Alaska Journal of Commerce

Draft EIS nearly ready for Donlin, in the works for Chuitna

Mining companies involved with several important projects aren’t ready to press the button on construction just yet, but they are positioning things to be ready to go when metals and commodity prices tick up, as they surely will. One large project being watched closely is Donlin Gold in the mid-Kuskokwim River region west of Anchorage, a potential $6.7 billion surface gold mine. After years of work the U.S. Army Corps of Engineers is expected to publish a draft environmental impact statement, or DEIS, later this month, James Fueg, Donlin Gold’s technical services manager, told the Alaska Miners Association at its annual convention in Anchorage Nov. 5. Publication of the DEIS would be followed by a series of community meetings in the Yukon-Kuskokwim region, including one hearing in Anchorage. If things proceed as hoped, the final EIS would be published in early 2017 following by a Record of Decision later that year. The big question following that is whether the mine will be economic and profitable enough for its developers, Barrick Gold and NovaGold Resources, to commit to spending several billion dollars on construction. Communities in Southwest Alaska have a lot riding on the decision. Calista Corp., the Alaska Native regional corporation for the Y-K delta, is the subsurface minerals owner. The Kuskokwim Corp., a consortium of local village corporations, owns surface lands at the mine site. If Donlin Gold is developed it will be a major employer in the region, now one of the state’s most economically-depressed areas. The prospect itself has 34 million ounces of gold in the measured-and-indicated reserve category, a classification that means companies have a high degree of confidence in the estimate, and another 11 million ounces that are “inferred” resources, or gold estimated to be present but requiring more definition. Chuitna Another large mine project closer to Anchorage that is inching along in its regulatory approvals is the Chuitna coal project, on the west side of Cook Inlet. The mine is planned by PacRim Coal, the owner of coal leases on state-owned lands. Dan Graham, manager of the project, told the Alaska Miners Association convention that the U.S. Army Corps of Engineers expects to have a draft EIS by late April or early May 2016, a milestone in a regulatory process that has taken several years. Graham said the Corps recently completed its internal review of a draft of the document, an important step, and has turned the draft over to other federal and state agencies that are cooperating in the EIS. “We also received our first permit Sept. 25, a minor air quality permit from the state,” Graham told the conference. If the Chuitna project receives final regulatory approval and is approved by its owners for development, construction would require two to three years and the mine itself would have a 25-year production life, Graham said. It is likely that would be extended by new resource additions, which is common with mines. Chuitna has been in the news recently because of an active opposition campaign by environmental groups who protest the company’s plan to mine through a creek that is salmon habitat. Graham said the company plans to create alternative habitat and in any event to restore the habitat along the creek when mining is complete, a procedure that has been used elsewhere in Alaska in disturbed areas. Also, PacRim can work with a decision by the state Department of Natural Resources to award a water rights application to a nongovernmental organization in a lower area of creek outside the mine area, Graham said. The principle of the DNR’s decision, the first award of water rights to an entity other than a government agency, is disturbing as a precedent, he said, but PacRim will ensure that adequate water is flowing through the lower part of the creek. The Chuitna project has had a long and tortured history and not all of the problems and delays can be laid at the feet of government agencies and opposition groups, Graham told the miners. Some of the blame is shared by the company, he said, which made several changes in scope and design. While these are overall improvements, the result has been delays and complications for the regulators, he said. “There are lessons to be learned from this,” Graham said, The state coal leases were originally awarded in 1968 to the Wilson-Bass-Hunt group, who were exploring in Alaska at the time. In the 1980s the Bass-Hunt group, which now owns PacRim Coal (Wilson has dropped out) entered a joint-venture with Diamond-Shamrock. The groups did substantial development work for a large surface coal mine. Major permits were granted in 1987 and an environmental impact statement was approved in 1990. However, the Pacific coal market had meanwhile slumped. Diamond-Shamrock exited the project and Bass-Hunt regrouped to continue working. There were changes in the project design and a relocation of a proposed port, all which meant changes to the permit applications. A major event occurred in 2010, however, when the U.S. Army Corps of Engineers took over as lead agency on a new EIS effort, replacing the Environmental Protection Agency. That was in the ninth year of planning under the revamped development plan, Graham said, and it also meant the Corps had to gear itself up to supervise a major Alaska mining project, which it had previously not done. “We had a situation where we were working with two different lead agencies, and over nine years there were 21 changes in key personnel associated with the project,” Graham said. It took some time, but the Corps rose to the challenge. “They scrambled to get up to speed on coal mine permitting. They were able to bring in specialists from other coal-mining states and to send Alaska personnel outside for training,” he said. The draft EIS is now in its final stages. Long lead times Donlin Gold has had an incubation period almost as long. The mid-Kuskokwim has been a historic placer mining area, which meant that explorers knew it was a good place to look for gold, mainly the lode gold sources of the placers. The gold prospect at Donlin Creek was actually discovered in the 1970s by prospecting crews working with Calista Corp., which had just selected lands under its Alaska Native Claims Settlement Act entitlements. After gold was found, Calista worked to get a mining company interested and after several unsuccessful attempts succeeded in attracting Placer Dome, a mid-sized mining company, for a more extensive exploration. Exploration drilling began in the 1980s and a very large gold resource was defined. However, a plunge in gold prices caused the company to suspend exploration. A small “junior” exploration company, NovaGold Resources, stepped in with a plan to invest and continue exploration in return for a share of the project. Placer Dome accepted, and NovaGold’s work resulted in more gold being located. Eventually the smaller company earned a 50 percent share. Meanwhile, in 2006, Barrick Gold, a major mining company, acquired Placer Dome and took over as operator and as NovaGold’s partner. Barrick poured in more funds for exploration and in 2006 and 2007, at the peak of exploration, the project was spending $2 million a week, Fueg told the AMA. Local hiring and contracting was a priority and even in its exploration phase the project became an economic stimulus for villages in the region. The engineering and design efforts were substantial and an initial capital cost estimate of $4 billion grew to $6.7 billion as the project scope changed, including the addition of a 314-mile 14-inch pipeline from Southcentral Alaska that would bring natural gas to the project. Energy costs were always a major concern and the project team investigated alternatives like wind and peat-fueled power generation along with barging large volumes of diesel up the Kuskokwim River. Finally the gas pipeline was decided on as the most practical alternative. Livengood Another big mine project is making progress, although it has been under the radar for a while. This is International Tower Hills’ Livengood gold project, a potential large surface gold mine on the Elliot Highway 70 miles north of Fairbanks. There are 15 million ounces of measured-and-indicated gold resources, a category in which mining companies have a great deal of confidence, and another 4 million ounces of inferred gold resources, where further exploration is needed. “We are one of North America’s largest known, undeveloped gold resources, and we’re right on a paved, all-weather highway,” said ITH President Tom Irwin. Irwin is a mining veteran who led the development of the Fort Knox mine, and who is also a former state Natural Resources commissioner. If it were developed the Livengood mine would be similar to the Fort Knox gold mine also near Fairbanks but larger, Irwin said. ITH is reworking a plan for a mine the company developed in 2013 but which proved too expensive for current gold prices. The cost estimate was in the range of $2.8 billion to $2.9 billion for a mine that would process 100,000 tons of ore per day. The project team went back to the drawing boards and is now reworking the plan to fit a lower gold price environment. “We’re looking at everything, the ore body, our mining procedure, water management and tailing disposal, and a one-stage as well as two-stage mill. We’re looking at how to optimize value,” Irwin said. Among two areas of focus in the new planning, Irwin said, is a possible acceleration of processing of higher-grade ore, leaving lower-grades until later, a plan also followed at Fort Knox in its initial production. Another area of scrutiny is how to manage water most efficiently and minimize its on-site storage, which would reduce capital costs as well as environmental risks. Energy is a major cost for the mine and ITH is still looking at two options, purchasing power from Golden Valley Electric Association, the Interior power cooperative, or generating power at the mine. If a North Slope natural gas pipeline is built it would pass nearby, and could possibly supply the mine with gas. Meanwhile, metallurgical testing and engineering is still underway to find an optimal mine process, Irwin said. What may emerge is a somewhat smaller, more efficient mine that could be profitable even at today’s gold prices, he said. ITH expects to release its revised mine plan in the first quarter of 2016, Irwin said. Tim Bradner can be reached at [email protected]

GCI grows 3Q income, still absorbing acquisition costs

General Communications Inc. had another strong quarter in terms of revenue, particularly broadband subscribers and tourist season roaming fees, but the company is still absorbing last year’s major purchase of wireless business in its bottom line. GCI reported $19.9 million in net income in the third quarter of 2015 compared to $9.9 million in the third quarter of 2014 following the acquisition of wireless customers and infrastructure from Alaska Communications Systems Group Inc. that was finalized in February. For the nine months ended Sept. 30, however, GCI reported a net income loss of $12.9 million compared to positive net income of $16.9 million for the first nine months of 2014. The net income loss is related to expenses from GCI’s purchase of all wireless subscribers and 33 percent of the Alaska Wireless Network from Alaska Communications, as well as the comparative loss of revenue from the 2014 Alaska election season, executives claim. GCI paid $300 million for the acquisition announced December 2014. In the second quarter of 2015, GCI folded the 87,000 acquired wireless subscribers into its coverage. The deal has yielded results for GCI’s total revenue. GCI raised third quarter consolidated revenue by 7.4 percent from 2014, from $240.7 million to $258.6 million, and $10 million greater than second quarter 2015. Transition costs from the Alaska Communications deal bled some of GCI’s numbers where gains could have been even larger. GCI increased its earnings before interest, taxes, depreciation and amortization, or EBITDA, from to $96.6 million, after deducting $4 million in transition costs from the Alaska Wireless Network purchase. Despite the $4 million expense, third quarter EBITDA was $3 million greater than same quarter 2014. In the wireline segment, revenues grew but transition costs still took their toll. Wireline revenue grew to $178 million, up 14 percent year over year. Wireline EBITDA, however, declined $7 million since last year. Chief Financial Officer Peter Pounds said the “decline is primarily due to $4 million in transition costs, and a $6 million decline in cable advertising revenues.” The 2014 elections, both for state offices including the governor and in particular the Alaska U.S. Senate race between Mark Begich and Dan Sullivan, produced a $50 million campaign that bolstered GCI’s video revenue, Pounds said. GCI owns KTVA and several broadcast stations around the state. In a conference call, CEO Ron Duncan attributed much of the overall EBITDA growth to roaming fees. Traditionally, third quarter results incorporate much of the tourist season in late Alaska summer, he said. Roaming and backhaul contributed an overall $45 million in revenue. Duncan said customers have been increasingly willing to purchase equipment installment plans from GCI, which has benefited the company’s EBITDA numbers but lowered the average revenue per user, or ARPU. GCI has earned $7 million and $8 million in the last two quarters from installment plans, compared to no revenue from such plans in 2014. The effect was a smaller ARPU for wireless customers by $3.33 year-over-year, from $49.93 to $46.60. Cable modem ARPU, however, rose from $80.20 to $84.87 year over year, along with video ARPU, which rose from $77.91 to $83.24. The company said its 2015 guidance numbers will not change. Total revenue will be between $920 million and $970 million. Adjusted EBITDA will be between $310 million and $335 million, excluding the $20 million transaction cost to transition ACS wireless customers. Core cash capital expenditures will be approximately $170 million, $45 million of which will go to wireless network projects and $85 million on other network and infrastructure projects. DJ Summers can be reached at [email protected]

Alaska Communications’ bottom line boosted after sale

Alaska Communications System Group Inc. revenue is down after selling off its wireless business to its fellow Alaska telecom GCI, but net income through nine months has sharply increased. Net income through three quarters of the year for Alaska Communications was $12.6 million compared to just $2.6 million for the same nine months of 2014. That is despite total operating revenues declining to $54.7 million from $78.4 million in the third quarter of 2014. In the third quarter ended Sept. 30, net income was $1.2 million compared to $1.9 million in the same period of 2014. Adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, of $12.6 million in the third quarter of 2015 decreased 46.5 percent, from third quarter 2014 from $23.5 million to $12.6 million. CEO Anand Vadapalli said Alaska Communications is essentially a different company than it was last year during the same time, and third quarter results reflect what the business focuses on now. Comparing current revenues to last year’s is like comparing apples and oranges, he said. “We see ourselves as a fiber-based broadband and managed IT services company focused on business and wholesale customers,” said Vadapalli. “Our income now reflects that.” In this light, ACS presents the 2015 third quarter as a success. Broadband revenue grew of 7.6 percent from $17.3 million to $18.6 million in 2015, making four straight quarters where its broadband revenue has surpassed the industry average. Business broadband average revenue per user, or ARPU, was key in revenue growth. Business broadband ARPU increased to $218.54 in the third quarter of 2015 from $195.04 in the third quarter of 2014. Consumer broadband ARPU also increased to $59.16 versus $54.18 year-over-year. Business and wholesale, which make 54 percent of ACS’s total revenue, grew 6.2 percent from $28 million to $29.6 million. Vadapalli said during a conference call that the company’s entry into the oil and gas industry was paying off. In December 2014, Alaska Communications agreed to sell its wireless subscriber business and its 33 percent share of Alaska Wireless Network to GCI for $300 million in cash. Alaska Communications and GCI launched the network jointly in July 2013, intending the combination of their wireless networks to compete more effectively with national carriers AT&T, which accounts for roughly 50 percent of the current Alaska wireless market, and Verizon, which entered the market in September 2014. Alaska Communications closed the sale on Feb. 2 and completed the transition April 17. After taxes, Alaska Communications received $276.4 million from the wireless sale, and used $240.5 million to pay down its debt. Alaska Communications now has a comparatively low debt level among other telecommunications companies. ACS net debt stands at $156.6 million for the third quarter, down from $162.7 million in June. This resulted from a debt restructuring largely authored and coordinated by Chief Financial Officer Wayne Graham, who is leaving ACS to be replaced by Laurie Butcher.

Felony cannabis cases scheduled for trial in early 2016

The State of Alaska is charging four individuals with multiple felonies after each of their cannabis operations fell to Anchorage Police Department undercover work and ensuing raids. Trials won’t be held until January and pretrial hearings will be held in November and December. Rocky Burns, Larry Stamper, Michael Crites, and Charlene Egbe are each alleged by the state to have been operating illicit marijuana businesses in 2015, and were indicted in September. Burns and Stamper co-owned and operated Discreet Deliveries, a delivery service with operations in Fairbanks, the Mat-Su, Anchorage, and the Kenai Peninsula; both men were charged with seven felonies and one misdemeanor. Michael Crites operated Absolutely Chronic Delivery Co. and was charged with five felonies and one misdemeanor. Charlene Egbe, who operated Alaska Cannabis Club, was charged with four felonies and four misdemeanors. All defendants were released of their own recognizance on the sole condition they not sell any marijuana. Crites, Burns, and Stamper have stayed in Alaska, while Egbe has spent time in the Lower 48 on various speaking engagements for cannabis industry media outlets and publicity events. Anchorage defense attorney Keri Brady, who served as Anchorage district attorney from 1997 to 2007, represents Egbe, who uses the name Charlo Greene in public relations. Egbe is scheduled for a pretrial conference with Anchorage Superior Court Judge William Carey on Nov. 18 and trial Jan. 4, 2016. The Public Defender Agency will represent Crites. He is scheduled for a Nov. 23 pretrial conference with Anchorage Superior Court Judge Kevin Saxby and a trial Jan. 11, 2016. Cannabis industry business attorney Jana Weltzin represents Burns, while Anchorage criminal defense attorney Gregory Heritage represents Stamper. Both men are scheduled for a Dec. 8 pretrial conference with Anchorage Superior Court Judge Jack Smith and a trial Jan. 11, 2016. Money matters Lisa Kelley is prosecuting all four defendants. Kelley works from the Office of Special Prosecutions of the Anchorage division of the Alaska Department of Law. John Skidmore, director of the Anchorage Criminal Division of the Alaska Department of Law, said the State of Alaska chose Kelley as prosecutor because the matter is largely about revenue. “Kelley is assigned to cases that are about revenue fraud,” said Skidmore. “From the state’s standpoint, there are significant aspects of these cases that have an economic impact. That’s why they were assigned to Ms. Kelley.” Indeed, the major issue the state has with the defendants’ businesses appears to be a question of revenue rather than public safety. Draft regulations prohibiting both marijuana social clubs and delivery services will not be adopted into code until Nov. 24, and could be amended by the Marijuana Control Board in the meantime. The only certainty is that the defendants engaged in sale prior to the issuance of business licenses, and therefore prior to the existence of taxation framework. This past summer, Marijuana Control Board Executive Director Cynthia Franklin sent cease-and-desist letters to social clubs and delivery services, including Egbe’s Alaska Cannabis Club, Pot Luck Events in Anchorage, Wasilla’s Northern Heights, Kenai’s Green Rush Events, Crites’ Absolutely Chronic Delivery Co., and Burns’ and Stamper’s Discreet Deliveries.  Franklin’s cease and desist letters carried less than bulletproof legal weight because of the nebulous legal status of both marijuana clubs and delivery services, and was taken to be a legal suggestion rather than an order. In the cases of Egbe, Burns, Stamper, and Crites, the Anchorage Police Department conducted undercover operations during which they purchased quantities of marijuana from individuals employed by or operating within each respective organization. Organizations that engaged in no sale, however, have not been charged, though they received the same cease and desist letters from Franklin. Pot Luck Events and Green Rush Events, both social clubs, have been vocal about not allowing sale within their establishments, but only consumption and sharing. Consumption and sharing are legal under Ballot 2 language approved by voters a year ago, though public consumption particulars have yet to be fully fleshed out to apply to publicly accessible clubs. Pot Luck owner Theresa Collins said she never noticed police activity in her establishment, but that it must have happened to some extent. “I’m sure they were there,” said Collins, “but they obviously didn’t discover anything too illegal going on.” Further provisions in draft regulations penalize those who have made money in the marijuana industry prior to business license issuance, currently scheduled for May 24, 2016, at the earliest. “The board will not issue a marijuana establishment license to a person that … operated a marijuana delivery service, a marijuana club, or a marijuana establishment illegally without a license issued under this chapter, or otherwise violated AS 17.38, during the two years before the date the person files the application, unless the board finds that person has diligently worked with the board to comply with all current laws and regulations relating to marijuana,” the draft regulations read. Rocky road Burns adamantly claims he has made every attempt to fully “comply with all current laws and regulations,” and has been trying to get a concrete ruling of his company’s legality since he and Stamper began operating in January 2015. Weltzin argues the charges should be dismissed due to the ambiguity and lack of clarity in statute and regulations. “Nobody knows what’s legal and what’s not legal,” Weltzin said. “And even though he asked time and time again, (Burns) didn’t get any guidance from the state.” Burns filed pro se motions (representing himself) with the court to have his charges dismissed, his bail condition rescinded, and the venue of his trial changed. Burns filed motions Oct. 15, prior to obtaining Weltzin as legal representation. In both Burns’ original motion and Weltzin’s reply to Kelley’s denial of the motion, it is argued that Burns was only transporting and accepting money for marijuana equipment, not marijuana itself, and therefore the Superior Court has no jurisdiction to prosecute. Under Ballot Measure 2 language, the sale of marijuana accessories is legal. The definition includes “materials of any kind which are used, intended for use, or designed for…packaging, repacking, storing, vaporizing, or containing marijuana.” Burns claimed he was only selling vacuum-sealed bags, which only happened to contain a legal gift of one ounce or less of marijuana, which he claims is allowable under Ballot Measure 2. Even if illegal, Burns and Weltzin argue, the matter rests with the Marijuana Control Board, not the Department of Law. Burns claims the only concrete direction he received was a green light of sorts from Alaska Marijuana Control Board chairman Bruce Schulte, who stated during a Fairbanks meeting that Burns could continue operations, and that “nobody is kicking anybody’s doors down.” The board’s word, Burns believes, is the only relevant one. Ballot Initiative 2 put the governance of marijuana business under the authority of the Marijuana Control Board. A grand jury formally indicted Burns on Oct. 8, but information was filed Sept. 18. Because Burns filed his motion to dismiss charges Oct. 5, Kelley called the motion to dismiss “moot.” Kelley did, however, respond to several of Burns’ arguments in her rejection of the motion to dismiss, calling them “inventive interpretations of law and assertions that, at best, can be considered potential defenses” that are not themselves satisfactory to dismiss charges. Kelley argues the Anchorage Superior Court has “original jurisdiction in all civil and criminal matters.” Further, Kelley argues Burns was clearly selling marijuana, not marijuana accessories as he claims. Customers made online orders specifying particular marijuana strains, and the amount charged is greater by far than the cost of the $1.50 bag. “The argument that he was selling ‘mechanically sealed metal bags’ is undercut by the amount of money involved in the transactions,” Kelley wrote. “On Jan. 28, 2015, the officer paid $370, plus a $15 delivery fee, for one ounce of marijuana.” Weltzin filed a reply to Kelley and argued Burns’ main points filed in his motion to dismiss: that he was in compliance with existing marijuana laws and therefore the Marijuana Control Board’s authority. She reinforces Burns’ original argument that he was not selling marijuana but transporting marijuana accessories, as well as marijuana itself in compliance with weight restrictions under one ounce. Payment, Weltzin argues, was to recoup the expenses of delivery service, not in exchange for marijuana itself. She details the costs of Discreet Deliveries operations, and concludes the business was, in fact, operating at a loss. “The costs and expenses of facilitating the transportation of an ounce of marijuana breaks down to approximately $408 per ounce,” Weltzin wrote. “Not only was the real and actual cost of transporting the marijuana and marijuana accessory credible, it was actually delivered at a loss to the company.” In light of this, Weltzin argues, Burns should not be “targeted as a guinea pig for trial and error” by the state as a result of jurisdictional confusion. Undercover officers were charged similar prices for similar quantities of marijuana when they purchased one ounce of marijuana from Absolutely Chronic Delivery Co. for $360 plus a $10 delivery fee. In August, another purchased an ounce for $410. An undercover officer purchased one-eighth an ounce of marijuana from Alaska Cannabis Club for $50, and another purchased an ounce for $450. Weltzin said it is only coincidence that Burns charged an amount similar to the apparent market price of one ounce of marijuana. Weltzin did not comment on Burns’ other motions. Burn’s change of venue motion alleges he would not receive a fair trial in Anchorage, and requests to hold the jury trial in Palmer. “The tainted jury pool created in the Anchorage are through local media, quoting local heroes that are stipulating the current law, create a prejudice against the defendant,” the motion reads. Burns cites, as proof of an Anchorage vendetta against him, the fact his Fairbanks operation was raided by Anchorage Police Department. Burns also claims to have been a “victim of threats from a House of Representatives member, stating that he is a target. That Representative is in the Anchorage Borough Area.” Burns was referring to Rep. Cathy Tilton, R-Wasilla, with whom Burns had an email exchange in September during which Tilton wrote, “Your flippant arrogance has made you a target.” Kelley wrote a brief recommending the denial of Burns’ change of location request. “The majority of charges relate to conduct that took place in Anchorage,” Kelley wrote. “The defendant himself admits to conducting business all over the state. Further, the impartiality of an Anchorage jury has not yet been determined – such a determination can only come after a thorough questioning of potential jurors.”

Legislature approves TransCanada buyout

The state of Alaska will now own more of the big Alaska LNG Project. It will have to shell out more money for it, too. Alaska’s Permanent Fund may have to be put up as collateral, also. Legislators have been meeting in special session in Juneau since Oct. 24 to review Gov. Bill Walker’s proposal for the state to buy out TransCanada’s share of the planned $45 billion to $65 billion pipeline and liquefied gas project. On Nov. 3 and 4, the state Senate (16-3) and House (39-0) gave their approvals. The acquisition is to be effective Dec. 1, under terms of the legislation. SB 3001 appropriates $68.4 million to repay TransCanada for its expenses to date in preliminary engineering on its share of the project. The bill also authorizes Alaska Gasline Development Corp., the state gas corporation that will step into TransCanada’s place, to spend $75.6 million to pay would have been the pipeline company’s share in completing preliminary engineering now underway. Preliminary engineering is expected to be finished in mid-2016. Delaying the purchase would have hiked the state’s costs. “Today is better than tomorrow to take this off-ramp” with TransCanada, said Sen. Anna MacKinnon, co-chair of the Senate Finance Committee. “This legislation is a debt we need to pay TransCanada, and our state administration, which wants a gas pipeline as much as we do, needs our support.” TransCanada, the state, and three North Slope gas producers, BP, ConocoPhillips and ExxonMobil, are in a partnership to build Alaska LNG, a $45 billion to $65 billion North Slope gas pipeline and LNG project that would export up to 20 million tons per year of liquefied gas. The state actually holds 25 percent of the project in line with its share of North Slope gas reserves but in a 2014 agreement with TransCanada brought in the pipeline company as an investor and owner of the state’s one-quarter share of the 800-mile pipeline and large gas treatment plant on the North Slope. The state itself would invest in, and own, 25 percent of the large LNG plant planned at Nikiski. About half of the project’s overall investment would be in the LNG plant. The contract with TransCanada had a provision for the state to buy back the pipeline and gas treatment plant holding by December 2015, repaying the pipeline company for its investment to date. That is now being done. The governor proposed the buyout on the grounds that the state would be financially better off in the long term owning its full 25 percent share rather than splitting it with TransCanada. Marty Rutherford, Deputy Commissioner of Natural Resources, said the state could earn up to an additional $400 million per year from the project through owning the full quarter of the project. That’s mainly because the state will have cheaper financing costs, as a government, than would TransCanada and won’t have to pay shipping tariffs. In an interview, Rutherford also said the state needs to be at the table now, representing its upstream interests, during discussions of final engineering and cost allocations on the gas treatment and dispositions of byproducts like carbon dioxide. “We have a more direct interest in these, as an upstream resource owner, than does TransCanada, which would have been a midstream owner. We have to engaged ourselves in negotiations and not have to rely on TransCanada as our representative,” Rutherford said. Decisions of allocation of upstream costs related to the project could result in billions of dollars of gain or loss to the state over the life of the project, Rutherford said. Although most state legislators backed Walker’s decision on the acquisition there is still serious concern as where the state can adequately manage its 25 percent share, and also how the state will acquire the financing for hefty investments TransCanada would have made. The state is already running huge budget deficits due to the slide in crude oil priced and state oil revenues. As the full one-fourth owner Alaska will have to come up with an estimated $675 million if the project moves into the final engineering phase, or front-end engineering and design, and an estimated $13 billion to fund one fourth of construction costs. Cash calls for the building the project would come from 2019 through 2024, years when construction would be underway. State officials are looking at a variety of ways the financing could be done including issuing state general obligation bonds, which would require voter approval, or revenue bonds under a project financing plan that would pledge future revenues to repay the bonds. Some form of financial guarantee from the state would likely be required by lenders under a project financing plan, Rigdon Boykin, a consultant who is the state’s lead negotiator in talks now underway among the gas project partners, told a state legislative committee in early September. The state’s Permanent Fund, a $53 bill savings fund from accumulated oil revenues, could be used as part of a guarantee. Alaska’s constitution prohibits spending money directly from the Permanent Fund but there are ways the savings fund can be used to help leverage a financing package. In legislative hearings this week and last in Juneau, lawmakers also grilled state administration officials on whether Alaska Gas Development Corp. or AGDC, has the experience or staffing adequate for overseeing the state’s interest for the full 25 percent share. MacKinnon, co-chair of the Senate Finance Committee, said one of the original reasons for bringing in TransCanada was to have the pipeline company’s expertise available to the state. Dan Fauske, CEO of the state gas corporation, told legislators that AGDC has built its staff and honed experience over the last year while completing final engineering on a smaller gas pipeline that could be built from the North Slope in case the large project falters. Final permits for the smaller Alaska Stand Alone Pipeline are also being secured, Fauske said. “We’ve demonstrated that we can do this. This (ASAP) project is ready to go if we need it,” he said. There was some reluctance among some legislators to vote for the legislation, despite widespread support. Rep. Wes Keller, R-Wasilla, said he wanted to vote “no” as a protest over the administration’s reluctance to share information with the Legislature in a timely manner. Rep. Dan Saddler, R-Eagle River, said he is also concerned. “There hasn’t been a lot of clarity from the administration, particularly about who is in charge,” within the administration’s negotiating team, he said on the House floor. “I’m also concerned about the administration’s undue focus on failure rather than success. For example, the governor’s insistence on a withdrawal provision,” to cover contingencies of a withdrawn partner, might be more of a distraction for the project negotiations than a positive move. Tim Bradner can be reached at [email protected]

Confluence of factors causing disconnect in salmon pricing

Seafood producers were hoping U.S. consumers would have cheaper salmon this year, but that doesn’t seem to be the case.  The $8.99 per pound of Alaska sockeye the U.S. consumer pays at a minimum in Anchorage isn’t making its way back down the chain to the fishermen, whose overall pay has been slashed in half by a cyclone of every possible negative market pressure and a marketing campaign that keeps prices high and attracts fraudsters. Bristol Bay produces the world’s largest natural sockeye run and the most valuable fishery in Alaska state waters, but after one of the largest harvests on record with 37 million salmon, Alaska fishermen experienced a severe shortfall on the 2015 season price. The voluntary 0.5 percent tax processors pay to the Alaska Seafood Marketing Institute, representing roughly half its operating budget, funds a marketing campaign almost too successful for its own good. Alaska wild-caught salmon is marketed so aggressively and successfully as a high-end product the brand brings in frauds and keeps prices high for the consumer even as fishermen are losing money. Meanwhile, retailers are relying on the trained consumer base to continue paying for the traditionally expensive fish. “Retailers can slap a price tag on anything,” said Jerry McCune, president of United Fishermen of Alaska, the state’s largest commercial fishing industry group. “We have no control on what they retailers put on it.” Bristol Bay fishermen received 50 cents per pound of sockeye as the ex-vessel price from the area’s fish processing plants, less than half the average price processors paid Bristol Bay fishermen in 2014. Processors in turn sell to retailers at wholesale prices. Fishermen often suspect processors when ex-vessel prices are too low relative to the retail price, but comparisons of ex-vessel prices to wholesale prices indicate processors lowered their wholesale prices right along with the fishermen’s pay. Spot prices link wholesale value with ex-vessel value in roughly the same historical ratio as prior years. Between 2005-2014, according to Alaska Department of Fish and Game records, the average wholesale price for head and gutted, or H&G, Bristol Bay sockeye was $2.58 per pound. For fillet with skin and no ribs, the average was $4.83. In the same time period, the average ex-vessel price for Bristol Bay sockeye was 99 cents per pound. Processors do not share first wholesale value until April, nor do they share that price with media. On Tradex Live, an online seafood brokerage, a batch of Alaska-caught skin-on sockeye fillets sold wholesale for $4.40 per pound, roughly on par with the average $3.84 above ex-vessel price for fillet with no skin and ribs. In retail stores, however, little has changed for sockeye prices, which remain at their usual fall/winter prices. Anchorage’s sockeye salmon goes for $8.99 per pound for skin-on fillets at Carrs or $11.96 per pound at Walmart. In Seattle’s Whole Foods, Alaska sockeye is $14.99 per pound. Alaska seafood marketing experts said such prices should be expected at the retail level regardless of what fishermen are actually being paid. Wild-caught Alaska sockeye is a specialty item for which retailers have worked very hard to justify a healthy markup. Customers in the market for sustainability and healthy local economies don’t know Bristol Bay dock prices well enough to see retail prices are amiss. Earlier in the year as salmon producers predicted excess supply, some hoped customers would get hooked on Alaska sockeye at a lower price, but that hasn’t materialized on the retail level. “Prices may be lower, but the volume of pink and sockeye will likely increase,” wrote McDowell Group economist Andy Wink in an email to the Journal in April. “Even if fishermen do not make much, if any, lower prices driven by supply benefits the industry in the long run because it increases consumption. Generally that demand carries over for some time.” This has not yet proven to be the case, however, as consumers are still content to pay the usual for sockeye. “The retailers are in a very strong position,” said Tyson Fick, director of communications for the Alaska Seafood Marketing Institute. “They’ve trained their customers over the years that Alaska salmon is a premium product worth paying extra for, and the average customer in the Lower 48 isn’t aware of the economic situation here. “They can put us on a price competition with Russian or farmed, then they get to pocket the difference. And why wouldn’t they?” Alaska sockeye vs. the world The low ex-vessel price comes from a perfect storm of negative price pressures the industry has feared since before the first sockeye returned to the Bay. Skepticism earlier in the year has proven well-founded. Alaska seafood marketers hesitated to guess earlier in the year, but Northrim BanCorp CEO Joe Beedle, who takes part in economic forecasts, was forward with his pessimism. “Fishermen will get 25 percent less this year because of the strength of the dollar and the high supply,” said Beedle at an editorial board meeting on April 2. Indeed, Fick said the one of the biggest drivers for the 50-cent dockside sockeye price is the dollar. Sockeye has a domestic market but is still primarily an export product. Alaska exports 70 percent of its wild-caught salmon, with particularly strong markets in China, Japan, and Europe. “With currency values,” Fick said, “it’s difficult on our customers. They have decreased buying power, in some cases as much as 35 percent less. It has the combined problem of making our competitors look better on a price basis.” Japan, Alaska’s second-largest single seafood market behind China, imported $132 million worth of Alaska salmon in 2014. From its highest point during 2014, the Japanese yen’s value has fallen 22 percent against the U.S. dollar. The U.S. dollar’s strength works against U.S. salmon on the domestic market. Norway, Chile, and Canada produce the vast majority of farmed salmon on the U.S. market, which accounts for two-thirds of total U.S. salmon consumption. Chile, which produces roughly one-third of the U.S. farmed salmon imports, has also seen the value of its currency, the Chilean peso, drop 16 percent against the U.S. dollar from November 2014 to November 2015, giving the U.S. greater purchase power. In Norway, which produces another third of U.S. farmed salmon, the Norwegian kroner dropped 25 percent against the U.S. dollar in the same time period. Abroad, some markets have closed while others suffer under the dollar’s value. In August 2014, Russia enacted a ban on seafood imports from the U.S., European Union, Canada, Australia, and Norway in retaliation for U.S. sanctions against the Russian Federation.  Norwegian fish have few places to go except the U.S., out pricing Bristol Bay salmon at the retail level. Meanwhile, the U.S. dollar’s relative strength is preventing the product from marketability overseas. “The domestic market can only absorb so much of this,” said McCune. “The exchange is killing us in Europe.”  Relationships with Russia have multiple effects. Russian sockeye from the North Pacific still competes with U.S.-produced salmon in the U.S. market, but far cheaper due to the strength of dollar against the ruble, which has fallen 48 percent in value against the dollar in the last 12 months. Ukraine, in the midst of the conflict with the Russians that caused the sanctions, also has less to spend on imports. However, Alaska salmon doesn’t have the same opportunity on the Russian market. Russia’s U.S. seafood import ban hasn’t been reciprocated by the U.S. government, which still welcomes cheaper Russian imports. While U.S. consumers buy Russian sockeye, Russian and Eastern European markets are closed to Alaska salmon roe, one of the more valuable seafood products. Russia and Ukraine, at the height of consumption in 2013, purchased nearly 10 percent of the total $1.1 billion of Alaska salmon exports. Russia imported $46.6 million worth of Alaska roe. Ukraine imported $31 million of roe and $15 million of fresh and frozen pink salmon. Alaska sockeye vs. itself As if geopolitics weren’t enough, Alaska sockeye have had to battle surplus from the 2014 season, which left processers and retailers stuffed with canned and frozen sockeye that required U.S. government action to try to ease. Next year, the situation will continue if the 2015 harvest creates the same surplus running into another big year. “There’s the surplus,” said Fick. “The amount of supply is way up from the big run now and surprisingly large run last year, where producers had product in the freezer going into this season.” The Alaska all-species salmon harvest for 2014 totaled 157.9 million, or 25.3 million more than the pre-season forecast and the second largest harvest in a decade. This included 44.1 million sockeye salmon. At the urging of Sen. Lisa Murkowski, Secretary of Agriculture Tom Vilsack authorized the U.S. Department of Agriculture to purchase up to $30 million worth of surplus canned Alaska sockeye salmon that’s been crowding processor storage since a blockbuster 2014 season in Bristol Bay. USDA bought $22.5 million of canned sockeye from Peter Pan’s Astoria, Ore., plant and Icicle’s Egegik plant. Icicle sold $11.8 million. Peter Pan sold $10.7 million. The product was sold in cases of 24 7.5-ounce cans between $31.40 and $36 per case. At 11.4 pounds per case, the USDA paid between $2.75 and $3.16 per pound for the canned sockeye, a total of 7.6 million pounds. The past two sockeye seasons both exceeded or met large expectations, and the trend will continue on into next year. Alaska’s most valuable fishery, and the world’s largest wild sockeye salmon run, will have another massive run and commercial harvest, if the Alaska Department of Fish and Game’s forecast is accurate. ADFG biologists are forecasting 46.5 million sockeye in the 2016 run, with an allowable commercial harvest of 31.2 million. Both the run size and the harvest prediction surpass both recent and long term averages. The run forecast is 15 percent greater than the previous 10-year average, and 41 percent greater than the long-term average of 32.9 million. The projected harvest is broken down between 29.52 million fish in Bristol Bay and 1.72 million fish in the South Peninsula fisheries. A Bristol Bay harvest of 29.52 million would be 8 percent greater than the previous 10-year average of 27.3 million, and 46 percent greater than the long-term average of 20.2 million. Alaska sockeye vs. retail labels Retailers charge a premium for Alaska sockeye and people are willing to pay it, but some of what’s sold isn’t Alaska wild-caught sockeye at all, depending on region on time of year. Oceana released a study detailing that 43 percent of their 82 grocery store and restaurant samples of Alaska salmon were mislabeled, according to DNA samples; 69 percent were farmed Atlantic salmon being marketed as Alaska or Pacific wild-caught. Oceana’s methodology isn’t discussed in the report. The study only took samples from East Coast and Midwest establishments during the winter of 2013-14, when salmon production is at its lowest. The report in fact clashes with a 2013 Oceana study, which found only 7 percent mislabeling of salmon in 2012, but during the height of the season when salmon were readily available and largely from grocery stores. ASMI Executive Director Alexa Tonkovich recognizes the problem, and said it’s a least got a silver lining. People recognize the Alaska wild-caught brand enough for frauds to want on the bandwagon. “It’s great they want to copy us,” said Tonkovich. “It means we have a strong brand.” DJ Summers can be reached at [email protected]

DOT forced to cut road crew OT as result of budget cuts

Snow has fallen across much of Alaska, and winter tires could be more important than ever this season. Cuts to the state operating budget have forced the Alaska Department of Transportation and Public Facilities to eliminate 35 surface transportation maintenance positions and abolish overtime for winter road crews. DOT took a $34 million hit — a 12.5 percent reduction — to its fiscal 2016 general fund operating budget, most of which goes to running the Alaska Marine Highway System and maintaining the states roads, runways and other facilities. “We had cuts across the entire department. Those included the removal of positions and many of those positions were maintenance positions,” DOT spokesman Jeremy Woodrow said. The department’s unrestricted general fund budget is $247.9 million this fiscal year. Saving money through efficiencies and doing away with vacant positions were the first steps to avoid pink slips, but in the end, 85 positions either went unfilled or were cut through direct layoffs in DOT this fiscal year, Woodrow said. There were 556 equipment operators in DOT last fiscal year to clear the state’s roads and airports, according to the 2015 State of Alaska Workforce Profile report. The cuts to road crew man-hours were felt right away in Fairbanks when the city endured more than a foot of snow in late September. Woodrow said DOT received numerous complaints and inquiries regarding road conditions after the Sept. 25 and Sept. 29 storms. A repeat of last winter across much of Alaska could be helpful, to road crews anyway. “It’s one of those things, if it’s a real mild winter no one will have a clue; they won’t notice any change at all” in road maintenance, he said. A road prioritization scale has been made available so the public can know ahead of time which roads will get the first plows during major snow events. The five road priority levels are based on traffic volume, speed, connectivity between communities and other available routes within local transportation networks, according to a department release. They are defined by DOT as: Priority Level 1: high-volume, high-speed highways, expressways, minor highways, all safety corridors and other major urban and community routes. May take up to 24 hours to clear after a winter storm. Priority Level 2: routes of lesser priority based on traffic volume, speeds and uses. Typically, these are major highways and arterials connecting communities. May take up to 36 hours to clear after a winter storm. Priority Level 3: major local roads or collector roads located in larger urban communities. May take up to 48 hours to clear after a winter storm. Priority Level 4: minor local roads that provide residential or recreational access. May take up to 96 hours to clear after a winter storm. Priority Level 5: roadways that are designated as “No Winter Maintenance” routes, e.g. Denali Highway or Taylor Highway. Generally cleared only in spring to open road for summer traffic. Woodrow said the department has always had the winter road maintenance scale internally, but never felt the need to publicize it, as crews working extra hours made delegating resources less necessary. “We just don’t have the resources that we have had in the past,” he said. A map detailing which priority level Alaska’s roads fall under is available on the Department of Transportation and Public Facilities website at Transportation maintenance fund DOT Commissioner Marc Luiken has proposed setting up a surface transportation maintenance fund to balance the ebbs and flows of funding to something as crucial to all Alaskans as road and airport upkeep. “This (fund) wouldn’t build capital, this is intended to take care of the system,” Luiken said. The fund would designate revenue from fuel and vehicle taxes and fees into general road maintenance expenses. He said it would “even the playing field” between some coastal Alaskans who feel the state ferry funding is unduly scrutinized by those on the road system. It could also be a starting point for beginning talks about raising the motor fuel tax or other vehicle fees to in-turn adequately supply the fund, he surmised. At 12.25 cents, Alaska’s total gasoline tax is the smallest in the nation. Pennsylvania and Washington have the highest state gas taxes at 55.3 cents and 44.5 cents, respectively, according to the American Petroleum Institute. The Alaska Aviation Advisory Board is recommending to raise aviation fuel taxes to help pay for airport maintenance and a stated goal of the Federal Aviation Administration found on its Alaskan Region website is to “Encourage (Alaska) to establish dedicated airport fund and pursue all aviation resources to adequately fund maintenance.” Some legislators he has talked to have been intrigued by the idea, Luiken said, but whether shifting dwindling state funds or raising taxes will ultimately be palatable is unclear. The funds are very common in other states — to the point where when his colleagues in transportation departments across the country hear Alaska does not have a transportation maintenance fund, “their jaws drop,” Luiken said. Elwood Brehmer can be reached at [email protected]

Bad for state budget, cheaper fuel helping local economies

Alaska’s economies appear to be unfazed more than a year after oil prices began to fall. In fact, Anchorage’s unemployment rate of 4.7 percent in September was the lowest in the city has seen for the month in 14 years, according to the Anchorage Economic Development Corp. Fairbanks was not far behind at 4.9 percent. Statewide, the seasonally adjusted unemployment rate, which accounts for seasonal swings in job availability, was 6.4 percent in September, down 0.4 percent from a year ago, the state Labor Department reports. AEDC President and CEO Bill Popp said state’s largest city has added about 2,000 jobs since last September, bringing total employment to 169,000 in a municipality with just more than 300,000 people. AEDC’s January forecast for flat employment in Anchorage this year was incorrect in a positive way, Popp noted. At that time, he emphasized that a steady number of jobs should be viewed as a good thing, given the uncertainty surrounding state spending and petroleum economics. “We’ve been seeing this starting to build up over the summer. We’ve been seeing a drop in unemployment rate and modest but continued growth in the job numbers and now we are feeling like if this trend continues, which we think it will, we’ll probably add 1,000 net jobs in Anchorage this year,” Popp said. He attributed the encouraging job numbers to a strong private sector. According to AEDC, nine of Anchorage’s 10 largest industries have seen job growth over the past year. The only industry to show a loss is the city’s small manufacturing sector, down a miniscule 11 positions from a year ago. Employment in the city’s oil and gas industry actually increased more than 150 positions over the past year; however, the loss of Shell’s Arctic business, announced Sept. 28, has not yet been accounted for. Statewide, oil and gas industry employment has continued near record highs in 2015, as have the number of construction jobs in the state, many of which are tied to oil and gas activity. Government employment in Anchorage has been flat in 2015. Business and professional services positions, which includes technical industries that benefit from public and private capital spending, are up 100 jobs from last September, according to AEDC’s monthly employment report. Popp said activity at Anchorage’s banks and credit unions is slower than would be ideal. He attributes that to the city’s ever-present housing issues. Single-family home inventories are the lowest they’ve been in five years — an average of 877 homes listed in September — which has continued to push the cost of buying a home in Anchorage up and price many prospective buyers out of the stalling market. With few houses being sold, lenders have little reason to hire, he said. Since oil prices and state revenue both began falling 16 months ago, state government employment — University of Alaska included — is down about 1,500 positions, Popp said, but only about 100 of those jobs have been lost in Anchorage. As an entire sector, government provides about 29,000 jobs in the city, and the decline in federal employment over the past few years appears to be slowing, he said. Anchorage has seen lower oil prices — more specifically lower fuel prices — benefitting some of its largest employers. Passenger traffic was up more than 8 percent during the summer months at Ted Stevens Anchorage International Airport. AEDC also expects landed cargo tonnage to increase about 10 percent this year and that growth to continue for several years. Anchorage Airport officials have said the bump in passenger traffic is likely due mainly to Lower 48 travelers spending energy savings on travel. Much the same can be said for the city’s hospitality industry. “One-in-5 jobs in Anchorage are benefiting from lower fuel prices,” Popp said. The airport and hospitality industries each support approximately 1-in-10 jobs in Anchorage, according to AEDC. Popp noted those estimates are conservative. “I think it shows us in a pretty good spot to start from as we face the headwinds of next year,” Popp said of Anchorage’s employment figures. Popp and Fairbanks Economic Development Corp. President and CEO Jim Dodson both noted that hidden in the low unemployment figures is the fact that Alaska’s population is unusually transient, and people unable to find work are more likely to leave the state rather than file for unemployment. Net migration in the state totaled a loss of about 7,500 people last year, many of whom were working-age adults, Popp said. Big swings in migration to and from Alaska are not uncommon, however. When the Lower 48 economy suffers people come to Alaska looking for work and when the U.S. economy as a whole improves, they tend to leave, according to state economists. How Anchorage and the state fare in 2016 and beyond will have a lot to do with what happens in Juneau and whether or not consumer confidence can hold on, he said. Anchorage consumers are generally content with the city’s economy and their current personal financial situations, according to AEDC’s latest quarterly consumer optimism survey. However, expectations for the economic future are exactly tepid, with consumers reporting uncertainty about what’s to come. “Right now, (consumer optimism) doesn’t seem to be manifesting itself into any kind of slowdown in the economy, but it’s something we need to pay really close attention to because if consumers lose optimism they’re going to stop spending,” Popp said. “It can have a pretty significant ripple effect if we are to lose that confidence.” Dodson and Popp also said further deep cuts to state government spending in the upcoming regular legislative session would do a great deal of harm to Alaska’s economy that relies heavily on government employment. State government employees make up 7.3 percent of Alaska’s current workforce, according to the state Labor Department. Further, local government — heavily reliant on state assistance — provides another almost 12 percent of jobs in the state. “There is some room for cuts in our view and not insignificant cuts (to state government), but they need to be well targeted and we need to be looking at revenue streams that can balance the books and put our fiscal house in order for the foreseeable future and then we start to address that uncertainty issue,” Popp said. Economies across the state are continuing along with business as usual in part because the impact of capital spending lags behind appropriations by a couple years, Dodson noted. The 2014 state fiscal year capital budget, with federal funding, was more than $1.9 billion. “I don’t think any of the communities are going to be exempt from the lack of state spending; that’s going to be something that affects all of us,” Dodson said. On the bright side, Interior Alaska has benefitted more directly from low oil prices. Heating, or fuel, oil, the region’s primary space heating energy source, has gone from about $4 per gallon less than two years ago to about $2.50 per gallon today. Historically, Fairbanks-area residents have allocated about 60 percent of their overall energy costs to heat, according to Dodson. At $4 per gallon, that equates to an average of $4,300 per year spent towards homes that rely on fuel oil. “There is a tremendous amount of spendable dollars left in our economy that were typically spent for heating our homes,” he said. Additionally, a resurgence in military spending in should help mitigate state cuts around Fairbanks. The pair of F-35 squadrons that are all but a certain to end up at Eielson Air Force Base are expected to bring hundreds of jobs and hundreds of millions of construction dollars to the Interior. At Fort Wainwright, a company of unmanned Gray Eagle aircraft will add nearly 130 base positions, while nearby Fort Greely and Clear Air Force Station are seeing an influx of money, too. The area’s economy has immense ties to its military bases; defense activity accounts for more than a third of Fairbanks’ economy, while state and federal civil spending total about 10 percent apiece, according to Dodson. “There’s no question about it; Fairbanks is a military town,” he said.

IUU bill passes, but more int’l action needed

A bill addressing pirate fishing waits on the president’s desk, but even if signed, the international problem will need more international solutions. On Oct. 22, the U.S. Senate approved the Illegal, Unreported, and Unregulated Fishing Enforcement Act of 2015. The bill is the latest in a series of legislative and executive actions broadly aimed to get international pirate fishing under control. Illegal, unreported, and unregulated fishing, or IUU fishing, is too big a problem to handle domestically; the best that can be done at the national level are largely vague enforcement strategies or information sharing programs between law enforcement entities on either side of the Bering Sea. The president’s signature, if he assents, will serve as more a show of intent than a comprehensive overhaul, with the U.S. finally joining the Port State Measures Agreement, the largest but most problematic international piece of the IUU puzzle. IUU fishing is a worldwide problem but damages Alaska disproportionately as both the largest seafood producing U.S. state and one of the world’s largest seafood producers in its own right. “It drives me crazy to think that I can go into a Costco back home (in Alaska) and go over the counter to buy king crab that’s marketed as Alaskan but I don’t have that surety of knowing it is Alaskan,” Murkowski said in a press conference. Estimates vary regarding the economic impact of IUU fishing, in large part because the expansive data is nearly impossible to compile. The U.S. Coast Guard, however, estimates IUU fishing annually drains $10 billion to $23 billion away from the legitimate seafood industry worldwide. Russian IUU crab alone has cost Alaska Bering Sea crab fishermen up to $560 million, according to one estimate by United Fishermen of Alaska, the state’s largest commercial fishing industry group. Mark Gleason, executive director of industry group Alaska Bering Sea Crabbers, has been involved with the legislation for years and called its senatorial passage a “huge symbolic victory.” In May, Alaska’s U.S. Sens. Murkowski and Dan Sullivan along with Brian Schatz, D-Hawaii, introduced the bill, which closely mirrored the language Alaska Rep. Don Young’s House bill, which passed on July 27. The bill amends a complicated array of international maritime treaties, broadly aimed to give the National Oceanic and Atmospheric Administration more enforcement ability at U.S. ports where millions of pounds of pirated fish enter domestic markets. It also signs the U.S onto the international Port State Measures agreement, which establishes port controls for member nations to keep tabs on IUU fishing. Murkowski said the bill makes it clear at U.S. ports there’s “a cop on the beach,” but it’s unclear what the legislation would change operationally for NOAA. Murkowski said NOAA’s law enforcement will now have the ability to compile lists of known IUU vessels, as well as the authority and ability to turn these vessels away at port pending discovery. “The most important thing is making sure we’ve got the ability to deny entry if a vessel is listed as an IUU vessel, giving the enforcement side some teeth,” said Murkowski. “It probably will require that NOAA have more resources directed to its enforcement.” The price tag for the increased NOAA law enforcement is unknown along with the particulars of how day-to-day operations would change for the administration. NOAA representatives would only say they are “looking into how this new legislation can assist our mission to protect sustainable fisheries at home and abroad.” The most important piece of legislation is the U.S. government’s signature on the Port State Measures Agreement. The agreement would require that each nation under the agreement require foreign vessels delivering seafood to provide highly detailed reports in advance of port entry, showing a full chain of legal custody for seafood imports and exports. To pass as an international measure, the agreement needs to be ratified by 25 countries. If signed, the U.S. will be the 14th. A presidential task force on IUU fishing had adopted the end of 2015 as tentative timeline for successful total ratification. Murkowski said the U.S. will have to wheel and deal to get the necessary 25, possibly using the agreement as an international bargaining chip with nations who profit from IUU fishing. Such nations, she said, receive too much benefit from IUU seafood’s economic value to make the agreement attractive. “I use the example of the Russians with the illegal take of crab, putting that out and flooding the market with additional crab thus lowering the price,” said Murkowski. “When they are violating terms of agreement, we have other negotiations we engage with in Russia in other matters. We can come back to the violation and say ‘in order for us to continue…we need you to be a more cooperative neighbor for our fisheries.’” Russian IUU crab has been linked to organized crime in that country, making IUU enforcement a joint problem in the North Pacific. The U.S. and Russian governments signed a bilateral agreement on Sept. 11 mostly aimed at information sharing between law enforcement on either side of the Bering Sea. DJ Summers can be reached at [email protected]

Alaska tops US seafood production; adds jobs

Alaska once again led the nation’s seafood output in 2014, according to a recently released report from the National Oceanic and Atmospheric Administration. According to the administration, or NOAA, Alaska led all states in sheer volume of U.S. seafood landings with 5.7 billion pounds valued at $1.7 billion. The next closest state was Louisiana shrimp-based fisheries at 870.5 million pounds. Overall, landings and values are both down from 2013, though NOAA officials say the trends are still positive. The U.S. is the second largest consumer of seafood in the world, even with a relatively small per capita consumption of 14.6 pounds per person per year, steady from 2013’s 14.5 pounds per person. U.S. fishermen landed 9.5 billion pounds worth $5.4 billion in 2014, a decrease of 394 million pounds and $43 million compared to 2013. Alaska’s $1.7 billion was the greatest value as well as the greatest volume for seafood landings. The next closest were Maine and Massachusetts at $547.7 million and $524.7 million, respectively, powered by American lobster and scallops, two of the most valuable fisheries in the U.S. Alaska’s ports led the nation in quantity of landed seafood, but not in value. Of the top five most voluminous seafood ports, Alaska claimed three, spearheaded by Dutch Harbor’s 761.8 million pounds worth of seafood, mostly walleye pollock. Salmon dominate Alaska’s state fisheries, but on the high seas whitefish is king. Pollock, flatfish, and cod topped the list of Alaska’s harvest by value at 3.2 billion pounds, 736.8 million pounds, and 722.7 million pounds, respectively. NOAA’s report also included an analysis of recreational fisheries, which figured heavily into the economic value of Alaska’s seafood as well as commercial landings. The numbers for Alaska for 2014 were not available for this year’s study. However, the national total was 68 million trips. In 2013, 312,000 marine recreational fishing participants took over 595,000 trips and caught a total of nearly 2.6 million fish, including Pacific halibut, rockfishes, Pacific cod, lingcod, and the salmons: chinook, chum, coho, pink and sockeye. Halibut topped the list of most caught fish, seconded by coho salmon and pink salmon. According to a separate study, Alaska marine recreational fishing in 2013 generated 5,500 full- and part-time jobs, $642 million in sales impacts, $261 million in income impacts, and $386 million in value added. Fishing trips expenditures totaled $451 million. Of the Alaska marine recreational participants, 59 percent were non-residents. Aquaculture accounted for half the world’s seafood production, but the U.S. is lagging behind at No. 14 in the aquaculture development rankings. NOAA officials said in a press conference they have seen some increased U.S. aquaculture development and hope the trend continues. In 2013, freshwater plus marine U.S. aquaculture production was 662 million pounds and $1.37 billion, an increase of 68 million pounds in volume and 140 million in value from 2012. Atlantic salmon was the leading species for marine finfish aquaculture, with 41.6 million pounds produced in 2013, valued at $105 million. In Alaska, seafood harvesting remains a major, and growing, economic driver, according to a report by the Alaska Department of Labor and Workforce Development. At the state level, Alaska’s employment ranks grew 0.7 percent in 2014 as a result of the increased groundfish harvests. Groundfish harvest employment grew steadily from month to month by a total 24.8 percent, adding 350 jobs overall. Salmon harvesting jobs, however, dipped slightly with a 0.7 percent job loss in 2014, or 37 jobs. Even though Southeast Alaska lost 2 percent of its fishing jobs in 2014, the region still has the largest percentage of individuals employed by the commercial fishing industry at 28 percent. Aleutians and Pribilof Islands, with growth for groundfish harvesting jobs, followed at 21 percent, Southcentral at 18 percent, Bristol Bay at 17 percent, Kodiak at 9 percent, and Yukon Delta at 5 percent. In Southcentral, with the state’s largest urban cores, salmon dominated fishing jobs; 77 percent of Southcentral’s harvesting jobs were for salmon. DJ Summers can be reached at [email protected]

State board sets new method for workers’ comp payments

The state has adopted a new method for paying physicians and other health providers for services provided under Workers’ Compensation to injured workers. New regulations were adopted Oct. 29 by the Alaska Workers’ Compensation Board, which met in Anchorage. The change is aimed at slowing an annual rise in medical payments under workers’ compensation claims that result partly because of the payment formula. The new procedure, approved by the Legislature in 2014, replaces the previous system of paying medical service providers at the 90th percentile of “usual and customary” fees in the region with a new method that sets a value for a procedure that accounts for a provider‘s work, practice expense and malpractice insurance. The value is adjusted by a regional multiplier that adjusts for higher Alaska’s higher costs. Thirty-two other states have adopted the new payment system for workers’ compensation, according to Marie Marx, director of the Division of Workers’ Compensation. “Alaska has used the usual, customary and reasonable (UCR) fee schedule since 2004. The UCR rate was set at the 90th percentile, so for every procedure in workers’ compensation, the ninth-highest payer was considered the maximum allowable rate,” Marx said. “This schedule was inherently inflationary, because once a fee schedule was published charges tended to rise to and above the maximum level of payment, which guaranteed an annual increase in the UCR charge. “The new methodology, called the Resource-Based Relative Value Scale, assigns a relative value to each procedure, and then applies a multiplier (a fixed conversion factor). The value is multiplied by the fixed conversion factor set by the state to determine the amount of payment.” Marx acknowledged that not everyone is happy with the new system. “We received many public comments, and the reaction was varied,” she said. In a statement, the Department of Labor and Workforce Development said, “Alaska has had the highest workers’ compensation rates in the nation over the past decade although Alaska workplace injuries have declined significantly. The new fee schedule should reduce workers’ compensation costs.” That will result in lower workers’ compensation premiums paid by employers in the state. Other states have had to cut workers’ compensation, in some cases allowing companies to opt out, the department said. In contrast, “Alaska has sought to strengthen its system while also working to reduce costs for businesses that pay premiums.”

Interior Dept. cancels Arctic lease sales, refuses lease extensions

The U.S. Department of the Interior announced Friday it is canceling scheduled Arctic Ocean lease sales in the Beaufort and Chukchi seas previously set for 2016 and 2017, and that it is refusing requests from Shell and Statoil for lease suspensions. Shell announced Sept. 27 it was indefinitely suspending its Arctic Ocean exploration after drilling one well in its Chukchi lease this summer, a fact cited by Secretary Sally Jewell in her announcement of the sale cancelation and lease suspension denials. Alaska Gov. Bill Walker criticized the decision by the Interior Department. “I am disappointed by this announcement. Alaska must be able to responsibly explore and develop our rich natural resources both onshore and offshore. Any action that limits our ability to explore for more oil, and to increase much-needed new production for the Trans Alaska oil pipeline, creates unnecessary uncertain and a burden on our economy,” the governor said in a statement. In her statement, Jewell said “In light of Shell’s announcement, the amount of acreage already under lease and current market conditions, it does not make sense to prepare for lease sales in the Arctic in the next year and a half,” said Secretary of the Interior Sally Jewell. “I am proud of the performance of Interior’s Bureau of Ocean Energy Management and Bureau of Safety and Environmental Enforcement, the U.S. Coast Guard and others in ensuring that Shell’s program this past season was conducted in accordance with the highest safety and environmental standards.” The Interior Department stated that no nominations were submitted for Chukchi lease sales. Under the current five-year program Chukchi Sea Lease Sale 257 was scheduled for 2016. The agency’s statement said that the U.S. Bureau of Ocean Energy Management (BOEM) issued a Call for Information and Nominations from industry in September 2013, in response to which there were no specific nominations. Shell recently announced that the results of its exploration well at the Burger J site in the Chukchi Sea did not warrant further exploration in the Burger prospect, the Interior Department said.Similarly, Beaufort Sea Lease Sale 242 had been scheduled potentially for the first half of 2017. BOEM published a Call for Information and Nominations in July 2014, but only received one nomination, thereby raising concerns about the competitiveness of any such lease sale at this time. In another development, the U.S. Bureau of Safety and Environmental Enforcement (BSEE) denied requests from Shell and Statoil for lease suspensions, which would have allowed the companies to retain the leases beyond their primary terms of ten years. The leases will expire in 2017 (Beaufort) and 2020 (Chukchi). Among other things, the companies did not demonstrate a reasonable schedule of work for exploration and development under the leases, a regulatory requirement necessary for BSEE to grant a suspension, the Interior Department said in its announcement. 


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