Elwood Brehmer

Murkowski touts wins for Alaska in infrastructure bill; AK LNG left out

Sen. Lisa Murkowski was at the center of negotiations to craft the $550 billion infrastructure package that she says will make significant investments in Alaska, but it’s unclear at this point where one of the largest potential infrastructure projects in generations fits in. The Infrastructure Investment and Jobs Act includes roughly $400 billion in baseline formula spending for existing highway and airport programs among others, as well as roughly $550 billion in new spending that will largely go to existing federal grant and formula programs. Murkowski said the bipartisan package by 10 senators partly negotiated in direct talks with President Joe Biden focuses on rebuilding the country’s core physical infrastructure of roads, ports and bridges with additional investments in broadband and renewable energy and carbon capture technologies, for example. “It invests in legacy projects for the long-term,” Murkowski said in a July 30 call with Alaska reporters. “The overall benefit to a state like Alaska, I think, is going to be really, really considerable.” She acknowledged that hard numbers for the state’s share of the spending are difficult to calculate because so much of the funding is formula-driven. It won’t be doled out in lump sums. The bill currently under debate by the full Senate could have a particularly large impact in improving rural water and sanitation systems, according to Murkowski, who said it adds $180 million to Environmental Protection Agency drinking water and wastewater programs and $3.5 billion to the Indian Health Service for sanitation facilities nationwide. “This is really going to be a once-in-a-lifetime investment in sanitation facilities,” she said. The infrastructure spending bill also funds many of the programs established in Murkowski’s omnibus Energy Act of 2020, which passed late last year after six years of work. Absent from explicit inclusion in the bill is the state’s request for nearly $5 billion in federal funding to jumpstart construction of the Alaska LNG Project. In January Gov. Mike Dunleavy announced the state’s latest plan to fund the $38 billion Alaska LNG Project that centered on capturing federal infrastructure funding from a then-conceptual bill for 75 percent or about $4.5 billion, of the initial $5.9 billion phase one of the project to the first section of gas pipeline between the Point Thomson field and Fairbanks. The administration touted it as a way to improve air quality in the Interior — an ever-growing issue for the EPA — by replacing wood and oil burning with natural gas for home heating. The remaining portion of the overall 807-mile pipeline, the North Slope gas treatment plant and the Kenai LNG facility would be funded separately, according to Alaska Gasline Development Corp. officials. AGDC spokesman Tim Fitzpatrick wrote via email in response to questions about where Alaska LNG fits in the 2,700-page Infrastructure Investment and Jobs Act that the project “is clearly aligned with national climate, energy, and infrastructure objectives, and we’re closely watching the legislative process as we move this project forward.” Murkowski spokeswoman Karina Borger wrote that the senator was able to repeal a sunset provision from 2004 legislation that maintains the project’s access to up to $18 billion in federal loan guarantees when asked where the $5 billion request fit into the negotiations and subsequent legislation. Officials in the governor’s office said they requested an earmark for the project from the delegation but also noted the legislative process is not over. Senate leaders hope to move the bill to the House quickly, according to Murkowski. AGDC officials also insisted they didn’t expect a direct appropriation for the project and that it still has commercial interest without the prospect of a federal boost. AGDC leaders hope to secure commitments from developers, operators and investors in the LNG and gas treatment plants by this fall, with the project’s major financial agreements coming next year. In late June the Energy Department announced it would conduct a supplemental environmental impact statement on the project to determine its life-cycle impact greenhouse gas emissions. AGDC President Frank Richards said he believes the analysis will show the Alaska LNG Project would prevent up to 80 million tons of carbon emissions over its roughly 30-year life primarily by displacing coal for power generation in east Asian countries, long a selling point of the project for the state-owned corporation. Elwood Brehmer can be reached at [email protected]

Fate of the Furieous: Hendrix reflects on first year at Inlet producer

Retirement jobs are often meant to be time-fillers, an activity that is mostly enjoyable and provides some walking around money without unnecessary stress. They’re almost always part-time. John Hendrix, on the other hand, bought a bankrupt gas company. But it’s clearly more than a hobby. For him, it’s about what to do to not retire. “It’s fun,” Hendrix, 64, insisted in an interview. “If you’re an Alaskan and you’ve worked in oil and gas and you have an opportunity and you have one chance to strike, why not go for it? We made sure that we protected ourselves in regards to what we had in the bank — we could cover it, my wife and I — and we decided to go for it.” In a separate interview, his wife Candace Hendrix largely confirmed the simple enthusiasm that led to them buying Furie Operating Alaska last year. He learned of the opportunity through some consulting work he was doing for an area utility, according to Candace, who didn’t see much reason to object. “My daughter and I always felt like this was something John was meant to do,” she said. “I have a lot of faith in John because he is so high-energy and he’s capable of doing so many things at once. I knew it was risky…but we just couldn’t see John retire.” That mindset led the Hendrixes to bid on and ultimately win — with the help of a since bought-out silent partner — the Cook Inlet gas producer in a December 2019 bankruptcy auction. Disagreements between the parties involved in the complex bankruptcy stretched it out for nearly 11 months before the sale was complete. John took over as owner and CEO of the formerly Texas-based Furie in July 2020 under their new company Hex LLC. Furie leaders filed for bankruptcy in August 2019 when the company owed lenders approximately $440 million and while itself owed about $105 million in refundable tax credits from the State of Alaska, according to the bankruptcy petition. In 2015, Furie installed the Julius R platform over the Kitchen Lights gas field in the central portion of Cook Inlet at a cost of roughly $200 million, according to Hendrix; it was the first new development platform the Inlet built since the 1980s. However, the company’s financial challenges were significant; Furie absorbed a loss of $58.5 million in 2017 despite netting $25.4 million from gas sales, according to bankruptcy court filings. The situation worsened in 2018 when the company sold $42.8 million of natural gas but took a loss of nearly $152 million. Furie lost $21.4 million in the first quarter of 2019, when a freeze-up in a gas production pipeline kept the company from supplying Homer Electric Association and Enstar Natural Gas Co. with gas for more than a month. The hydrate freeze-up is what Hendrix and other industry experts familiar with the situation blame for ultimately pushing the company into bankruptcy. For one, it forced Furie leaders to buy approximately $17 million worth of gas from other Inlet producers to cover their supply contracts with regional utilities, he said. Getting back to basics About a month after taking over Furie, Hendrix told the Journal the company, which also sought to explore for oil under prior leadership, needed to get “back to basics” and focus revenue-generating natural gas production. Just more than a year in, optimizing Furie’s operations is for the most part going well, he said, reciting several instances in which he found what he concluded to be unnecessary or overly costly processes, equipment, or even operational approaches. He believes Furie’s onshore Nikiski gas processing facility is “way overbuilt” — he estimated it at about $50 million — for what the company was doing and currently does, for one. As a result, a generator meant to power the gas compressors can’t run full-bore as intended to maximize efficiency and is therefore ostensibly useless under normal operations. It currently costs about $50,000 per month to power the facility, according to Hendrix. “It’s cheaper for us, because the equipment is so inefficient — to buy electricity from Homer Electric than to generate it ourselves. So HEA buys our gas, (in periodic spot sales) generates electricity, and sells it back to us cheaper than we can do it,” Hendrix said. “We’re looking at a few things we need to do.” Furie leaders also recently added a desalinization unit to the Julius R platform so they could supply their own drinking water and cut out the steep delivery costs. “Every time a boat comes out it costs us between $12,000 and $22,000 one way, “ he said, later joking that he gave his operations crew an inspirational deadline to make sure the desalinizing unit is working. “I told them ‘we’re not delivering any more water after September.’” Alaska pride A petroleum engineer raised in Homer, Hendrix was general manager of Apache Corp.’s operations in Cook Inlet prior to becoming former Gov. Bill Walker’s oil and gas policy adviser in 2016. He wears his pride for Alaska on his sleeve and a major part of turning around Furie was overhauling its mostly imported workforce into one predominantly comprised of Alaskans, according to Hendrix. “We wanted to bring jobs to Alaskans and that’s what we’ve done. We’ve done everything we’ve said we were going to do and we’re proud of it,” he said. Since informing the small former Furie operations crew last fall that the company would no longer be paying for travel to and from Nikiski, Furie has gone from one Alaskan on payroll to nearly two dozen; one employee agreed to stay on under the new terms. It was that enthusiasm for Alaska and reinvesting in the Kenai Peninsula that coaxed Hendrix’s first hire, Kevin Smith, who is now Furie’s operations superintendent, out of comfortable retirement in Soldotna. The two were connected through mutual friends who thought they would work well together. “The thing that really hooked me was John wanted to make it local hire,” said Smith, who retired from BP when the British major sold its Alaska assets to Hilcorp in a deal that closed last year. “To be honest I really don’t want to work too much longer but I want to help him set this business up.” After having a pilot project to allow the company to discharge its produced water into the Inlet approved by state regulators, Furie has mostly alleviated the risk of future hydrate freezes aside from one minor event, according to Smith. “We definitely did our homework on all of that and were prepared so it wouldn’t take us down for a long time,” he explained. To that end, officials with Enstar Natural Gas Co., which holds Furie’s lone firm supply contract, said the producer has met all of its obligations under Hendrix’s ownership. Part of bringing Furie’s focus back to Alaska has also been an emphasis on using local, rather than Lower 48, vendors, Smith added. “We’ve had pretty good luck sourcing things; I’ve actually been mildly surprised,” he said. Hendrix emphasized the fundamental belief that hiring local in an industry such as oil and gas where employees are often transient can help workers gain a sense of pride in their jobs that translates to better performance, alluding to how the company now sends small but important samples 15 miles from the platform to shore via subsea pipeline instead of air. “They devised a way of sending water samples in for our produced water just like you use at the bank system. We put it inside a (pipeline) pig and we ship it to shore and get the sample delivered back at the facility. We don’t have to fly helicopters back and forth for samples. It cuts back on our production a little bit for the day but that kind of innovation is great,” he described, adding that the company’s total yearly helicopter charter bill is down from about $550,000 to $250,000 since he took over. “There’s just a lot of extra costs out there.” Tax hurdles The omnipresent hurdle to improving Furie’s position, according to Hendrix, has been the state, and specifically Alaska’s oil and gas property tax regime. As he explains it, Furie was purchased for $5 million in cash, with contingencies for former creditors, after first winning the auction with a $15 million bid. They put up $2.5 million and $5 million from the $7.5 million AIDEA loan that capitalized an account to provide initial operating cash for the company as required by Furie’s creditors, according to Hendrix. As part of the deal Furie must also pay $15 million to the creditors who currently hold $103 million in unpaid state exploration and development tax credits if the state does not pay them off by July 2025. “I’ve got to have development enough to pay the $15 million. We have to make sure that in due time — we’ve got that $15 million at a 7 percent note — that we’ve covered that by the year 2025. We have to set aside money for that and for future development but $1.6 million just came out so we’re back to square one,” he said. An AIDEA spokeswoman confirmed Hex’s loan is current. Hendrix noted that in addition to meeting its financial obligations, Furie went the last 12 months without a lost time injury or environmental incident as well. The $1.6 million is Furie’s annual oil and gas property tax bill from the state, according to Hendrix, and he can’t understand how it can be justified based on what the company was bought for last year. He claims state property tax assessors have valued Furie’s assets at $81.2 million. “I love this state. I want to support this state. I want to make sure that what we spend goes to the state, but I don’t want to be unfairly and unjustly tapped when we’re a struggling company coming out of bankruptcy,” Hendrix said. “What they had before was a lot of expenses they shouldn’t have had to pay, that’s some of why they went under before we picked them up. How in the hell do you buy something for $5 million and they assess just the tangible part at $81.2 million? It was a fair auction; anyone could come in and bid on it and we won the bid.” The crux of the issue is the state’s longtime method for valuing often unique oil and gas facilities in the state. Revenue officials could not speak directly to Furie’s taxes, but offered general information on the Tax Division’s process for assessing oil and gas facilities, which at the highest level relies on replacement cost valuation minus depreciation. That means the relatively new Julius R platform — built in 2015 — and the onshore facility still carry significant value. Former Furie officials estimated the value of the company’s assets at between $10 million and $50 million in their initial bankruptcy filings. “If I grow the company to where it’s worth $81 million I’m willing to pay it,” Hendrix said. “You would not put that platform out there for the resources out there today and that’s our problem with the property taxes. The question back is always, ‘well, what would you pay to do it now?’ and we wouldn’t do it.” After having an appeal to the little-known State Assessment Appeal Board rejected last spring, Hendrix said he sees no other option but to sue the state over the matter. “It’s going to cost us a lot of money and it’s going to impact our future on how we spend money, how we employ people but it’s another baseline foundational thing that we have to fix,” Hendrix said of the taxes. “Can you imagine paying 33 percent property tax on something you just bought? How do you make money? How do you employ people? “They’re treating our gathering line like it’s the Trans-Alaska Pipeline; it’s not, it’s a 10-inch pipeline that’s 15 miles long.” Despite the tax issue, and his clear frustration with it, Furie’s first solvent year has largely gone well, according to the Hendrixes. “He feels good about it,” Candace said. “Even when it’s stressful he still feels like it was the right decision; he’s just so happy to be back in Alaska.” Smith described it with the perspective of a 40-year Peninsula resident. “A guy from Homer, from East End road just bought a platform out in the Inlet,” he said. “That’s pretty cool.” Elwood Brehmer can be reached at [email protected]

ConocoPhillips posts strong 2Q result, to resume Kuparuk drilling

The resurgence in energy demand has treated ConocoPhillips well as the upstream-focused oil major posted a second quarter profit of nearly $2.1 billion, according to an Aug. 3 earnings report. In Alaska, ConocoPhillips netted $371 million, more than double the company’s first quarter profit of $179 million in the state. ConocoPhillips also reported tax and royalty payments of $279 million to the State of Alaska during the quarter. Year-to-date, ConocoPhillips Alaska has paid an estimated $506 million in taxes and royalties to the state, according to the release. The companywide earnings are also more than double a first quarter profit of $982 million and break down to $1.55 per share. Houston-based major previously announced it will pay a quarterly dividend of 43 cents per share on Sept. 1. ConocoPhillips stock was trading up approximately 3 percent in the $56.50 per share range near the end of the day following the morning earnings release. The company’s overall profit was on the back of more than $10.2 billion in revenue, down slightly from $10.5 billion in the first quarter but a vast improvement over the $6 billion it generated in the fourth quarter last year, which was its best revenue period in 2020. CEO Ryan Lance said in a prepared statement that ConocoPhillips came out of the pandemic-induced oil market crash and the integration of Lower 48 producer Concho Resources with a durable business plan. “We have a stronger, more flexible asset base and greater underlying efficiency resulting from the Concho acquisition and the restructuring work we’ve performed throughout our company,” Lance said. In February, ConocoPhillips Alaska leaders said they would cut approximately 100 jobs from its workforce of roughly 1,100 in the state as part of a companywide restructuring after the $9.7 billion Concho purchase. With drilling rigs active again on the North Slope, President Erec Isaacson said in a separate statement that the company’s motto so far this year has been “getting back to work.” ConocoPhillips put $228 million towards capital projects on the North Slope in the second quarter, which represented 18 percent of the company’s global capital spend for the period, according to Alaska segment leaders. Year-to-date capital spending totals $463 million. As is the case in many industries these days, the results are virtually incomparable to the second quarter of 2020 when oil prices bottomed out globally — Alaska North Slope crude went negative for a day — and production was cut industry-wide. ConocoPhillips reported an average Alaska oil price of $63.93 in the second quarter this year, the highest price in two years. The company’s North Slope oil production averaged 184,000 barrels per day during the period, down slightly from 190,000 barrels per day to start the year, which is a common theme in the warmer months. Kuparuk plan approved ConocoPhillips is planning to get back to drilling in its oldest North Slope field, according to the 2021 Kuparuk River Unit work plan approved July 23 by state Division of Oil and Gas Director Tom Stokes. Along with the now-common caveat for COVID-impacted work and market conditions, ConocoPhillips Alaska “assumes a return to regular operating condition,” the 2021 Kuparuk River plan of development, or POD, states. The 2021 plan covers the August 2021 through July 2022 time period. Drilling at Kuparuk will resume this quarter with the startup of a workover rig, likely followed by the restart of a coil tubing rig in the fourth quarter. Rotary drilling is scheduled to resume next spring, according to the POD. The initial work will focus on reviving wells currently shut-in for mechanical problems or low production with sidetracks or new bottom-hole locations, the plan states. A maintenance turnaround is also scheduled for next summer. The company suspended drilling Slope-wide at the onset of the pandemic in April 2020 and restarted drilling at some of its other fields and development projects late last year. ConocoPhillips produced an average of 91,400 barrels of oil per day from Kuparuk in calendar year 2020, down from 104,700 barrels per day in 2019. The company expects to produce about half of the oil not produced from Kuparuk when it curtailed North Slope production last year at the bottom of the price depression over the next three years and the rest forgone oil will be recovered over subsequent remaining life of the mature field, according to the POD. Elwood Brehmer can be reached at [email protected]

Permanent Fund ends fiscal year topping $81B

The 2021 fiscal year results are in and the Permanent Fund is the big winner. Alaska’s primary revenue source ended June with a total value of nearly $81.1 billion after starting the year at $65.3 billion. The 24 percent growth in the Fund over the fiscal year was on the back of nearly unprecedented overall investment returns, which totaled 26.5 percent for the year through May 31, the most recent performance figures available from the Alaska Permanent Fund Corp. The corporation has achieved full-year returns greater than 20 percent just three times in the history of the fund, the greatest being a 25.6 percent return in 1985, according to APFC records. The Fund had an unaudited value of $81.3 billion on July 27. Its monthly reported value bottomed out at just more than $60 billion during the early days of the domestic pandemic in March 2020. As of June 30, the constitutionally protected corpus portion of the fund alone exceeded $60.1 billion; the remaining approximately $20 billion was in the Earnings Reserve Account, which lawmakers can spend. Royalty deposits, investment gains and legislative appropriations have caused the corpus to grow by nearly 50 percent since March 2020 and another $4 billion legislative transfer from the ERA to the corpus this month will add further to the un-spendable portion of the Fund. Gov. Mike Dunleavy intended to veto a $4 billion ERA-to-corpus transfer approved in the state budget passed by the Legislature and announced as much in a press briefing and materials from his office. However, the veto was mistakenly absent from the final enacted version of the budget and Dunleavy decided against further pressing the issue when legislative leaders rejected his request to change the final budget. The veto issue would become a moot point if the Legislature, and eventually voters, would approve the portion of Dunleavy’s constitutional amendment proposal to combine the ERA and corpus into a single, more traditional endowment-like account. The structural change to the Fund generally has support amongst legislators who prioritize adhering to the 5 percent annual draw limit over dividend appropriations, but it remains unclear if the governor’s broader Permanent Fund and dividend proposal, which includes a $3 billion draw in excess of the 5 percent limit, will gain traction in the upcoming special session set for August. The draw has covered about 70 percent of the state budget since being approved in 2018. Regardless of the long-term outcome of the proposed constitutional changes to the fund, the $4 billion transfer will leave approximately $9.3 billion in unobligated, realized earnings available for appropriation. Department of Revenue officials have generally said the state should try to maintain an ERA balance several times larger than the $3 billion-plus annual draw as a buffer against years of poor investment returns. The current impressive returns have been driven by a continued strong run in stocks. Public equities accounting for 38 percent of the fund’s investment portfolio generated returns of 47.1 percent in the fist 11 months of the fiscal year, though gains have been more modest in recent months. The Dow Jones Industrial Average increased 38 percent over the same period. Matching the fund’s public equity performance was its private equity and special opportunities portfolio — approximately 18 percent of the fund’s portfolio at 14.7 billion — which netted an 11-month return of 47.5 percent. Fund managers expect to gradually step-down the public equity allocation from 39 percent today to 33 percent of the Fund by the end of 2025, according to a chart published by the APFC. Fixed income investments are similarly planned to be a smaller portion of the fund, expected to go from 21 percent to 18 percent of the fund’s portfolio. Those allocations are likely to shift to private equity and real estate, which are planned to go from 15 percent and 7 percent of the fund to 19 percent and 12 percent, respectively. The allocations of other asset classes such as private income, and absolute return are expected to remain steady. About 2 percent of the Fund is consistently held in cash. APFC spokeswoman Paulyn Swanson wrote in an emailed response to questions about the asset allocation changes that the corporation's investment team has taken an active approach to rebalancing the public equities portfolio during the market run-up and the future target allocations were first approved by the APFC trustees in May 2020. Chief Investment Officer Marcus Frampton also said in an emailed statement that the multi-year increases in private investment allocations are indicative of the time it takes for those investments to begin generating corresponding returns. "The reduction in public equities over time reflects the growth in these private asset classes as opposed to a reaction to (the) current market environment for stocks or a desire to lock in gains from recent market moves," Frampton said. Elwood Brehmer can be reached at [email protected]

Payroll aid pushes Alaska Air to first profit since pandemic

Alaska Airlines is back in the black, but not without significant help. The airline’s Seattle-based parent company, Alaska Air Group Inc., officially posted a $397 million profit in the second quarter that compares extremely favorably against the $214 million loss in the pandemic-restricted second quarter of 2020. The profit came after five consecutive quarters of losses that totaled nearly $1.5 billion. “The results we published this quarter show we are successfully rebuilding our company and returning to profitability,” CEO Ben Minicucci said in a July 22 earnings call. However, Air Group’s second quarter profit was also the direct result of the $664 million in CARES Act Payroll Support Program grants and loans the company received during the period. Congress appropriated a second, $16 billion round of PSP aid for airlines as part of the second round of broader pandemic aid spending late last year. Without the federal aid, special items and fuel hedging adjustments, Alaska Air Group reported a net loss of $38 million in the second quarter; that is still a vast improvement over where the airline company, which owns Alaska and regional Horizon Air, has been. The reported $397 million profit translates to earnings of $3.15 per share; the $38 million loss equates to 30 cents per share, according to the quarterly earnings report. Air Group stock closed July 26 trading at $60.65 per share, up 7 percent from a pre-report price of $56.33 per share. Company executives repeatedly emphasized how both operational and financial metrics improved month-to-month during the quarter when compared to 2019. Chief Commercial Officer Andrew Harrison called June “a turning point” for Alaska. “Margins improved significantly during the quarter,” Minicucci said. “We exited March with a 41 percent loss and ended June with a pretax income of 14 percent.” The turnaround is mostly due to a surge in summer leisure travel, according to Minicucci, who added that Air Group leaders expect their business to return to 2019 levels next summer, though activity at Alaska’s SeaTac hub is pretty much there already. They also expect to produce “double-digit margins” in the third quarter and “high-single digit margins” to end the year, he said, crediting the company’s disciplined approach to deploying capacity has helped control costs as revenue returns. To that end, Alaska is likely to temporarily put back into service 10 Airbus aircraft acquired in the Virgin America purchase, a move that could also insulate the airline from scheduling disruptions if delivery of the new Boeing 737s Alaska has traditionally flown is delayed. “Our measured deployment of capital allows us to maximize financial results while allowing our operations to scale up successfully,” said Minicucci, who took over the lead role April 1 following the retirement of former CEO Brad Tilden. Total flight capacity for the quarter was 21 percent less than spring 2019 levels but load factors, or how full a flight is, increased from 70 percent in April to 86 percent in June and are expected to stay in that range for the rest of the summer, according to Harrison. The company’s overall revenue per available seat miles offered was off just 5 percent from 2019 by June because of the larger passenger volumes after starting the quarter down 25 percent, Harrison said. Air Group averaged 19,001 employees during the quarter, up 20 percent from a year ago but still well off the company’s pre-pandemic workforce of more than 22,000. The rebound in travel demand has pushed Alaska leaders to ask some employees to fill other short-staffed roles in the operation, notably ground activities such as baggage handling. Minicucci commended the airline’s employees for supporting each other and striving to “take care of our guests no matter what it takes.” Alaska spokesman Tim Thompson wrote via email that in Alaska, most of the airline’s employees that were on leave during the pandemic have been called back and a small number will return to work before the end of the year. Alaska currently has 1,825 employees across the state and is hiring in some workgroups, according to Thompson. Flying more with fewer empty seats allowed Air Group to nearly double its revenue from the first quarter — when it lost $131 million — to more than $1.5 billion while nonfuel expenses increased just 9 percent from the first quarter. Chief Financial Officer Shane Tackett noted that while much of the $840 million in cash flow generated during the quarter was the direct result of federal aid, $351 million of it was from company operations. “Our results are solidly among the best in the industry,” Tackett said, adding that Air Group has accelerated its debt payoff plan and paid off $570 million in the second quarter. The company’s debt-to-capitalization ratio stood at 56 percent on June 30, down five points from the start of the year. Travel credits have accounted for an outsized portion of the recent bookings, according to Tackett. Customers used approximately $185 million worth of ticket credits in the second quarter, while the pre-pandemic average was about $40 million per quarter, he said. Elwood Brehmer can be reached at [email protected]

DNR keeps ‘quiet period’ with water rights revisions pending

Mum’s the word from Department of Natural Resources officials regarding their plan to fundamentally change the state’s water rights system. House Fisheries Committee chair Rep. Geran Tarr, D-Anchorage, said DNR representatives declined to attend a July 27 hearing on the agency’s proposed changes to in-stream flow reservations and other water regulations because she was told they are in a “quiet period” while they respond to public comments from the extended period that closed April 2. Tops among the changes first suggested by the Division of Mining, Land and Water in mid-January is adding new language to water reservation regulations stating that water reservation certificates currently issued to private parties would instead be held by DNR, which adjudicates water rights and reservation applications. Resource development advocates insist the change is needed so control of a public resource is kept within a public agency and to prevent opponents of a given project from attempting to impede development by chasing water rights. For their part, conservation groups insist the change would strip Alaskans of their rights to protect the fish — another public resource — in waters vulnerable to development. Alaska’s current system of water rights is generally viewed as one of the most open in the country; it allows anyone to apply for temporary water use authorizations as well as water reservation, or in-stream flow, rights to maintain sufficient stream flows for fish and other wildlife. Reviewing water reservation applications often takes DNR years in coordination with the departments of Fish and Game and Environmental Conservation, a situation Bob Shavelson, advocacy director for the Homer-based conservation group Cook Inletkeeper, said in the hearing is the result of traditionally pro-development state administrations prioritizing water rights, or use, authorizations over flow reservations to protect habitat. Currently, the Department of Fish and Game holds the vast majority of flow reservations; another handful is held by federal resource agencies such as the U.S. Fish and Wildlife Service. The Nature Conservancy is one of the few private entities to hold water reservations. It secured four flow reservations near the Pebble deposit in 2017. DNR officials also said during the public comment period that they could not comment specifically on the proposed regulations. At the time, they cited a section from the Administrative Procedures Act that state’s agency officials proposing a regulatory action “shall make a good faith effort to answer, before the end of the comment period, a question that is relevant to the proposed action, if the question is received in writing or at least 10 days before the end of the public comment period.” The section of the APA goes on to state that common questions can be answered in a consolidated form on the Alaska Online Public Notice System. State officials have historically discussed proposed regulatory changes and officials in other agencies have as well during the Dunleavy administration. Water Section Chief Tom Barrett said more broadly that flow reservations are “significant” in that they can impact other water users in a January interview. He added that the state is not trying to withhold water rights for any one group, noting the DNR commissioner — who approves water reservations — currently has the discretion to discontinue them as well. According to such answers posted by Mining, Land and Water officials, the changes are meant to better distinguish water reservations from more traditional water right appropriations. “Traditional water right certificates are issued to persons for a specific beneficial use. Reservations of water are a reserved level or flow that is reserved for a specific public purpose, not the sole use or benefit of the applicant.” Barrett wrote via email to the Journal on July 27 that it’s unclear exactly when DNR leaders plan to finalize the water regulations but it probably won’t happen for several months. The proposed regulations are a continuation of an attempt by former Gov. Sean Parnell’s administration to overhaul the water reservation structure, according to Shavelson. House Bill 77, which drew strong public opposition and died in the Senate in early 2014, would have limited water reservations to public agencies among many other revisions to state resource policies. While development advocates have long advocated for changes to Alaska’s water use regulations and statutes, one of the state’s largest pro-development lobbying groups is against the current regulations proposed by the Dunleavy administration because they don’t go far enough. Natural resources attorney Eric Fjelstad testified on behalf of the Resource Development Council for Alaska that the new proposed language also gives the in-stream flow reservation applicant legal standing to manage the reservation, even if DNR is technically the certificate holder. “We think (in-stream flow reservations) should be a limited tool held by DNR and state subdivisions,” Fjelstad said. The state’s multilayered process for permitting large development projects addresses the concerns of many who are concerned about the impacts of development on water bodies and fish, notably salmon and the place for instream flow reservations is in a more subtle situation, according to Fjelstad. He suggested several small water withdrawals along a stream or river is a more likely scenario to result in cumulative damage to the watershed and its inhabitants. “If you don’t have that large project permitting you can have water withdrawals that aren’t accounted for,” he said. RDC Executive Director Marleanna Hall wrote in official comments to DNR that giving legal standing to private parties potentially managing in-stream flow reservations “an even more powerful tool for those who oppose development from Alaska. This provision should be removed from the regulations.” Shavelson contended the insistence by RDC and other development advocates that private parties should not be able to hold in-stream flow reservations as a means for protecting fish habitat is inherently hypocritical because developers, and other private groups, can hold water rights and temporary water use authorizations to divert water out of a lake or stream. “A Canadian mining company could hold rights to take water out of a salmon stream but Alaskans couldn’t hold the reservation to keep water in the stream and that’s the crux of it,” Shavelson said. “The DNR proposal really takes a government knows best approach to water reservations.” He urged lawmakers to amend the Alaska Water Use Act to mandate DNR to apply a corresponding water reservation sufficient to preserve fish and wildlife populations — which varies in each water body — to counter each water withdrawal authorization. “This would be the Alaska Legislature looking at the Water Use Act and making some simple but common sense changes,” Shavelson said. Elwood Brehmer can be reached at [email protected]

Fiscal solution slow to emerge on eve of special session

The gang of eight lawmakers tasked with breaking the ongoing deadlock over the state’s biggest fiscal decisions have gotten detailed Alaska history and finance lessons in recent meetings but have yet to directly confront the longstanding issues that continue to plague the state. The joint Comprehensive Fiscal Plan Working Group ramped up to near daily meetings in the week prior to the Aug. 2 start of the special session Gov. Mike Dunleavy called to solve Alaska’s structural fiscal imbalance and discussed the fundamental operations of the Alaska Permanent Fund Corp. as well as several existing proposals to revamp the Permanent Fund dividend. However, the discussions focusing on PFD-related legislation laid bare the fundamental dichotomy that has continued to stall lawmakers. When outlining House Bill 37 sponsored by Rep. Adam Wool, D-Fairbanks, which would tie the PFD to 10 percent of the annual 5 percent of market value draw on the Permanent Fund and 30 percent of state mineral royalties and result in near-term PFDs in the $1,000 per person range, Wool and others acknowledged the sticking points that emerged in the group members. Working group co-chair Rep. Jonathan Kreiss-Tomkins,D-Sitka, said debate between Wool and Rep. Kevin McCabe, R-Wasilla, over whether or not Alaskans are entitled to a certain level of dividend “effectively outlined the philosophical differences” that have dogged the Legislature since former Gov. Bill Walker first proposed changing the dividend calculation in 2016. McCabe insisted that income from the Permanent Fund “belongs to us (the public); it doesn’t belong to the state.” Wool countered that “the PFD is a budget item just like education and public safety,” a stance held by many legislators since the Alaska Supreme Court in 2017 upheld former Gov. Bill Walker’s partial veto of the dividend appropriation a year prior and effectively confirming the PFD’s position in the state operating budget. “At some point we’re going to have to solve this thing,” Kreiss-Tomkins said July 26. Legislative leaders said in the working group’s opening meeting in early July that they are relying on the bipartisan, bicameral group to formulate a plan that will be the base for legislation in the special session. It is a move intended to give substance to the group’s efforts after prior special committees failed to produce substantive results. The working group heard testimony July 27 from leaders of the Alaska Permanent Fund Corp.’s advisory firm Callan, who suggested the recent surge in commodity and labor prices is more likely the short-term consequence of disrupted supply chains attempting to match rapid economic recovery and will probably balance out, rather than lead to years of high inflation; that is a subtle key in attempting to preserve the long-term value of the Fund. Callan CEO Greg Allen told legislators that the firm’s official outlook is for inflation to average 2 percent per year, but it could be increased slightly to 2.25 percent. Some legislators, notably influential Senate Finance co-chair Sen. Bert Stedman, R-Sitka, and the Permanent Fund Defenders advocacy group led by former legislators Clem Tillion and Rick Halford, among others, have contended a 4 percent annual draw limit is more appropriate to protect against inflation eroding the value of returns and poor market years. Callan also projects there is about a 50 percent chance the Fund will fully maintain its real value over the next decade based on market forecasts and the investment makeup of the fund, according to Allen. The working group is scheduled to take public testimony on the numerous aspects of the state’s fiscal situation in Anchorage, Wasilla, Fairbanks and Juneau in the days leading into the 30-day special session, which will start Aug. 2 according to Dunleavy’s spokesman Jeff Turner, despite prior indications from legislators it could be pushed back to give the group more time. “It remains the governor’s intention to start the special session on Aug. 2. Determining the future of the Permanent Fund and the PFD are the rocks in the road that need to be moved to create a stable fiscal future for Alaskans,” Turner wrote July 27 via email. It appears the public testimony will be held without a formal proposal from the working group for individuals to evaluate. Kreiss-Tomkins said following the July 27 meeting that the group is holding internal discussions on how to build its plan, though nothing has been decided. Elwood Brehmer can be reached at [email protected]

Hilcorp files plans to restart Prudhoe drilling

Rigs will be likely drilling new wells again soon in one of the country’s largest oil fields if state regulators approve Hilcorp Energy’s amended annual work plans. Representatives for Hilcorp North Slope LLC filed a proposed amendment to the company’s plan of development for the western satellite fields to Prudhoe Bay July 15 with the state Division of Oil and Gas indicating leaders of Hilcorp and the other Prudhoe owners have agreed to drill up to six wells in the Orion participating area by next spring. The Orion participating area is in the far northwestern corner of the broad Prudhoe unit area. More specifically, Hilcorp plans to drill up to three producer wells and one injector from the field’s L-Pad and one producer and injector each from the Z-pad. Hilcorp North Slope also indicated drilling of up to four new wells in the Lisburne and Point McIntyre areas in its 2021 plan of development, or POD, for the Greater Point McIntyre regulatory sub-area that is in the eastern portion of the Prudhoe Bay Unit. Hilcorp North Slope is the subsidiary formed after its purchase of BP Exploration Inc. and is the operator position at Prudhoe Bay. The 2021 Greater Point McIntyre POD would take effect Oct. 1 and run through September 2022. Hilcorp representatives wrote in their multiple original 2021 PODs for the complex field — the first of which were submitted in January — that Hilcorp and the other Prudhoe Bay owners did not approve drilling this year because of pandemic-induced market conditions. At the time, it was presumed drilling would likely resume sometime next year. The company drilled 10 wells in Prudhoe early last year before nearly all discretionary work was stopped Slope-wide in April in response to the pandemic, according to the development plans. ConocoPhillips resumed its North Slope development drilling program late last year. Hilcorp Senior Alaska Vice President Luke Saugier wrote in an emailed statement that the company is pleased to have support from the other Prudhoe owners to drill several wells in the coming months. “The last year has been challenging but I’m proud of what our team has accomplished, including increasing production at Prudhoe Bay. We look forward to working with our Prudhoe Bay Partners, ConocoPhillips, ExxonMobil and Chevron, to continue to safely and responsibly develop Alaska’s natural resources,” Saugier wrote. Hilcorp increased production at Prudhoe by 4 percent to approximately 198,600 barrels per day in the first 11 months after closing its $5.6 billion deal to buy BP out of Alaska over the most recent comparable period, according to the latest production figures available from Alaska Oil and Gas Conservation Commission. While oil prices increased steadily through the first half of the year — prompting a quicker resumption of drilling at Prudhoe and of general activity industry-wide — the trend ended abruptly in recent days. The price of Alaska North Slope crude fell $4.90 on July 19 to $68.67 per barrel after hitting a nearly three-year high of $76.49 just four trading days earlier. Analysts are attributing the drop to an agreement among OPEC countries to boost production slightly and rising COVID-19 case counts in the U.S. and elsewhere. Elwood Brehmer can be reached at [email protected]

USDA plans to reinstate ‘Roadless Rule,’ $25M for Southeast aid

And back the pendulum swings. The U.S. Department of Agriculture officially announced its plans to end old-growth logging in the Tongass National Forest and restore the contentious Roadless Rule development restrictions that agency officials just spent years repealing. Dubbed the “Southeast Alaska Sustainability Strategy,” the Biden administration’s plan also calls for distributing $25 million in discretionary funding and technical resources to advance economic development and identify future priority investments, according to a July 15 statement from the USDA. Agency leaders say they will organize a local group to consult with Southeast Tribes and Alaska Native corporations among other stakeholders to develop a strategy for the funding and other assistance. “This approach will help us chart the path to long-term economic opportunities that are sustainable and reflect Southeast Alaska’s rich cultural heritage and magnificent natural resources,” USDA Secretary Tom Vilsack said in a formal statement. It was about nine months ago that USDA officials under the Trump administration finalized their full repeal of the Clinton-era Roadless Rule that, with exceptions, largely prohibited development across approximately 9.3 million currently undeveloped acres of the 17 million-acre Tongass. Leaders of Sealaska announced in January that the Native regional corporation, which owns more than 360,000 acres across Southeast, would be making a transition out of the logging industry this year after a multi-year shift in its business model to focus on ocean-based food and tourism opportunities. Sealaska acquired just more than 70,000 acres formerly of the Tongass in 2015 to fulfill the company’s land entitlement under the Alaska Native Claims Settlement Act. Company leaders then said that nearly all of the acreage was selected for timber harvest and management. While timber is naturally the most recognizable resource industry in the forest, Alaska mining industry leaders and hydropower advocates have also pressed the USDA and Forest service to lift the rule — or at least exempt the Tongass from it — for years, contending that though the rule doesn’t outright ban their projects, the access limitations of the Roadless Rule often add greatly to the cost of the developments. Both of the large operating mines in the region recently applied with the Forest Service to expand their tailings facilities and extend the life of their operations. The advanced Bokan Mountain prospect on Prince of Wales Island would also be just the second rare earth element mine in the country. Rare earths are a suite of metals with unique properties that are widely used in small amounts in advanced technological equipment, phones, and national defense technologies. Several Southeast Tribes and conservation groups backing the reinstatement insist the economy of the region has changed from timber-centric to being more reliant on fishing and tourism in the two decades since the rule was first enacted nationwide. They also note that Forest Service regulations allow for project proponents to apply for specific exemptions to the Roadless Rule, which the agency routinely grants. USDA officials initially indicated their intent to reinstate the Roadless Rule in the Tongass in mid-June when the agency published a required notice for proposed rulemaking to reverse the Trump administration’s repeal. At the time, Sen. Dan Sullivan called the move an “unacceptable whipsaw” in federal policy after the Trump administration spent two years analyzing the rule, though USDA leaders made their intent to fully repeal it, rather than develop a Tongass-specific rule, early in the process. Sullivan called the $25 million economic investment in the region “simply a pay-off” for killing the long-term economic opportunities lifting the rule provided. “Greater restrictions on the Tongass have been opposed for decades by all of Alaska’s governors and the state’s federal elected officials, both Republican and Democratic,” Sullivan said in a statement from his office. “Let me be clear: $25 million doesn’t even come close to covering the economic damage that this administration’s policies will inflict on Southeast Alaska. Alaskans have the right to make a living, support our families, and connect our communities and have a much greater interest in seeing the Tongass healthy and sustainably managed than outside extreme environmental groups pulling the strings in the Biden administration.” Backers in the timber industry of the Trump administration’s repeal finalized last October emphasized that in practicality just about 188,000 acres of additional old-growth would be made available for harvest — not 9.3 million acres — because the Tongass Land Management Plan finalized under the Obama administration in 2016 still applies. The comprehensive Tongass land-use plan calls for a transition away from old-growth harvests to second-growth stands over about 15 years. It’s unclear at this point how the latest directive to end large old-growth sales will mesh with the 2016 plan. Elwood Brehmer can be reached at [email protected]

Greens Creek helps generate $41M cash flow for Hecla

Production at the country’s largest silver mine was down to start the year despite strong metal prices due to processing lower-grade ore, according the mine’s owner. Idaho-based Hecla Mining Co., which owns the underground Greens Creek mine near Juneau, reported silver production of approximately 2.55 million ounces in the second quarter July 13. That was a decrease of 7 percent from a year ago. Silver production at Greens Creek is similarly down 7 percent for the first half of the year at 5.14 million ounces, compared to 5.53 million ounces in 2020. In its report, the company attributed the decline to “lower grades resulting from mine sequencing.” Hecla leaders earlier this year estimated total silver production of 9.5 million to 10.2 million ounces from Greens Creek in 2021. Even with the recent decline, silver output in the first half of the year from the Admiralty Island mine was still far better than comparable 2019 levels when the company produced approximately 4.6 million ounces of silver, which was an 18 percent increase over 2018, according to company records. Secondary gold production at Greens Creek was down 2 percent in the second quarter at 12,859 ounces, but is up 3 percent for the year overall at 26,125 ounces, Hecla reported. CEO Phil Baker said the “solid” and relatively steady silver production from what is by far the largest of the company’s five operating mines, helped Hecla generate $41 million in cash overall for the quarter, marking its fifth consecutive quarter of increasing cash reserves and said the company’s collective response to COVID-19 should help sustain the momentum. “With the company’s U.S. vaccination rate higher than the U.S. average, including Greens Creek at a nearly 90 percent vaccination rate, and Casa Berardi (Quebec) increasing, we expect to build on these results,” Baker said in a formal statement. After bottoming out at around $12 per ounce during the global onset of the pandemic, silver prices have rebounded to as high as $28 per ounce of late and are currently in the $26 per ounce range. Gold has recently sold in the $1,800 per ounce range after peaking at more than $2,000 per ounce roughly a year ago. The U.S. Forest Service is also in the midst of a supplemental environmental impact statement review of Hecla’s plan to expand the tailings disposal facility at Greens Creek by about 14 acres, or 20 percent. Hecla expects the current 66-acre facility will likely be filled by about 2031, at which point the mine would have to be closed. The company submitted the plan last October. Exploration update On the exploration side of the industry, remote camps are active this summer across the state after the disrupted 2020 work season. There are four drill rigs working at the Donlin gold site near the Kuskokwim River in Western Alaska and they are expected to drill 64 holes totaling approximately 20,100 meters this summer, according to Donlin’s co-owner Vancouver-based NovaGold. The drilling at the well-advanced prospect is aimed at further testing the continuity of the ore body and the structure of the mineralization, according to the company. HighGold Mining Inc. is also adding to the drilling work this summer at its early-stage Johnson Tract gold prospect on the west side of Cook Inlet. According to a statement from HighGold, the company was able to raise enough money in its most recent stock sale for leaders to consider adding 4,000 meters of drilling to the initially planned 16,000-meter, $10 million program. Back in Southeast Alaska, Constantine Resources is working towards drilling 6,000 meters of exploratory boreholes at its multi-metal Palmer project near Haines. The nearly $9 million work program is being funded by Tokyo-based Dowa Metals and Mining, which purchased up to 56 percent of the project through the funding arrangement, according to Constantine. A small summer program is also ongoing at the Pebble camp in Southwest Alaska, where a crew of nine is continuing baseline environmental studies and data collection for engineering as well as demobilization of unneeded facilities, according to Pebble Partnership spokesman Mike Heatwole. Pebble is currently appealing the Army Corps of Engineers Alaska District denial of its Clean Water Act wetlands fill permit last November. Elwood Brehmer can be reached at [email protected]

Adak stakeholders protest denial of proposed cod allocation

Stakeholders of an isolated Aleutians fish plant contend state appointees on the federal fisheries management board have ignored calls for help to keep more of the area’s large Pacific cod catch in Alaska despite a court order that shot down the first attempt to do so. Representatives from Aleut Corp., which owns the fish processing plant in Adak through a subsidiary, and Peter Pan Seafood Co., have said they need to be able to rely on a foundational allocation of cod from federal fisheries to reopen the currently shuttered plant. It’s believed a reliable allocation of roughly 5,000 metric tons of Pacific cod to the plants in Adak and Atka, where a plant is also currently closed, would provide a base volume of fish that would allow an operator to keep it open year-round with purchases in the state waters cod and other fisheries throughout the year. Doing so could provide the ultra-remote community of approximately 300 residents with nearly 200 jobs during peak activity and several dozen steady positions if the plant were operated year-round, they estimate. The North Pacific Fishery Management Council that oversees the largely Seattle-based trawl cod fishery is in the process of reforming those allocations amidst other regulatory changes. Of the 11 voting council members, six are appointed by Alaska’s governor, in theory giving the state bloc control over council decisions and the business interests as well; those with more personal ties to the former Naval base community are wondering why, as they put it, the administration is not supporting the interests of a rural Alaska community over the trawl industry. Peter Pan Executive Vice President Jon Hickman wrote in public comments submitted prior to the council’s mid-June meeting that the company supports a harvest split with up to 30 percent of the qualifying shares going to eligible processors, contending that it would create a competitive, but not exclusive, market for the cod. For Peter Pan, it would likely provide the market stability the company needs to make investments in value-added cod products at Adak, according to Hickman. Peter Pan’s message on the issue was backed by the Pacific Seafood Processors Association, which feels a dedicated shore-side allocation recognizes the investments made in the fishery and the changes that have occurred due to rationalization and other factors, according to testimony from PSPA President Chris Barrows. Excess floating processing capacity left over after the rationalization starting in the mid-2000s of crab and other Bering Sea fisheries was moved south to participate in the federal Aleutians cod fishery among others, which challenged the community of Adak after the first time the plant closed in 2009, according to Adak Community Development Corp. board member Dave Fraser. “All that excess capacity flowed out into the Aleutians and shortened the seasons,” Fraser said. That 5,000 metric-ton mark is what was set aside by the council in 2016 under what is known as Amendment 113 for shore-based plants from the area’s federal Pacific cod fishery for several years as a means to direct resources to the communities that would otherwise be sent to floating processors. It was the council’s response to mitigate the impacts of its prior actions in other Bering Sea fisheries on Adak and other Aleutian communities. Offloading at shore side facilities means the large catcher vessels must pay the 3 percent state fish landing tax and adds other expenses to their operation. So in turn, several Seattle-based trawl industry groups and vessel owner companies sued the council in late 2016 in an attempt to have Amendment 113 overturned. They argued in part that the Magnuson-Stevens Act does not give the council the authority to allocate harvest to shore-based processers and that the council did not provide a rational explanation for the regulatory change, thus violating the Administrative Procedures Act that is at the core of many federal regulatory disputes. D.C. Federal District Court Judge Timothy J. Kelly sided with the trawl coalition in a March 2019 order in which he concluded the harvest set-aside for a pair of plants — but practically just Adak — violated national standards under the MSA that prohibit the council from discriminating between residents of different states in allocation issues. Sen. Dan Sullivan subsequently attached a rider to the 2019 Coast Guard reauthorization bill that largely would have made Amendment 113 law and bypassed the council; however, Washington Democrat Sen. Maria Cantwell gathered opposition sufficient to prevent Sullivan’s amendment from getting the requisite 60 votes on the Senate floor. According to data submitted by Peter Pan to the council prior to its recent June meeting, cod deliveries from the federal trawl catch to Adak in 2018 and 2019 when Amendment 113 was in effect accounted for 12 to 13 percent of the total Bering Sea and Aleutians trawl cod allocation. Brent Paine, executive director of United Catcher Boats, one of the plaintiffs in the Amendment 113 suit, wrote to the council that the group believes the concept of allocating harvest shares to processors is meant to provide stability in the catcher-processor relationship and a new catch-share program should strengthen that relationship, not weaken it. United Catcher Boats supported a processor allocation range of 10 to 20 percent in June when the council was deliberating its preliminary preferred alternative on the matter, versus Peter Pan’s 30 percent request. “By narrowing the range the council will help the public focus its attention on a fair and reasonable allocation percentage at this time,” Paine wrote in reference to the national fisheries standard requirements. Peter Pan Business Development Manager Steve Minor said in testimony after the council selected a preliminary alternative that would allocate about 2,000 metric tons of cod per year to Adak that the company is suspending its work to restart the Adak plant as a result of the decision. “There are many problems associated with this (preliminary preferred alternative), but let me close by saying that by selecting this PPA, the council ignored the unanimous agreement between all of the major Adak stakeholders about the most reasonable option to restore Adak’s economy,” he said. According to a written statement from Peter Pan after the council’s preliminary Adak decision, which was approved 10-1 as part of a broader regulatory package, there is a significant amount of work that needs to be done to the plant before it can be operated consistently. “Adak’s economic future, its school and small businesses are all tied to the success of the seafood plant, and we hope that the council ultimately supports the Adak community and the harvesters that helped pioneer this remote fishery,” Peter Pan’s statement reads. Council members who responded to questions from the Journal said the council rejected the allocation proposal because it would have allowed the fish to be transferred to other communities, such as King Cove or Unalaska, where Peter Pan and others have active facilities, and required a cash payment to Adak instead of generating real economic activity in the community, which state officials wanted to preserve. Officials in the Governor’s Office and the Department of Fish and Game did not respond to questions and interview requests for this story. They also said the 5,000-ton “set aside” for one group is far too much considering the annual total allowable catch, or TAC, for Pacific cod is in steep decline. It would create a situation where one user is provided a fixed quantity of a resource, with the rest are subjected to the swings in abundance. Adak Community Development Corp.’s Fraser said he hopes the council can come up with a way to support Adak’s economy that will get broader buy-in from stakeholders before finalizing the allocations; the council’s next meeting is scheduled for Oct. 11-16. If the plant remains closed, regardless of the reason, it’s likely the school will close, which would be another major blow to the community, he said. Adak’s economy shrunk rapidly after the first time the plant closed for two years starting in 2009, according to Fraser. “Each time that happens, that somebody opens and then closes the plant again you lose more and more people out of the community and the ability to maintain a small business in Adak is reduced,” he said. “It is literally a matter of life and death for the community to have access on a sustainable basis to the resources that are right on its doorstep.” Elwood Brehmer can be reached at [email protected]

Legislators promise commitment to fiscal solution

This time, they say, is different. “Consensus,” “tough decisions,” “optimistic,” “move Alaska forward” and “workable solution” were among the catch-phrases and buzzwords during the inaugural meeting of the Legislature’s fiscal policy working group as lawmakers said all the right things about wanting to end Alaska’s melodrama and once-and-for-all solve the state’s structural budget deficit. This time, they are fully committed to shared facts, open to hearing opposing views and willing to compromise for the good of Alaska, members of the bicameral Comprehensive Fiscal Plan Working Group said in so many words. Senate President Peter Micciche, R-Soldotna, said this time is different in part because the makeup of the group is unique. His staff could not find a similarly formed special committee or legislative work group with two members from each caucus, giving each contingent equal representation. “This is not a partisan issue; this is not a caucus issue; this is not an issue between bodies,” Micciche said of the state’s finances, starting with the Permanent Fund dividend. “For us to go anywhere we need to hear from everybody.” He noted the committee’s co-chairs, who normally have the authority to tightly regulate committee proceedings and advanced legislation, will in this case be facilitators tasked with maintaining course but little more. “There will be no squashing of ideas,” Micciche emphasized via videoconference. The co-chairs are Sitka Democrat Rep. Jonathan Kreiss-Tomkins and longtime Bethel Sen. Lyman Hoffman, a Democrat who caucuses with the otherwise Republican Senate Majority. The four Finance Committee co-chairs of the House and Senate are notably absent from the working group roster, which also includes Reps. Ben Carpenter, R-Nikiski; Kevin McCabe, R-Wasilla, Calvin Schrage, D-Anchorage and Sens. Shelley Hughes, R-Palmer; Scott Kawasaki, D-Fairbanks; and Jesse Kiehl, D-Juneau. The group was formed after House Minority Republicans agreed late last month to vote for an effective date clause on the budget to avoid a government shutdown ostensibly in exchange for more say in the state’s fiscal decisions. Hoffman said the group will likely start its work by reviewing what has previously been done but this time is different because the group’s work product will be taken more seriously than in past efforts. “The work will not be half-heard, deterred or delayed or not even addressed by procedural maneuvering,” Hoffman said. Micciche and House Speaker Louise Stutes both said they are committed to putting bills reflecting the committee’s recommendations on the Permanent Fund, PFD, spending cuts, spending caps and taxes through the committee process in the special session currently scheduled for August called by Gov. Mike Dunleavy . The timeline for tackling such a list of complex and contentious issues would appear untenably tight with less than a month before lawmakers could need to return to Juneau to debate the work group’s plan, but legislators openly discussed talks with the officials from the governor’s office about pushing the special session back a month or more until the working group is complete. “This is a real thing. This isn’t an exercise or something to put on a bookshelf,” Micciche said. “My intent is to move it forward, some members may be uncomfortable with that, but we are floundering and we owe it to Alaskans to find a solution.” The group members will not have to look back far to find the most recent joint attempt to gain momentum towards solving the state’s ongoing deficits. It was January 2020 when legislators on the eight-member Bicameral Permanent Fund Working Group failed to agree on a complete set of recommendations regarding the use of the fund’s income for the rest of the Legislature. The group did, however, agree that one of the few laws or procedural norms the lawmakers have refused to violate in recent years — limiting the annual Permanent Fund draw to the 5 percent of market value formula — is imperative to ensuring the fund’s long-term strength. Hughes, who also participated in the Permanent Fund group, urged colleagues to pay attention to what the group does. “Legislators may be fishing or traveling or working, but I hope they’re listening because we’re going to need their buy-in,” during the special session, Hughes said. While the insistence that the group’s recommendations will be carried forward is new compared to recent efforts, it remains unclear what will change from the just-concluded marathon session that saw the Senate approve $2,300 PFDs, the House initially avoid the issue and Dunleavy ultimately vetoing the appropriation for PFDs of about $525 per person he called a “cruel joke.” With most legislators seeing little ability to cut the budget much further and Dunleavy’s continued opposition to broad-based taxes, one of the few other places for the state to derive significant amounts of revenue is industry taxes and corresponding exemptions. Tax Division Director Colleen Glover said during a July 13 meeting of the House Ways and Means Committee that the state’s indirect expenditures totaled more than $3.9 billion in what she characterized as “forgone revenue.” For comparison, Dunleavy’s plan to make the PFD 50 percent of the annual Permanent Fund draw and add it to the Constitution results in ongoing deficits of roughly $1 billion, according to legislative figures. The largest single indirect expenditure in the Department of Revenue, which accounts for 97 percent of the state’s indirect expenditures through tax credits and exemptions, was the sliding scale per-barrel oil production tax credit. Oil companies claimed just more than $1 billion in the per-barrel credits in fiscal year 2019; the credits are up to $8 per barrel deducted from the 35 percent net profit tax when oil is less than $80 per barrel. The per-barrel credit has long been a target of Democrat legislators and some Republicans have recently said an adjustment to oil taxes is very likely to be part of a full state fiscal plan. Glover said the per-barrel credit claim for fiscal 2019 was unusually high and the expectation for 2020 is approximately $585 million and 2021 is $420 million once the final taxes are calculated. The smaller recent totals are likely due to lower oil prices during the pandemic that made the per-barrel credit inapplicable; a 4 percent gross minimum production tax kicks in at low oil prices. Elwood Brehmer can be reached at [email protected]

AGDC: Review will find benefits of AK LNG

State officials leading the Alaska LNG Project insist a new Department of Energy review of the massive natural gas export venture will find it would help lessen global greenhouse gas emissions if finally brought to fruition. Acting Assistant Energy Secretary for Fossil Energy Jennifer Wilcox signed an order June 28 directing the National Energy Technology Laboratory to prepare a supplemental environmental impact statement, or EIS, for the $38 billion gas pipeline and liquefaction megaproject largely to study the full range of greenhouse gas emissions resulting from the project’s construction and operation. Alaska Gasline Development Corp. President Frank Richards said in an interview following the Department of Energy order that he believes the federal government’s analysis will conclude that use of Alaska’s estimated 35 trillion cubic feet of available North Slope gas worldwide “will result in significant reductions in greenhouse gasses, predominantly carbon dioxide.” AGDC previously commissioned an independent study of the project’s emissions that found roughly 80 million tons of carbon would be kept out of the atmosphere because of Alaska LNG, according to Richards. AGDC leaders and other supporters of the project have long pitched it as a way to help displace coal burned with lower-emitting natural gas for power generation in China and other East Asian countries. Under the Trump administration, the Department of Energy authorized LNG exports to non-free trade countries largely in August 2020 based on the EIS and subsequent order approving construction from the Federal Energy Regulatory Commission earlier that May. DOE officials in April granted a rehearing request filed by the Sierra Club that ultimately spurred the additional review. The rehearing order states that the department intends to issue an order after the supplemental EIS is complete that will reaffirm, modify, or vacate the project’s export authorization to non-free trade countries. Among the executive orders issued by President Joe Biden shortly after taking office was one reviewing all regulatory and administrative decisions made during the Trump administration that could result in additional carbon emissions. FERC evaluated carbon emissions from the project, but not the fully life-cycle emissions from the gas production, transport and consumption. “We understand the need for what DOE is doing but we think the overall outcome is going to show a net positive in greenhouse gas reductions from AK LNG,” Richards said. According to FERC’s EIS, construction of the North Slope gas treatment plant and 20 million tons per year Nikiski LNG plant would each result in approximately 622,000 metric tons of greenhouse gas emissions, while constructing the 807-mile gas pipeline would cause another 1.1 million metric tons of carbon emissions. The gas treatment plant needed to extract carbon dioxide from the Prudhoe Bay gas for injection back into the ground would also cause 4 million to 6 million metric tons of carbon dioxide emissions per year depending on the need to flare gas, which is generally prohibited in Alaska outside of emergency situations, according to the EIS. The project is expected to have an operating life of about 30 years. FERC officials wrote in their May 2020 order approving the project that the responsibility to approve LNG exports is DOE’s and the National Environmental Policy Act does not require FERC to consider upstream or downstream impacts of actual gas exports in determining if the LNG facility meets the requirements of the Natural Gas Act. Commissioner Richard Glick wrote in dissent of the order that it violates both NEPA and the NGA because the broader commission “steadfastly refuses to assess whether the impact of the project’s greenhouse gas emissions on climate change is significant, even though it quantifies the direct GHG emissions caused by the project’s construction and operation. “That refusal to assess the significance of the project’s contribution to the harm caused by climate change is what allows the commission to perfunctorily conclude that the environmental impacts associated with the project are ‘acceptable’ and, as a result, conclude that the project satisfies the NGA’s public interest standard.” In January, Gov. Mike Dunleavy unveiled a concept to fund pipeline construction between the Point Thomson gas field and Fairbanks — estimated at nearly $6 billion — largely with unidentified federal infrastructure grants as a means to jumpstart investment in the rest of the system and provide natural gas to Fairbanks. The administration is hopeful Congress and the Biden administration, which Dunleavy clashes with regularly, will recognize what they see as the environmental benefits the project could provide via cleaner burning natural gas. Richards said AGDC will provide Energy officials with any information they need and emphasized that FERC’s construction authorization will remain valid throughout the process. He added that while he feels it’s highly unlikely any issues will arise from the supplemental EIS, the project owners would have years to address those concerns before startup. Richards has said AGDC officials are in confidential negotiations with a lead party to manage the gas pipeline portion of the project at least partially contingent upon the availability of federal funds for the first phase of construction. AGDC leaders hope to secure commitments from developers, operators and investors in the LNG and gas treatment plants by this fall, with the project’s major financial agreements coming next year. Elwood Brehmer can be reached at [email protected]

Coeur receives preliminary OK for Kensington expansion

The U.S. Forest Service is likely to approve a plan that would allow the Kensington gold mine near Juneau to operate for at least 10 years longer based on a draft decision published July 9. If the draft record of decision remains substantively the same in its final version the underground mine’s life would be extended from 2023 out to 2033. Chicago-based Coeur Mining Inc. applied for the first amendment to its operations plan in September 2019. Extending the life of Kensington in this case involves increasing the mine’s tailings storage capacity by 4 million tons, or nearly 50 percent, to approximately 8.5 million tons, according to the draft decision. That would be done by raising the height of the tailings treatment facility from 88 feet to 124 feet and constructing another 40-foot “back dam” between the treatment facility and Upper Slate Lake, a natural lake. The draft approval also 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 work would also require 1.75 miles of new roads, according to the Forest Service. The development growth would also allow Coeur to increase throughput at Kensington’s mill from approximately 2,000 tons to 3,000 tons per day. Located about 45 miles north of Juneau on the edge of Lynn Canal, Kensington employs nearly 370 people. “The Forest Service recognizes the importance of mineral resources and encourages safe, responsible mineral exploration and development as part of our multiple-use mandate,” Tongass National Forest Supervisor Earl Stewart said in a prepared statement. “We have worked closely with Coeur Alaska to mitigate potential impacts of their proposed extension of operations for the mine. Public engagement has been and continues to be an important part of the process.” Forest Service officials opened a 45-day objection period along with publication of the draft decision that is open only to individuals who submitted “specific, timely comments” during any of the comment periods for the project, the July 9 announcement states. In January, the Juneau-based Southeast Alaska Conservation Council requested the agency require dry-stack tailings to limit spill risk to nearby Berners Bay, an ecologically significant area, following the release of the draft EIS. Southeast Alaska Fishermen’s Alliance Executive Director Kathy Hansen wrote in January comments on the project that the group supports Coeur’s plan because mining is an important part of the region’s economy, along with fishing, and the company’s operations have not harmed the surrounding marine environment. Coeur is proposing to improve Dolly Varden habitat by constructing new stream channels and small stream deltas along with replacing three culverts to facilitate fish passage. Forest Service officials state in the draft record of decision that there is a high likelihood that the tailings treatment facility — formerly Lower Slate Lake — will be restored to long-term fish habitat after closure of the mine. 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. Coeur has operated the mine since startup in 2010, when Kensington represented about 5 percent of the company’s precious metal assets. Now, Kensington is nearly 30 percent of Coeur’s precious metal assets among its five operating mines, according to the company. This year Coeur expects to produce between 115,000 to 130,000 ounces of gold at Kensington, very much in line with the 125,000 ounces produced last year. Kensington held an estimated 331,000 ounces of reserves at the end of 2020 and another 830,000 ounces worth of mineralized material, according to Coeur’s annual report. The mine also produced 28 percent of the company’s revenue last year. Coeur expects to spend $23 million to $30 million on capital investments at Kensington this year that will be focused on pit development and equipment replacements, according to a corporate presentation. Elwood Brehmer can be reached at [email protected]

OneWeb launches final satellites to serve Arctic

A growing British telecom just cleared a major hurdle toward making Alaska one of the first jurisdictions to eventually have access to its global satellite broadband network. OneWeb launched 36 satellites from the Vostochny Cosmodrome in Southeast Russia on July 1, bringing its total constellation to 254 low-Earth orbit, or LEO, satellites. While the large, London-based broadband startup is still less than halfway to its goal of eventually having 650 LEO satellites circling the globe, it now has enough deployed to cover regions above 50 degrees north and Alaska is at the top of the service list, according to company leaders. The latest launch also keeps OneWeb on track to offer broadband capacity to Alaska, which will be sold through local retailers, before the year’s end. The next months will be spent testing the LEO system before it goes live; the company’s broadband offering is expected to go global in 2022. OneWeb representatives have said the company decided to roll out service in Alaska first because it is a part of the U.S. that in many respects resembles other countries that have large segments of population on the wrong side of the digital divide. “This is a historic moment not only for OneWeb, but also for the 49th state,” CEO Neil Masterson said in a July 1 statement from the company. “Our company has been committed to putting Alaska and the Arctic first and we are glad to be one step closer to delivering service.” Eric Gillenwater, OneWeb’s vice president and business head said in an interview following the launch that the company’s broadband, which he described as a “fiber-like experience,” will give Alaskans and others in remote regions of the world more options to be better connected to the global economy. He suggested seafood processors across Alaska could benefit from OneWeb’s low-latency broadband through real-time market and pricing information as one example of the many possibilities for helping industry in the state compete globally. “In my opinion it’s all about the use cases that are getting enabled. There are satellites that are there today but they’re limited,” Gillenwater said. The company is using a business-to-business model for its service, partnering with local “middle mile” providers that can use OneWeb’s service options to “make the whole economy more efficient,” he said. In January 2020, OneWeb and longstanding Alaska telecom Microcom announced a deal for Microcom to sell OneWeb’s broadband capacity in the state. Under that arrangement, Microcom will offer retail sales of OneWeb’s broadband and its subsidiary, Pacific Dataport Inc, will handle wholesale transactions. OneWeb’s LEO satellite network will augment what Pacific Dataport offers through its own Aurora broadband project, which aims to offer high-speed broadband via geosynchronous equatorial orbit, or GEO, satellites that are launched into an orbit thousands of miles above Earth and mirror the planet’s rotation. “This is an exciting moment for Pacific Dataport, Microcom and OneWeb,” Pacific Dataport CEO and Microcom founder Chuck Schumann said of the July 1 launch. “We have been working for the last five years to see Alaska fully connected, and we are making substantial progress today through our partnership with OneWeb.” In early June, OneWeb and Alaska Communications announced a similar distribution agreement. Alaska Communications CEO Bill Bishop said at the time that OneWeb’s service will augment what the Anchorage-based internet provider can offer to its business and government customers. OneWeb is utilizing partnerships like those it has with Pacific Dataport and Alaska Communications so everyone can focus on doing what they do best, according to Gillenwater. “The reason we work with a B-to-B model is our local partners will always know the local market better than we will. And to dismiss that type of knowledge we feel is not effective,” he said. “We’re part of the solution, not the solution.” When the deal with Microcom was first announced roughly 18 months ago, OneWeb’s service was supposed to be live in Alaska by the end of 2020. However, OneWeb went into survival mode and filed for Chapter 11 bankruptcy in the early days of the pandemic after major investors in the company’s ambitious plans pulled out to shore up their own finances during a period of extreme uncertainty. The British government and investment firm Bharti Global Ltd. teamed up to commit more than $1 billion to purchase and restart OneWeb last July; the events slowed, but didn’t stop, the company’s plans. Gillenwater said OneWeb and its suppliers have subsequently managed to overcome COVID-19 work restrictions, material shortages and other supply chain disruptions to keep the company on its revised work schedule. The monthly launches, which will continue for another year, are “becoming routine,” according to Gillenwater. “That’s only possible if you have the right operational rigor and experience to do that,” he said. Elwood Brehmer can be reached at [email protected]

Capital budget nearly $2B following vetoes

At just a hair less than $2 billion, the 2022 fiscal year capital budget is the largest Alaska has seen in years even after Gov. Mike Dunleavy vetoed more than $325 million from it. Much of what Dunleavy vetoed was federal highway funding but some of the nixed projects were also items he previously suggested. According to the administration, the $1.97 billion capital budget is the largest since the state’s fiscal outlook drastically deteriorated with the fall of oil prices seven years ago. Nearly $1.6 billion of that is federal money, most of which is directed to highway and airport projects, as is the norm, but the $239.7 million of unrestricted general funds is almost exactly double the $120.3 million spent last year. More than $2 billion in general funds alone were appropriated in annual capital budgets at the peak of state spending. “This capital budget will put people to work but also build Alaska and fix infrastructure,” Dunleavy said during a July 1 press briefing on the budget. Of his vetoes, which included some or all of 68 items totaling more than $1.1 billion in spending in the combined capital and operating budget bill, the largest and undoubtedly most contentious was $682.4 million for Permanent Fund dividends in an effort to ultimately force a larger amount. The second-largest line item cut was $150 million in federal highway project acceleration funds for the Department of Transportation and Public Facilities. The governor similarly vetoed a $100 million federal highway project contingency appropriation down to $30 million. In response to questions sent to DOT officials about what the money would be used for, Dunleavy spokesman Corey Young wrote that the governor recognized the Legislature’s skepticism in regards to large, block appropriations of federal money to agencies — an issue that cropped up last year with the CARES Act — and reduced the appropriations to DOT as a result. “The decision to significantly restrict DOT’s contingency and project acceleration funds is a show of good faith to the Legislature that his departments will not use federal funding tools to subvert the intent of the Alaskan appropriating authority,” Young wrote. However, the federal appropriations were added to the budget by the Legislature during the session based on a review of the original capital budget bill the governor submitted in January. According to the House majority caucus, some of the $220 million would have gone toward regional or smaller projects such as clearing ice roads between rural communities. When it comes to state money, Dunleavy vetoed a $10 million grant to the Alaska Travel Industry Association for statewide tourism marketing. ATIA is the state’s primary travel trade association. In April, the governor’s office announced a national tourism marketing campaign aimed at recruiting independent travelers to the state at a time when it appeared significant volumes of cruise passengers were unlikely to reach Alaska this year. ATIA CEO Sarah Leonard wrote in an emailed statement that the efforts by both the trade group and the governor’s office are beginning to pay off, but the funding cut is likely to kill that momentum and there will be no funding to market Alaska in 2022. “Alaska competes with other domestic destinations to attract visitors who have an ever-increasing, pent-up demand for travel. Next year, international destinations will most likely be back in the marketplace, offering even greater competition,” Leonard said. “Without state allocated marketing funds, ATIA is on hold in our efforts to help with the state’s economic recovery.” Dunleavy proposed a $5 million grant to ATIA in his original budget plan. The governor’s capital budget vetoes also included erasing a $21.6 million general fund appropriation to the Major School Maintenance Grant Fund as well as $13.2 million for a trail link between Seward and Fairbanks. A $12.5 million appropriation for upgrades to the Alaska Vocational Technical Center, or AVTEC, was also vetoed. Each of those vetoes were to items the governor also originally proposed in his $356 million general obligation bond proposal. While the Legislature did not pass the bond bill this year with some lawmakers uneasy about taking on debt with large sums of federal money available, it funded some of the projects at reduced levels, such as the school maintenance and AVTEC upgrades. The trail grant matched the administration’s original request. Elwood Brehmer can be reached at [email protected]

UAF imaging technology open for business

Scientists at the University of Alaska Fairbanks spent much of the last seven years learning how to interpret powerful imaging technology and now they’re looking for partners to use it. The renowned UAF Geophysical Institute has the only hyperspectral imaging sensors in the state. “We are very fortunate to have this capability here,” said Martin Stuefer, Alaska’s state climatologist and director of the Alaska Climate Research Center. Stuefer is particularly invested in the sensing equipment that underpins the Geophysical Institute’s hyperspectral imaging laboratory, best known as the HyLab, because he’s ostensibly given his airplane for it. The sensors take up much of the space behind the pilot’s seat in Stuefer’s Cessna 185, one of the most sought-after aircraft in the state for the versatility its size and power provide. The hyperspectral sensors must be finely calibrated each time they are moved so that means they live in his plane, according to Stuefer. “I’m a researcher and I’m very excited about the data. It’s a state-of-the-art technology, so I feel pretty privileged even not having the airplane for fun weekend rides,” he said. “It is pretty cool that we can provide this and demonstrate the capability. It helps my career too — no secret about it.” As the name implies, at least a little, the hyperspectral sensors take pictures that tell stories not visible to the naked eye by capturing the subtle, identifying color wavelengths that every material or substance or object holds. “We can sense the surface properties really in unprecedented detail,” Stuefer said. Geophysical Institute Directory Bob McCoy noted that normal color imagery starts with the three primary colors. “The idea with hyperspectral is instead of three you use like 1,000,” McCoy said. A geophysicist by training with deep expertise in remote sensing, current UAF Provost Anupma Prakash applied for the original $500,000 grant from the National Science Foundation to purchase the hyperspectral equipment in 2014 after serving as a science advisor to NASA officials working with remote sensing technology. “For me, the big passionate area was the mineral exploration potential of the equipment,” Prakash said in an interview. She described the detailed wavelengths as individual “signatures” that can be identified in most anything after careful study. “If you’re looking at a person’s signature, I can transfer a million dollars with someone’s signature because that signature identifies that person uniquely — that’s your identity. Every object on Earth has a spectral signature. An infected birch leaf has a different spectral signature than a healthy birch leaf. If there’s a deep-seated mineral, it leaches metals out to the soil and you can map it,” Prakash said, alluding to just a couple of the uses for the HyLab’s equipment. “We interpret the subsurface based on what we see on the surface.” Stuefer is naturally eager to talk about the applications for climate-related monitoring, such as cataloging areas with large amounts of wildfire fuel, different aspects of glacial melt or various ocean conditions, but he also emphasized that the “noninvasive” aspect of the imaging technology should allow for less costly — to the environment and on the balance sheet — mineral exploration. “There are some areas (in the Alaska Range) where people have gone in with large machines and didn’t find anything and destroyed a lot of the surface. If they would have had our technology I think there would have been a lot less damage,” Stuefer said. Officials at the University of Washington are using their own hyperspectral sensors to collect large-scale agricultural research. Data is collected by flying prescribed linear patterns at altitudes usually between 7,500 and 8,500 feet, he said, adding that the higher the flight the larger the ground segment the sensors can capture and hyperspectral imaging is best suited for landscape-level analysis. “I fly high because I do not need centimeter-scale; I need meter-scale on the ground resolution segment,” Stuefer said. It has taken UAF researchers years to become true experts in taking, and importantly examining, the hyperspectral images because it simply has taken that long to learn how to analyze the airborne data and classify many of the on-the-ground materials observed. McCoy said Geophysical Institute officials now want to partner with private industry to really put the HyLab technology to work and they’re open to ideas. “We’re not about making money. We’re about doing research and finding new technologies,” McCoy said. “What we’d like to do is show something really works well and see industry go out and do it themselves. That’s kind of what we’re all about.” UAF also offers a free course for how to interpret the hyperspectral images for anyone using data from them, according to Prakash. “I’m very happy that we have faculty and students and post-docs taking it forward,” Prakash said. Elwood Brehmer can be reached at [email protected]

Reinsurance program caught up in failed CBR vote

The Alaska House of Representatives reversed course June 28 to make sure the whole state government won’t shut down July 1, but politics will still leave many longstanding and broadly popular programs unfunded for the foreseeable future, including one that has been successful in reducing private health insurance premiums. Legislators on the budget conference committee attempted to pressure their colleagues to vote for Permanent Fund dividends of about $1,100 per person by tying the larger amount to funding the Power Cost Equalization subsidy for rural residents, the state’s school bond debt payments to local governments and $114 million in oil and gas tax credits; paying the oil and gas tax credits has been supported by many of the Republican advocates for larger PFDs. Much of the funding for the PFD and the other impacted programs in the fiscal year 2022 budget was made contingent upon a favorable vote for the now-annual draw from the state’s dwindling savings account, the Constitutional Budget Reserve, which requires a three-quarters vote in both the House and Senate to access its funds. An affirmative CBR vote also authorizes a technical action, known as the “reverse sweep,” that restores program funds at the start of each fiscal year due to a constitutional requirement. However, the CBR vote failed in both the House and the Senate, resulting in a slew of un-or underfunded programs and capital projects, and PFDs of approximately $525 per Alaskan, at least until the Legislature convenes again. Among the unfunded programs is one that only required lawmakers to approve the acceptance and transfer of federal funds to help offset the unusually high cost of individual market health insurance plans in Alaska. The state’s first-of-its-kind reinsurance program, approved by lawmakers in 2017, lowers the cost of health insurance premiums for individual market enrollees by directing the premiums of high care utilization or catastrophic health cases to the Alaska Comprehensive Insurance Association, a nonprofit. The insurance group then goes to the broader individual market to spread out the costs for those individuals, lessening the cost to individual insurance providers. After rising to the highest in the nation, Insurance premiums for individual plan holders have mostly decreased each year since the program took effect. Alaska was eligible to receive approximately $78.5 million from the U.S. Department of Health and Human Services to support the reinsurance program through a 1332 innovation waiver, according to a March statement from the state Division of Insurance, but budget language tying the reinsurance program to the reverse sweep means the program is currently unfunded for the 2022 and 2023 fiscal years, according to some House Democrats. Department of Commerce, Community and Economic Development spokeswoman Glenn Hoskinson wrote via email that the funding level for the reinsurance program the next two years is unkown, but noted that it is funded on a calendar year basis.  The average premium for a consumer on a Bronze marketplace plan was $435 per month in 2020, which was down about $100 per month versus 2018 rates, according to the Kaiser Family Foundation. The House adjourned sine die nearly immediately after approving an effective date for the existing budget to avoid a government shutdown but did not address the CBR vote, all but assuring the host of impacted programs will start the fiscal year without the necessary funding. Senate President Peter Micciche, R-Soldotna, said in a statement provided by a Senate Majority spokeswoman that the caucus will have internal meetings and discuss with other legislators the prospect of addressing the CBR and potentially other items before the next special session called by Gov. Mike Dunleavy — the third this year — begins in early August. “There’s still more work to be done: the three-quarter vote, reverse sweep, etcetera. If there’s a way of coming to an agreement for short-term sessions prior to the special session, I believe we would have the opportunity to be a lot more productive,” Micciche said. A spokesman for House Speaker Rep. Louise Stutes, R-Kodiak, did not respond to questions about the prospect for dealing with the CBR vote prior to August in time for this story. Elwood Brehmer can be reached at [email protected]

More of the same a good thing as Bristol Bay gets underway

Early indicators are pointing to yet another strong year in the massive Bristol Bay sockeye fishery, which is contrasted against the continued struggles in many of the state’s other large salmon fisheries. Just more than 3.2 million sockeye had been harvested through June 27, according to Alaska Department of Fish and Game figures, with the Nushagak District accounting for more than half of the catch so far at nearly 1.7 million fish. The 3.2 million-fish harvest to-date this year is between the comparable totals for recent years; 1.2 million sockeye were harvested through June 27 last year, while more than 4.4 million were caught by the same day in 2019. With sockeye harvests of more than 40 million fish and total runs greater than 56 million sockeye, both of the last two years have been among the most productive in the history of the Bristol Bay fishery. Dillingham Area Management Biologist Tim Sands said early June 29 that he’s confident there are a lot of fish still making their way to the head of Bristol Bay based on catches in the Port Moller test fishery. He noted that returns to the Egegik River down the Alaska Peninsula have been particularly strong, with a harvest of more than 1.2 million fish and a total return estimated at more than 1.7 million sockeye through June 27, several-fold more than last year in each category. “We’re seeing a little bit of a lull here, which we’ve seen the past four years, and it’s supposed to blow (June 30) so I expect things will kick into high gear from then on,” Sands said. Strong winds blowing up the bay can help push surface-oriented sockeye towards the rivers and nets at the head of the bay. Sands also said he expects the Nushagak River return to exceed the department’s preseason forecast of nearly 5.8 million sockeye; the run forecast for the adjacent Wood River is nearly 8 million sockeye. The overall 2021 Bristol Bay sockeye forecast of just more than 51 million fish — while less than actual returns the past four years — would still be 45 percent greater than the long-term average for the bay, according to ADFG. Sockeye escapement in the Nushagak has already more than doubled the upper end of the department’s optimal escapement goal of 760,000 fish, with more than 1.6 million past the sonar through June 28. Escapement in the Wood River was more than 1 million sockeye as of June 28 as well. Sands said those large early escapement figures are primarily due to limited early-season commercial fishing time. “We were trying to protect our (Nushagak) kings and the only way to protect them is to not fish,” he said, latter adding, “We also had a lot of nets out of the water even though it was open,” due to several days of winds strong enough to make fishing impractical and unsafe. Through June 28 the Nushagak River sonar had enumerated just 20,649 kings, less than comparable run totals for the prior two years when the runs ultimately fell well short of the 55,000-fish lower end of the biological escapement goal. The Nushagak District king harvest was reported at 1,639 fish as of June 28, according to ADFG. Harvest restrictions have also been implemented in the upriver Nushagak king sport fishery. Until very recently the Nushagak was one of the few major king-producing river systems in the state to maintain strong returns. Sands said June 29 that managers will likely increase the frequency of fishing openers soon. He also encouraged fishermen to use nets with a smaller diameter mesh to help control escapement, as the 2021 edition of Bristol Bay are again trending smaller than long-term averages. Andy Wink, executive director of the Bristol Bay Regional Seafood Development Association, wrote via email that factors are starting to shape up favorably for Bristol Bay fishery participants. Market conditions are good for Bristol Bay sockeye as the season ramps up with high demand, particularly in the domestic retail sector and the early numbers of fish are so far supporting the preseason harvest forecast of 36 million sockeye, according to Wink. “Retail prices for sockeye are trending up, farmed salmon prices are way up, the dollar is weaker; all things considered market conditions for sockeye look even better than 2019 and 2019,” when final ex-vessel prices averaged $1.60 and $1.54 per pound, respectively, he wrote. Peter Pan Seafood Co. leaders announced in mid-June that they would commit to pay a base price of $1.10 per pound for Bristol Bay sockeye this year. According to ADFG data, the final ex-vessel price for Bristol Bay sockeye averaged 70 cents per pound in last year’s pandemic-suppressed market. Under new state-based ownership this year, the Peter Pan is quickly making it common practice to publicize its prices early in a fishery — the same was done in May for Copper River salmon — a departure from tradition in the industry intended to gain support from fishermen. As for the Copper River, fishing has been more consistent after another slow start and harvest totals so far this year have already exceeded the final numbers in what was a dismal 2020 but are still well below historical averages. Through June 28, just more than 195,000 sockeye and 6,721 kings had been harvested in the Copper River district over eight openers. In the Kodiak area, the sockeye harvest totaled 408,761 fish through June 26, according to ADFG figures, while sockeye escapement totals through June 27 at many of the region’s primary rivers were less than recent years. The total annual Kodiak sockeye harvest has averaged approximately 1.8 million fish over the past 10 years. Elwood Brehmer can be reached at [email protected]

Supreme Court sides with ANCs on CARES funds

Alaska Native corporations are set to receive roughly $450 million in COVID-19 relief grants following a June 25 Supreme Court ruling but leaders of the companies have stressed none of it will end up in corporate coffers. The U.S. Supreme Court decided in a 6-3 split opinion that the nearly 200 Alaska Native regional and village corporations, or collectively ANCs, are eligible for a portion of the $8 billion set aside for Tribes nationwide to use to mitigate the direct impacts of COVID-19 in the $2.2 trillion CARES Act passed by Congress shortly after the domestic onset of the pandemic in March 2020. The Treasury Department under former President Donald Trump first said the ANCs would be allocated $500 million, which was later revised down to approximately $450 million. The justices that signed onto the majority opinion written by Justice Sonya Sotomayor ultimately agreed with what the members of the Alaska congressional delegation had emphasized from the start: ANCs were meant to be eligible for the Tribal funding in the CARES Act. Rep. Don Young and Sens. Lisa Murkowski and Dan Sullivan said in a joint statement following the release of the court opinion that it is a major victory for Alaska Natives who, under the unique structure largely established by the Alaska Native Claims Settlement Act, receive services through several types of Tribal governments and organizations along with the ANCs. “The U.S. Supreme Court affirmed what we knew all along — that when Congress used the definition of ‘Indian tribe’ from the Indian Self-Determination and Education Assistance Act in the CARES Act, it absolutely made Alaska Native corporations eligible for those coronavirus relief funds,” the delegation said collectively. “We knew this because we wrote this language in the CARES Act. In addition to equitable pandemic relief, this decision ensures Alaska Natives will continue to benefit from the unique but effective delivery of health care, housing, and many other public services authorized under numerous statutes using the ISDA’s definition of an Indian tribe, which the (prior) D.C. Circuit ruling threatened to destabilize.” A nationwide coalition of Tribes, which eventually included several of Alaska’s 229 federally recognized Tribes, sued the Treasury Department in April 2020 when it became clear the agency intended to make a portion of the CARES Act Tribal appropriation available to the ANCs. At the heart of the matter was a Congress-specific definition of an Indian Tribe, as referenced by the Alaska delegation. The brief clauses in Title VI of the CARES Act that allocate the $8 billion direct Treasury officials to disperse the money to “tribal governments” within 30 days after the bill was signed. The definition of a Tribal government used in the CARES Act is pulled directly from the 1975 Indian Self-Determination and Education Assistance Act, which states that Indian Tribes include any “tribe, band, nation, or other organized group or community, including any Alaska Native village or regional corporation as defined in or established pursuant to the Alaska Native Claims Settlement Act which is recognized as eligible for the special programs and services provided by the United States to Indians because of their status as Indians.” Tribal attorneys argued that despite the explicit inclusion of ANCs in the Indian Self-Determination and Education Assistance Act definition, the corporations should not be eligible for the CARES money because they do not qualify for all of the “special programs and services that official, federally recognized tribes do; for one, they are for-profit enterprises and not sovereign governments. D.C. District Court Judge Amit Mehta issued a preliminary injunction early in the case preventing Treasury from dispersing the $450 million to the ANCs, but eventually sided with the delegation and the ANCs in a June 2020 ruling on the case. The D.C. Circuit Court of Appeals reversed Mehta’s ruling, instead concluding in its ruling that the ISDA definition of an Indian Tribe only includes ANCs “only if ‘recognized’ as such.” An appeal by the corporations led to the Supreme Court decision in which Sotomayor wrote that the ISDA definition of an Indian Tribe does not specify the particular programs and services an organization must be eligible for to satisfy the “recognized-as-eligible clause.” “Given that ANCSA is the only statute the ‘Indian Tribe’ definition mentions by name, the best reading of the definition is that being eligible for ANCSA’s benefits by itself satisfies the recognized-as-eligible clause,” Sotomayor wrote in the majority opinion. Ethan Tyler, spokesman CIRI Inc. said the Southcentral regional corporation does not have detailed plans yet for its portion of the $450 million, but highlighted that the funds must be used to counter the direct public impacts of COVID-19. “Ultimately, our plan is to get (the money) to where it’s needed most and we’ll be working with our partners and Tribal affiliates to serve our shareholders and descendents,” Tyler said. Sealaska Legal and Policy Vice President Jaeleen Kookesh insisted the case simply reinforces the specific qualifications Alaska Natives have lived under for decades. “This isn’t creating anything new,” Kookesh said in an interview. She also serves on the legal working group for the ANCSA Regional Association. Attorneys representing the Alaska Tribes did not respond to questions in time for this story. ANCs have long been eligible for other programs aimed at addressing Tribal issues ranging from cultural preservation to energy development and the CARES Act just added COVID-19 to that list, according to Kookesh. “We’re not now sovereigns; we’re not now federally recognized Tribes but we continue to be eligible as Tribes by specific statutes,” she said. “Our Alaska Native people are served through tribes, Alaska Native nonprofit organizations or Alaska Native corporations and this case just allows distribution of the funding through these types of organizations.” Treasury representatives did not respond to questions about how the $450 million will be allocated amongst the 12 regional corporations and 174 active village corporations, but Kookesh said meetings and training sessions with Treasury officials are scheduled to help ANC accountants document their CARES expenditures for potential audits down the road. She stressed the money will not be used to provide boosted shareholder dividends, employee bonuses or anything of the like. Sealaska leaders are examining ways to reach Tribal members living outside of the areas where existing services are offered by Tribes or ANCs with the CARES money, among other uses for it, according to Kookesh. Otherwise, it is likely much of the money will be sent to Tribes or nonprofits that have already established eligible programs and could use additional funding. “Or, if they have a program that works, maybe we can borrow that structure and integrate it into our organization,” Kookesh said. Elwood Brehmer can be reached at [email protected]


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