Elwood Brehmer

War in Ukraine propels the price of Alaska oil past other benchmarks

While the cost of one is most certainly not worth the other, Russia’s invasion of Ukraine is proving to be an indirect windfall for Alaska’s treasury. Alaska North Slope crude oil traded for $115.14 per barrel on April 14, according to state Department of Revenue officials. That same day, oil indexed to the Brent benchmark sold for an average of $111.70. A premium of $3.43 per barrel for Alaska oil on a given day may not seem like much initially, but it has been larger in recent weeks and represents a reversal of a longstanding trend. Over time, it adds up. The Brent benchmark originates from London with oil largely sourced from North Sea fields. It typically trades at a premium of a few dollars to Alaska North Slope, or ANS, crude. However, the normal Brent premium to ANS crude most recently started fading in late March, several weeks after President Joe Biden issued a March 8 executive order banning imports of Russian oil, gas and coal in an effort to retaliate economically against Russian President Vladimir Putin for his decision to invade Ukraine in late February. The current ANS premium over Brent peaked so far peaked at $4.99 per barrel on April 11. Lower 48 oil sold on the West Texas Intermediate market, which typically carries the lowest value of the three, in recent weeks has gone from $2-$3 less than ANS to up to $9-per-barrel cheaper than Alaska oil. Though in totality it is a swing of less than $10 per barrel from the traditional state of global oil markets in more stable geopolitical and economic times, the likely temporary paradigm shift could have a material impact on Alaska’s finances. A change of $1 per barrel in the average price of ANS crude over the year equates to a change of about $80 million to $85 million in unrestricted state revenue, according to Tax Division officials. Revenue officials last month forecast an average ANS price of $91.68 per barrel this fiscal year. The ANS-Brent price difference is the largely the result of there simply being less oil — specifically less of the light, sweet crude produced from the North Slope and Russia — available to refineries in Washington and California where most of Alaska’s oil is sent, according to Alaska Department of Revenue researchers and others. Members of the Revenue Department’s economic research group wrote in response to questions about the price difference that West Coast refineries have been working to meet the increased demand for fuel that materializes most summers while also dealing with the lack of Russian crude that has created a tighter supply in the West Coast oil market. A similar situation is playing out in the Asian market, the economists wrote, as well. Longtime Alaska petroleum economist Roger Marks concurred, writing via email that the lack of Russian oil on the West Coast is driving up the demand for Alaska oil. Last year, West Coast refineries purchased up to 3.5 million barrels of light, sweet oil per month from Russia during the peak of summer. Those refineries purchased more than 5.8 million barrels of Russian oil in total last June, according to data from the federal Energy Information Administration. “Additionally, Saudi Arabia has increased their posted price premiums relative to Brent and other benchmark crudes. This makes ANS relatively more attractive in instances where ANS is competing with Saudi crude,” they wrote. The last time ANS crude sold for more than Brent over a prolonged period was the spring and summer of 2019, when the Trump administration reimposed economic sanctions on Iran, limiting the Middle Eastern country’s ability to export oil. That coincided with about 36 million barrels of Russian oil being contaminated by organic chloride, which ultimately squeezed oil supplies for the West Coast. The state researchers emphasized that oil markets are in a period of high volatility and they would expect any large price differentials between ANS and Brent-priced oil to eventually be resolved by more fundamental supply and demand forces, though it’s unclear when that might happen. For its part, Congress might have slowed a resolution in oil markets at least a little by reinforcing the president’s ban on Russian energy. The House overwhelmingly passed the Ending Importation of Russian Oil Act April 7, shortly after it was unanimously approved by the Senate. The law, which prohibits all forms of Russian energy in the U.S., allows the president to end the import ban, unless it is rejected by Congress, if the administration certifies that Russia has withdrawn its forces from Ukraine and ended the corresponding military hostilities; Russia poses no threat of aggression to a member of NATO; and Moscow recognizes Ukraine as a free and independent state. Elwood Brehmer can be reached at [email protected]

Going nuclear: Alaska is a big target for small reactors

Nuclear industry giant Westinghouse is targeting Alaska for deployment of its small-scale reactor technology. Representatives from Westinghouse’s nuclear division have been traveling to Alaska in recent months and talking with key decision-makers in the state about their eVinci micro-reactor, which they insist utilizes a design that makes it a totally safe, economically viable alternative to the diesel-powered generators relied upon across the vast majority of Alaska. “It will enable economic growth because you will no longer be constrained by energy,” Mike Shaqqo, a senior vice president with Westinghouse Electric, said of the eVinci nuclear reactor. Developed to fit in four transportable modules easily moved by truck, railcar or barge, the five-megawatt micro-reactor system requires about an acre — in line with the footprint of a diesel powerhouse and fuel tanks it is meant to replace, according to company representatives. In addition to the five-megawatt electrical generation capacity, the eVinci can also provide sufficient heat to support a small district heating loop as well, Westinghouse Senior Advance Reactor Commercialization Director Mike Valore said in an interview. “The number of things you can do with this — it almost gets boiled down to, what can you do with heat and what can you do with electricity — which is a lot,” Valore said. The small Westinghouse reactor is designed to operate uninterrupted for eight years, at which point it would be loaded back on a truck and sent back to one of the company’s facilities for refurbishment and refueling. Another eVinci reactor would also be ready to immediately take the place of the first. “We bring the reactor with the fuel in it and we also take it away with the fuel in it,” he said. The wholly encapsulated system eliminates the need to store spent fuel onsite while it cools. The eVinci reactor is cooled with a series of looped cooling pipes filled with liquid sodium. The passive system consists of hundreds of cooling loops that do not rely on high-pressure pumps to move coolant through them, Valore said, thus removing a significant point of failure common in many larger reactor systems. He further stressed that the steel canister that surrounds the eVinci reactor is coated with layers of silicone carbide that can withstand temperatures in excess of what the reactor and triso uranium fuel could produce in a worst-case scenario. “It cannot melt. It will not melt. No bad guy can take it and make bad stuff out of it,” Shaqqo added. He describes it as operating ostensibly like a continuously-charged battery for end-users. The ability to easily regulate the power production also makes small-scale nuclear generators a compliment to, not a replacement for, more variable sources of renewable energy. As for cost, study conducted in 2020 by Canadian nuclear generator Bruce Power and Westinghouse analyzing the feasibility of using the micro-reactor at remote mine locations across Canada concluded the eVinci could reduce power costs by up to 44% over diesel, depending on the price of oil and potential carbon fees. In cost-of-power terms, that translates to an all-in cost that will likely be about 25 cents per kilowatt-hour for the first few commercial eVinci units, Valore said. However, the eVinci project leaders expect the costs to fall significantly once a couple dozen units have been built, largely through economies of scale in manufacturing. The micro-reactor could also cut power-related carbon emissions at those remote sites by up to 90% as well, according to the feasibility study. The eVinci developers expect to conduct a long-term demonstration in the coming years before being ready to commercialize the technology by 2027. That coincides with the U.S. Air Force’s plan to start micro-reactor pilot program, but is truly a coincidence, according to Shaqqo. Air Force officials announced last fall that Eielson Air Force Base near Fairbanks had been chosen as the location for the small-scale nuclear power test run. Defense officials have contemplated numerous alternatives in recent years to the coal- and oil-fired heat and power plants that support several military installations across Interior Alaska. While Westinghouse is a longtime participant in the nuclear industry, having developed large reactors in use across the U.S., Europe and elsewhere, it is just one of several small-scale nuclear developers looking to enter the market as soon as the U.S. Nuclear Regulatory Commission finalizes the regulatory framework for commercial operation of micro-reactors, a lengthy process which is ongoing. Copper Valley Electric Association leaders announced in February they were embarking on a feasibility study with Seattle-based Ultra Safe Nuclear Corp. to determine if the company’s Micro Modular Reactor system could be used to displace the diesel generators the Glennallen utility relies on for part of each year when its hydropower sources are unavailable. Copper Valley CEO Travis Million said when the study was announced that the concept had 100% backing from the utility’s board members and one of his goals with the study is to educate the public on the system and its safety features while making sure to listen closely to any concerns. Sen. Lisa Murkowski has been a longtime backer of small-scale nuclear development; her omnibus Energy Act of 2020 authorized new nuclear research programs and the federal infrastructure bill that she helped negotiate with President Joe Biden includes investments in advanced nuclear technologies, as well. On the state level, Gov. Mike Dunleavy introduced legislation earlier this year to exempt small-scale nuclear projects from a statutory requirement that the Legislature approve the siting of nuclear projects in Alaska and relieve state agencies of the requirement to conduct studies of potential statutory and regulatory changes concerning nuclear development in the state. Those bills are working their way through the House and Senate, but the potential economic and emissions benefits from widespread small-scale nuclear deployment are not worth the broader possible side-effects, according to some. Alaska Community Action on Toxics Executive Director Pamela Miller wrote in testimony to the House Resources Committee on the governor’s micro-reactor legislation that small-scale nuclear reactors still come with serious health and safety concerns and “are a false solution for our energy needs and the climate crisis.” “Nuclear power is destructive throughout its life cycle from the mining of uranium which is done predominately on Indigenous lands through the enrichment process to the untenable problems of disposal of radioactive waste,” Miller wrote further. Valore said the used eVinci reactors would be shipped to a licensed Westinghouse facility in the Lower 48 with the spent fuel inside, after which the fuel would be sent to a licensed storage facility. The Department of Defense and other federal agencies often assume fuel liability for nuclear projects they are involved with. Alaska Environment Action Director Dyani Chapman said that while nuclear technology has come a long way over the decades, micro-reactors still use uranium, which may be handled safer in use than it once was, but must still be mined. “Mining of uranium is dangerous. It leaves radioactive tailings piles that can contaminate soil and water and compromise public health,” Chapman said. “Dollar for dollar there’s just better, cleaner options that we have available to us.” She insisted that Alaska’s leaders should be focused on maximizing the use of wind, solar, geothermal and other forms of renewable power in the state, and the materials needed for those investments can be sourced in creative ways to minimize environmental impacts as well. Mining advocates have consistently said a transition to relying on renewable energy for the nation’s primary power will require many new mines for key materials such as graphite, lithium, copper and other critical minerals. Chapman acknowledged it’s a complex issue, but said options like reprocessing existing mine waste and tailings or extracting the needed materials through recycling should come first. “When we’re thinking about setting up for renewables we should start by using what’s already been extracted. We may get to a point where we have to make other decisions, but we should do what is going to cause the least environmental damage first, always,” Chapman said. Correction: A prior version of this story stated the spent nuclear fuel would be stored in casks at the reactor site. Westinghouse officials clarified it will be shipped offsite in the reactor and handled at the company’s licensed facilities in the Lower 48. Elwood Brehmer can be reached at [email protected]

Using Defense Production Act for mineral security ‘a start,’ Alaska leaders say

Late last month, President Joe Biden invoked the Defense Production Act to increase domestic production and supply of five minerals deemed critical primarily for their use in large batteries. To many Republicans and development advocates, the move is a significant acknowledgment that production of numerous metals will have to drastically increase for countless renewable energy targets across the country to be met. The crux of the argument is that full electrification requires untold numbers of big batteries that currently each require large amounts of minerals predominantly sourced from oversees, often from China. Sen. Lisa Murkowski said in a statement from her office that invoking the Defense Production Act to secure domestic critical mineral supply chains is an overdue and important step that should complement a host of other actions the administration should take to spur exploration and eventual mine development for graphite, manganese, cobalt, lithium and nickel. “My hope is that this decision marks the start of a much more serious emphasis on our nation’s mineral security, and that real projects, especially mines, in states like Alaska, result from it. It is also critical that the five minerals addressed under this decision are just the start, not the end, of federal efforts to rebuild our domestic supply chains,” she said. Federal permitting reform to decrease pre-construction time and costs for mine developers is high on the list of other issues that the Biden administration should tackle in that realm, according to Murkowski. Murkowski, Energy and Natural Resources Committee chair Sen. Joe Manchin, D-West Virginia, and other senators urged Biden to use the Defense Production Act to spur supply chain development for those minerals in a March 11 letter. Gov. Mike Dunleavy said he’s happy with the move by the Biden administration, but stressed that it goes against other actions the administration has taken related to mining in Alaska, most notably the decisions in February and March to reopen the environmental impact statement for the Ambler Mining District access road and subsequently suspend the right-of-way approved across federal lands for the 200-plus mile industrial road. “Stalling development of the road to the Ambler Mining District is preventing access to the cobalt for the lithium batteries and the copper for the wires for charging stations. Beyond (electric vehicles), the Biden administration ignores the gallium and germanium also at the Ambler Mining District that will be needed for the solar panels, smartphones, and computer chips of tomorrow,” Dunleavy said. “An emergency call for critical minerals makes it timely to reverse the recent and contradictory federal decisions on Ambler.” Passed in 1950 in response to the Korean War, the Defense Production Act has been used dozens of times by presidents since, most recently by Biden and former President Donald Trump to ramp up production of medical supplies and vaccines to fight COVID-19. The bipartisan group of senators highlighted the effectiveness of DPA in expanding production of supplies to combat the pandemic in their letter to the president. When it comes to mineral supply chains, the law can help provide financing for projects backed by the federal government via the Defense Production Act fund, which holds up to $750 million to ensure the country maintains an industrial base of important materials for wartime capabilities. Among other things, the money could underwrite feasibility studies for mine projects or productivity improvements at existing operations, as opposed to simply buying more minerals, according to congressional delegation staff. The designation also adds a national security component to projects in federal permitting, which could help prioritize a mine or processing facility amongst other projects being evaluated. Resource Development Council for Alaska Executive Director Leila Kimbrell called the announcement "a step in the right direction" but said she hopes there is still a broader look at what needs to be done to improve domestic supplies of the minerals in question. "We're encourage to hear the adminstration wants to focus on that domestic production but we're cautious in seeing how that will actually benefit Alaska," Kimbrell said. State officials also said that while the president's memo accompanying the order highlights the need for certain minerals to support the nation's energy transition, using the DPA puts the Department of Defense in charge of procuring those minerals for national defense purposes, a likely nod to the broader need for reliable, domestic supplies of the minerals listed and others. Department of Natural Resources Commissioner Corri Feige, who is in Washington, D.C. this week for talks about Alaska's role in national mineral security, wrote via email that the procurement and funding opportunities could be significant for Alaska. She added that the Procurement Technical Assistance Center within the University of Alaska is available to companies looking for funding or procurement help. "There will be funding available to companies for things like new facilities to process ores with different metallurgy, rework tailings at existing mines to recover what has already been mined and not captured, and purchase updated equipment like automated mining equipment that improve safety of mining operations," Feige wrote. "With their funding, DOD seeks to improve safety in the industry and drive broader applications of technology that can assist DOD in other areas." Feige has been meeting with staff from Alaska's congressional delegation and other members of Congress; officials from DOD and Department of Energy sub-agencies; mining industry leaders; and representatives from General Motors' supply chain division. Alaska is also home to the Graphite Creek flake graphite deposit on the Seward Peninsula north of Nome, which the U.S. Geological Survey recently recognized as the largest graphite deposit in the country. High-quality flake graphite is a primary component of lithium-ion batteries and the U.S. currently imports all of its graphite. China is the world’s major producer. Leaders of Graphite One, the Vancouver-based junior mining firm that owns the Graphite Creek deposit, have said they expect to release a pre-feasibility study for the mine project in the first half of this year. The company is also investigating graphite processing and recycling facilities in Washington. Graphite One CEO Anthony Huston said the Biden administration’s action validates the company’s plan to develop a full graphite supply chain, something companies exploring for rare earth metals and other minerals elsewhere in Alaska have advanced as well. “With this new defense designation under U.S. law, graphite joins a select group of ‘super-critical minerals’ that are essential to commercial technology and national security applications,” Huston said. Acting Director of the Offices of Manufacturing and Energy Supply Chains and Vehicle Technology in the Department of Energy David Howell testified in April 7 Senate Energy and Natural Resources Committee hearing that the USGS Critical Mineral List — including those in Biden’s Defense Production Act order — “are key building blocks for a transition to a (carbon) net-zero energy future.” Howell noted that Russia’s invasion of Ukraine caused prices for platinum group metals, which Russia supplies to the world, and other important commodities to spike over fears of supply disruptions. “The supply chain assessments found that the United States has appreciable resources of many critical elements, but domestic production is frequently limited by a dated and often unclear legal and regulatory structure for mining coupled with a lack of midstream capacity to process and refine the raw materials, even in cases where it has active mining,” Howell testified. “As a result, U.S. ores frequently are shipped to other countries for refinement, relegating mid-stream profits to others and making the U.S. vulnerable to supply disruptions.” However, longtime Alaska energy industry attorney and analyst Brad Keithley said the federal government’s financial involvement in highly competitive markets such as mineral commodities invariably leads to the government “picking winners and losers” and adds inefficiencies to those markets. “If we thought China was an insecure source (for critical minerals), what might be appropriate would be to either raise tariffs to where we sort of hit the threshold where people develop domestic resources or just ban the imports from China,” Keithley said. He referenced the domestic natural gas shortage of the late 1970s and 1980s that led to the Defense Production Act being invoked and eventual government purchases from the Synfuels coal gasification plant in central North Dakota for national defense. The plant “never made economic sense but we just kept turning the gas out,” Keithley said, adding that the government-financed project indirectly impacted the ability for some of his clients to get financing for gas projects elsewhere. “To the extent that we were producing from that coal mine, we were disincentivizing the production of gas — not huge, but it was there.” According to Dakota Gasification Co., which owns the Beulah, North Dakota plant, it remains the only commercial-scale facility producing synthetic natural gas in the country. Elwood Brehmer can be reached at [email protected]

Dunleavy administration making some progress rebutting lending policies against Arctic oil

Members of Gov. Mike Dunleavy’s administration say they have gotten a handful of banks and investment firms to think twice about their in-house restrictions on financing Arctic oil and gas projects after months of talks. Department of Natural Resources Commissioner Corri Feige said in an interview that executives with three global lenders agreed to reconsider their environmental, social and governance, or ESG, policies after meetings with her, Revenue Commissioner Lucinda Mahoney and Dunleavy. Feige declined to name the financial institutions because the conversations were understood to be confidential, she said. The trio have met with representatives of numerous lenders over the past six-plus months, according to Feige, who said she believes Dunleavy’s calls for the state to cut its business ties with banks and other firms that have internal policies restricting their participation in Arctic development projects are having an effect. Current high prices in energy markets brought on by the disruptions of the pandemic and exacerbated by Russia’s invasion of Ukraine have also drastically changed the global scenario from when many of the lenders’ Arctic investment policies were instituted in recent years, Feige noted. “They’ve toned their language down a little bit,” she said. The goal of the meetings was to educate the individuals in charge of crafting the companies’ ESG policies on the environmental standards and practices in Alaska — particularly the North Slope oil fields — as well as the social benefits of the revenue generated at multiple levels of government from resource projects in the state, according to Mahoney. “There were several (lender executives) that flat-out said, ‘We had no idea the social impact was as strong as it is,’” Mahoney said, adding some of the executives asked for suggested changes to their policies. “We generally received a lot of ‘thank-you’s’ for coming and sharing with us what’s going on in Alaska.” The meetings generally were with “VP-level” individuals in charge of setting the institutions’ investment policies, she said. Mahoney also said some of the ESG policies targeting investments in Arctic projects come with a caveat of sorts. While they may limit project-specific investments, of the half-dozen or so major U.S. banks and other investors that implemented such policies to appease shareholders and address worries about climate change, many still invest in the large North Slope producers at the corporate level, Mahoney said. Feige also emphasized a belief that the “draconian, anti-Arctic” policies stemmed from perception more than diligent study. “These are really anti-Alaska policies and we take that very personally,” she said. “Nobody could communicate to me a vision of the Arctic and what the Arctic should be and worse yet a majority of the people who are responsible for these policies couldn’t even give me an accurate definition of what the Arctic is — so it’s a big problem.” Feige also insisted the fundamentals of the Equator Principles, a financial industry benchmark for evaluating and managing the environmental and social risks of investments, are baked into development processes in Alaska. Banking giant Morgan Stanley, which in the spring of 2020 instituted prohibitions on directly financing Arctic oil developments and any participation in industry activities in the Arctic National Wildlife Refuge, updated its Environmental and Social Policy Statement in March. It was one of the lenders approached by the Dunleavy administration. Questions about the meetings with the Alaska officials submitted by the Journal to Morgan Stanley’s corporate media office did not receive a response. Feige detailed some of the administration’s arguments in a speech last month during the Meet Alaska support service industry trade conference in Anchorage. She highlighted that roughly $3.1 billion was shared among Alaska Native regional corporations from 1982-2015 as a result of the “Section 7(i)” provision in the Alaska Native Claims Settlement Act that requires the corporations to share at least 70% of their resource revenue with other regional corporations. The regional corporations are then required to share half of their 7(i) revenue — named for its place in ANCSA — with the village corporations in their areas. That money, along with local oil and gas and mining property tax revenues translates directly to “sustainable communities,” according to Feige. The Permanent Fund and its dividends to Alaskans are effectively similar, she said. “We’re setting the stage for economic self-determination, which allows for practicing of our enduring cultural traditions,” Feige said of the resource revenue flowing particularly to rural governments and communities. The state’s regulations and laws against practices such as methane venting and flaring that are common in some other oil- and gas-producing jurisdictions are examples of the governance part of the “ESG equation,” according to Feige. She also said nearly every large development project in the state is subject to multiple layers of scrutiny because the state’s abundance of wetlands regularly triggers a lengthy National Environmental Policy Act review, on top of the “comprehensive, science-based” regulatory programs, “with the requirement to enrage in public notice and comment at every stage of project development” managed by the State of Alaska. For North Slope oil projects, the North Slope Borough has its own permitting requirements as well, she added. ”It’s getting the community involved and when we talk about (environmental justice), that’s what we’re talking about — the communities know and are engaged in the discussion,” Feige said. Lois Epstein, a longtime civil engineer in Alaska and a consultant to environmental organizations and tribes in the state, said the talking points from administration officials and other pro-development groups about the comprehensive environmental regulations in Alaska and the superior care taken to minimize the impacts of development in the state at times ring hollow. Epstein said that while the state’s prohibitions on deliberate methane releases are often discussed, the State of Alaska does not have any rules addressing fugitive methane emissions from pipelines or natural gas storage facilities. The State of Alaska also does not have its own “NEPA equivalent” for development projects that do not trigger a federal review, which does occur, she added. Alaska, which has more coastline than the rest of the country combined, has also been the only coastal state without a coastal management program since 2011, she also noted. Coastal management programs are largely intended to elevate local input in coastal resource management decisions. “It’s frustrating to me as a watchdog to hear these statements over and over and for new leadership at the state level to not acknowledge there are gaps,” Epstein said. “The details matter.” Elwood Brehmer can be reached at [email protected]

Scrutiny of plan to truck mine ore across Interior Alaska grows

A plan announced two years ago to haul large quantities of mine ore nearly 250 miles to the Fort Knox gold mine via a near-continuous procession of trucks has gained organized opposition in recent months and state officials are promising a closer look. When Toronto-based Kinross Gold Corp. paid $93.7 million for a majority stake in what was then dubbed the Peak Gold project, located near Tok on land owned by Native Village of Tetlin, the company said in a Sept. 2020 statement announcing the deal that it planned to truck ore from a proposed open-pit gold mine to its mill at Fort Knox, north of Fairbanks. There was little public discussion about the large mining company’s plans for about a year until Kinross started holding community meetings to talk about their project, according to retired Fairbanks-area state Sen. Gary Wilken, who is among those leading Advocates for Safe Alaska Highways, the group formed last year solely to stop Kinross’ trucks before they start. “We’re a very diverse group and we’re focused on not letting our highways become mining haul roads, and that’s as simple as it can be because that’s where it’s headed,” Wilken said in an interview. “We’re not going to stop mining in our state; we’re not going to fix global warming and we’re not going to cure baldness. This is about safety.” Kinross Alaska representatives have said the ore trucking concept is still being refined but they expect between two and four round trips per hour between the Fort Knox and the mine site along parts of the Alaska, Richardson and Steese highways. Kinross has since renamed the 1-million-ounce gold prospect and now calls it the Manh Choh project. As currently envisioned, the Manh Choh project would be active for up to 5 years with ore production tentatively set to start in 2024. The project would generate nearly 300 jobs during construction and another 400-600 direct jobs during operation, Kinross Alaska Vice President and General Manager Jeremy Brans told House lawmakers during a hearing last month. It’s for that reason the Tetlin Village Council is backing Kinross’ plans. Tetlin Village Chief Michael Sam said during the legislative hearing that the gold prospect has provided jobs for Tetlin residents since exploration began in the early 2000s, though safety along the trucking route is a concern of his as well. “Kinross has proven their safety track record and I strongly believe they are going to operate safely,” Sam said. The current range in truck activity is due to remaining unknowns in the final size of the operation, which will be informed by future infill drilling of the deposit, Brans said. Kinross is also in the midst of a feasibility study of Manh Choh to determine the best path forward for the company. He stressed during the joint meeting of the House Resources and Transportation committees that trucking the mine ore is the only financially viable way to develop Manh Choh, also noting the project would help protect the 700-plus jobs at the Fort Knox mine already. “Safety is the driving value for Kinross. We would not be doing this if we did not believe we could do it safely,” Brans said. He noted that 18 new passing lanes are scheduled for installation along the 248-mile route before Kinross plans to start the trucking operation, which does not require any special permits or authorizations from the Alaska Department of Transportation and Public Facilities, he added — a claim verified by DOT officials. “We want to be as ordinary as possible,” he said. Brans also highlighted that trucking the ore to an existing mill and other facilities greatly reduces the footprint and environmental impact of Manh Choh. Wilken said he personally doesn’t argue with the economic benefits of Fort Knox or the need in Eastern Alaska for the potential jobs at Manh Choh. However, the safety problems he and other Advocates for Safe Alaska Highways volunteers see far outweigh the economic potential of the project. He is quick to point out that Kinross’ numbers of a handful of trucks going each way each hour extrapolates out to potentially 192 one-way trips per day, or upwards of 70,000 trips per year. “You have an 80-ton truck every five miles. You’re going to drive to Delta and pass 20 ore trucks spring, summer, winter, fall.” Wilken said, adding there are 188 school bus stops along the route. Currently a member of the Interior Gas Utility Board of Directors, Wilken said the handful of LNG trucks that run the Parks Highway each day to supply the Fairbanks-area utility with gas produced from Cook Inlet just doesn’t compare to volume of trucks Kinross would employ. He did acknowledge, though, that transportation safety experts he spoke to about Kinross' plan have turned him against the tandem-rigged LNG “pup” trailers he previously advocated for to make the natural gas transport operation more economic and reduce the final cost to the utility’s ratepayers. Wilken insisted no level of ore hauling by Kinross is acceptable because "one truck leads to two." He added that it's likley Kinross will operate Manh Choh for longer than the initial five-year plan because nearly every large mine grows as more is learned about the deposit and the surrounding area. Kinross plans to use 80-ton gross weight tractor-trailers with tandem trailers for an entire rig that will likely be between 95 and 120 feet depending on the final configuration. The trucks, which will be operated by an in-state contractor, according to Brans, will be built specifically for the Interior Alaska route. That means, among other things, they will not sacrifice safety for economy of scale, he said, because more weight means more axles and more opportunities to install corresponding braking capacity. “A longer truck, if engineered correctly, — and all of these will be purpose-built — actually does not make a trade-off between weight and breaking power and that’s very key when it comes to bus stops,” Brans said. He characterized the ore trucks as increasing traffic by less than 1% in Fairbanks and up to 20% in outlying areas if the company’s most aggressive plans are enacted. Wilken said Gov. Mike Dunleavy held an informal stakeholder meeting in Juneau shortly after the March 8 legislative hearing that he felt was very productive. It ended with state officials granting Advocates for Safe Alaska Highways’ request for a formal, independent analysis of Kinross’ plan. “We had reached the point, very clearly, where we would stand up and say ‘That’s not safe,’ and Kinross would stand up and say ‘No, that’s safe,” Wilken described. “We needed someone to help us in the middle.” DOT officials subsequently announced a new transportation advisory committee on March 25 to examine the plan in response to concerns from the public. The committee will be comprised of officials form local school districts, state agencies, the Federal Highway Administration, first responder personnel, and project backers and opponents, according to DOT. The final roster is still being shaped, but Wilken said his group will have a seat on the committee. DOT Northern Region spokeswoman Danielle Tessen said the agency will hire an independent consultant to analyze the project corridor and answer the committee’s questions. She highlighted that it’s a public involvement process DOT officials are well-versed in from the countless other projects the department leads. “We believe in the practice of sharing information,” Tessen said, adding that the agency has put together a public input database — things DOT is not required to do in this instance. Agency officials hope to hold the fist meeting in April, she said. Tessen also acknowledged that as far as DOT's regulating, Kinross can largely do what it wants regardless of what the committee or agency recommends. “We don’t have the authority to stop them if they have legal loads,” she said. Kinross spokeswoman Anna Atchison wrote in an email that the company sees the committee as another opportunity for continued community input and dialogue about the Manh Choh project. "While we naturally seek out and welcome every opportunity for collaboration with stakeholders, we encourage the state to hold all commercial users to the same standard," Atchison wrote. Dunleavy said in a statement from his office that the advisory committee will develop a plan to allow for safe operation of the project. Environmental Protection Agency officials added another layer to the issue earlier this year, as well. EPA Region 10 officials wrote in February comments to the Army Corps of Engineers over Kinross’ wetlands fill permit application that the project could impact wetlands and waters along the trucking corridor in addition to the mine site, noting the possibility of more than 70,000 truck trips per year in the Tanana and Tok river drainages. The 5.2 acres of wetlands Kinross believes it will disturb at the mine site otherwise is a small enough disturbance that it wouldn’t necessarily require a full-scale National Environmental Policy Act review. “We are encouraged that we’re now going to get some unbiased, objective, critical thought to this process,” Wilken said. Correction: An original version of this story misspelled the name of the project. It has been corrected to Manh Choh. Elwood Brehmer can be reached at [email protected]

Alaska Air revives in-state investments, adding more freighters

Alaska Airlines is doubling down on its investment in the in-state cargo business and getting back to $50 million of work in the state that was shelved in early 2020, according to airline leaders. Regional Vice President Marilyn Romano said what Alaska Airlines’ once dubbed as its “2020 Great Land Investment Plan” has been rebranded for 2025. The $50 million will go into upgrading and expanding the rest of the 12 terminal facilities Alaska owns and operates across the state that didn’t get attention — or enough of it — before the pandemic set in. The work was about half done before it stopped, according to Romano, with most of the Southeast terminals complete. Alaska now plans to focus on its recently acquired Bristol Bay terminals as well as others in Western and Northern Alaska. The airline’s terminal in Kodiak, which received a remodel, is now in need of an expansion, she added. “We pretty much paused everything we were doing to concentrate on how we were going to get through 2020,” Romano said. “We really want people to know we haven’t forgotten about our commitments.” A large part of Alaska Airlines’ 2020 investment plan was dedicated to the company’s now-complete $50 million hangar at Ted Stevens Anchorage International Airport. As for the other part of Alaska’s in-state business, Alaska Air Group executives announced during a March 24 investor presentation that they plan to convert two of the company’s Boeing 737-800 passenger aircraft to freighters that will be dedicated to the state of Alaska. Those two freighters will add to Alaska’s existing in-state fleet of three Boeing 737-700 cargo jets, though the larger 737-800s, with approximately 50,000 pounds of payload capacity, will nearly double the fleet’s effective cargo capacity. The 737-800s are likely to arrive in Alaska after a lengthy conversion process sometime in 2023. “We’ll have to wait a while but we know they’re coming,” Romano said. “It’s just great to get back talking about our future versus talking about the pandemic. Other in-state cargo carriers are watching what Alaska Airlines does closely, according to aviation industry leaders, who said it can be difficult for the smaller operators to compete with the relative giant in the market. However, they also note that disruptions in the Alaska aviation caused by the pandemic and the desire to reduce backlogs in the U.S. Postal Service’s Bypass Mail program could offer growth potential without significantly squeezing some other carriers. University of Alaska Anchorage Logistics Professor Darren Prokop suggested via email that inflation could be playing a role in the growth of the state's air cargo market as well. "If e-commerce items are trending upward in cost to comsumers, and Alaska Airlines is bringing more cargo capacity online, the cost of moving a given pound of cargo may not rise as fast as the price tag of the e-commerce item itself. So, these items might 'appear' more affordable in the midst of general price inflation expected over the medium term," Prokop wrote. Adam Drouhard, managing director of Alaska Air Cargo, said in an interview that demand in the broader domestic cargo market is up nearly 20% since the start of the pandemic and the trend is starting to reach Alaska. “There is competition in a number of (in-state) markets, but as we see it there’s quite a bit of opportunity for growth,” Drouhard said, adding that the airline saw demand grow shortly after it added the three 737-700s in 2018. “You can actually stimulate demand of the service” by adding capacity, he said. To that end, the 18 to 20 locations in-state locations Alaska now serves with summer cargo service have mostly taken what the current fleet can offer. “Doing that with three planes — we’re pushing them to their limits,” Drouhard said. “We just want to make sure we have the right mix of aircraft and provide benefits to the places we serve.” New Horizon hub Horizon Air, Alaska’s sister regional carrier, will be opening an Anchorage base for pilots and flight attendants in the coming days, a move Romano said should help curb an increase in Horizon flight cancellations in the state due to a lack of available pilots. Horizon began flying its smaller Embraer E175 jets on flights marketed by Alaska Airlines between Anchorage and Fairbanks and Bristol Bay communities in the fall of 2020. Officials at those airports said there has been a spike Alaska-Horizon flight cancellations in recent weeks but referred questions about the specific number of pilot shortage-induced cancellations to airline representatives. Romano said there have “definitely been more (cancellations) than we would have wanted,” but added that Alaska has begun backfilling some cancelled E175 flights with larger 737s in an attempt to make up for lost capacity. Upwards of 75 people could eventually work out of Horizon’s new Alaska base, she said. “I think it’s going to help tremendously having people who live and work here. We’ll build it up to match the increase in flying,” she said. Romano emphasized the pilot shortage is nationwide and particularly impacting regional carriers that are trying to rebuild their flight schedules following the fallout from the pandemic. Pilots for regional carriers are often hired away by major mainline carriers and there simply are not enough new pilots entering the proverbial pipeline to keep aircraft staffed. It’s an issue that has long plagued the countless in-state flight services and small airlines, but is now working its way up the industry. Elwood Brehmer can be reached at [email protected]

Utilities, stakeholders submit long-sought plan for a Railbelt grid planning group

It’s been nearly seven years since the Regulatory Commission of Alaska scolded the state’s largest electric utilities for not working together more to improve reliability and lower costs in the Railbelt grid. The utilities submitted what amounts to their final response plan March 25. The Railbelt Reliability Council’s application to the RCA would form an electric reliability organization , or ERO, to manage, plan and evaluate potential investments in the Railbelt transmission grid that covers the territories of five utilities across the four most populous areas of Alaska. While the council, or RRC, would be led by a board that includes representatives from each of the utilities among 13 voting directors, it would also importantly include several stakeholder representatives who have advocated for change in how the utilities operate. RRC Chair Julie Estey said the application commits the fledgling organization to “continued collaboration, transparency, technical excellence and inclusion,” as the group attempts to meet the ever-evolving demands of Railbelt consumers. With aging, single-line transmission links between the Railbelt’s population centers and natural gas prices that have until very recently been two to three times greater than across much of the Lower 48, the pressure for significant change in the Railbelt electric system has been building for many years. “The concept of a collaborative structure that brings a variety of diverse perspectives together of the benefit of the entire region has been discussed for decades and we couldn’t be happier to achieve this critical milestone,” said Estey, who is also the external affairs director for Matanuska Electric Association. “The RRC appreciates the RCA’s consideration of our application and, if approved, we stand ready to fulfill the critical mission of the state’s first ERO.” In June 2015, the five-member RCA described the Railbelt grid as “fragmented” and “balkanized," outlining in a letter to lawmakers a belief that the lack of a system-wide, institutional structure at the time led the utilities to collectively invest approximately $1.5 billion in separate new gas-fired generation facilities with little evaluation as to what would be best for the Railbelt grid overall. The Railbelt region stretches from Homer to Fairbanks and accounts for more than 75% of the power used in the state. In a rare move for the mostly apolitical administrative body, the RCA endorsed state legislation passed in 2020 that required the establishment of a Railbelt ERO, and laying out some of its goals also pushed the utilities into action after voluntary prior attempts to form other power planning organizations stalled. An RCA spokesman could not be reached in time for this story. A blatant example of the need for improvements in the system is the fact that utilities have often been unable to maximize the cost benefits of hydropower from the state-owned Bradley Lake power plant near Homer because of constraints in the transmission lines between the Kenai Peninsula and the rest of the Railbelt. Bradley Lake is the largest hydroelectric facility in Alaska and provides the lowest-cost power in the region. The utilities estimated that a four-month outage in 2019, after a stretch of transmission lines was damaged by the Swan Lake fire near Cooper Landing, cost ratepayers in Anchorage, the Mat-Su and Fairbanks nearly an extra $12 million because it cut off power from Bradley Lake. Chris Rose, executive director of REAP, the Renewable Energy Alaska Project and an RRC Implementation Committee and board member, has long been among those stressing the need for an independent group to plan investments in the Railbelt that could maximize efficiencies between the utilities through better power generation coordination and encourage more renewable power projects in the region. To that end, Gov. Mike Dunleavy submitted legislation in February mandating, with some exceptions, that at least 80% of the Railbelt’s power come from renewable sources by 2040. Rose and other active stakeholders have said achieving such a renewable portfolio standard is only possible with an independent organization that could plan the Railbelt grid to optimize the integration of renewable power. Studies commissioned by the Alaska Energy Authority have concluded that a robust, redundant Railbelt transmission system would cost upwards of $900 million, though many utility leaders question the need for many of the individual investments within that total. Rose has at times been a vocal critic of how Railbelt utility leaders have approached the integration of renewable power sources they do not own. Utility leaders insist they have a responsibility to look out for the interests of their members first, even if a renewable project or transmission investment could benefit the Railbelt as a whole. He acknowledged there is an inherent challenge in the RRC maintaining its independence given the utilities and other stakeholders make up the vast majority of the board leadership as envisioned, but said council staff will be tasked with providing independent recommendations to an advisory committee that will inform the RRC board decisions. It will be up to the RRC staff to vet potential infrastructure investments and power sharing plans, in part to make sure they make sense across the Railbelt. “It will be a staff of senior engineers who lead processes that include a working group composed of all different interests,” Rose said. “The staff is then acting independently, we hope, of both the influence that the board may have and the influence that the governance committee may have.” If the RCA approves the application within the normal six-month window, the RRC could be staffed and ready to start working on its first long-term integrated resource plan for the region’s grid next year. The final plan is still likely three or four years away, Rose estimated. The RRC’s filings call for a staff of 12 and a $4.5 million budget in 2023, paid for by the utilities. While it’s often very technical and bureaucratic, the issues driving the formation of a Railbelt electric reliability organization — possibly the RRC —touch everyone in the Railbelt now and are likely to become more important, according to Rose. “As we move from fossil fuel transportation and heat to electric transportation and heat, electricity is going to be touching even more of our lives and there are more stakeholders that need to be a part of it,” he said. Elwood Brehmer can be reached at [email protected]

House panel rejects statutory PFDs in-lieu of energy rebate, education funding

The state budget bill taking shape in the House would fund the state’s base education programs for two years and provide “energy relief” checks of about $1,300 plus dividends to Alaskans, but still falls well short of how much of the state’s latest oil windfall Gov. Mike Dunleavy wants to dole out. House Finance Committee members shot down an amendment by Finance co-chair Rep. Neal Foster, D-Nome, to pay dividends of upwards of $4,200 per eligible Alaskan based on the statute in law via a 4-7 vote March 21, but the 2023 fiscal year budget still calls for paying out more to Alaskans than at any time since former Gov. Sarah Palin was in office. It was 2008 when oil prices spent much of the summer above $130 per barrel and lawmakers approved more than $3,200 per person in PFD and energy rebate checks. “I think if there’s ever a time to stick with the statutory, full PFD with the cost of energy, food, supplies and everything — I think that time is now,” Foster said prior to the vote. The statutory PFD calculation would have the state pay out nearly $2.8 billion in dividends this fall. As it stands, the House budget would pay out the energy relief checks along with PFDs of nearly the same amount, which add up to nearly $1.7 billion going out as checks to Alaskans, in line with the 50-50 annual split of Permanent Fund earnings revenue that Dunleavy has so far unsuccessfully called for the last two years. However, the governor insisted the Legislature add a $795 million supplemental PFD payment to the 2022 budget to cover the gap between the PFDs of $1,114 per Alaskan approved by the Legislature and paid last October and the 50-50 split that would put dividends at about $2,500 per person and rising each year. It all comes down to how lawmakers want to handle the first budget surplus in years after consistently cutting dividends to avoid even more severe cuts to state services than have been enacted since state revenue fell off the table in 2015. Dunleavy is proposing payments totaling $3,700 per person this year while also putting nearly $3.4 billion in savings before 2024 to start replenishing the roughly $16 billion in savings the state has spent over the past decade. That’s based on the administration’s spring revenue forecast published March 15 that calls for oil to average $101 per barrel in state fiscal year 2023, which starts July 1. The House plan would instead put about $2.3 billion in savings over the next year-plus and forward fund the 2024 fiscal year K-12 budget with $1.2 billion. Alexi Painter, director of the nonpartisan Legislative Finance Division noted in March 18 testimony to House Finance that the administration’s projection for an additional $3.6 billion in revenue through 2023 is based on an oil price forecast done in early March, when the price of Alaska North Slope crude hit a recent peak of $125 per barrel. That could be significant, according to Painter, because state Revenue officials rely on oil futures markets, which likely showed higher near-term prices, as well, when the daily spot price was at its highest. Alaska oil prices have fallen below $98 per barrel and gone back up to hit $114 per barrel March 21, in the weeks following the Revenue’s forecast. At the same time, the administration’s move to a futures-based oil price forecast has generally been slightly more accurate than analyst-generated predictions, likely due to the fact that a price forecast based on futures markets is the more up-to-date methodology, he said. Regardless, most experts believe this oil windfall will be relatively short-lived. “As we’ve seen, oil has been extremely volatile with world events, but the futures market does not believe these prices will last,” Painter said March 18. “Things have not changed nearly as much in the long-term as they have in the short-term.” The state’s forecast calls for Alaska oil prices to fall back under $80 per barrel by 2026. Forecasting more revenue also added about $150 million to the state’s minimum 2023 oil and gas tax credit bill, for a total payment of $349 million. The tax credit payment calculation — which lawmakers have used some years and ignored in others — is based on a percentage of expected annual oil production tax revenue. The current $7.7 billion unrestricted general fund 2023 House budget proposal would balance if oil averages approximately $95 per barrel next year, according to Painter. It would balance at about $75 oil without the $1.2 billion pledge to forward-fund the 2024 education budget. Fairbanks Democrat Rep. Adam Wool stressed that the added education funding is a one-time expense to start rolling funding forward every year. Overall agency spending is up just more than 5% at about $4 billion in the latest House budget. That level of annual growth and 50-50 dividends would end budget surpluses after 2025 based on current projections, according to Painter, while limiting budget growth to long-term inflation projections of 2.25% would extend surpluses another year and add to what could be saved in the interim. “That difference of a couple percent doesn’t sound like much, but when you compound it over a decade it’s significant, Painter said. “When we’ve had oil revenue in the past we have grown agency operations much faster than inflation.” Elwood Brehmer can be reached at [email protected]

Alaska’s banks enjoyed another strong year ahead of changing market forces

Alaska’s banks had a solid finish to 2021 after consistently posting near-record financials throughout much of the pandemic. First National Bank Alaska bested its fourth quarter income total in 2020 by netting $16.3 million in the fourth quarter of last year. FNBA netted $58.4 million in total last year, up from $57.5 million in 2020, according to the bank’s results published by the Federal Deposit Insurance Corp. Anchorage-based FNBA, which is in its 100th year of business, added nearly $1 billion, or 19%, to its asset base last year, finishing with nearly $5.6 billion in total assets. “This significant growth, despite pandemic disruptions and a low-interest rate environment, is a testament to the management team’s strategic planning and our 600-plus employees who work so hard to shape a bright tomorrow for all Alaskans,” FNBA CEO Besty Lawer said in a statement from the bank. Northrim Bank saw similar results relative to its size. While Northrim’s net income of $8.1 million was down slightly in the fourth quarter compared to $8.8 million in the third quarter and $10.1 million to end 2020, the bank still saw 14% net income growth for the year. Northrim netted $37.5 million last year and nearly $32.9 million in 2020. The Anchorage-based bank added nearly 30% to its total assets last year, ending with more than $2.7 billion on its books, despite a total loan portfolio that ended the year at $1.41 billion, down from a first quarter peak of more than $1.54 billion. That’s largely due to the winding down of the Small Business Administration’s Paycheck Protection Program, which underpinned much of the income lenders nationwide have enjoyed since the second quarter of 2020 via loan fees. As PPP loans have been approved for forgiveness as intended, they have come off of lenders’ books. Northrim leaders have consistently said they have been able to parlay many PPP customers that were new to the bank into long-term customers in other realms. Excluding PPP loans, the bank’s loan portfolio has increased each of the past four quarters, according to Northrim’s published finances. New customers accounted for more than $63 million in non-PPP loans for Northrim last year and more than $119 million in new deposits, according to CEO Joe Schierhorn. “Improving economic factors along with the continued success of our outreach to new and existing customers generated increased net interest income and had a substantial impact on core loan and deposit growth,” Schierhorn said in a statement. Last year went similarly well for Denali State Bank in Fairbanks; the community bank netted nearly $4.9 million in 2021, according to FDIC records, compared to $3.2 million in 2020. Denali also increased its total assets by more than 23% to finish last year with $470.8 million and its total deposits by more than 26% to $424 million. In Southeast, First Bank achieved a net income of more than $9.4 million on the back of $778.2 million in assets to end last year, compared to $6.5 million of income on $689 million in assets to end 2020. The lack of cruise ship activity in Southeast dealt a major blow to the region’s tourism-dependent economy the past two summers, but cruise companies and tour operators are indicating visitors will likely be returning en masse to Southeast Alaska this year. The mortgage and refinancing business that banks have enjoyed the past couple years thanks to record-low interest rates has also started to ease just a little with rising rates and inflation but remain strong, at least at Northrim, according to bank leaders. Northrim��s mortgage volume totaled $247.2 million in the fourth quarter, down from $283.7 million in the third quarter. They attributed a slight decline in refinancing activity to normal seasonal swings. The Alaska Housing Finance Corp. posted 30-year mortgage rates March 22 between 4.125% and 4.750% for its various lending programs. Interest rates were in the 3% range or less for much of the last two years. Elwood Brehmer can be reached at [email protected]

Leading Alaska's resources: Meet new RDC for Alaska Executive Director Leila Kimbrell

For Leila Kimbrell, her new job is a way to carry on a family tradition, of sorts. She took over as executive director of the Resource Development Council for Alaska in late January and immediately became a leading voice for the state’s biggest industries. It’s largely been a “natural transition” given not only her personal background in policy, but her family’s as well, even if she is a touch soft-spoken. A Soldotna kid at her core, Kimbrell’s family homesteaded on the Kenai Peninsula around the time of statehood and quickly became involved in local politics — an interest that caught her, as well. “I’ve always had a real love for the intersection of law, policy and practice and how all of that works uniquely in Alaska,” Kimbrell said. Those deep interests led her to the University of Alaska Anchorage and eventually to a degree from the Willamette University College of Law. Kimbrell most recently spent four years as Sen. Lisa Murkowski’s state director, after time as a legislative assistant for Murkowski in Washington, D.C., and practicing municipal law for a private firm in Anchorage. Her time spent representing and advising numerous local governments across Alaska provided Kimbrell with a breadth of experience she would’ve been hard-pressed to find anywhere else, she said. “It was everything from enforcing a traffic citation to environmental, Clean Water Act cases and First Amendment issues,” she said of her time in private practice. The local government work also gave her a sense of how policy issues are felt, particularly in rural Alaska, Kimbrell said. She additionally spent time working for some of the public corporations of the state before going to Washington “to see how the sausage was made,” she said. With a background in every level of government and experience with the issues facing Alaskans across the state, Kimbrell said she feels prepared to lead an organization with a staff of just three, but also with one of the largest and broadest membership bases in Alaska. Her former colleagues actually enouraged her to apply when the top position with RDC became available, according to Kimbrell. Kimbrell replaced Marleanna Hall, who moved on from RDC after more than 14 years with the organization and six years leading it. RDC Board President Lori Nelson wrote via email that her experience working with all of the industries RDC represents — oil and gas, mining, fisheries, tourism and timber — along with her legal background are significant assets to the organization.  "Ms. Kimbrell is well-versed on federal issues that pose the greatest threat to RDC’s mission: Growing Alaska Through Responsible Resource Development. Our entire board is proud to have such a talented, lifelong Alaskan at the helm," Nelson wrote. Having worked in the Senate, Kimbrell has a one-year ban on directly advocating to any U.S. Senate office or committee, not just Sen. Murkowski and her staff. With a corporate membership that includes all 12 Alaska Native regional corporations, oil companies, state agencies and fish processors, among many others — its board of directors roster is nearly 75 deep — RDC is one of the furthest-reaching and most influential organizations in Alaska. Having such a diverse constituency means RDC focuses on issues affecting a range of activities or industries, according to Kimbrell. “Because it is such a broad organization that has such a big umbrella to it, while we do comment on specific projects, we don’t pick winners and losers and look for opportunities, especially where there are consistent themes for the industries that we represent,” she said.  One of the challenges that has has quickly become a pressing issue across sectors and regions of Alaska is simply finding qualified workers to fill the jobs that are out there. And it’s not just a side effect of the pandemic, according to Kimbrell. “Even long-term, I don’t know of an industry or an organization or segment of our economy that isn’t challenged in some way in recruiting the workforce they need to be fully up and running,” she said. However, she was also quick to note that the longstanding theme of access to the resources that sustain much of Alaska’s economy isn’t going anywhere. “It’s as old as statehood,” Kimbrell said, adding that she believes there are ways to “think outside the box” when approaching some of Alaska’s ongoing challenges. “We can look at ways to have a conversation instead of just sitting on one side of the table over a given issue,” she said. “And we can build a conversation by taking advantage of some of our events. That’s an opportunity to maybe reach a broader audience.” Elwood Brehmer can be reached at [email protected]

FedEx grows Anchorage airport investments to $200M

It’s official: FedEx is going big in Anchorage. It’s the latest public commitment amid a flurry of formal agreements and rumored developments for the growing cargo business at Ted Stevens Anchorage International Airport. Earlier this month, FedEx Express Americas President Richard Smith announced that the parcel delivery giant is investing nearly $200 million in a new sorting facility at the airport. “Right now cargo is king and we expect that trend to continue for some time, and Alaska, and in particular Anchorage, are only growing in importance over time,” Smith said. FedEx initially expects to upgrade its main ram and 12 aircraft gates by this fall in response to increased activity through Anchorage, according to Smith, with additional work coming after. The rest of the new facilities are tentatively scheduled to be open by 2024. He quipped that the investment could “go north” of $200 million if global supply chain issues persist. Unusually long wait times for transporting goods via cargo ship and snarled logistics at some of the nation’s biggest ports have led to substantial growth in the air cargo trade as a workaround, even if it is more expensive . A record 3.6 million tons of cargo passed through the airport — the fourth busiest cargo hub on Earth — last year, up 14% from 2020, the previous record. “This is the first time they have said, ‘We are building the project; we are making the investment,’ ” Anchorage Economic Development Corp. CEO Bill Popp said in an interview. “It’s an exciting announcement. They are building a very large facility.” Smith revealed the company’s plans at AEDC’s annual economic forecast luncheon. Representatives for the Memphis-based company previously indicated an expansion to its Anchorage cargo handling facilities was being considered after public notices for a proposed lease agreements at the state-owned airport were published, though nothing was final. A public notice issued in March 2021 regarding lease negotiations with FedEx outlined a $120 million project to add a new domestic operations center, warehouse improvements and added aircraft parking over approximately 22 acres. The proposed lease at the time had a 30-year term with options for up to 50 years. Anchorage Airport spokeswoman Megan Peters wrote via email that the lease negotiations with FedEx are ongoing and referred additional questions about the project to the company. FedEx has until April 3 to sign a lease, at which point a new public notice for negotiations would have to be issued if a lease is not finalized, according to Peters. A statement from a FedEx corporate spokesman in response to questions about the details of the company’s plans in Anchorage reiterated that Alaska has been an important strategic location for FedEx for decades. “As part of the company’s continued investment in technology and operations FedEx is investing $200 million to expand and upgrade our facilities in Anchorage to handle increases in international and domestic volume and meet growing customer demand,” the FedEx statement reads. Even without a signed and sealed lease agreement, the fact that a large company in a highly competitive industry would make public statements about the specific size of a project is quite significant, according to Popp. “It is a clear statement of confidence by FedEx in the value of Anchorage International Airport for their business,” he said. The FedEx announcement is the latest of five major cargo storage and logistics projects at the Anchorage Airport that could total upward of $1 billion in development activity if they all move forward. While FedEx is building near the center of the airport, UPS is slowly working on its own large project estimated at $110 million at the north end of the airport. Some of the cargo projects have been slowed by significant PFAS soil remediation work that must be done at the sites before construction can commence. Elwood Brehmer can be reached at [email protected]

Bipartisan fuel tax bill turned on its head

The one broad-based tax that appeared poised to pass the Legislature after years of debate has died at the hands of high oil prices. The House Finance Committee gutted the key provisions from Anchorage Democrat Rep. Andy Josephson’s motor fuel tax bill March 9 before it sent the legislation on its way to a likely vote on the House floor without objection from Josephson, who sits on the committee, and little other discussion. House Finance co-chair Rep. Kelly Merrick, R-Eagle River, introduced the pared-down version of House Bill 104, which now includes a single provision increasing Alaska’s refined fuels surcharge from 0.95 cents per gallon to 1.5 cents per gallon, amid the first calls for lawmakers to suspend Alaska’s current gas taxes, which are the lowest in the country. HB 104 was stripped of language raising the highway fuel tax from 8 cents to 16 cents per gallon, doubling the rate for marine fuel from 5 cents to 10 cents per gallon and enacting new registration fees on electric vehicles. The bill did not increase aviation fuel taxes and provided refunds for motor fuels used off the road system and some commercial fishing vessels. Overall, it was expected to raise approximately $30 million per year. Gov. Mike Dunleavy publicly urged legislators to suspend the state’s motor fuel taxes in a statement from his office March 11. He also sent a letter to House members in which he noted the actions taken by the House Finance Committee but also urged them to add an amendment to HB 104 that would suspend taxes on highway, aviation, jet and marine fuels through June 30, 2023, the last day of the 2023 state fiscal year. “It is my sincere desire that this action, if approved, would spur a trend of relief to our fellow Alaskans from both government and private actions,” Dunleavy wrote. “In that spirit, I would hope the private firms that distribute fuel would ensure these savings are passed on to the end user, the Alaskan, as effectively as possible.” The Senate unanimously passed a nonbinding Sense of the Senate affirming the body’s collective commitment to providing relief to Alaskans from current energy costs March 11 as well. It’s unclear at this point when HB 104 will be up for a vote on the House Floor, where the governor’s amendment or something similar could be added. Suspending the fuel tax would save the average Alaskan driver $40.24 per year, according to legislative figures. Oil prices have somewhat stabilized at a little more than $100 per barrel after the sharp spike in prices following Russia’s invasion of Ukraine and President Joe Biden’s ban on Russian crude imports, though there is little indication that oil prices will fall any time soon given the current geopolitical situation. Those high oil prices have also added nearly $2 billion in likely state revenue this year based on unofficial estimates. Revenue officials are expected to update their annual state revenue forecast in the coming days. Support for increasing Alaska’s fuel taxes, some of which have not been updated since the 1970s, had been slowly growing since former Gov. Bill Walker first introduced legislation to do so in 2016. Revenue from presumptive fuel taxes was worked into both House and Senate budget bills before fuel tax legislation passed at various times since. The Republican-led Senate passed a fuel tax bill in 2019 but it got lost in tense debates over the governor’s proposed budget cuts and died in the House. Josephson’s bill was based on Fairbanks Republican Sen. Click Bishop’s bill that the Senate passed. “What we see is that unless you’re in a fiscal crisis, you just can’t raise revenue, and we’re no longer in a fiscal crisis,” Josephson said in in interview, though he noted the state is still living in a structural deficit. “What’s disappointing is how quickly legislators get amnesia,” he added. The refined fuel surcharge that remained in HB 104 applies to any fuel refined or sold in the state. It partially funds the Alaska Department of Environmental Conservation’s Spill Prevention and Response Division, commonly known as SPAR. The increase of just more than a half-cent per gallon would raise between $3.4 million and $3.7 million per year to SPAR’s oil and hazardous substance release prevention account, according to figures provided by Josephson’s office. That works out to a little more than $3 per year for the average urban-area Alaska driver, he said. The .95 cents-per-gallon surcharge gained bipartisan support when it passed in 2015 as a means to stem declining revenue in SPAR’s accounts, which previously had relied on a 4 cents per barrel surcharge on oil produced in the state along with fee-for-service payments. However, declining production has again put SPAR in a money bind based on some projections. On its current trajectory, the prevention account will likely be depleted some time in 2026. Past revenue totals indicate the current surcharge is generating about $1 million less per year than projected when it passed mostly due to lower oil production, according to Josephson. Elwood Brehmer can be reached at [email protected]

EPA pushes ahead on new wetlands rules; Alaska wants exemptions

In what is quickly becoming a tradition of sorts for new presidential administrations, one of the country’s most arcane but important environmental rules is getting overhauled once more. Leaders of the U.S. Army Corps of Engineers and the Environmental Protection Agency were in Alaska in late February to, among other things, discuss their plans for the “waters of the U.S.” rule, more commonly known as WOTUS, with stakeholders in Alaska, the state with more wetlands than the entirety of the Lower 48. The protracted debate over WOTUS largely centers on which of those wetlands are subject to federal regulation under Section 404 of the Clean Water Act, which, in turn, can trigger a comprehensive and often costly National Environmental Policy Act review of a proposed development. Being more than 40% wetlands, virtually every large project in Alaska requires a Clean Water Act Section 404 “wetlands fill” permit. Alaska Republican Sen. Lisa Murkowski said in a lengthy statement from her office following a previously unpublicized Feb. 25 meeting with Assistant EPA Administrator for Water Radhika Fox and Acting Assistant Army Civil Works Secretary Jaime Pinkham and Alaska officials that the roundtable allowed the federal officials to hear of the challenges caused by ambiguity surrounding the applicability of WOTUS in recent years. The Army Corps of Engineers administers the Clean Water Act wetlands permitting program for the EPA, which has ultimate authority over how the rules are implemented. The two-step approach to revising the the rule proposed by the EPA in November is “the most expansive yet” in terms of the wetlands that would fall under its jurisdiction, according to Murkowski, who is among those who believe the administration should wait at least until the U.S. Supreme Court rules on a potential precedent-setting WOTUS case. Technical supporting documents to the proposed rule in several instances reference intermittently flowing streams in Alaska used by juvenile salmon and other small fish as justification for parts of the regulatory changes. “While I have called on the agencies to stop their work on WOTUS until after the Supreme Court rules on the Sackett case, they have not agreed to do so, and I did not want to lose the opportunity to have leadership hear directly from Alaskans about how their latest proposal would impact us. EPA and the Army Corps bear responsibility for making sure that WOTUS works for Alaska, our economy and the people who live here,” Murkowski said. “I thank Ms. Fox and Mr. Pinkham for traveling to Alaska for a very candid conversation and hope what they have heard and seen while here will be reflecting in their agencies’ actions going forward.” The Supreme Court announced in January it would again hear the Sackett v. EPA case in which an Idaho couple was prohibited from building on their property in the mid-2000s due to Clean Water Act wetlands permitting requirements. The court ruled in the Sackett’s favor in 2012 and remanded the case back to a lower court, where the legal battle continued. Traditionally conservative justices currently hold a 6-3 majority in the high court. EPA officials said when they proposed the new rule that they wanted to not only repeal the Trump administration’s version of WOTUS — dubbed the Navigable Waters Protection Rule and finalized in 2020 — but also go back to pre-2015 standards for identifying jurisdictional wetlands, with updated language to comply with recent federal rulings on the issue. U.S. District Court rulings vacating the Navigable Waters Protection Rule in New Mexico and Arizona emphasize the need for certainty in the definition of WOTUS, according to administration officials. The plan is for EPA to then hold a series of stakeholder roundtables across the country, as well as public comment periods, to inform a new form of WOTUS that EPA Administrator Michael Regan has said will be “durable” while protecting the country’s waters. The back-and-forth over WOTUS started in 2015 when the EPA under former President Barack Obama finalized some of the first significant changes to Clean Water Act wetlands regulations in decades. The Obama administration’s WOTUS, which partly relied on a series of calculations to determine of a wetland area was close enough to a primary water body to be under Clean Water Act jurisdiction, drew the ire of Republicans, development advocates and some conservationists who were unhappy with the method of determining jurisdiction limits. Numerous states sued the EPA over the rule and in August 2015 a U.S. District Court of North Dakota judge blocked implementation of Obama’s WOTUS in 22 Midwest and Western states, including Alaska. The ruling led to an appeals court issuing a nationwide stay of the rule that was lifted in 2018. Also in 2018, then-EPA Administrator Scott Pruitt signed a memorandum of agreement with Army Corps leadership giving Army Corps Alaska District officials more leeway in approving wetlands mitigation plans for large projects in Alaska, where the traditional Lower 48 methods of preserving nearby endangered wetlands or improving areas damaged by development are difficult or expensive to employ, particularly in rural parts of the state. Some observers saw the agreement as an assist to the developers of the Pebble mine project, which submitted its Section 404 permit application earlier that year. However, Alaska District officials denied Pebble’s permit application in November 2020 after deeming the wetlands mitigation plan for the project insufficient to offset the loss of wetlands from the large-scale mine. Alaska District regulators continue to operate under the 2018 agreement, according to an Army Corps spokesman.   Initial reaction Brian Litmans, legal director for the Anchorage-based environmental law firm Trustees for Alaska, said he believes the administration is taking a sensible approach by stepping back before taking input from all sides for the final rule. Until then, it’s unclear exactly what the new wetlands parameters will be. Eric Fjelstad, a natural resources attorney for the Anchorage office of the Seattle-based business firm Perkins Coie, said in Alaska the new rule would likely impact homeowners and small commercial projects the most, given large-scale developments in the state need wetlands permits nearly without exception. However, Fjelstad, like Murkowski and others, said he thinks the administration is getting ahead of itself given the Sackett case is still out there. That’s because a Supreme Court decision ending the long-running court battle could significantly alter the parameters under which the administration could draft new regulations defining jurisdictional wetlands, according to Fjelstad and others. “Honestly, until the Sackett ruling this all feels academic to me,” he said of the WOTUS rule making process. State officials stressed in 21 pages of comments to the EPA that the Biden administration’s initial WOTUS proposal is more expansive than any prior rule, is “legally unjustifiable and precludes any possibility of a partnership between states and the federal government.” An initial WOTUS comment period ended Feb. 7. As a result, Gov. Mike Dunleavy requested exemptions for permafrost wetlands, forested wetlands, wetland mosaics and other undefined wetland areas in the state in a letter accompanying the state’s comments. State officials insist it is difficult to identify hydrologic connections to wetlands formed on top of permafrost are, particularly those in flat areas such as the North Slope, partly because of the freeze-thaw cycle. Forested wetlands and wetland mosaics are sometimes expansive areas fed mostly be precipitation that are typically isolated from larger waters but could be regulated under the proposed rule, according to the state’s comments. Dunleavy cited Supreme Court opinions in claiming that the average wetlands permit applicant spends 788 days and more than $271,000 to obtain a permit, costs that do not include expenses for mitigation work. “Alaska needs regulations tailored to the diversity and abundance of its waters, not a one-size-fits-all rule imposing excessive federal requirements,” Dunleavy wrote. The governor included just more than $4.9 million in his 2023 fiscal year state budget proposal for the Department of Environmental Conservation to start work toward taking over Clean Water Act Section 404 permitting for development in wetlands and other water bodies with federal jurisdiction. State administration officials say the state could run the program more efficiently than the Army Corps, which typically handles between 600 and 800 wetlands permit applications in Alaska per year. Elwood Brehmer can be reached at [email protected]

EPA fines Hilcorp $180K for methane leaks, reporting violations

Hilcorp Alaska has paid fines totaling $180,580 for nearly three dozen Clean Air Act violations at its facilities across the state, according to a statement from Environmental Protection Agency Region 10 officials. EPA regulators determined Hilcorp did not promptly repair leaks of methane and volatile organic compounds when the issues were discovered; failed to inspect for leaks at a new facility; and did not accurately report leak inspections and repairs from 2018 through 2020, according to the agency’s statement. The cumulative penalty is for 35 individual violations at the Prudhoe Bay and Milne Point oil fields on the North Slope and at several of Hilcorp’s properties in the Cook Inlet basin. A consent agreement dated Feb. 7 and signed by Hilcorp Alaska Senior Vice President Luke Saugier and EPA Region 10 Enforcement and Compliance Director Ed Kowalski lists all 35 violations. “The public needs to be able to depend on a major facility owner like Hilcorp obeying the rules for providing accurate and honest reporting of maintenance activities. Requirements to conduct emissions monitoring and timely repair or replacement of the (leak) sources should be at the top of this company’s priority list,” Kowalski said in the EPA statement. Houston-based Hilcorp Energy, which operates with a business model that focuses on rejuvenating oil and gas production from mature fields, has become a major player in Alaska after buying several Cook Inlet properties from Chevron and Marathon about a decade ago. Hilcorp is now the primary supplier of natural gas to Southcentral utilities, and took over the iconic Prudhoe Bay field from BP in 2020 as part of a $5.6 billion deal for the London-based major’s remaining Alaska assets. Many of the individual violations stem from not repairing identified leaks within 30 days of discovery. Several were fixed within 40 days, but others took up to 150 days to receive proper attention based on the consent agreement. The agreement alleges that an annual leak inspection and repair compliance report Hilcorp Alaska submitted to EPA for 2018 omitted information regarding the dates and times of leak detection and repairs; and the 2019 and 2020 reports indicated numerous instances of delayed repairs at both Cook Inlet and North Slope facilities. The terms of the agreement specify that while Hilcorp agreed to pay $180,580 in fines, the company “neither admits nor denies the specific factual allegations contained in the consent agreement.” A portion of the Prudhoe Bay violations occurred while the large oil field was still under BP’s control in 2019 and early 2020, according to the dates in the settlement document. “Hilcorp is committed to safely and responsibly developing Alaska’s resources. We have implemented procedures to strengthen our air emission monitoring and reporting processes to ensure we timely and accurately report our completed inspections,” spokesman Luke Miller wrote via email. Some local environmental groups have been sharply critical of Hilcorp since the company entered Alaska, alleging its emphasis on extracting additional production from older facilities lends to more frequent environmental problems. The EPA’s enforcement actions against Hilcorp Alaska follow three fines totaling $74,000 the producer has accrued from the Alaska Oil and Gas Conservation Commission since late November. AOGCC chair Jeremy Price told the Journal in January that state regulators are concerned with the company’s recent regulatory compliance issues. The state commission issued six enforcement orders with fines in 2021; three of them were issued to Hilcorp. In early 2017, natural gas leaked from a 50-plus-year-old central Cook Inlet subsea pipeline owned by Hilcorp for several months before sheets of pan ice dissipated in spring, allowing divers to repair the leak. Hilcorp leaders said at the time they could not completely shut off the gas source for fears residual oil that the pipeline once carried could leak out instead. Hilcorp was not fined by state or federal agencies for the 2017 gas leak. Elwood Brehmer can be reached at [email protected]

Forest Service approves 10-year extension for Southeast gold mine

Coeur Alaska Inc. now has federal clearance to increase throughput and extend the life of its Kensington gold mine in Southeast Alaska. U.S. Forest Service Tongass Supervisor M. Earl Stewart on Feb. 24 signed a record of decision approving Coeur’s plan to increase the processing capacity by 50% and nearly double the waste storage capacity at the underground gold mine. The corresponding 10-year extension to the life of Kensington will allow the mine to operate into 2033. Coeur applied for the environmental permits to grow operations at Kensington in 2018. Coeur’s initial development plan provided for mining at Kensington, which opened in 2010, into 2023. Chicago-based Coeur’s expansion plan involves raising the height of the tailings dam by 36 feet to 124 feet and constructing another 40-foot “back dam” between the treatment facility and Upper Slate Lake, a natural lake. The record of decision, or ROD, allows Coeur to expand the mine’s existing Pit No. 4 and Comet waste rock storage facilities as well as construct a new waste rock facility for a total storage capacity increase of 6 million tons. The expansion project would result in the loss of approximately 52 acres of wetlands through water inundation or fill; however, Coeur’s reclamation plan calls for a net increase in wetlands in the area once the mine is closed, according to the Forest Service. The work would also require 1.75 miles of new roads. Kensington has a current footprint of about 240 acres and the expansion work will add another 150 acres to that. Located about 45 miles north of Juneau on the edge of Lynn Canal, Kensington employs approximately 390 people during normal operations. Coeur also plans to increase the milling capacity at Kensington from about 2,000 tons to 3,000 tons of ore per day as part of the expansion. According to a statement from the company, the work will require about 65 additional workers over approximately two years. Coeur spokeswoman Donna Sabido wrote in an email that the authorization is very positive news and will allow the company to continue providing high-paying jobs and contributing to the Southeast economy. “We are appreciative of all the engaged parties who participated in the process and helped to develop a strong, science-based environmental analysis and decision,” Sabido wrote. She added that the expanded waste rock and tailings facilities will give Coeur capacity beyond the current life of the mine, so the company continues to invest in further exploration at Kensington. Local environmental groups previously urged Forest Service officials to require dry-stack storage of the mine’s tailings, a strategy often employed to reduce the risk of large-scale spills or smaller leaks of tailings slurry. The ROD states that Coeur developed a plan to reduce the volume of water that will need to be stored after mine closure in response to those concerns. The company is also proposing to improve Dolly Varden habitat by constructing new stream channels and small stream deltas, along with replacing three culverts to facilitate fish passage. The impact mitigation plan for the work further requires Coeur to develop fish passage and take other measures to restore Lower Slate Lake — currently Kensington’s tailings treatment facility — to viable fish habitat. The Southeast Alaska Fishermen’s Alliance previously backed the project, stating in comments to the Forest Service that mining is an important part of the region’s economy and Kensington has not negatively impacted salmon habitat. Kensington produced approximately 122,000 ounces of gold last year when Coeur had a capital budget of approximately $27 million at the mine. This year Coeur expects to produce about 113,000 ounces from Kensington, according to a February investor presentation. Kensington held 261,000 ounces of proven and probable gold reserves and nearly 1 million ounces of measured and indicated gold resources last year, according to Coeur. Elwood Brehmer can be reached at [email protected]

Dunleavy pitches energy transition to spur economy; utilities proceed with caution

While mandates for renewable energy production across the country are often set with an aim to combat climate change, Gov. Mike Dunleavy insists Alaska needs its own ambitious renewable standards to avoid an economic “death spiral” that he says the state is close to entering. It comes down to the fundamentals of economic development, according to Dunleavy. He stressed in an interview with the Journal that Alaska’s economic centers are not able to compete with other states for business investment, and the people that follow, with its current energy situation, and the problem is likely to only get worse without a dramatic change. “Here in Alaska we have a situation where we could find ourselves in a slow death spiral: less people, higher costs, more on the backs of ratepayers — less people, higher costs, more on the backs of ratepayers,” Dunleavy said. “Pretty soon you have a situation where the Railbelt begins to look more like rural Alaska as opposed to rural Alaska looking more like the Railbelt, in terms of cheaper electricity.” The price of energy in Alaska is likely the single biggest impediment to business investment in the state, the governor said, and the effects show up in some of the most basic demographic and economic figures. With some exceptions, the power utilities of Alaska’s Railbelt from Fairbanks to Homer have largely been forecasting flat demand for years. Enstar Natural Gas Co., the region’s gas utility, is facing a similar situation. Utility officials say some of the issue is due to increasingly energy efficient appliances, but the underlying issue is people leaving Alaska. The state has lost approximately 8,500 residents, or about 1.1% of its population, since it peaked at nearly 745,000 people in 2016, according to state Labor Department data. In the Railbelt, which relies on natural gas from Cook Inlet for the vast majority of its power generation, the situation has resulted in steadily increasing gas costs because with no anchor industrial buyers — a role once filled by the now-shuttered LNG and fertilizer plants on the Kenai Peninsula — producers have little incentive to seek out new gas reserves, leading to higher prices for what’s readily available. Alaska had the second-highest average electric rates in the country at 19.8 cents per kilowatt-hour in 2020 behind Hawaii, according to a study by the Nebraska Department of Environment and Energy. Residential customers of Golden Valley Electric Association in Fairbanks currently pay about 23 cents per kilowatt-hour and rates are in the 20 cents per kilowatt range or higher elsewhere on the Railbelt as well. “We don’t see anyway out of this unless we make a dramatic change,” Dunleavy said. In early February, the governor introduced legislation that would ultimately require the Railbelt power utilities to get upward of 30% of their power supplies from renewable sources by 2030 and at least 80% from renewables by 2040. He says the falling prices of conventional renewable power sources make now the time to start the change. Such renewable portfolio standards have been adopted by 20 other states so far, with some going as far as to set deadlines to reach 100% renewable power. Another nine states have adopted similar clean energy standards mandating power generation from certain carbon-free or low emissions sources. A study conducted on behalf of state officials by researchers at the U.S. Department of Energy’s National Renewable Energy Laboratory found hitting the governor’s targets could save Railbelt consumers and businesses between $426 million and $506 million per year if other investments are made in transmission infrastructure and other areas. Dunleavy’s goal is for Alaska to be “as energy independent as possible” when it comes to what is consumed within its borders. “We want to expedite this (transition) before we lose any more customers and we want to take advantage of what’s available for renewables such as hydro and wind,” he said. Texas, Dunleavy noted, is adding more renewable power capacity than any other state in the country, according to American Clean Power, an industry trade group, and at the same time is the epicenter of oil investment in the country. “(Texas) has the opportunity to continue to put more cheap electricity on their grid in hopes that they will continue to grow their economy and their state,” he said. Dunleavy similarly wants Alaska to benefit from periods of high global energy prices via its oil exports, and maybe someday natural gas exports, while insulating itself internally from those market forces. Leaders of Hilcorp Alaska, the dominant gas producer in Cook Inlet, have not said anything negative about the bill to Dunleavy or officials in his office, the governor said. A spokesman for Hilcorp declined to comment for this story. John Hendrix, owner of Cook Inlet independent Furie, said he thinks the governor wants to go in a direction everyone should be looking at regarding the state’s energy situation, but he wants to know more about how the policies would be enacted. Almost any discussion of large-scale renewable energy in Alaska eventually leads to talk of the contentious Susitna-Watana dam proposal, which has opposition stemming from a belief it will impact the river’s salmon as well as its $5 billion-plus price tag. Dunleavy said Susitna-Watana is just one of several opportunities for new hydropower development in the Railbelt that include some innovative prospects such as pumped hydro, along with continuing to add to capacity at the state-owned Bradley Lake hydro project near Homer. Renewable Energy Alaska Project Executive Director Chris Rose said the ever-improving economics of renewable power generation, particularly in regards to wind and solar, make the need for the transition obvious: “Alaskans have never gotten a hometown discount on and gas, so it makes sense for the state of Alaska, in the Railbelt where 75% of the generation occurs, to detach itself from this high-price natural gas,” Rose said, adding wind and solar generation has been cheaper than gas-fired power for years already. Cook Inlet natural gas, which is used to generate about 85% of the power in the region, currently sells in the range of $7-$8 per thousand cubic feet, or mcf, of gas, and until recently has been two or three times more expensive than Henry Hub priced gas in the Lower 48. Rose said he believes development of numerous small-scale wind, solar and hydro projects can supply the bulk of the power needed to reach the governor’s goals, but also highlighted Cook Inlet’s unique potential for both geothermal and tidal energy as technologies evolve. And it can all be done without impacting the reliability of the region’s grid, a major concern for utilities, he contends, if the utilities work together. The leaders of the five Railbelt electric utilities sent a letter to the governor shortly before the bills were introduced in the House and Senate in which they agreed with him that Alaska is at a “critical juncture” in terms of its aging primary power grid, but also emphasized that wholesale changes will require acknowledging the realities of the current system. Asked how achievable Chugach Electric Association leaders believe the governor’s target of 80% renewables by 2040 is, CEO Lee Thibert said via a written statement that the Railbelt utilities understand the need for more diversified energy supplies and they stand ready to support his renewable energy targets. “We look forward to working with the governor and the Legislature on this important initiative to ensure the requirements of the RPS are both technically feasible and consider the potential impacts to member rates,” Thibert said. Utility officials are most concerned about the corresponding need for investments in the Railbelt’s transmission lines to ensure power from numerous, variable sources can be sent throughout the Railbelt when needed and without constraint. Significant upgrades are needed to the Railbelt grid to maximize the economic potential of renewable generation and, at a minimum, maintain the system’s reliability. The single transmission line running across the Kenai Peninsula already puts some constrains on the utilities’ ability to best use the power from Bradley Lake. For his part, Dunleavy said he believes it is the state’s responsibility to help put in place the key infrastructure to make his targets achievable. Studies commissioned by the Alaska Energy Authority in recent years have concluded the full Railbelt “wish list” of transmission projects to total roughly $900 million, though the list of critical projects is shorter, utility officials emphasize. Lawmakers mostly reserved early judgment on the RPS legislation when Senate Bill 179 was heard for the first time in the Senate Labor and Commerce Committee Feb. 23. Dunleavy said whether or not the Legislature passes an RPS this year, the need for significant changes to the Railbelt’s energy makeup will remain. “We certainly have to start the discussion and bring the public in the discussion as well,” he said. Elwood Brehmer can be reached at [email protected]

Judge awards Anchorage full $367M sought from feds in port lawsuit

Anchorage is another big step closer to getting reimbursed for much of the failed construction work at the city’s port. A federal judge on Thursday awarded the city every dime of the $367.4 million Anchorage attorneys had been asking for in its years-long lawsuit against the federal government. U.S. Court of Federal Claims Judge Edward J. Damich issued his judgment against the U.S. Maritime Administration four days shy of eight years after the Municipality of Anchorage filed suit against the federal agency for its role in managing the troubled expansion project for the then-Port of Anchorage, which started nearly two decades ago. The Anchorage Assembly officially renamed the facility the Port of Alaska in 2017 to highlight its importance to the state as a whole, an indirect way of drumming up support to fund a second rebuild attempt. Roughly half of all Alaska-bound cargo enters the state through Anchorage’s port. “We didn’t assume we were going to get anything but we kind of had our fingers crossed,” Assistant Municipal Attorney Robert Owens said. Owens emphasized that getting a full award of all the damages they were seeking from MARAD should quell any lingering notions that city or port officials were to blame for the significant past construction problems at the port. Anchorage Mayor Dave Bronson said the judgment will help make the city whole for the prior work, but advocating for funding of the city’s current, scaled-back port modernization project would continue to be one of his top priorities. “Though this is a positive outcome, we must remember that the appeal process could take up to a year, and the final amount to be paid is unresolved. In the meantime, we still need to construct a seismically resilient port that achieves food security for our state,” Bronson said in a statement from his office. The money would allow port officials to remediate the work done at the north end of the port during the prior expansion project, according to Port of Alaska Director Steve Ribuffo, but will not come close to covering the overall modernization work. Large sections of the docks at the port are approaching 60 years old, and work to patch badly corroded piles that support the aging structures is nearly constant each summer. City and port officials have estimated the full cost to finish the port overhaul with two new cargo docks, a second fuel terminal and shoreside infrastructure updates, in addition to the north end stabilization, at nearly $2 billion, depending on the final design criteria for the docks. Damich previously ruled Dec. 9 that MARAD was liable for faulty sheet pile installation and dock construction done at the port in the late 2000s due to a lack of oversight and management of the project. MARAD took on those responsibilities via a memorandum of understanding signed in 2003 with Anchorage leaders. A 2013 Inspector General audit of MARAD also concluded agency officials did not adequately plan or monitor the work being done at the port and occasionally didn’t comply with federal contracting requirements. Anchorage was the first in a series of port projects the MARAD led in the mid-2000s. The agency began managing infrastructure construction so federal money could be appropriated to the specific projects quicker. However, Damich did not award damages at that time in part because of discrepancies in documents presented throughout the case regarding the exact amount Anchorage officials were seeking and for what. Justice Department attorneys argued on behalf of MARAD in a subsequent brief that the simple fact that city attorneys were unable to set a firm amount and stick to it makes their broader claims for damages unreliable. MARAD’s attorneys also claimed the city should deduct from its claims the $91.2 million it has received in state funds for work at the port since the expansion project, among other arguments. City attorneys wrote in their response to the December ruling that a discrepancy of roughly $8 million between two claims for costs the city incurred because of the failed work — ultimately valued at $180.8 million — was partially due to the resale of leftover construction materials from the failed project and settlements from a separate lawsuit over the project. They also acknowledged some of the differences were typographical mistakes. The city also sought $186.6 million to stabilize and repair the north end of the port where much of the prior work occurred. In his opinion Thursday, Damich wrote that while there were “minor incorrect calculations” in the city’s case documents, government attorneys never challenged any of the underlying claims for damages with expert witnesses or in an earlier brief. He added that Anchorage would not not have to stabilize the north area for safety purposes if not for MARAD’s breach of contract, and thus ordered the government to pay for the future work as well. “The evidence is clear that the structure left by the government on Anchorage’s property by MARAD is dangerous, prevents Anchorage from using its property and creates navigational hazards,” Damich wrote. “The evidence is also clear that Anchorage has no choice but to remove the defective structure, and the cost to remove the dangerous structure is clearly recoverable.” How quickly that recovery happens is to be determined. The government’s attorneys have 60 days to appeal to the Federal Circuit Court of Appeals, and it’s unclear at this point whether they will. The appeals process could take as much as two years if they do, according to Owens. “We don’t know what the final (award) number might be. On appeal it might be changed,” he added. The city also sued several contractors on the project in a separate lawsuit filed in 2013, including PND Engineers, which designed the sheet pile system used to build the new dock. PND representatives consistently said faulty installation caused the structure to be damaged, a claim backed by construction firms that previously worked with the design. A city-commissioned study done in 2013 by then-CH2M Hill, a competitor to PND, concluded the design was incompatible with the glacial silt soils that underlie the area. The municipality eventually settled that case for $19.3 million across seven contractors. The municipality settled with PND Engineers for $750,000. Elwood Brehmer can be reached at [email protected]

ADFG: Survey says processors are beefing up for record Bristol Bay run, but it still might not be enough

If the state’s forecasts for the 2022 Bristol Bay sockeye run are even close to accurate, there could end up being millions more fish to catch than anyone is willing, or able, to buy. A survey conducted in January by the Alaska Department of Fish and Game of 15 Bristol Bay-area processors found that the processing companies intend to purchase up to 52 million sockeye this year. However, the department is predicting a record Bristol Bay inshore run next year of more than 73 million fish, which would provide nearly 62 million available for harvest based on the escapement goals for each of the major river systems that feed the Bay. The record-level prediction follows a record inshore run of more than 66 million sockeye last year that lead to a commercial harvest of 40.4 million fish, one of the largest Bristol Bay sockeye harvests ever. Officials in the Commercial Fisheries Division issued a statement outlining the results of the survey Feb. 18. The full results will be published later this year, according to the ADFG statement. University of Washington Alaska Salmon Program researchers are also forecasting a record run of more than 70 million sockeye to Bristol Bay next year, but they predicted a harvest of 52.4 million fish in their forecast released in November. The intended purchases represent an increase of about 10 million fish over the last survey done in 2019. According to ADFG, five processors account for 96% of the purported capacity increase. The added capacity will give the companies working in the Bay a collective capacity of approximately 3 million fish per day. Nearly anything in the fishing industry regarding processors is considered a sensitive topic given the highly competitive nature of the business, but representatives for fishing groups said they generally believe an actual harvest of 60 million sockeye will be very hard to get to, given the physical constraints of the system. On one hand, additional investments in the Port Moller test fishery have given managers more up-to-date information on the run with which to time their commercial fishing openers for the most efficient harvest possible. The test fishery uses genetic data from Bristol Bay-bound sockeye caught more than a week before they get to the fishing areas to identify which systems the fish are headed to at a given time. Fishermen will particularly want to harvest as many fish as possible if the demand remains high — in-part because of poor runs elsewhere in recent years. Last year’s large harvest still resulted in an average base price of $1.25 per pound for Bristol Bay sockeye and an ex-vessel value of $247 million for the salmon fleet overall, according to figures from ADFG. BBRSDA leaders insisted in a lengthy statement posted to the organization's website Feb. 22 that more processing capacity is needed in the bay, emphasizing that recent harvests in the 40 million-fish range have pushed the system to its limits even before a potential harvest of upwards of 50 million sockeye. They note that while the run could be smaller than the forecasts, it could also be larger and provide even more fish for harvest if the capacity is there. "Processors, fishermen, and fishery managers are gearing up to make the most of 2022, and those efforts are highly commendable but with such a large forecast it begs the question of what happens if processors and tenders cannot keep up. When full plants and tenders put fishermen 'on limits' the effect is particularly damaging for fishermen. That extra fish is essentially pure profit for skippers and crew, as well as lost tax revenue for local and state government," the BBRSDA statement says. Leaders of the fishing group also suggested processors look to using vessels with the ability to freeze large volumes of fish from the region's groundfish fisheries in this year's Bristol Bay salmon season as one way to temporarily boost tendering and processing capacity. At the same time, the need to assure an ample number of kings escape into the Nushugak River, which has seen low king returns in recent years, could also impact the sockeye harvest. Leaders of Peter Pan Seafood, which has a facility in Dillingham but also has plants further out the Alaska Peninsula in Port Moller and King Cove, said shortly after the run forecasts were published that they were confident in their ability to handle another record run because of their ability to utilize tenders and take sockeye to other plants. Fish and Game’s survey concluded 10 companies will be providing tenders with a combined holding capacity of about 9 million fish in Bristol Bay this summer. Long-haul tenders with a daily capacity of about 650,000 sockeye will be delivering fish to four locations outside of the bay as well, according to the department. An ADFG contact listed on the statement did not respond to questions in time for this story. Elwood Brehmer can be reached at [email protected]

Permanent Fund nets 5.95% return to start ‘22, but tougher times may loom

The Alaska Permanent Fund’s investments generated a 5.95% return in the first half of the 2022 state fiscal year. While not the record-level returns seen in recent periods, the generally strong result is one fund managers say could become increasingly difficult to achieve in the near future. The Permanent Fund held an unaudited value of $81.7 billion on Feb. 21, down slightly from $82.4 billion at the end of 2021, which was also the midpoint of the state fiscal year. “It’s probably as difficult a period to earn a strong return as ever,” Alaska Permanent Fund Corp. Chief Investment Officer Marcus Frampton said in a Feb. 18 interview. “It’s a pretty precarious time period.” Frampton’s view comes not only from rates of inflation not seen in decades, but also subsequently rising interest rates at time when the level of debt in the economy is much greater than at other times of high inflation, he said. More debt means rising interest rates are likely to have a greater impact on borrowers and the overall economy, according to Frampton. He also added that stocks were on-the-whole cheaper during prior inflationary periods. “Those are factors that are reasons to be pessimistic,” he said. The incredible run-up in stocks that drove the Dow Jones Industrial Average up more than 90% following the March 2020 pandemic-induced sell-off put the Dow at more than 36,300 points to end the year, but the gains have largely plateaued since the middle of last year. The fund similarly grew more than 25% in 2021, from approximately $65.3 billion to nearly $81.9 billion at the start of the 2022 fiscal year. Leaders of the APFC’s investment adviser firm Callan LLC said they are forecasting a 10-year average annual return on global equities of 6.6% during the corporation’s most recent board meeting Feb. 16-17 in Juneau. Callan is projecting a real return for the Permanent Fund of 3.95% per year over the next decade. That assumes an annual total return of 6.2% and inflation returning to an average of 2.25% per year. Frampton said he believes the 6.6% stock return forecast is optimistic, particularly if inflation — currently around 7% nationally — remains high. He also believes oil prices will remain high in the near-term, which is another factor that could weigh on returns. “The consensus seems to be that inflation is going to come down to 3-4% this year and then be kind of subdued after that,” Frampton said, noting that a significant factor will likely be how quickly supply chains can return to a state of normalcy. If those potentially disruptive forces ease, he said he expects annualized stock returns to be in the 3-4% per year range as well. Frampton and Acting APFC Executive Director Valerie Mertz also emphasized that the December firing of then-Executive Director Angela Rodell by the board of trustees and the change in leadership and attention from the Legislature that ensued has not changed day-to-day investment operations. “Staff is just continuing to do the same good work that they've always done. We'll continue to squeeze every basis point out of the market that we can,” Mertz said. It all means APFC leaders are working to have the fund “positioned defensively” against those potentially destructive forces, according to Frampton. To that end, he noted the fund is slightly underweighted in stocks right now and holding more cash than normal. APFC investment managers are aiming to have 36% of the fund in public equities, or stocks, in 2023 and ramp down to 33% by 2025, according to the corporation’s broad 5-year asset allocation plan. That comes after years of having 39-40% of the fund in stocks, which generated significant returns. The Permanent Fund’s private equity and real estate portfolios will likely grow as a result in the coming years. Frampton said real estate is an area with “very strong fundamentals” and the fund has been active in purchasing apartment buildings across the Lower 48, though it’s an expensive market to be in at the moment, too. He said the Permanent Fund Corp. is in a somewhat unique position among its peers in that it is holding a relatively small amount of gold. “I think commodities in general are an under-followed area for institutional funds right now,” Frampton said. Elwood Brehmer can be reached at [email protected]

Washington lawmakers want to charge for climate impacts with a fuel export tax

Washington lawmakers are pushing a $16 billion transportation bill through the state’s Legislature that would be paid for in part by a new tax on fuel exported from the state. The proposed tax of 6 cents per gallon on fuel refined in Washington before being exported from the state would generate more than $2 billion over the 16-year, Move Ahead WA transportation spending plan, according to an estimate from legislative staff, most of which would come from shipments sent to Oregon, Idaho and Alaska. Democrat leaders of the Washington House and Senate Transportation committees say the tax is a way to pay for part of the impacts the refineries have on the state’s environment and the climate, while also funding work to help mitigate climate change in the state. Unsurprisingly, it isn’t being received well in many places outside of Olympia. Republican Gov. Mike Dunleavy and officials in his office have been encouraging Alaskans to write to Washington Gov. Jay Inslee and testify against the fuel export tax in Washington state legislative hearings, providing talking points in social media posts over the past week. A Feb. 17 post on Dunleavy’s official Facebook page highlights that Washington is currently debating “a tax that targets Alaska’s fuel costs.” “Their view of Alaska as a colony is reflected (in) a tax on all of us, with nary a care to our lives and economy. If Alaska is to be punished as a business partner with Washington State, then we will respond accordingly,” the post states. Inslee, a Democrat, was a presidential candidate early in the 2020 race with a campaign focused on combating climate change and the potential for economic growth from those investments. Oregon Gov. Kate Brown, also a Democrat, has come out against the tax as well, and Republican Idaho Gov. Brad Little wrote a letter to Inslee Feb. 18 urging him to veto the fuel tax proposal. Oregon and Idaho do not have any refineries, and there are five in the Puget Sound area. Alaska has refineries in Kenai and Valdez that provide in-state sources of fuels, but large volumes are also imported, particularly by Southeast communities and industrial users. It’s unclear exactly how much fuel is imported to Alaska from Washington refineries. That amount can also be highly variable. Former Ted Stevens Anchorage International Airport Director Jim Szczesniak said approximately 70% of the more than 2.5 million gallons of jet fuel used at the airport each day are imported. Much of that fuel is used by international cargo carriers, which find it more cost efficient to carry more cargo and stop for fuel in Alaska on their way between manufacturing hubs in Asia and North American markets than to carry more fuel and fly over Anchorage. The cargo transfer business at the airport is also expanding. However, the imported fuel is purchased in huge quantities on global markets by a consortium of airlines, so Washington’s tax would likely have little impact at the airport, according to Szczesniak. Mike Satre, spokesman for Hecla Mining Co., wrote in an email that operations at the company’s Green’s Creek underground silver mine near Juneau consume 1.5 million to 2.5 million gallons of diesel fuel per year when hydropower is readily available. The mine used more than 6 million gallons of diesel per year during the drought in Southeast that spanned from late 2018 to early 2020, according to Satre, who also noted the impact would be felt my many rural communities across the state that rely on imported diesel for power, as well. Curt Chamberlain, associate general counsel for Calista Corp. testified to lawmakers that while the bill seeks to remedy environmental harm, it would actually harm the most environmentally and economically disadvantaged people in the nation. Large portions of Western Alaska are among the poorest areas in the U.S. and also have some of the highest energy costs in the country. Chamberlain said Calista leaders can associate with the reasoning behind the bill given climate change and other outside factors are impacting salmon runs in their region significantly, but he added that the tax will very likely be passed on to some of those vulnerable consumers. With the backing of leaders in both chambers, the Move Ahead WA plan has moved quickly through the Legislature so far. Introduced Feb. 8 as a 121-page omnibus bill, the $16 billion package passed the Washington Senate Feb. 15 on a 29-20 vote after three hearings in the Transportation Committee. Some Washington lawmakers noted concerns about the legality of the exported fuel tax — whether it runs afoul of the Commerce Clause of the Constitution — in the Senate hearings. Transportation chair Sen. Marko Liias, a Democrat representing suburbs north of Seattle, said Feb. 14 that the tax provision was deemed legal both by Washington Attorney General Bob Ferguson and the Legislature’s attorneys. A spokeswoman for Liias did not respond to questions in time for this story. Alaska Senate President Peter Micciche, R-Soldotna, noted in an interview that the Senate vote fell along party lines and Democrats also hold a majority in the Washington House. “Right now it look like this bill is destined to pass similar to how it is written,” Micciche said, adding that Alaska Senate leaders are working on a formal response. He emphasized a belief that the tax would be highly hypocritical given the impact it would have on rural Alaskans, many of whom are among the disadvantaged individuals the lawmakers backing the bill say they want to help. Additionally, much of the oil refined in Washington is produced in Alaska, Micciche said. He urged Washington lawmakers to evaluate their state’s relationship with Alaska, particularly in regards to fishing, before passing the tax provision. “There is room for retaliation on one of their primary industries,” he said. “If they’re out for Oregon and Idaho, I’d like to see an exemption for Alaska, which would make a likely illegal act more illegal.” Longtime Alaska oil and gas attorney and industry analyst Brad Keithley wrote via email that such attempts to extract revenue from residents of other states, which come in various forms across the country, are typically unconstitutional if they tax exported goods differently than they are taxed for in-state use. A judge may not buy that the export tax charged at the refinery gate is the same as one applied at the gas pump, but, according to Keithley, Washington lawmakers could also rework the structure of the tax code if it passes and is shot down. Liias noted that Washington charges a fuel tax of 49 cents per gallon on its drivers, while exported fuel is not currently taxed. “From the perspective of interstate commerce, we are not discriminating against fuel leaving. We are actually charging a lower rate than we are charging our residents,” Liias said. Alaska’s fuel tax of 8 cents per gallon is the lowest in the country. The Washington House Transportation Committee is scheduled to take up a companion version of the transportation spending bill Tuesday afternoon. Elwood Brehmer can be reached at [email protected]

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