legislation Senate Bill 130, would limit the amount of money the state pays out to explorers and producers each year by setting a refundable credit limit of $25 million per company per year. Refundable credits can be applied to tax liability, sold to another company with a liability or cashed in to the state, resulting in a direct expense for the state. Walker deferred — through a partial veto — $200 million of a $700 million line item in the 2016 budget for the state’s projected refundable credit obligation this fiscal year. That action was meant to start a conversion about the expensive subsidy program, Walker said, and it did. At the same time, the veto is alleged by those in industry to have scared potential private investors and killed some deals in the state that were dependent on the credits as collateral for additional financing. The state’s payout of refundable credits peaked in fiscal year 2015, with more than $400 million paid to companies working in Cook Inlet and another $224 million going to North Slope operators, according to the Department of Revenue. If passed as proposed, HB 247 would cut the annual credit outlay to about $200 million and generate about $100 million per year in additional tax revenue, the administration has said. Of the eight tax credits that would continue beyond 2016 under current law, five are refundable; the remaining three are non-transferrable credits that can only be used by North Slope producers. HB 247 would eliminate two of the refundable capital expenditure credits available for companies working in Cook Inlet. The loopholes the governor’s bill attempts to close are mostly related to what have been described by legislators as unintended consequences of SB 21’s credit provisions, which were not modeled for fiscal impacts at oil price regimes below about $60 per barrel when it was being debated. One of Walker’s changes would prevent the state from covering more than 100 percent of a North Slope operator’s losses for producing new oil during times of low prices, which could occur if the Gross Value Reduction for new oil and the Net Operating Loss credits are combined. Mayer, who helped the Legislature scrutinize SB 21, said he was surprised to learn of the possibility for the state to pay more than a company’s loss through the combined credits, but the bigger issue is again how many statutory cracks lawmakers try to fill at once. “There are a number of things in (HB 247) that are really important questions to be thinking about,” Mayer said. “It’s some of the specific solutions and the incremental nature of what’s being proposed that I have the biggest worry about.” He testified Feb. 25 that on top of Alaska being an innately high-cost place of business for oil companies, the state’s near total dependence on the industry for revenue makes it a more risky business environment. When in need of cash, Alaska is more likely to turn to the industry for concessions than other state’s or countries that have an oil and gas sector as part of a more diversified economy, he reasoned. Additionally, Alaska’s overall industry tax structure combines tax systems kept separate in other jurisdictions. The state’s mineral royalty acts as a steady, regressive gross tax often used by resource-dependent governments to provide income during low price cycles, Mayer said, while the more volatile and net production tax — on its own — gives producers a break at low prices but captures more revenue during profitable periods through progressivity. Another issue of concern is the July 1, 2016 effective date for most of the provisions in the bill, according to Mayer. He said immediately changing the credit system could significantly impact exploration and development plans that have already been drafted. The Oil and Gas Tax Credit Working Group led by Sen. Cathy Giessel, R-Anchorage, recommended to harden the minimum tax floor, as the administration wants to do, but also noted that any changes to the system be made gradually. Cook Inlet Cutting Cook Inlet tax credits wouldn’t generate new revenue, as no production tax is collected on the basin’s oil and its natural gas production tax would not be impacted. Eliminating the capital and drilling credits would save the state money, but what effects that would have on an out-of-step gas market needs to be considered, Mayer and Enalytica President Nikos Tsafos said. The 2010 Cook Inlet Recovery Act, passed by the Legislature to encourage natural gas development, among other things, instituted a 40 percent drilling and exploration credit that HB 247 would cut. The reliability of Southcentral’s natural gas supply has improved since the passage of the act when fears of gas shortages abound, but the act contributed to distorting the isolated market, according to Mayer and Tsafos. Further complicating matters is the Consent Decree that Hilcorp Energy and the state agreed to in 2012, which allowed Hilcorp to purchase a vast majority of the producing assets in the Inlet, but also set gas prices on most utility contracts through early 2018. The prices laid out by the Consent Decree are in the $6-$8 per thousand cubic feet, or mcf, of gas. Recent contracts for gas supply beyond 2018 have been at slightly lower prices than the Consent Decree, evidence that some natural market forces may at play. A simple lack of demand for Cook Inlet natural gas has put nearly everyone involved in a bind. As Henry Hub-based natural gas prices have fallen in the Lower 48 to about $2 per mcf in recent years and worldwide LNG prices have fallen as well, Cook Inlet has become one of the most expensive natural gas markets in the world. High gas prices and tax credits have undoubtedly incentivized new investments and helped turn Inlet production around — and secured Southcentral’s primary energy source — but the whole situation has led to unsustainable state expenses that won’t be recovered under the current system, according to Mayer. The credits, combined with the lack of a significant production tax, has led to Cook Inlet being one of the most generous fiscal regimes for oil and gas in the world, he said, with about 40 percent total government take. Still, companies are only able to manage about a 10 percent to 15 percent return on investment because the volume of gas they can sell is basically capped with limited exports and no major industrial anchor customer. “The basic impact of the credits is to make what is a very marginal investment maybe just possible,” Mayer said. While it’s time for the state to have a “serious conversation about what the state’s policy aims are” through the Cook Inlet credits, he added that eliminating the capital credits July 1 “seems like a rash decision.” Tsafos suggested — now that the Inlet can supply Southcentral for at least 10 years based on Department of Natural Resources reserve estimates — allowing market forces to return as much as possible in the coming years as the Consent Decree expires. “The broad instinct should be rather than try to artificially prop up a market that isn’t working, it’s to try to think more generally about how do we make this market work better,” Tsafos said. Rep. Mike Hawker, R-Anchorage, a sharp critic of many provisions in HB 247, said the state should be careful to not disrupt the Cook Inlet gas market further through credit changes because it will change the Consent Decree’s current March 2018 expiration.

Budget deficit hits state energy programs, rebates cut

Belt tightening throughout the State of Alaska has reached the Alaska Housing Finance Corp. The state-founded lending agency announced Feb. 24 it will suspend its popular Home Energy Rebate Program at the close of business March 25 due to lack of funding. Applications for energy efficiency improvement funding will be accepted through the late-March date; however reimbursement will be subject to available funds in addition to applicant qualifications. The program held about $5 million as of last December, according to AHFC Director of Public Affairs Stacy Schubert. While AHFC’s primary mortgage business is self-sustaining and it returns an annual dividend to the state General Fund each year, the quasi-government entity also manages programs related to its business for the state when directed by the Legislature. The Home Energy Rebate Program was last funded by the Legislature with an $18.5 million appropriation in fiscal year 2015, which ended in June 2014, just prior to the start of oil’s precipitous price slide. Overall, the program has received $252.5 million since its inception in 2008. According to AHFC, about 40,000 families have completed an initial energy audit to determine qualifying energy efficiency upgrades to their homes. More than 24,500 families completed improvements to existing structures and received rebates averaging $6,463. Another 3,200 households received rebates for new homes built to the six-star efficiency, the highest level of the U.S. Department of Energy’s Energy Star rating system. AHFC Executive Director Bryan Butcher said in a statement that a broad spectrum of Alaskans benefited from the Legislature’s investment in the program beyond just the homeowners. “Independent studies by the University of Alaska’s Institute for Social and Economic Research, Cold Climate Housing Research Center and others have shown increased technical job skills and the program saved an equivalent of 18,104,986 gallons of No. 2 fuel oil, buoying local economies and helping bridge the natural gas shortfall experienced in Southcentral during the brownout practices in 2009 and 2010,” Butcher said. Hopeful participants eligible for a rebate have up to 18 months after the home energy rating audit to complete the qualifying improvements. The maximum rebate for each home is $10,000. The direct rebate program may be coming to an end, but AHFC’s longstanding Home Energy Loan Program is alive and well, Schubert said. Under the loan program, borrowers with a mortgage through the corporation can apply for up to a $30,000 loan on a maximum 15-year term to pay for energy efficiency upgrades at low rates. As of Feb. 26, the interest rate on an AHFC Home Energy Loan was 3.375 percent. In the first seven months of the 2016 fiscal year AHFC financed 87 energy efficiency “add-on” loans, which is nearly an identical activity level to the comparable 2015 period, according to Schubert. Renewable Energy Fund cut Gov. Bill Walker turned to the Alaska Energy Authority’s Renewable Energy Fund for savings in his amended 2017 fiscal year budget proposal. The governor cut out a $5 million General Fund appropriation for the fund that he had included in his first 2017 budget submitted in December. Each year the governor is required to draft an initial budget proposal for the Legislature by mid-December. Governors then have until mid-February to make changes to their first proposal. Budget Director Pat Pitney wrote to the Legislature’s Finance committees in a Feb. 16 letter, explaining that the administration would not be opposed to funding the Renewable Energy Fund through sources other than the General Fund. AEA spokeswoman Emily Ford wrote in an email that there would be unintended consequences to eliminating the full $5 million appropriation. Doing so would impact to the authority’s ability to staff and manage the existing 133 active Renewable Energy Fund grants that total $131 million of state investment for ongoing projects, according to Ford. The authority is working with the Office of Management and Budget to restore $2 million in receipt authority for the fund through the legislative process. That would allow AEA to administer the ongoing Renewable Energy Fund grants, she wrote. With $271 million in total commitments from the Legislature, the Renewable Energy Fund has helped complete 54 projects across the state since its inception in 2008. Those projects, with a total cost of about $500 million, have generated more than $1.2 billion in benefits to local communities, according to AEA. The fund got an $11.5 million appropriation in the current 2016 fiscal year budget passed last spring. AEA had recommended seven Renewable Energy Fund applications for funding up to the first-presumed $5 million limit for future projects in its latest round nine of fund activity. The authority received 52 applications for the current round of program funding. Recommended grant applications are ranked each year based on numerous criteria including project cost, cost-benefit ratio, and available applicant matching funds. The projects are then funded based on ranking and the amount of funding made available by the Legislature. Elwood Brehmer can be reached at [email protected]

Legislative legal, CFEC question Walker’s adminstrative order

Ed. note: An earlier version of this article referred to Rep. Stutes' bill as not having passed the fisheries committee. The bill did pass that committee in 2015 and is currenlty awaiting a hearing in the House Resources Commitee.  The Commercial Fisheries Entry Commission is once again fighting to stay abreast of fisheries officials who want to narrow its scope of duties. Gov. Bill Walker signed an administrative order on Feb. 16 that folded several of the Commercial Fisheries Entry Commission’s key duties into the Alaska Department of Fish and Game, effective immediately. These functions include licensing and permitting, IT, accounting, payroll, procurement, and budgeting. The order moves personnel associated with these services into the Alaska Department of Fish and Game, or ADFG. The most identifiable operational change – ministerial licensure – also causes the administration’s biggest legal hurdle; both CFEC officials and Legislative legal support question Walker’s order’s constitutionality. Fishermen have opposed such rearrangements of CFEC in the past, fearing that the independent agency could be swept into the politics enmeshing the Alaska Department of Fish and Game. Walker’s administration says the order is a cost-saving move in a grim financial climate, but CFEC doubts the order’s sense. A letter from CFEC officials accuses the administration of deceit and says the plan is vague, possibly unconstitutional, and cuts the Legislature out of the decision-making process. According to Walker’s press release, the reshuffling will save the state an extra $1.3 million. The House Finance Subcommittee cut ADFG’s budget by 14 percent on March 1. This included a $650,000 cut to CFEC, less than Walker’s $1.3 million but still beyond the phased-in approach recommended by the CFEC Legislative audit. The Limited Entry Act, passed by the Legislature in 1973, established a limited entry permit system for state fisheries, establishing a set number of permits for fisheries and the Commercial Fisheries Entry Commission, or CFEC, to issue and monitor them. Three commissioners serve as judges; they decide who’s eligible for permits, oversee the permit transfer process, and handle appeals for those fishermen who are denied. Currently, one of the positions – each with $200,000 in salary and benefits – is vacant. Bruce Twomley and Robert Brown fill the two remaining positions. The order will make the commissioner positions part-time. A long time coming CFEC has been under increasing scrutiny since 2014 after two bills to disband it legislative audits that call it inefficient. Both Rep. Paul Seaton R-Homer, and Rep. Louise Stutes, R-Kodiak, introduced separate bills that would have disbanded the commission. The bills were sandwiched between a scallop fishery scandal in late 2013 and two separate audits in 2015. Both reports complimented CFEC’s past work, but also pointed out CFEC’s inefficiency so long after the Limited Entry Act. In each of the last two years, CFEC only adjudicated three contested permits per year. It maintains a backlog of 28 permit applications, most of which have been in the adjudication stage for 15 or more years. “Both reviews outlined the good work that CFEC has accomplished, but also noted that the workload of the agency has diminished over time and that the organizational structure of CFEC is no longer efficient or effective,” reads Walker’s budgetary request for CFEC. The audit points out that the original mission of the CFEC – to establish limited entry fisheries – has been largely completed since the 1980s. Alaska has 68 current limited entry fisheries, most of which were established by CFEC in the 1980s and the last of which was established in 2004. Part of the order delegates CFEC’s research duties to ADFG. Stutes, who chairs the House Fisheries Committee, worries Walker’s order could present a “conflict of interest” between CFEC’s licensing research adn ADFG’s biological research. ADFG commissioner Sam Cotten said he doesn’t understand how research performed under one body would be different under another. “We do research too, we could combine the research needed for the Board of Fisheries,” said Cotten. “It’s another effort to streamline…I don’t see at all that it presents a conflict.” In 2015, Stutes introduced a bill that would have disbanded CFEC entirely and folded its duties into ADFG. Stutes’ bill passed committee and is currently waiting for a hearing in the House Resources Committee. In the interim between sessions, however, Stutes said she rewrote the bill to a more toned-down version that would keep several of CFEC’s duties but still hand over a portion to ADFG. Permit adjudication, fishermen told her, should remain in CFEC’s hands, while ADFG could easily take over tasks like ministerial licensing.  Under the current CFEC system, commercial fishermen must send away to the Juneau office for their permits. Stutes’ change, which Walker’s order incorporates, allows fishermen to renew permits at their local ADFG office. Stutes forwarded her rewrite to the governor, but said she didn’t know Walker planned his own action. “I didn’t even know the governor had intended to take that bill until he had done it,” she said. Order’s constitutionality Walker’s plan saves money, but legal opinions say the administration exceeded its authority simply by making it an administrative order instead of an executive order. CFEC staff circulated two separate letters to the Senate Fish and Game Finance Subcommittee on Feb. 17, one draft and one final – both expressing dissatisfaction with the administrative order. “(The order) ignores entirely the audit’s recommendations, and instead seeks to transfer a vast array of power, functions, and staff to (ADFG),” the letters read. Both letters challenge Walker’s legal authority to make a “de facto rewrite of the Limited Entry Act,” and ask the subcommittee to budget the CFEC according to a legislative audit. CFEC contends that the administrative order skirts the Legislative budgeting process.  “We would further ask the subcommittee to consider the means employed by the Governor to enable (ADFG) to take over the vast majority of CFEC’s operations. Use of an administrative order and not an executive order, denies the Legislature a role in crafting CFEC’s budget for the coming year,” the letters read. The letters, sent by CFEC chair Bruce Twomley and commissioner Robert Brown, accuse Walker’s administration – ADFG commissioner Sam Cotten and deputy commissioner Kevin Brooks – of “actively misleading the (Senate Finance Fish and Game) Subcommittee” at a Feb. 15 hearing, the day before Walker issued the administrative order. CFEC argues that the Legislature should assign CFEC’s budget according to the Legislative audit’s recommendation, not Walker’s order. Furthermore, Brown and Twomley contend Walker’s order could be unconstitutional, both by stripping an agency of several key functions and shuffling employees between two disparate agencies. “The question of whether it is constitutional or otherwise lawful and appropriate for an Administrative Order to deprive an autonomous agency of its ability to perform explicit statutory duties and assign that performance to a separate agency deserves an answer, but that answer will not be forthcoming in time to allow the Subcommittee to act in obeisance to A.O. 279,” the letter reads. Indeed, the Legislature’s legal council seems to agree with Twomley and Roberts. Rep. Cathy Muñoz, R-Juneau, asked the legislative law office for its opinion of Walker’s order. The opinion, drafted by Legislative Affairs Director of Legal Services Doug Gardner, finds a potential constitutional snag. According to the Alaska constitution, the governor is indeed authorized to “reorganize” administrative duties in the executive branch, which includes both ADFG and CFEC. If the reorganization requires “force of law” – a change in statute – then it requires an executive order subject to the Legislature’s approval. Most CFEC duties are statutory, put in place by the Limited Entry Act. In particular, Walker’s administrative order could give ADFG the statutory duty to issue licenses under certain circumstances. This would require a statutory change – a force of law – which means Walker’s order should have been executive, according to Gardner. “Based on the language in (Walker’s order),” wrote Gardner, “it is hard to evaluate how ADFG can perform either of these licensing functions which are 1) specific statutory duties of CFEC that in some cases affect the rights and liabilities of permit holders; and 2) where these statutory functions could be more that purely ‘ministerial.’” DJ Summers can be reached at [email protected]  

TAPS value settled at $8B for 5 years

The next court battle over the value of the Trans-Alaska Pipeline System won’t be for at least another five years. Two settlements over the taxable value of TAPS between the State of Alaska, its owners, and municipalities along the pipeline corridor were announced March 1. The agreements fix the value of the 800-mile pipeline, for property tax purposes, at $8 billion through 2020, according to a release from the North Slope Borough. All pending litigation in Alaska courts regarding TAPS value will be dismissed as part of the deals as well. North Slope Mayor Charlotte Brower thanked the Walker administration for the state’s help in reaching the linked deals. “By fixing the value of the Trans-Alaska Pipeline System for the next five years, this agreement will provide a more stable and predictable budget environment and help ensure the financial security of the borough moving forward,” Brower said in a statement. “It also brings an end to the need for continuous litigation in which the borough and other municipalities have spent a decade and millions of dollars to obtain a fair valuation of TAPS.” Under the deals for property tax years 2007 through 2015, the North Slope Borough will repay the state nearly $7.6 million and the City of Valdez will pay $7.3 million back to the State of Alaska for prior tax payments the state believes were in excess of the statutory cap on property tax revenues, according to a statement from the Department of Law. The pipeline is primarily owned by subsidiaries of BP, ConocoPhillips and ExxonMobil. Unocal Pipeline Co. owns a 1.3 percent share of TAPS, according to Alyeska Pipeline Service Co., the pipeline operator. In May 2014, the State Assessment Review Board valued TAPS at $10.2 billion. At the time, the owners estimated its value at $2.7 billion; the municipalities pegged the value at $13.7 billion; and the Department of Revenue suggested $5.7 billion as the taxable value for the year. The proper value of the pipeline and subsequent property tax rates has been a source of legal contention for the Valdez and the North Slope and Fairbanks North Star boroughs for many years. Coincidentally, the pipeline cost $8 billion to build in 1977 and was the world’s largest privately funded construction project at that time. Elwood Brehmer can be reached at [email protected]

Valley bills seek fishing dollars

Gov. Bill Walker’s commercial fisheries tax bill is stalled in committee, but legislators continue digging into the industry for revenue. Two bills, sponsored by legislators from the Matanuska-Susitna Borough, would impose new taxes on either the entire industry or the longliners and trawlers in the federal and state fisheries. HB 358, sponsored by Rep. Mark Neuman, R-Big Lake, and Rep. Les Gara, D-Anchorage, would require non-salmon and non-halibut trawlers and longliners to pay a tax on halibut and salmon bycatch. The bill was passed to the House Fisheries Committee on Feb. 24 but has not yet been scheduled for a hearing. On the same day, Rep. Scott Kawasaki, D-Fairbanks, signed as a bill cosponsor. Rex Shattuck, Neuman’s chief of staff, said the bill doesn’t intend anything more drastic than starting the conversation. “This is a very fundamental bill, and we honestly can’t say we have all the answers,” Shattuck said. “It’s a basic framework to start the conversation. If it’s a resource we own as Alaskans, and we always have this concern about bycatch, let’s have a discussion.” Neither bill is expected to move quickly in a Legislature buried under a fiscal bill landslide, but Shattuck said he hopes the bycatch bill will spark a conversation to have over the summer. Though the extra funds would go into the general fund and not directly into fish and game management, Neuman’s position as vice-chair of the House Finance Committee guarantees that the funds will be used for fisheries management and research.  “You can comfortably know those are going into related management,” said Shattuck. “From our perspective, Neuman’s sort of been clear in that. We should be looking at putting them into funding things like research.” Bycatch happens when fishermen incidentally harvest a non-target species while chasing the main catch. The bill would require both state and federal fishermen to pay 1 percent of the total value of their bycatch. In federal fisheries – those from three to 200 miles off the coast – federal law bars vessels from selling bycatch salmon and halibut. It therefore has no existing value on which to base a tax. To fix this, the bill would direct fisheries managers to assign it a value, defined as “the market value of the fishery resource as determined by the prevailing price paid to fishermen for the unprocessed fishery resource of the same kind and quality by fisheries businesses in the same region of market area where the fishery resource was taken.” According to this formula, fishermen could end up paying thousands at the individual vessel level and millions altogether. A 1 percent tax on halibut bycatch would have extracted up to $1.7 million from the federal groundfish fisheries alone in 2014. The price paid to fishermen, or ex-vessel price, varies from region to region and year to year. For chinook salmon, the Alaska Department of Fish and Game estimated an average price of $2 per pound for chinook salmon in 2015 – lower than the average $2.80 per pound over the prior four years. Halibut varies, but industry sources say the current ex-vessel price is between $5 and $6 per pound. In 2014, federal groundfish fisheries harvested 27.6 million pounds of halibut, according to catch data from the National Oceanic and Atmospheric Administration. At $5 per pound, the total value of halibut bycatch would be $138 million. At $6 per pound, it would be $166 million. Federal groundfish fisheries also harvested just under 34,000 chinook as bycatch in the Bering Sea and Aleutian Islands and Gulf of Alaska in 2014. Assuming an average weight of 30 pounds, the value of chinook bycatch in federal groundfish fisheries is $2.9 million, or $29,000 in tax value. The bill would exempt those fishing vessels that donate their bycatch halibut to food bank programs like SeaShare. Federal law, however, forbids some vessels are forbidden from making such donations. Groundfish fisheries in the Bering Sea and Aleutian Islands are disallowed from keeping bycatch halibut. Representatives from this fishery view the proposed tax as a penalty. SB 198 The second bill, sponsored by Sen. Mike Dunleavy, R-Wasilla, would affect all Alaska fishermen regardless of bycatch. SB 198, introduced Feb. 22, levies a 12.5 percent royalty on all limited entry license holders’ catch. The bill requires seafood buyers to collect the royalty upon purchase, keep detailed records, and remit the money to the state at the end of each month. The bill was referred to the Senate Resources Committee on Feb. 22. Dunleavy’s bill would bring in a hefty chunk of cash for the state, and a hefty chunk of cash from fishermen’s bottom lines. According to Commercial Fisheries Entry Commission data, limited entry permits for both Alaska resident permit holder and non-residents pulled a collective $957 million in 2014. At the proposed royalty rate, Alaska limited entry permit holders would have paid $120 million to the state. The royalty would hit Alaska permit holders on an individual basis. CFEC records for 2014 show an average Alaska resident limited entry permit holder earnings of $50,451 per permit. Under the proposed royalty, Alaska fishermen would have paid an average $6,307 apiece in 2014. Non-residents would have paid slightly more at $6,525. Though the Anchorage and Mat-Su boroughs host over half the state’s population – 54 percent, according to the most recent U.S. census data – they only host 10 percent of the resident commercial fishing permits. Of 38,192 limited entry permits issued in 2014, only 1,141 – 3 percent – were issued to Mat-Su Borough residents. CFEC issued 2,647 permits to Anchorage municipality residents, or 7 percent of the total permits issued.

Gov’s bill would double strict liability commercial fines

Fishermen worry that Gov. Bill Walker’s industry taxes hikes may fall on them alone as a litany of fish bills stacks up. The Senate Resources Committee heard SB 164 on Feb. 22, also from Walker’s office. The complex bill concerns hunting and fishing permits – specifically, how ADFG can discourage wildlife violations while making extra money off them. The bill includes measures to increase commercial fines and recoup money lost in the recreation hunting and fishing licensing process. It will have a second hearing March 3. The bill doubles commercial fishing violation fines, raises the fine schedule for illegal wildlife harvest, prevents wildlife violators in other states from purchasing Alaska fishing and hunting licenses, and allows the state to take restitution from hunting and fishing violators. The committee had mixed feelings about what the bill aims to accomplish. Some elements seemed administrative, while others seemed targeted specifically for revenue. Major Bernard Chastain of the Department of Public Safety and Bruce Dale, ADFG’s wildlife division director, sold the bill as a “flexibility” package with elements of restorative justice, but committee members saw other intentions in the language. “Is this a revenue bill? Is this a deterrence bill?” asked Sen. Bill Stoltze, R-Chugiak. “I may missed what the overlying theme or motive is.” Chastain said the bill is solely for deterrence. The bill’s fiscal notes provide no estimates for how much revenue the state could raise. Among the largest-scale changes, the bill doubles commercial fishing strict liability violation fines. The new fine schedule would charge $6,000 for a first conviction, up from $3,000; $12,000 for a second conviction, up from $6,000; and $15,000] for a third or subsequent conviction within a 10- year period, up from $9,000. Chastain described the current fine schedule as “inadequate” to keep fishermen from violations. Fishermen have already voiced some concern over the possibility of raising the fine schedule. In a House Fisheries Committee hearing, on Sitka fishermen testified against raising the commercial fishing tax rates, saying that taxes alone are enough to cripple an industry already suffering from the strong U.S. dollar’s downward pressure on seafood exports. Doubled fines could hurt fishermen even worse, Some of ADFG’s budget comes from federal matching funds. Pittman-Robertson funds, for example, earmark three federal dollars for every one Alaska dollar. The federal funds are reserved for wildlife conservation. Part of Walker’s bill would allow the state to take restitution payments that can be funneled back into ADFG funds for the federal match. According to Dale and Chastain, the state loses tens of thousands of dollars a year from petty license fraud. Non-residents often move to Alaska and purchase resident hunting and fishing licenses for the cheaper resident rate. The bill would allow the state to charge the violators for the entire history of the difference. “Over time, we lost the ability to leverage that money into federal funds,” said Dale. “This provides the state appropriate opportunity to restore those funds.” Most times, the losses are fairly small; Sen. Bill Wielechowski wondered aloud if the restitution payments are “figurative.” Dale, however, said several violators each year amount to tens of thousands of dollars apiece. Other bill elements give judges the ability to fine some wildlife violators up to $10,000 rather than the current $5,000 fine schedule. DJ Summers can be reached at [email protected]

Employment up 0.4 percent in Q3

Alaska’s workforce keeps growing despite ever-present concerns about the impact of low oil prices on the state’s economy. Average monthly employment in the state increased by 0.4 percent in the third quarter of 2015, according to the state Labor Department. Overall employment averaged 354,204 jobs for the quarter, up 1,551 jobs compared to 2014. Wages also grew, with employers paying out $4.6 billion late last summer, which was up 2.4 percent year-over-year after an inflation adjustment, the department states. Employment in the state typically peaks in the third quarter when the tourism, fishing and non-oilfield related construction industries are in full swing. Private sector employers outpaced the overall numbers, adding more than 1,900 jobs in the third quarter. Public sector employment fell by about 400 positions and those losses were driven by state government shedding 850 jobs from 2014, or about 3 percent, according to the Labor Department. The number of available federal government positions added 262 jobs for its first quarter of growth since The state’s closely tied oil and gas and construction industries collectively contracted by nearly 800 jobs in the third quarter, but those losses were offset by more than 2,500 new jobs in the retail, hospitality and private health care industries, the department states.


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