Elwood Brehmer

Board votes to add 100,000 sockeye to goal for Kenai River

Upper Cook Inlet fisheries managers will be trying to allow a few more sockeye salmon into the Kenai River this summer following decisions by the state Board of Fisheries on Feb. 11. The seven-member board voted 6-1 to increase the tiered, in-river sockeye goals for the Kenai by 100,000 fish at its Upper Cook Inlet Finfish Meeting. The change to increase the number of sockeye that make it past the Department of Fish and Game sonar located just downstream of the Sterling Highway bridge in Soldotna is generally in line with the department’s recommendation to slightly increase the sustainable escapement goal for Kenai sockeye but followed strong opposition from commercial fishing interests. ADFG uses scientific data to set biological and sustainable escapement goals for salmon fisheries statewide that are then adopted by the board, while the in-river goals can be set at larger numbers to achieve objectives such as additional harvest. The proposal to increase the in-river target ranges was submitted by the Kenai River Sportfishing Association, commonly known as KRSA. KRSA consultant biologist Kevin Delaney said increasing the in-river Kenai sockeye goals is one of the most important actions the board can take at the two-week meeting. At projected total run strengths of less than 2.3 million fish, the board increased the in-river goal from the current 900,000 to 1.1 million sockeye to 1 million to 1.2 million. At runs projected from 2.3 million to 4.6 million the in-river goal increases to 1.1 million to 1.4 million. For runs projected larger than 4.6 million, the goal increases to 1.2 million to 1.6 million fish. The 2020 preseason Kenai sockeye late-run projection is 2.2 million fish, which is 37 percent less than the 20-year run average. The in-river goal increases the board approved were less than what KRSA first proposed prior to the meeting. The group amended its original proposal that called for increasing the upper end of the in-river goals by 300,000 fish compared to what the board ultimately passed. Commercial harvesters argued in part that recent low Kenai sockeye returns are a symptom of managers frequently exceeding the upper end of the escapement goal, which makes for more competition among juvenile sockeye rearing in the system and ultimately results in fewer salmon returning per spawner, or escaped, salmon. Upper Cook Inlet Drift Association President David Martin said the group of drift boat commercial fishermen doesn’t want ADFG to continue to raise the sockeye escapement goal “to try to find the tipping point.” Martin pointed to run and escapement data from the 1980s that he says shows lower escapement goals over time produce better runs. “The data shows we’re down to a (spawner) replacement of almost one-to-one,” he said. “There’s reasonable opportunity to harvest the resource.” KRSA founder Bob Penney said concerns about over-escapement of sockeye into the Kenai are overstated. “Those salmon provide life and food to the bears, the raven, the trout and to all the rest of the critters that live on that river. If there’s more fish on the grounds, don’ worry, they won’t get wasted,” Penney testified. “Mother nature will take care of it.” Penney, a longtime real estate developer, was a major donor to a group that backed Gov. Mike Dunleavy’s gubernatorial campaign. Dunleavy previously represented a large part of the Mat-Su region in the state Senate, an area that predominantly supports management favoring sport and personal use salmon fisheries. Board members John Jensen of Petersburg and Israel Payton of Wasilla said the increased in-river goals don’t change the overall Kenai sockeye management — and contentious harvest allocations among user groups — much. Board chair Reed Morisky of Fairbanks said the Kenai is one of the primary fisheries that provides opportunity for roughly 400,000 Southcentral Alaska residents and tourists to harvest salmon. “We all know that tourism is growing in the state. That doesn’t mean the commercial fishery should be done away with, not at all,” Morisky said. “But over time circumstances and economies change.” Board member Gerad Godfrey of Eagle River was the lone vote against the in-river goal changes. He said he is concerned about lost commercial fishing opportunity as a result of the increased in-river targets. “My concern is the viability of this river and the carrying capacity of any river in nature whether it’s being managed by man or not,” Godfrey said. Prior to the board increasing the in-river goal, ADFG staff recommended increasing the Kenai sockeye sustainable escapement goal, or SEG, from the current 700,000 to 1.2 million to 750,000 to 1.3 million. Fisheries Research Coordinator Jack Erickson told the board that the new SEG range is based on more than 30 years of solid run, harvest and escapement data that indicates the river is likely to produce the maximum sustained yield of sockeye with annual late-run escapements of 770,000 to 1.7 million fish. “We’ve seen large escapements in the past and there’s never been a year when (the sockeye run) failed to replace itself,” Erickson said. “That means that we’ve had stability.” He acknowledged there is some uncertainty regarding sockeye productivity with large escapements and said the department took a “precautious approach” with the increase of 100,000 fish at the upper end of the SEG . Payton said he concluded the department doesn’t really know what exactly the SEG should be after reading management and research reports but suggested the Kenai is likely more productive than once thought given new data that shows some Cook Inlet-bound sockeye are harvested in Kodiak-area commercial fisheries. ^ Elwood Brehmer can be reached at [email protected]

Hilcorp taps The Alaska Community Foundation to manage giving

Hilcorp Alaska and The Alaska Community Foundation announced a philanthropic partnership Jan. 31 that will lead to more than $5 million of giving in the coming year. Foundation CEO Nina Kemppel called the partnership “innovating news” for philanthropy in the state and said in a formal statement that it is based on similar work Houston-based Hilcorp Energy has done with charities in its home city. “Hilcorp has a successful history of enhancing its social investment through the Greater Houston Community Foundation, and we’re thrilled to have the opportunity to take that proven model and help Hilcorp expand its corporate giving to Alaska beginning with $5 million over the next 12 months,” Kemppel said. Under the partnership, The Alaska Community Foundation will assume administration of Hilcorp Alaska’s corporate giving program, which seeds each new employee with $2,500 to donate to the nonprofit of their choice and then matches employee donations with up to $2,000 per person per year for as long as they’re employed with the company. Foundation Vice President of Communications and Development Elizabeth Miller said Hilcorp Alaska employees will simply log on to an online account and pick any eligible 501(c)3 organization to donate to, at which point The Alaska Community Foundation will take over and disperse the funds. Since it was announced last August that Hilcorp had agreed to purchase all of BP’s Alaska assets there have been questions among Alaska’s nonprofits about whether or not Hilcorp would fill the pending void left by BP’s departure. The London-based oil giant had established numerous philanthropic relationships over its 60-year run in the state and was generally seen as a strong corporate giving partner. Hilcorp Alaska Senior Vice President Dave Wilkins has said in several recent public appearances that the company plans to triple its current Alaska workforce of approximately 500 people, which will add greatly to the amount of money the company donates through its individual giving program. He also routinely notes that more than 90 percent of the company’s Alaska workers also reside in the state. “There is no better organization than (The Alaska Community Foundation) to help our employees invest in Alaska,” Wilkins said in a formal statement. “Whether it is an after school program for at-risk youth, their church or a homeless shelter, we empower our employees to become lifelong philanthropists and determine how best they can help their communities.” Hilcorp employees have donated more than $15 million to U.S. nonprofits since the inception of the company’s corporate giving program in 2007, according to a joint statement. — Elwood Brehmer

Pebble releases draft mitigation plan

The Pebble Partnership’s federally-mandated plan to offset its mine project’s impacts to wetlands and salmon-bearing streams includes cleaning beach debris, improving fish passage in compromised waters and upgrading the water treatment systems in area villages, but Tribal leaders in the community closest to the proposed mine site don’t feel it’s adequate. The U.S. Army Corps of Engineers on Jan. 27 published Pebble’s compensatory wetlands mitigation plan to counter the impacts the open-pit mine and its associated infrastructure, which includes 72 miles of roads, ports, and a 192-mile gas pipeline from the Kenai Peninsula to help power the mining operation. The Clean Water Act mandates the wetlands mitigation and the Army Corps of Engineers oversees wetlands fill permitting under the law. Pebble expects to disrupt 3,083 acres of wetlands and water bodies under federal jurisdiction across the broad scope of the project and of that, 2,227 acres will be permanently impacted, according to the plan. More than 70 percent of the permanently impacted areas would be at the mine site. The 856 acres of temporary impacts would be in areas of the transportation and pipeline corridors where some fill material would be used temporarily during construction and eventually removed, the plan states. Upgrading the water treatment facilities in the villages of Newhalen, Nondalton and Kokhanok is Pebble’s first mitigation initiative. According to the documents filed with the Corps of Engineers, demand on the wastewater treatment systems exceeds their designed handling capacity in all of the communities. Newhalen and Kokhanok are on the north and south shores of Iliamna Lake, respectively, and Nondalton is north of the lake on the Newhalen River system near the southern boundary of Lake Clark National Park. The company also plans to restore access for salmon to up to 8.5 miles of habitat — commensurate with the miles of streams the mine facilities would remove from the headwaters of the Koktuli River, which supports five species of salmon — mostly around Dillingham, the largest community in the Bristol Bay region. The mitigation plan states that the portions of the Koktuli watershed that would be permanently removed generally have lower salmon spawning and rearing values, but Pebble acknowledges that indirect impacts from altered water flows and elevated nutrient levels could affect larger salmon spawning and rearing areas downstream. Finally, Pebble is proposing to clean up marine debris from 7.4 miles of coastline around the proposed Amakdedori port site on the west side of Cook Inlet, from which the company hopes to export its ore concentrates. Pebble CEO Tom Collier said in a formal statement that the company “took a holistic approach” to offsetting the impacts from its development and tried to remedy existing issues related to salmon and water quality. “Each initiative we are proposing tackles lingering environmental issues that might not otherwise be addressed due to local financial constraints and competing priorities in the area,” Collier said. Pebble Vice President of Permitting James Fueg said in an interview that the company first did its best to minimize wetlands impacts by scaling back the size of the mine and redesigning facilities in its overall project plan. However, he said the lack of development in the region beyond the immediate communities made it difficult for the company to identify opportunities to restore damaged wetlands or preserve areas threatened by other development; those are the mitigation options traditionally preferred by the Corps. Fueg stressed that the coastline rehabilitation is not “just a visual thing,” but that it addresses direct problems for wildlife. He noted it’s a remote area that otherwise likely wouldn’t be cleaned of lost fishing gear and other debris. “We’ve seen cases out there of birds and other things that have gotten entangled in the ropes and nets lying around there so it’s easy to demonstrate that’s a real threat,” Fueg said. The company would continue to monitor and clear the section of shoreline through the life of the project, which is currently pegged at about 20 years, he added. The Corps of Engineers has the final say over what Pebble must do to mitigate its impacts to wetlands and could amend the company’s proposal when it issues its record of decision on the overall project plan, which is tentatively set for this coming summer. Fueg said whatever mitigation work ultimately needs to be done will be finished before any work is done on the mine itself. The fish access projects would focus on replacing damaged or poorly installed culverts that prevent salmon from moving freely to their desired habitat for a given life stage. Culverts and similar potential barriers can impede adult fish passage, but more often they prevent juvenile salmon or resident species from moving back upstream to prime rearing areas during their seasonal migrations, according to Department of Fish and Game biologists. “Frankly, there are hundreds of culverts in the state database (that need fixing) and the reality is that while there may be a quote-unquote ‘responsible party’ associated with that — in other words, who’s the owner of the road; who’s the owner of the right-of-way — the fiscal situation being what it is the majority of those are not going to be fixed anytime soon,” Fueg said. “So there’s an opportunity to do good there and a lot of opportunities for further mitigation if we need to go down that road.” Each of the water treatment projects will likely cost multiple millions of dollars, according to Fueg, who also acknowledged they will require complete access to the facilities but said the Tribes in the communities were supportive of the concept. Nondalton Tribal Council President George Alexie said his council has opposed Pebble “from day one” and discussed the prospect of the company working on the community’s water infrastructure. Pebble’s mitigation plans simply don’t do enough to offset the damage the project will do to large areas of spawning and rearing habitat at the mine site, Alexie contends. “The council opposed the idea of Pebble trying to weasel their way in and throwing all their money around. They tried that a few times but the council didn’t want anything to do with it,” he said. Nondalton’s water treatment plant is controlled by the city council, according to Alexie, but he said the group shares the Tribal council’s beliefs about the controversial mine plan in-part because several individuals serve on both panels. Nondalton City Council officials could not be reached in time for this story. When asked whether he believed Pebble would be granted access to do the proposed work, he said, “I have my doubts.” Tribal leaders in Newhalen have not explicitly supported the project in formal comments, but have expressed desires for more economic opportunities in the region on multiple occasions. Many Newhalen and Kokhanok residents are also shareholders of Alaska Peninsula Corp., a Native village corporation that supports the project and has an agreement with Pebble to allow the company to use its land around Iliamna Lake for its transportation corridor. Lake and Peninsula Borough Manager Nathan Hill said it’s not his role to evaluate the plan but borough officials sought to ensure that mitigation work benefitted the region and connected Pebble with local individuals who could help make that happen. He said he heard that early on the company was considering doing culvert work in the Mat-Su area — where fish passage impediments are a bigger problem — and thought mitigation closer to the project footprint made sense. Hill emphasized that the borough has not taken a stance on Pebble because it has its own local development permits the company must secure, but he also noted that the village leaders will have the final say as to whether or not they want Pebble to do the work in their communities. Elwood Brehmer can be reached at [email protected]

London company aims to drill prospect from off Dalton Hwy.

A new British entrant to the North Slope plans to finish a unique oil project started years ago by a small Anchorage explorer. In an interview with the Journal, London-based Pantheon Resources executives said they expect to produce up to 30,000 barrels of oil per day from the Greater Alkaid prospect discovered in 2015 by Great Bear Petroleum. Pantheon bought Great Bear and its roughly 200,000 acres of North Slope leases in January 2019. CEO Jay Cheatham said the Greater Alkaid prospect is particularly promising in large part due to its location: a little more than 20 miles south of Prudhoe Bay and directly adjacent to the Dalton Highway. “We’ll be drilling from a pad that’s right next to the Haul Road. All of our competitors on the North Slope literally have to spend billions of dollars to get to first oil,” Cheatham said, adding that won’t be the case for Pantheon. He and Pantheon Technical Director Bob Rosenthal stressed the location not only precludes the need for expensive infrastructure and logistics to reach the prospect, but it also allows for year-round development. Pantheon will literally be drilling “underneath the Dalton Highway and the (Trans-Alaska) Pipeline, or TAPS, which means we can get on production faster than anybody else,” said Rosenthal, a former Great Bear manager. “The idea is to build a pad next to the highway and drill long, horizontal multi-stage fracked wells and put this into production as soon as we can.” Company representatives are in discussions with state officials regarding the viability of expanding a gravel turnout on the highway to serve as the company’s drilling and production pad, according to Cheatham. Great Bear first started working the area in 2012 and drilled several wells targeting unconventional shale plays but the company decided to drill the conventional Alkaid-1 well into the Brookian geologic sequence when the prospect “popped up” in 3-D seismic data at its fortuitous location, according to Rosenthal. The large Nanushuk and Torok formation oil discoveries made by several companies working farther north and west on the Slope in recent years are also zones of the Brookian sequence, but they are older than what Pantheon is targeting, Rosenthal said. “You can get similar porosity and similar permeability,” he said of the Brookian plays. “It keeps stepping across the slope — stepping west to east.” He added that Pantheon’s target zone is about 8,000 feet deep. Rosenthal’s description of the geology is generally in line with what state geologists have said about the Brookian sequence in prior interviews with the Journal. Cheatham said Great Bear spent upwards of $200 million exploring the area but had to suspend the Alkaid-1 well when the Sagavanirktok River — which the pipeline and highway parallel — overflowed and flooded in the spring of 2015. Pantheon reentered the Alkaid well last spring and it flowed approximately 100 barrels per day from a six-foot interval of a larger, 450-foot likely oil-bearing column, according to Cheatham. This year, the company plans to drill one or two more Alkaid wells and initiate a long-term production test that should allow the company to move its contingent recoverable resource estimate of 76 million barrels to the reserve category, which is a seemingly small but significant shift for oil developers, Cheatham said. He and Rosenthal emphasized a belief that the additional drilling will also allow the company to add to its resource totals. As it stands, they said an independent assessment gave the Greater Alkaid prospect a net present value of $595 million, or about $8.50 per barrel, with an industry standard 10 percent annual discount rate. The pair declined to specify a timeline for commercial production from Alkaid, but Rosenthal said they hope to start producing “as quickly as we can possibly do the job.” If and when that occurs, Cheatham said Pantheon is likely to install temporary modular production facilities at the drill site and start by trucking the oil about 20 miles north to TAPS Pump Station 1. As the field is developed and permanent facilities are installed, he said Pantheon could eventually put its oil into the pipeline on site. “It’s an open-access pipeline so we have talked to people about being able to tap into the Trans-Alaska Pipeline System right there,” Cheatham said. “There’s a potential to do a hot tap into the line.” Company leaders also eventually plan to drill their Talitha prospect to the southwest of Alkaid, which is on the roughly 200,000 acres of state leases the company holds in the area and they believe holds several billion barrels of oil. “(Talitha) is a very large accumulation that we see there keyed off of an old well drilled by my former company, ARCO, in 1998 called the Pipeline State-1 well,” Cheatham said. Pantheon’s Talitha targets are in Brookian and Kuparuk formations, according to a company investor presentation. ^ Elwood Brehmer can be reached at [email protected]

ConocoPhillips earns, spends $1.5B in Alaska during 2019

Lower oil and gas prices took a bite out of ConocoPhillips’ fourth quarter earnings but the upstream-focused oil major still managed to net its largest full-year profit in 2019 since the global reset of energy markets more than five years ago. ConocoPhillips executives reported $720 million fourth quarter and nearly $7.2 billion full-year profits for 2019 during a Feb. 4 earnings call. In Alaska, the Houston-based producer netted $368 million for the quarter, which rounded out a nearly $1.5 billion full-year profit from its extensive North Slope operations. The company paid approximately $263 million in combined fourth quarter taxes and royalties to the State of Alaska, according to ConocoPhillips Alaska spokeswoman Natalie Lowman. Overall, ConocoPhillips paid just more than $1 billion in taxes and royalties to the state in 2019, according to company figures. ConocoPhillips’ companywide capital program declined just more than $100 million in 2019 to $6.6 billion, but its capital investments in Alaska grew by about $200 million to $1.5 billion for the year. Lowman noted via email that the company’s 2019 Alaska capital investments exceeded its adjusted net income of $1.44 billion in the state last year. The companywide earnings were down 62 percent year-over-year for the fourth quarter, but up 14 percent for all of 2019. Company officials attributed the drop in quarterly earnings to a slight decline in global production and oil and gas prices that were 11 percent lower than the fourth quarter of 2018 on a per-barrel equivalent basis, according to the earnings report. The $7.2 billion full-year profit was boosted by a nearly $1.8 billion gain from selling European assets that was realized in the third quarter. The earnings were the result of $8.1 billion of quarterly revenue, a 21 percent year-over-year decline, and $36.6 billion of full-year revenue, which was down 5 percent from 2018. The $720 million and $7.2 billion profits translated to fourth quarter earnings of 66 cents per share and full-year earnings of $6.43 per share. ConocoPhillips stock traded at around $57.10 per share in the hours after the earnings release, down slightly from a $58.50 per share Tuesday opening price. The company repurchased approximately $3.5 billion of stock and paid $1.5 billion in dividends to shareholders during the year, actions that were funded from free cash flow and marked a 43 percent return of cash flow from operations to shareholders, according to the earnings report. ConocoPhillips also increased its quarterly dividend to 42 cents per share last year. The company’s full-year Alaska earnings were down 16 percent to just more than $1.5 billion in 2019 on a 9 percent drop in oil prices despite 18 percent growth in the company’s North Slope oil production from 2018. Alaska oil production attributable to ConocoPhillips averaged 202,000 barrels of per day in 2019, meaning the company accounted for more than 40 percent of all North Slope oil production last year. CEO Ryan Lance emphasized in a formal statement that 2019 capped a “highly successful” three-year period in which the company transformed its operations and balance sheet to match the new realities of energy markets even with the fourth quarter earnings decline. “We’ve positioned ConocoPhillips to deliver sustained value through price cycles due to our strong balance sheet, focus on free cash flow generation, compelling returns of and returns on capital and our commitment to environmental, social and governance leadership,” Lance said. “We have laid out a powerful 10-year plan based on our formula for value creation and we look forward to successfully delivering that plan in the quarters and years ahead.” Company leaders have frequently stressed a goal to be profitable at market prices of $40 per barrel of oil equivalent, which also accounts for natural gas and liquids production. ConocoPhillips realized an average price of $48.78 per barrel of oil equivalent in 2019. ConocoPhillips is advancing several oil projects in the National Petroleum Reserve-Alaska on the western North Slope and has ramped up its winter exploration drilling program in recent years. Elwood Brehmer can be reached at [email protected]

Recession persists for Anchorage as state economy recovers

Anchorage’s economy is expected to grow slightly in 2020 but despite incremental recovery statewide in 2019, the city continues to be mired in a mild recession, according to data published Wednesday by the Anchorage Economic Development Corp. AEDC President Bill Popp said the city ultimately lost approximately 300 jobs last year leading to a fifth year of recession based on preliminary data for the second half of the year. He added that the final numbers are more likely to increase the job-loss total if it changes at all. The economic advocacy group a year ago projected slight job growth for Anchorage in 2019 but state budget cuts and a prolonged fiscal debates in Juneau resulted in direct government job losses as well as a broader economic uncertainty that made some employers hesitant to invest, Popp said. He spoke Wednesday at AEDC’s annual economic forecast luncheon. Anchorage’s unemployment rate averaged 5.1 percent for the year, which often is not indicative of a declining economy but hints at labor force issues, according to Popp. In an interesting departure from the status of its largest city, statewide Alaska added more than 2,000 jobs last year, according to preliminary data from the state Labor Department. The growth followed three years of losses brought on by the sharp drop in oil prices in 2015. Anchorage retailers shed approximately 400 jobs last year, which Popp said was largely due to the cultural shift to online shopping impacting national retail chains. He noted Anchorage lost Pier 1 Imports, Bed, Bath and Beyond and its locally beloved downtown Nordstrom store last year. Anchorage also lost roughly 400 state and local government jobs last year; primarily the result of Gov. Mike Dunleavy’s cuts to the University of Alaska budget and lower enrollment at the Anchorage School District, according to Popp. The city’s health care sector also lost about 100 jobs in 2019, marking the first contraction in Anchorage’s health care industry in 15 years, Popp said. Anecdotally, it’s believed the uncertainty stemming from last year’s debate over the Medicaid budget between the Legislature and Dunleavy and the governor’s subsequent Medicaid vetoes has curtailed hiring in health care, according to Popp. Those losses exceeded small gains in the oil and gas and tourism industries and growth of about 400 jobs in the construction trades partially due to earthquake repairs, he said. AEDC leaders expect Anchorage to add approximately 100 jobs next year despite continued reductions in state government and a loss of 200 jobs in oil and gas employment mainly from Hilcorp Energy’s pending acquisition of BP’s Alaska assets. Popp said it’s common to see a slight decline in jobs through such a transition as some employees head elsewhere for work with the seller — in this case BP — and others retire or head to different fields. Overall, AEDC predicts the sector will lose about 200 jobs this year. Hilcorp Alaska Vice President Dave Wilkins said at the AEDC event that the company has agreed to hire roughly 800 current BP employees and plans to add another 100 to 200 jobs to its Alaska workforce over the year. It’s unclear at this point if the major oilfield transaction will ultimately result in job losses or gains. While Anchorage’s economy is slowly trending upward in the near term, Popp said some demographic data combined with a growing concern among employers adds up to potential long-term challenges for the city. Outmigration is significantly outpacing in-migration and births, which has led to a gradual but steady population decline in Anchorage of 9,200 residents since peaking in 2013 at 301,000 people, according to Labor Department data. AEDC expects the city will lose another 1,000 people in 2020. Similarly, Anchorage’s workforce has shrunk by about 10,000 individuals since 2011 to 149,000, according to AEDC. Popp said that upwards of 20,000 people per year have left Anchorage to move Outside between 2014 and 2018, when the most recent data is available. However, an average of only 16,000 people moved to the city from Outside to replace them. “That’s a loss of talent; that’s a loss of future opportunity; that’s a loss of retirees. It’s a mix of population,” he said. Additional research into job postings in the city — which are on the rise — indicates Anchorage employers have “an intention to hire, an intention to invest,” Popp said to the crowd of mostly business professionals, “but if you don’t have people to fill those jobs that you the business community are creating, they’re not jobs, they’re just good intentions.” He reiterated a position long held by AEDC that Anchorage as a whole needs to be more proactive in attracting young and skilled workers. “Communities across the United States are competing with communities across the United States to attract and retain workforce,” Popp said, adding that livability and an ample workforce are major factors in determining where companies are investing. “If you don’t have a policy and strategy in place as a community you are not on the radar for national businesses in the coming decade because having to transport a workforce into an area do to business is the most expensive option you could possibly expect to have.” Elwood Brehmer can be reached at [email protected]

Quake-free 2019 means dip in construction spending in ‘20

The amount of money flowing into Alaska’s construction industry is expected to dip to roughly $6.7 billion in 2020 but large resource projects on the horizon continue to fuel hope for industry leaders in the state. Associated General Contractors of Alaska Executive Director Alicia Siira said a forecasted decline of $500 million, or about 6.9 percent, in construction spending this year is largely due to the dwindling number of repair projects stemming from the 7.1 magnitude earthquake that struck Southcentral Alaska in November 2018. While the Anchorage and Matanuska-Susitna school districts are still working on long-term rehabilitations to several schools severely damaged by the earthquake, the vast majority of repairs to roads and private buildings have wrapped up. AGC of Alaska released its annual construction spending forecast Jan. 30 in Anchorage. The report was compiled by the Alaska research firm McDowell Group. Last year’s forecast for $7.2 billion of construction spending attributed approximately $200 million in government spending to earthquake-induced projects, with additional spending related to private-sector repairs. “We saw a spike last year due to unexpected earthquake repairs,” Siira said, adding that other sectors of the industry are expected to see mostly flat spending year-over-year. “Although the outlook is relatively flat, there are certainly some bright spots for construction. Overall, petroleum, oil and gas spending is still a bright spot; we’re seeing lots of activity up there. Mining is still going to be a big one, as well,” she said. Oil industry spending will lead the way with $2.9 billion in capital investments, which is a nearly $200 million year-over-year increase. The growth in oil activity — driven by large prospects being developed by ConocoPhillips and Oil Search, a new entrant to Alaska — will offset spending declines in the mining and utility sectors. Mining companies are expected to spend about $170 million on capital projects this year, which would be about $100 million less than 2019 as several expansion projects at producing mines are completed. New work this year includes a new tunnel at the underground, multi-metal Greens Creek mine near Juneau and an expansion of the processing facilities at the Pogo gold mine in the Interior, according to the report. The Department of Defense is also starting to wrap up years of work on projects at Interior Alaska installations and that is also contributing to the smaller, $6.7 billion spending forecast, according to Siira. Statewide national defense spending is pegged at about $500 million this year in the report, which is about $200 million less than 2019. Specifically, the lion’s share of $325 million allocated to a new radar system at Clear Air Force Station through 2021 was spent from 2017-19. Also, preparations for two new squadrons of F-35 fighters to Eielson Air Force Base, which included new hangars, flight simulators, and other facilities, are mostly complete as the first fighters are set to arrive later this year. Overall, public construction spending is expected to be nearly $2.3 billion this year, which is roughly a $300 million decrease from 2019. Activity in most of the subsets of public spending is generally anticipated to be flat, with the exception of Defense and earthquake projects declines. State and federal spending on transportation projects should be flat in the $1 billion range, according to the report. However, substantial work is set to begin again at Anchorage’s Port of Alaska after city officials approved a $42 million contract last summer for Seattle-based Pacific Pile and Marine to construct the first phase of a new petroleum and cement terminal at the port, which is the primary hub for inbound goods statewide. The new fuel and cement dock is the first of a series of large dock construction projects at the port in the coming years. While a final cost for the entirety of the port modernization work is not yet available, it will clearly be many hundreds of millions of dollars. Private sector construction spending will be mostly flat this year at about $4.4 billion, according to the report. Utility spending will also be down roughly $300 million to $150 million following the completion of GCI’s $140 million 5G upgrade, the report states. Construction industry impact While the winter release of the construction forecast is an annual tradition of sorts for industry leaders, this year’s report also highlights the significant influence the construction trades have on Alaska’s economy as a whole. According to McDowell Group, the industry provided $3.3 billion of direct and induced income across Alaska in 2018, representing more than 10 percent of the state’s total labor income for the year. On the employment side, state Labor Department figures have long pegged the construction industry as accounting for less than 5 percent of the state’s total workforce with an average of 15,000 to 17,000 jobs. Alaska’s three-year recession has put the reported construction workforce towards the bottom of that range of late. However, the Labor Department estimates do not include self-employed contractors, as they are much more difficult to quantify for state researchers because they are not required to file the same financial and insurance records with the state as larger companies are. Based on federal statistics, the McDowell Group report concluded that there were more than 7,300 self-employed construction workers in Alaska, bringing the total industry workforce to 23,600. That direct employment also supports another 17,700 jobs in the state, according to the report, meaning the industry helps provide more than 41,000 jobs in Alaska; about 9 percent of all employment in Alaska in 2018. Siira said the report gives her and other industry leaders more new, solid data that they can use to help advocate for their industry. “We are really excited to release this economic impact report. A study on the construction industry in Alaska has never been done to this level of detail, and the results exceeded our expectations. The construction industry is a major contributor to Alaska’s economy, and now we have the numbers to back it,” she said. Combined, the closely tied oil and gas and construction industries support approximately 82,000 jobs in the state providing more than $6.4 billion of income, according to McDowell Group reports. Oil and gas impacts The Alaska Oil and Gas Association released a similar economic impact report for its industry Jan. 29 that was also compiled by the firm. It’s worth noting that some of the labor data for the construction and oil and gas industries undoubtedly overlaps given oil companies provide a significant portion of the work done by construction companies in the state. The construction report also concluded that the state’s construction workforce has become a bit more Alaskan in recent years. Alaska residents comprised 82 percent of the state’s construction workforce in 2017; that’s up from 79 percent in 2013, which is also the statewide resident hire average across industries. “That’s a number we can really be proud of as an industry,” Siira said in reference to the increasing resident-hire rate. ^ Elwood Brehmer can be reached at [email protected]

Microcom-OneWeb partnership promises Alaska coverage by year-end

Alaska telecommunications provider Microcom has teamed up with a global counterpart to bring high-speed internet capabilities to every inch of the state by the end of the year. Microcom and London-based OneWeb announced an agreement Jan. 15 that will make the Anchorage-based company the Alaska distributor of space on OneWeb’s global broadband network that is currently in-the-works. A year ago Microcom founder Chuck Schumann announced his company’s plans to eventually supply up to 80 gigabits of broadband Internet capacity statewide via several special satellites strategically positioned in orbits to provide the best possible connectivity for Alaska customers. Microcom’s plan to drastically grow the state’s broadband capacity with its Aurora System project started with the formation of subsidiary Pacific Dataport Inc. in 2017 to implement the Aurora System. Schumann said in an interview that the partnership with OneWeb will greatly enhance the Aurora project by, among other things, giving customers a much stronger broadband network. He anticipates the companies’ combined work will “upend” Alaska’s internet market by making higher speed, lower cost connectivity available to everyone in the state, he said. “Both of these services working together promises the best of both words and some incredible benefits as far as resiliency and redundancy on the network because, now, I come into a location if I’m providing service for health care or any other business that needs really good, reliable communications — we’re going to be able to do that because we’ve got redundancy built into what we’re doing,” Schumann said. The redundancy comes from the different technical approaches Pacific Dataport and OneWeb have for operating their satellites. Pacific Dataport’s small Aurora System satellites — the first of which is scheduled to launch late this year with 10 gigabits of capacity — will work in high, geosynchronous orbits more than 1,000 miles above Earth that mirror the planet’s rotation. Historically, satellite-based systems have provided little service to Alaska because they are often obstructed by objects on the ground due to an orbital location that is too far east to serve Alaska well. However, Pacific Dataport's Aurora satellite network will be positioned roughly over Hawaii “to give the best possible look angle” to Alaska, according to Schumann. They will be able to provide broadband service up to 500 miles north of the North Slope, he said. Pacific Dataport representatives have said a second Aurora satellite is scheduled to launch in 2022 and will increase the network’s capacity to 80 gigabits of broadband. Currently, Alaska has about 2.5 gigabits per second of satellite bandwidth across multiple broadband providers, according to Pacific Dataport. OneWeb Enterprise President Campbell Macfarlane said the company is using low-earth orbit, or LEO, satellites in its network and plans to employ nearly 700 of them at varying latitudes, meaning they will not have the same issues as other low-orbit satellite systems. OneWeb’s satellites are being assembled two per day at a factory in Florida. A launch of 30 is scheduled for Feb. 7 from a facility in Kazakhstan, according to Macfarlane. OneWeb touts a diverse list of major international companies as its partners and investors on its website, including fellow telecoms Hughes, Qualcomm and Intelstat alongside major players in other industries such as Coca Cola and aerospace giant Airbus. A corporate presentation says OneWeb has raised more than $3 billion of investment for its broadband project. Schumann has said the Aurora project is fully financed. On the ground, the partnership makes Pacific Dataport the Alaska distributor of OneWeb’s network for Alaska and Hawaii, according to Schumann. Pacific Dataport will sell wholesale network capacity and Microcom will serve retail and support functions, he said. Alaska and other Arctic jurisdictions are first in line for OneWeb’s new broadband network because the satellites are being put into orbits north to south, according to Macfarlane. OneWeb expects to go live for global service in October 2021, he said. “Alaska will get the first taste of this new technology,” Macfarlane said. “Couple that with a hybrid GEO technology (from PDI) as well and you’ve really got the best of both worlds, so no one in Alaska can say they’re not connected. In two years time that will be a thing of the past.” He and Schumann said they believe the coming access to high-speed broadband could transform everything from health care delivery in rural Alaska — where doctor visits are increasingly performed remotely in a service known as “telehealth” — to real-time monitoring of commercial fisheries to in-flight Internet access. PDI and OneWeb have also been discussing the opportunities high-speed broadband could hold with resource companies, they said. Connecting to their combined broadband network will require nothing more than a user terminal and a requisite power source. “This is going to upend the model here in Alaska where everybody has looked at bandwidth — that Internet capacity was scarce and the prices were very high. What Pacific Dataport is doing with bringing these services together is making bandwidth plentiful across Alaska, over every inch of Alaska and bringing prices down,” Schumann said. “It’s going to be a whole different way to think. It’s going to allow people in rural communities to participate in the Internet and in the world economy — working remotely, for instance.” Macfarlane said a company or organization in a specific location could purchase broadband capacity and the terminal equipment with the ability for excess bandwidth to be available to the community through a wi-fi network. Reliable high-speed broadband can also open up a host of information technology jobs as well. Schumann added that reliable blanket broadband coverage also makes expanding cellular coverage easier and less expensive because phone providers would be able to use the network for a “middle mile” connection between a tower and a network hub rather than needing to install costly fiber optic links. Macfarlane also noted that relying on satellite-based broadband networks largely eliminates the need for the cost and environmental impact of burying fiber optic cables to extend Internet to rural areas. He compared the transition from terrestrial fiber optic Internet to broadband to the shift from landlines to cell phones that has happened over the past couple decades. “I reckon 10 years from now the thought of putting a fiber to a remote site will be abhorrent. That’s the change; that’s how dynamic it will be,” Macfarlane said. (Editor's note: This story has been corrected to accurately reflect the orbital position of Pacific Dataport's Aurora satellites.) Elwood Brehmer can be reached at [email protected]

McKinley Capital buys research firm McDowell Group

One of Alaska’s premier investment companies is branching out with the purchase of one of the state’s go-to research firms. Anchorage-based McKinley Capital Management announced Jan. 29 that it has acquired McDowell Group, which has offices in Anchorage and Juneau. A statement from McKinley Capital regarding the purchase says McKinley will use McDowell’s nearly 50 years of multidisciplinary research experience to form a new economic research and consulting arm at McKinley that will be led by McDowell principal and former state Commerce Commissioner Susan Bell. McKinley Capital CEO Rob Gillam said combining the businesses under the new research unit will, among other things, help improve McKinley’s ability to better market the benefits of investing in Alaska. “This acquisition is great for McKinley Capital, for McDowell Group and for Alaska,” Gillam said in a prepared statement. “It provides McKinley Capital with a new business unit and complimentary capacity; it provides a long-term ownership plan and expanded clientele for McDowell; and it strengthens and solidifies two Alaska businesses, which together proved more than 60 high-paying jobs.” The companies did not disclose a price for the transaction. Gillam has stressed his firm’s focus on data-focused investment strategy in multiple interviews with the Journal since taking over the company from his late father and company founder Bob Gillam in October 2018. McKinley manages a roughly $5 billion global investment portfolio, according to Gillam. McDowell has long been a primary choice for Alaska trade associations seeking to quantify the economic impact of their respective industries. The firm has also conducted extensive analysis of the state’s health care system, education and transportation systems. McDowell principal Jim Calvin called the move a “natural evolution” that gives the firm more opportunities to grow its business through McKinley’s connections. “The research we do at McDowell goes hand-in-hand with McKinley Capital’s data-driven method of investing,” Bell added. “To lead McKinley Capital’s new economic research unit is an honor and I look forward to seeing how integrating McDowell and McKinley Capital will bring new possibilities to Alaska as a whole.” The acquisition is another move that further puts McKinley’s business in the public light after decades of avoiding press coverage under Bob Gillam. Last May, McKinley announced a partnership with the University of Alaska Lab for Data Science and Artificial Intelligence to mentor and provide students an area in the firm’s Anchorage office where they can work on AI and data science projects. This past September, the Alaska Permanent Fund Corp. announced McKinley had been selected to manage $100 million in the corporation’s new $200 million Alaska Investment Program, which seeks in-state investment opportunities for the nearly $67 billion Permanent Fund.

Alaska Air Group doubles bottom line in 4Q; up 76% for year

Alaska Air Group finished 2019 by netting $181 million in the fourth quarter, which capped a full-year profit of $769 million and put the airline company on track to hit its long-term financial targets, executives said during a Jan. 28 earnings call. The $181 million quarterly profit nearly doubled its fourth quarter income of $93 million in 2018 and the $769 million annual total was 76 percent better than $437 million for last year. Alaska Air Group CEO Brad Tilden called 2019 a “turning point” for the Seattle-based parent to Alaska Airlines and Horizon Air as the company largely completed integrating Virgin America into its operations more than three years after buying its former West Coast competitor and is starting to see the benefits of the deal. Alaska Air Group was in the midst of a long run of record profits before the Virgin America acquisition, which caused the company to focus less on costs and more on quickly blending the airline into Alaska Airlines’ operations in recent years. “We’ve made progress on many fronts but we’re especially pleased with our momentum on commercial initiatives designed to improve the guest experience and drive revenue gain,” Tilden said, adding that Air Group leaders expect their year-end results to show the best unit growth in the industry. The profits came on the back of more than $2.2 billion of operating revenue for the quarter and nearly $8.8 billion for the year, which were 8 percent and 6 percent improvements over 2018, respectively. They translated into earnings per share of $1.46 for the quarter and $6.42 for the year. Alaska Air Group also announced a 7 percent increase to its quarterly dividend Jan. 29 to 37.5 cents per share. It’s the seventh time since the dividend was instituted in 2013 that it has been raised. Alaska Air Group stock closed Jan. 28 trading at $65.54 per share. The stock price jumped to $66.83 the next morning following the Jan. 28 post-trading earnings release. The revenue generated a record $1.8 billion in operating cash flow for the quarter, which, after approximately $700 million of capital investments, left Air Group with $1.1 billion in free cash flow, a $760 million year-over-year improvement, according to Chief Financial Officer Brandon Pedersen. The company ended the year holding roughly $1.5 billion in cash, Pedersen said. On the cost side, the company held its full-year unit cost growth to 2.3 percent on 2 percent capacity growth, which matched its initial cost guidance while also absorbing an unexpected $42 million cost from new agreements with its mechanics unions during the fourth quarter, according to Pedersen. The company’s top financial priority in 2019 was de-leveraging its balance sheet, Pedersen said, and it paid off more than $600 million in debt over 2019, which brought its debt to capitalization ratio down to 41 percent. By the end of the year Air Group had repaid approximately 75 percent of the $2 billion it borrowed to purchase Virgin America in 2016, executives said. Pedersen also commended the company’s treasury team for getting 79 percent of the company’s debt on fixed terms that average 3 percent interest. He said Air Group ended 2019 holding 113 of its aircraft unencumbered and roughly $400 million in available credit. It all helped Air Group generate a 12 percent full-year pretax margin, which was a 3.1-point improvement over 2018 and puts the company on track to reach its goal of sustained 13 percent to 15 percent pre-tax margins, Pedersen said. Tilden added achieving those margins is the company’s top financial priority for 2020. He said Air Group would pay out $130 million in annual performance bonuses Jan. 29, a figure that roughly equates to an extra month of pay for most employees. Tilden thanked employees for offering “genuine and caring service” and said he found the company’s workforce energized about the future following two weeks of meetings at Air Group hubs across the country. “This industry can be challenging but our people know what it takes to win: a relentless focus on safety and on-time operation; truly remarkable service and a low-fare, low-cost, high-efficiency profile,” Tilden said. “We continue to do these things and we’ll continue to grow.” Alaska Air Group Chief Commercial Officer Andrew Harrison said one of the main initiatives the company has implemented in recent years that has spurred revenue growth is its focus on expanding its premium products. First class and premium seating comprised just 7 percent Air Group’s revenue when it first started offering premium cabin seating in 2017; today, that figure is up to 22 percent, according to Harrison, who said the premium revenue will continue to grow as Alaska Airlines’ fleet of formerly Virgin America Airbus aircraft are reconfigured to offer premium seating. The per unit revenue from premium and first class seats is 54 percent better than main cabin seats, he said. “We’re intentional with how we manage our premium product business,” Harrison said. “Our goal is to keep our premium cabins affordable and provide generous benefits to our loyalty members while competing effectively against our peers.” Overall, Air Group’s per-unit revenue was up 4.2 percent for 2019, which was 200 points above the industry average and helped mark the company’s best per-unit revenue since 2011, according to Harrison. “It’s imperative that we carry the momentum we built in 2019 forward,” he said. Current Executive Vice President of Planning and Strategy Shane Tackett, who will take over as CFO in March following Pedersen’s retirement, said Air Group expects to grow its capacity 3 to 4 percent on 2 percent cost growth in 2020 presuming Boeing’s 737 MAX aircraft are cleared to return to service mid-year. Alaska Airlines has not flown the MAX-series yet but is scheduled to receive 10 of the aircraft at some point this year, according to Tackett. He said Alaska Airlines also has the opportunity to replace 61 Airbus A319 and A320 aircraft with newer, larger and more efficient planes this year. Deciding whether Alaska will continue flying Airbus planes or make a return to a fleet comprised strictly of Boeing 737s is a primary operational objective for the year, according to Tackett. Alaska Airlines’ longstanding practice of only flying Boeing 737 aircraft prior to its purchase of Virgin America helped the airline generate efficiencies on multiple fronts. Elwood Brehmer can be reached at [email protected]

AIDEA modifies loan for struggling Mustang project

Alaska Industrial Development and Export Authority officials are trying yet another way to recoup their $70 million investment in a small and struggling North Slope oil project. The AIDEA board of directors unanimously approved a modification to the state-owned investment authority’s loan to Singapore-based Caracol Petroleum Jan. 16, which owns Brooks Range Petroleum Corp. and the Mustang oil project, in an effort to spur the requisite investment from Caracol’s shareholders to advance the project. The move comes after Caracol failed to make its first two $3.1 million quarterly payments to AIDEA on a $64 million loan to Caracol that the authority approved last May. The loan was a modification of AIDEA’s $70 million total investment made in two tranches in 2012 and 2014 in the holding companies set up for the Mustang project’s infrastructure development. The loan payments were due Oct. 1 and Jan. 1, according to AIDEA spokesman Karsten Rodvik. Brooks Range, which operates the field, began producing oil from Mustang in early November through temporary modular facilities after years of delays brought on by collapsed oil prices and other financing challenges. Majid Jourabchi, CEO of Brooks Range’s parent company Houston-based Thyssen Petroleum, said at the time that Brooks Range was producing about 620 barrels of oil per day from the North Tarn 1-A well. Alaska Oil and Gas Conservation Commission records show Brooks Range produced an average of 478 barrels of oil over 23 days from the well in November. However, records for December indicate Mustang did not produce oil during the month. The amended loan agreement calls for Caracol’s parent company, Singapore-based Alpha Energy Holdings to commit $60 million for project development by April 15. Alpha is also required to repay a $10.5 million allowance AIDEA made to the project last year when Brooks Range failed to meet development targets. In exchange, AIDEA agreed to relax the terms of the loan and push principal payments back while Alpha injects money directly into the project. The new loan terms call for 6 interest-only quarterly loan payments, followed by seven $1 million quarterly principal payments plus interest and then $4.5 million principal payments until the loan is repaid, according to the board resolution. The interest rate on the loan is also reduced from 8 percent to 6 percent. AIDEA board chair Dana Pruhs said in a formal statement that meeting the authority’s mission of advancing economic development in the state can sometimes be a challenge, as has been the case with Mustang. “With the increasingly favorable state business climate, together with oil price and tax stability, Brooks Range owners and creditors took another look at Mustang,” Pruhs said. “So here we go, and I hope the equity holders can obtain buy-in from the entire list of creditors.” At the time AIDEA made its first investment in Mustang, Brooks Range leaders said they hoped to start producing oil by 2015. Progress towards first oil slowed greatly when oil prices started falling in late 2014 and investment from AIDEA’s partners became hard to come by. By February 2016, management for the authority and Brooks Range agreed to put Mustang in “warm standby” as oil prices in the $30 per barrel range hampered the ability to secure other financing options. The Mustang field is adjacent to the southern portion of ConocoPhillips’ large Kuparuk River field and also near the Nanushuk oil project being developed by Oil Search. The field is estimated to hold about 22 million barrels of oil and could peak at production rates of about 12,000 barrels per day when fully developed. Making the new loan arrangement work will require Brooks Range other creditors making similar compromises over the coming weeks, according to a statement from the authority. New Brooks Range CEO Majid Jourabchi thanked AIDEA and the Dunleavy administration for prioritizing a fix to the Mustang situation in the authority’s statement. “Brooks Range and our contractors on the North Slope are completely aligned in what needs to be done, and the urgency to have it be so,” Jourabchi said. He could not be reached for further comment. AIDEA’s Rodvik wrote via email that the authority retains “options commonly available to a senior secured creditor” if Alpha-Caracol again fails to make good on its commitments. Elwood Brehmer can be reached at [email protected]

Reshaping report highlights few good options for ferry system

A much-anticipated draft report outlining ways the State of Alaska could overhaul its ferry system largely confirms what many stakeholders have long suspected: some combination of deep service cuts and fare hikes is the only way to drastically reduce the annual subsidy the system needs to operate. The draft Alaska Marine Highway System reshaping study released by the state Department of Transportation Jan. 15 concludes that full privatization of the system is not feasible because private entities could not generate the return needed to offset the inherent risks of taking over a complex network of large, aging vessels that must adhere to strict federal safety requirements. “The only buyer that might be willing to accept the assets would do so with the intent of reselling them for a profit (such as for scrap) rather than providing ferry service to AMHS communities,” the report states. At the same time, shifting management of the ferries to a single public corporation that would not require certain investment returns or profits is not likely to change the system’s near-term financial situation either. According to the report, providing ferry service at roughly 2018 levels would still require a $68 million state General Fund contribution that is 40 percent greater than the current budget combined with an overall 25 percent increase in fares over 2018 rates. Operationally, a move to a public corporation under the contemplated funding scenario would also necessitate system managers to focus on “day-boat” operations to reduce vessel staffing requirements and less service to small Southeast “feeder” communities. The ferry system currently operates as a sub-agency of the Department of Transportation. Former Gov. Bill Walker’s administration partnered with the nonprofit Southeast Conference on a two-year ferry reform study effort ending in early 2018 that recommended the system be shifted to a public corporation with a board of industry experts mirroring the Alaska Railroad Corp. Transforming from an agency to a public corporation would allow the ferry board to make long-term decisions — on major issues such as fleet size and composition and service levels — that would translate eventually into much more efficient system operations. The move would also help insulate the system from the annual budget debates it is subject to as a state agency, according to the first ferry reform study. Former Gov. Frank Murkowski, who Gov. Mike Dunleavy appointed to the Marine Transportation Advisory Board in August, is a strong supporter of the public corporation model. Murkowski established the board in 2003 through an administrative order. DOT Commissioner John MacKinnon generally dismissed the public corporation concept in a prior interview with the Journal, contending it would help with long-term planning but would not change the more immediate budget problems facing system officials. Changing the system’s operating structure in other ways, such as dividing it into multiple corporations, or local ferry authorities, or focusing service on the highest volume routes would also require a significant state subsidy above current levels in combination with some level of fare increase to maintain service, according to the report. MacKinnon said during a Jan. 15 Marine Transportation Advisory Board meeting that DOT and ferry leaders need to examine all aspects of the system, including labor contracts, in order to reduce its annual subsidy to a sustainable level. “We’re all working very hard to try and come up with a system that works well for everyone as best we can with the budget that’s there. We can sit back and point fingers and lay blame on all the things that have been done wrong in the past or we can learn from those mistakes; consider the current and the past service levels, demand, costs, the regional economic importance — all things to consider,” MacKinnon said, recognizing the sharp disagreements spawned by debates over the ferry system budget while the state is mired in $1 billion-plus annual deficits. The Dunleavy administration commissioned the report conducted by the Anchorage research firm Northern Economics last spring following an initial proposal to cut the system’s General Fund subsidy by $64 million, or 75 percent, from 2019 levels. That cut would have shut the system down in October based on the Dunleavy’s original budget plan. Administration officials eventually agreed to a $46 million General Fund budget for the ferry system after negotiating with legislative leaders who strongly objected to shutting down the system entirely without immediate alternative transportation services for impacted communities. MacKinnon has said he hopes the reshaping study will serve as a template for system reforms that can be approved by the Legislature this session and implemented over the next couple of years. Dunleavy has proposed a $50 million General Fund budget for the system in fiscal year 2021 to allow that process to play out without additional service disruptions. On Jan. 17, Dunleavy issued an administrative order to establish the nine-member Alaska Marine Highway Reshaping Work Group with the aim of reducing the cost of the system to the state. The working group will consist of one member from each of the state’s Marine, Aviation and Highway advisory boards; a ferry union representative; two legislators; and three public members. The governor is expected to announce the group members by mid-February and it will deliver recommendations to state officials by Sept. 30, according to a statement from DOT. In recent years, the ferries have been operated on a roughly $140 million to $150 million all-in budget that is mostly a combination of state funding and operating revenue. Formula-driven federal funds are used for ferry and port maintenance. Fare box revenue has provided for about 35 percent of the system’s overall budget of late, which most stakeholders acknowledge needs to be improved. Numerous legislators have said state officials should shoot for recovering at least 50 percent of the overall Alaska Marine Highway System budget from operations; that would be in line with historical rates prior to the mid-2000s when new vessels were added to the fleet service levels and correspondingly increased. Deputy DOT Commissioner Mary Siroky characterized the roughly 50 percent cut to the state portion of the system budget this year as being a reduction the Legislature settled on during the MTAB meeting. “That’s huge. That’s huge for any organization, any corporation, any business to sustain in a very short amount of time,” Siroky said. That budget resulted in many of the 35 communities the system serves going without service for months or all winter, as is the case with Prince William Sound communities. DOT on Jan. 21 published the first draft of the summer 2020 ferry schedule, which covers May through September. The proposed schedule is partially based on anticipated funding levels for the 2021 state fiscal year that begins July 1, according to DOT. A public comment period is set to end Feb. 3. The draft summer ferry schedule had been published in fall in prior years. Siroky’s recollection of how lawmakers arrived at the current ferry budget did not sit well with Southeast Republican Sen. Bert Stedman, who co-chairs the Senate Finance Committee and has long advocated for a strong ferry system. Stedman said it was disappointing to here Siroky try to “pass the blame” for the system’s current problems — that include a lack of funding for vessel repairs in addition to service cuts — to the Legislature. “The administration’s proposed budget for the current fiscal year would have stopped all service on Sept. 30, 2019,” Stedman said in a statement from his office. “This was an elimination budget that would have led to the system’s demise.” MTAB chair and Southeast Conference Executive Director Robert Venables said in a brief interview that he hoped to see the study analyze more “creative” ways to generate revenue while passengers are on the ferries, rather than simply focusing on fares increases for passenger and vehicle transport. Last spring DOT implemented a “dynamic pricing” system that increases ferry ticket rates as capacity is filled and a sailing date approaches. It’s unclear at this point exactly how much additional revenue has been generated by the change. Elwood Brehmer can be reached at [email protected]

From Alberta to Alpine, ‘The Beast’ is almost complete

With the help of an Alaska Native corporation and state logistics experts, ConocoPhillips is about to employ a piece of equipment on the North Slope that should be the envy of oil drillers everywhere. ConocoPhillips and Doyon Drilling Inc. are in the final stages of more than three years of work to employ Doyon’s Rig 26 on the North Slope. ConocoPhillips Alaska leaders have said that it would help transform oil development in Alaska since October 2016 when a contract between the companies to build the extended reach drilling rig was announced. That’s because Rig 26, a.k.a. “The Beast” inside the oil company, is simply bigger and more powerful than any other mobile land-based drilling rig on the continent, according to ConocoPhillips. The company says Rig 26 will be able drill up to 37,000 feet, or more than seven miles, out from the pad it sits on when it goes to work in a few months. Current North Slope rigs, which have advanced dramatically in recent years, have a maximum reach of about 22,000 feet, according to ConocoPhillips. Looked at another way, Rig 26 will have a reach of 154 square miles from a 14-acre drilling pad, compared to existing rigs that generally have a reach of about 55 square miles, according to ConocoPhillips. That extended reach will allow the producer to reach pockets of oil that previously would have required substantial new infrastructure from existing pads, reducing development costs and timelines. “In a nutshell, it’s more powerful. In terms of just the amount of pump power that it has and hoisting capacity that it has — just much more powerful than the other rigs and that’s what allows us to drill much longer depths of wells,” ConocoPhillips Rig 26 Project Director Paul McGrath said in an interview. “In terms of the rig itself, with it being brand new it also comes available with some of the latest and greatest technologies for rig automation to help us make the operation safer and also automate some of the more mundane tasks that go into constructing a well, too.” Rig 26 is approximately 9.5 million pounds and has four mud pumps each rated to 2,200 horsepower; pumps of that size are typically reserved for large offshore drilling rigs, McGrath said. He additionally noted that ConocoPhillips has invested in multi-fuel capability for Rig 26, meaning it will be able to burn a mix of processed field gas and diesel, and that also carries multiple benefits. “It’s got the potential to displace about 50 percent of the diesel required to operate the rig, which will be a big savings for us in terms of emissions as well as cost throughout the program,” McGrath said. It’s the rig’s ability to mitigate surface development footprints that spurred its development in the first place; not for cost or time, but rather for the environment. In 2015, ConocoPhillips agreed with the Alaska Department of Natural Resources to commission a rig that could pull oil from the Fiord West prospect in the company’s Alpine oil field without needing additional pads, roads and pipelines. Committing to the new drilling rig gave ConocoPhillips the opportunity to extend its leases for Fiord West. The oil underneath the Fiord West leases was no secret — Atlantic Richfield Co. discovered it in 1996 — but given its location under the environmentally sensitive Colville River delta, no one had been able to reach it economically and in an environmentally responsible manner. Enter Doyon Rig 26. The companies currently have the rig about 90 percent assembled at Doyon’s facilities in Deadhorse, ConocoPhillips spokeswoman Patty Sullivan wrote via email. McGrath characterized the many rig modules as going together “like a big Lego set,” that will be taken down only to be put together again. Once it is commissioned and tested at Deadhorse, it will be broken down and hauled, in pieces, 82 miles to the CD2 drill site where it will be reassembled and be ready to drill in April, according to Sullivan. From CD2 it will be able to access Fiord West. ConocoPhillips expects to eventually produce up to 20,000 barrels per day from the Fiord West oil pool. Company leaders say they have at least 10 years of work lined up for Rig 26, which could include drilling at some of the company’s numerous other North Slope oil projects. However, the work Rig 26 will be able to accomplish is only part of the story. Building it and getting it to the Slope was also an undertaking of Alaska-scale proportions. According to Doyon spokeswoman Sunny Guerin, the 3.5-year construction period for the rig was nearly twice the construction time needed for the company’s more traditional-sized North Slope rigs. With the aid of Lynden Transport, it also required approximately 270 tractor-trailer loads to get Rig 26 from its birthplace in Nisku, Alberta, a suburb of Edmonton, 2,400 miles north and west to Alaska’s Arctic coast. McGrath said traditional rigs require about 140 truckloads that also are individually smaller than the pieces of Rig 26. Aaron Schutt, CEO of Interior regional corporation Doyon Ltd., the drilling company’s parent, said in a statement for the Journal that managing the Rig 26 project has been the Doyon’s top priority since the contract was signed in 2016. “Doyon is very pleased to see the rig finally on Alaska’s North Slope and we look forward to it going to work in spring 2020. Doyon Drilling is a company that has made every effort to build a brand based on innovation and excellence in Arctic drilling and Rig 26 is a testament to our brand,” Schutt said with a nod to Doyon’s Canadian partners. “We are very proud of our employees and our relationship with our rig builder, NOV, for making a bold concept become a reality.” Doyon expects about 65 of its employees will be working on Rig 26 when it is deployed and additional help will be needed for support operations such as work camps, truck drivers and other needs, McGrath added. Elwood Brehmer can be reached at [email protected]

Oil regulators consider relief for new bond requirements

State regulators in charge of subsurface oversight of the oil and gas industry are giving a series of mostly small operators the opportunity to make their case for special treatment under recently strengthened financial assurance requirements. The Alaska Oil and Gas Conservation Commission on Jan. 16 heard Malamute Energy Inc.’s appeal to updated bonding requirements for entities holding active or unplugged wells in the state. The hearing for Malamute Energy was the fourth of nine reconsideration requests the three-member commission is scheduled to hear through Feb. 18. Last May, the commission, or AOGCC, approved regulations that greatly increased the bond amounts companies with wells are required to post. Former AOGCC chair Hollis French said the new bonding requirements were approved after nearly two years of work and it was one issue the commissioners all agreed needed to be addressed. When the minimum bonds were being considered, French and the other commissioners noted the amount the state requires well holders to hold for well plugging and abandonment costs hadn’t been updated for decades. They cited a 1991 Legislative Budget and Audit report that said the State of Alaska should update its minimum well bonding requirements then. At that time, the bonding requirements were $100,000 for one well and a minimum of $200,000 for multiple wells and a “statewide blanket bond,” which were the required amounts until the May 2019 change. The 1991 report concluded that an operator with a $200,000 bond then likely wouldn’t be able to cover plugging and abandonment costs. The new five-tier bond schedule requires those holding up to 10 wells to post $400,000 per well. Operators with between 11 and 40 wells must post a cumulative $6 million bond and the amounts gradually increase to $30 million for operators with more than 1,000 wells. Alaska’s largest fields, Prudhoe Bay and Kuparuk River, each contain more than 1,100 well bores. A handful of small operators, the Alaska Oil and Gas Association and individual leaseholders objected to a 23-tier bond schedule that was proposed during the revision process for being overly complex and excessive increases compared to what was long required. While the tiered bond schedule was simplified, the amounts required for operators with more than 10 or more wells were ultimately increased from the proposal vetted during public hearings in 2018. French said the effort to update the bond amounts was aimed particularly at small oil and gas companies after bankruptcies in the industry following the collapse of oil prices in 2014-15. “The small companies are exactly where the problem is,” he said, adding that he would be very skeptical of any attempt to reduce the bonds from the levels the commission settled on last year. Commissioner Dan Seamount, the lone commissioner left on the panel from when much of the bond revision work was done, said in an interview that the current hearings are not part of a plan to overhaul the new bond levels, but rather they are specific, one-off requests for exemptions from the regulations that he otherwise sees as a prudent step towards protecting the state from potentially expensive liabilities. “It has nothing to do with changing the regulations,” Seamount said, noting that the commission also has the authority to reduce or increase the requirements for operators on a case-by-case basis. “The operators that produce 99 percent of the production (in Alaska) are in compliance and we’ve gotten nine requests for reconsideration,” Seamount said. He added that two requests were for holders of geothermal wells, which the AOGCC regulates but are usually much cheaper to plug and abandon than oil and gas wells. Current AOGCC chair Jeremy Price said in a brief interview that state law says the financial requirements should be “reasonable” and he simply wants to give the companies a chance to make their case. Gov. Mike Dunleavy’s administration has sought to relax or repeal business and environmental regulations in many realms the state oversees, including the oil and gas industry. Price was Dunleavy’s deputy chief of staff before being appointed to the AOGCC by the governor last October. Malamute’s situation is rather unique in Alaska; company President Leonard Sojka said in his testimony to the commission that the company holds two wells in the federal Umiat Unit just inside the National Petroleum Reserve-Alaska and the Bureau of Land Management recently increased its bond requirement for the unit from $200,000 to $1.25 million. Malamute is to post the first $525,000 of that by early March, according to Sojka. The AOGCC bonding regulations required operators to post the first $500,000, or at least 25 percent of the difference between the old and new amounts, by mid-August 2019. A second, similar installment is due in August 2020. The regulations mandate that operators post the full amount by August 16, 2022. Sojka noted that the BLM bonds exceed the $800,000 Malamute is eventually required to hold for the state and said neither of the Umiat wells pose an environmental risk. He said he doesn’t object to the state bonds in concept, but called them “redundant.” According to Sojka, Malamute Energy was formed by a group of creditors to Linc Energy who took over the Australian company’s Alaska holdings after Linc went bankrupt in 2016. Linc drilled the two oil exploration wells in 2013 and 2014, but neither produced viable quantities of crude. An analysis found plugging and abandoning the wells would cost nearly $3 million, but Sojka said roughly two-thirds of that cost would be for ice roads and other costs to access the wells, as they were drilled during the winter and there is no gravel infrastructure available to access them year-round. He suggested the work could be done for much less than $3 million by utilizing new modular equipment flown in to a nearby airstrip if need be. However, Sojka said Malamute doesn’t expect to plug the wells at this point because it plans to continue exploring the area. BLM Alaska Oil and Gas Section Chief Rob Brumbaugh said the agency would only use the federal bonds if it were saddled with plugging and abandoning the suspended wells. “I honestly don’t know of any mechanism that makes it possible for the feds to go after the state money,” Brumbaugh said, adding that Hilcorp and ConocoPhillips are the only two other companies with duplicative bonds and they are large companies with the financial wherewithal to deal with them. Seamount said the AOGCC had not made a decision on Malamute’s situation as of Jan. 21 but stressed that “orphaned” wells are a serious problem in the Lower 48 and Canada that the commission wants to prevent in Alaska. “A lot of states have over 10,000 orphaned wells that have nobody to plug them,” Seamount said. He added that he’s considering sending a questionnaire to officials in other states and provinces inquiring about their bonding levels and if they feel their requirements are adequate. According to a 2019 report from the Interstate Oil and Gas Compact Commission, there are more than 56,000 documented orphan wells across the country — Alaska has 15 — and hundreds of thousands more undocumented wells are estimated to exist. The Alberta Liabilities Disclosure Project, a coalition of conservation groups, financiers and current and former oil and gas industry players contends provincial government data shows that the cost of cleaning up Alberta’s more than 300,000 problem wells is between $40 billion and $70 billion, while the government has published an $18.5 billion total cleanup cost. ^ Elwood Brehmer can be reached at [email protected]

Dunleavy to pitch Alaska mining at B.C. conference

Gov. Mike Dunleavy will be spending part of the first week of the legislative session in Canada to tout Alaska’s mining potential and hear from investors what the state can do to help grow the legacy industry. The governor will be attending the Association for Mineral Exploration Roundup conference in Vancouver Jan. 22-23, according to his spokesman Jeff Turner. Dunleavy’s commissioners of Natural Resources, Environmental Conservation and Fish and Game will accompany him on the trip as well. Turner said the governor would be in Juneau for the first day of the legislative session Jan. 21. In an interview Friday Dunleavy characterized the trip as a continuation of what he has been doing periodically through the first year-plus of his administration — meeting with key players in a host of industries to discuss investing in Alaska. “We want to highlight Alaska and be able to answer any questions investors may have about our regulatory regime and just make a pitch that Alaska’s got some tremendous opportunities because we’re trying to capitalize on our resource wealth and have it developed responsibly so we can create jobs for Alaskans and wealth and potentially revenue for local communities as well,” Dunleavy said. The conference will also give the governor and his cabinet officials a chance to clear up any misconceptions investors might have about Alaska’s mining industry and learn what under-the-radar impediments there might be to pursuing exploration projects in the state, he emphasized. “This visit for me and my team will show us what the perception (of Alaska) is for investors,” Dunleavy said. He compared it to going to the large CERAWeek oil and gas conference last March in Houston, where he and other administration officials were able to learn directly from industry players about their perception of Alaska. In recent years the state had sent geologists and economic development staff to the AME Roundup, but having the governor and three of his cabinet members attend the conference sends an important message about the state’s view of the mining industry, Alaska Miners Association Executive Director Deantha Crockett said. Former Gov. Sean Parnell was the last Alaska governor to attend the conference, she said. AME Roundup aims to pitch exploration projects in western provinces and states to regional mining investors. According to the conference website, it is attended by more than 6,500 people each year. According to industry analysts, there has been a resurgence in mining exploration in Alaska, with roughly $150 million spent on prospecting projects in the state the past two years. That is a sharp increase from the several years prior when just more than $50 million per year was spent searching for metals and minerals across Alaska. “There are lots of different mining conferences around the world but this is the one where companies are looking at where they are going to spend significant dollars exploring projects, which for us means new mining companies in the state of Alaska, new mining opportunities,” Crockett said. Dunleavy made his first public appearance the morning after his November 2018 election at the Alaska Miners Association trade show in Anchorage, which was also where he first proclaimed Alaska as being “open for business” under his leadership. Crockett described Dunleavy’s presence at the mining conference as a “huge deal” for an industry that regularly requires upwards of a billion dollars of investment to see a project through development. “To have the leader of our state say, ‘We want to make sure that you are comfortable making an investment decision in our state’ is a really big deal,” Crockett said. “Next week it’s a big deal, but it’s going to be a big deal for a long time after that.” The Alaska Miners Association is hosting an “Alaska Night” reception Jan. 22 in Vancouver to highlight exploration projects in the state to prospective investors that Dunleavy will be attending as well, according to Turner. Dunleavy added that the information he gathers in Vancouver should be helpful in policy discussions with federal officials. Dunleavy said he will be going back to Washington, D.C., in early February and he will taking what he learns at the conference back to the nation’s capital where he will continue to promote Alaska’s resources. He noted that a large graphite prospect near Nome and rare earth element prospects across the state could greatly help the U.S. reduce its dependence on other countries, namely China, for minerals critical to defense and clean energy technologies, among other uses. “We want to market ourselves as — this may sound strange — but as clean zinc and clean gold and clean rare earth (minerals); what that means is we want to produce these elements, these minerals, these metals in the safest way possible for the environment,” Dunleavy said. In addition to attending the mining conference, the governor will be meeting with British Columbia Premier John Horgan and Northwest Territories Premier Caroline Cochrane, he said, to hear their views in resource-related issues and discuss possible economic partnerships. Fish and Game Commissioner Doug Vincent-Lang is traveling to Vancouver specifically to discuss the concerns many Southeast Alaska commercial fishing and conservation groups have with British Columbia mining operations with the watersheds of large, “transboundary” rivers that flow from the province through Alaska, according to Dunleavy. The downstream impacts some Canadian mines could have on Alaska salmon fisheries has been one Alaska’s congressional delegation and former Gov. Bill Walker’s administration highlighted for years with British Columbia officials. Elwood Brehmer can be reached at [email protected]

2016 Medicaid reform bill generates huge savings

Gov. Mike Dunleavy’s administration has made cutting Medicaid spending one of its top priorities and state Health officials briefed lawmakers on the progress of reform initiatives approved in 2016 that, once fully implemented, have saved the state more than $160 million per year. Division of Health Care Services Director Renee Gayhart told members of the House Health and Social Services Committee during a Jan. 9 hearing in Anchorage that one of the simplest directives in Senate Bill 74, the 2016 Medicaid reform legislation, has already saved the state more than $210 million in less than four years. According to Gayhart, efforts to make sure Alaska Natives receive more Medicaid-reimbursed care at Tribal health facilities are on pace to save the state more than $100 million of general funds in fiscal year 2020 versus pre-SB 74 Medicaid spending levels. In early 2016, as SB 74 was being debated in the Legislature, the federal Centers for Medicare and Medicaid Services expanded what the federal government would fully reimburse to include services “received through” Indian Health Service Facilities and Tribal health organizations for Alaska Natives. Capturing the higher reimbursement rate requires care coordination agreements between Tribal and non-Tribal health organizations. While health costs for Alaska Natives are generally 100 percent covered by Indian Health Services, travel and other arrangements made through non-Tribal care providers had previously been covered half by the state and half by the feds. Gayhart said as soon as CMS changed its regulations in 2016 the state started to shift its internal procedures to maximize the capture of federal Medicaid funding. “In the beginning, we started out with, where are the high dollars going out of the Tribal system because they either just don’t provide those (services) or Medicaid beneficiaries are going to non-tribal settings,” Gayhart said. “Those were in high-dollar areas, residential psychiatric treatment centers, long-term care and transportation.” The state has since been meeting its savings targets set out in SB 74, she added, in large part because partnering with Tribal health facilities has been successful. According to Gayhart, the Department of Health and Social Services has signed roughly 1,700 care coordination agreements with Tribal health organizations and providers that allow health care services received by Alaska Natives at non-Tribal facilities to be 100 percent reimbursed by the federal government. She said some challenges with referrals and the electronic exchange of medical records between Tribal and non-Tribal facilities still exist. Also, the fact that Medicaid forms ask for a recipient to identify their race but do not require it can mean that Alaska Natives who do not identify themselves as such will have their care reimbursed at the general 50-50 state-federal rate, according to Gayhart. “We’ve done quite a bit of education with the Tribal health organizations and with the Medicaid beneficiaries through our Medicaid handbooks so we’re working on those,” she said. Still, those savings have grown substantially each year since the passage of SB 74. According to DHSS figures, Tribal health reclaiming efforts saved the state nearly $35 million in 2017 and those savings increased to $72 million in fiscal year 2019. Through the first half of 2020, the state has saved more than $57 million as a result of that work. “The fact that we’ve saved over $200 million to-date and we’re on track to save over $100 million in (general funds) this year for the State of Alaska is incredibly commendable,” said committee chair Rep. Ivy Spohnholz, D-Anchorage. Gayhart said a steady increase in the use of the state’s telehealth system, which allows providers to evaluate patients remotely, has also helped the state avoid costly Medicaid transportation bills for recipients that historically needed to travel to receive care. The long list of Medicaid reform directives in SB 74 and other initiatives combined to save the state more than $166 million in fiscal year 2019, according to the department’s annual Medicaid Reform Report. According to the Legislative Finance Division, overall spending on Medicaid in Alaska has increased from $1.7 billion to more than $2.3 billion since fiscal year 2015, but the state’s portion of that has actually gone down from $724 million in 2015 to $677 million, overall. According to DHSS, expenditures for the state’s telehealth system increased approximately 35 percent from 2016 to more than $6.8 million in 2019. More than 60 percent of the telehealth Medicaid claims have been for treating mental, behavioral health or neurodevelopment disorders, according to DHSS, which Gayhart said is not surprising. “As you see people discharged, say, from a higher level facility or in-patient care, as they go back home particularly to outlying areas, they can use telehealth with someone at an office in any of the hub areas or even in other states,” she said. “So that’s been a really good thing for behavioral health.” Spohnholz noted that utilizing telehealth is a way for Alaska patients to receive care from — sometimes out-of-state — providers who otherwise would not have the patient base to support a medical practice in sparsely populated areas of the state. “We’re now learning it actually isn’t a substandard level of care,” Spohnholz said of telehealth services. “For many people it is absolutely an appropriate level of care.” ^ Elwood Brehmer can be reached at [email protected]

Invoices reveal how federal grant was used on Roadless Rule work

How the Alaska Forest Association spent approximately $150,000 from a federal grant is under scrutiny after the money was used to help the state comment on the U.S. Department of Agriculture plan to repeal the “Roadless Rule” in the Tongass National Forest. The money was primarily spent on consultants and former State of Alaska foresters to study the opportunity for more old-growth timber harvests following the pending repeal of the oft-debated Roadless Rule in the Tongass, but thousands of dollars was also spent on travel, outfitting the hired help with computers and software, and a 12.5 percent administrative fee charged by the Alaska Forest Association, or AFA, according to invoices obtained through a public records request. On March 14, 2019, Alaska Division of Forestry officials approved a sole-source contract with AFA President Bert Burkhart for up to $250,000 funded through a repurposed federal wildfire assistance grant to analyze the volumes of economic old-growth harvests that would be made available under varying proposals for a Tongass-specific Roadless Rule. State officials said in interviews that they hired the industry trade group in part because years of state budget cuts and a severe 2019 Alaska fire season hampered their ability to do the work themselves. They also emphasized the work resulted in an economic resource evaluation and not policy recommendations. USDA officials on Oct. 15 announced the department’s preference to fully exempt the Tongass from the 2001 rule that prioritized conservation in the nation’s forests, a few days before the other options for an Alaska-specific Roadless Rule were released. In 2018, former Gov. Bill Walker requested the USDA and its Forest Service agency work with the state on exempting the Tongass from the rule — which largely prohibited new road building in undeveloped national forest lands — after numerous unsuccessful attempts through the courts to get the state exempted or the rule repealed entirely. A full exemption would open more of the 9.2 million acres currently classified as roadless in the nearly 17 million-acre Tongass to development activities, such as mining, logging, and energy development, all of which are made more economic with road access. The Roadless Rule exemption would only apply to the Tongass; the Chugach National Forest in Southcentral Alaska historically has not been used for large-scale timber harvests. Local and national conservation groups as well as several Southeast Tribal organizations have said the land-use policy reversal ignores the economic transformation that has occurred in Southeast Alaska over the nearly 20 years since the Roadless Rule was put in place. They contend fishing and tourism — industries boosted by intact wild lands — have largely filled the void left by the region’s dwindling timber industry. The money for the state’s contract with the AFA came via the Forest Service; it was part of a modified overall $5 million U.S. Forest Service grant to the State of Alaska. According to grant records, state Department of Natural Resources officials in August 2018 asked for $2 million to work on the Alaska-specific Roadless Rule in addition to $3 million requested earlier under a state fire assistance grant. Following congressional hearings on Tongass management and the Roadless Rule, Democrats Rep. Raúl Grijalva of Arizona and Sen. Debbie Stabenow of Michigan urged USDA Inspector General Phyllis Fong to investigate “the potential misuse” of the $2 million in a Nov. 18 letter to Fong. Grijalva chairs the House Natural Resources Committee and Stabenow is the ranking Democrat on the Senate Agriculture, Nutrition and Forestry Committee. Among other issues, the Grijalva and Stabenow question whether the state’s awarding of federal grant funds to the AFA, which supports a full repeal of the Roadless Rule, was appropriate given other Tongass stakeholders allegedly did not receive similar funding. They specifically asked the Inspector General’s Office to investigate whether using the $2 million on the Roadless Rule was appropriate for fire assistance grant program funding; whether any funding was available to other Tongass stakeholders; and if it is permissible for the a state to use Forest Service funds to help convince the USDA, of which the Forest Service is a subagency, to make a regulatory change requested by the state. The letter references a Sept. 24 Alaska Public Media news report that indicated at least some of the grant was used to offer input on the Forest Service’s work to develop an Alaska-specific Roadless Rule and not on fire suppression efforts. Gov. Mike Dunleavy issued a sharp rebuke to the federal lawmakers, arguing that “extreme environmentalists” distorted the facts of the situation to Congress in a Nov. 20 statement from his office. “The grant was appropriate and legal, all of the information anyone needs to reach the same conclusion is readily available to the public. I respectfully suggest Congressman Grijalva and Sen. Stabenow do their homework before asking a federal agency to conduct a costly, time-consuming and ultimately pointless investigation into a grant that will provide essential information about lifting the Roadless Rule,” Dunleavy said, adding that the potential repeal would help boost the region’s economy. Grijalva spokesman Adam Sarvana wrote in an email that the letter to Inspector General Fong came after USDA and Forest Service officials did not substantively reply to questions about the grant funding. Grijalva and Stabenow had not received a response to their investigation request as of Jan. 13, according to Sarvana. Contract costs Invoices from the AFA to the state Division of Forestry for the Roadless Rule analysis contract show Forestry Program Manager Jim Eleazer approved a request by AFA President Burkhart to wire a $100,000 advance to the industry trade group last March 28. Eleazer negotiated the contract with the AFA, according to DNR officials, and subsequently approved the related expenses on behalf of the state. Forestry Director Chris Maisch said in an interview the advance was meant to help the AFA jumpstart its work as the Forest Service was expected to publish draft Tongass Roadless Rule environmental impact statement, or EIS, July 1 when it was approved. As a cooperating agency on the Roadless Rule environmental review, the State of Alaska was privy to certain information prior to publication of the draft EIS. Maisch said it ended up being beneficial for his team that the draft Roadless Rule EIS wasn’t published until mid-October because state Forestry officials spent their summer consumed by dealing with Alaska’s severe wildfire season and did not have time to work on the state’s role in amending or repealing the Roadless Rule. The contract expires June 30, 2021. An invoice dated April 30 charged the state $41,990, of which $9,750 was billed for 78 hours of work by former Alaska state forester Jeffrey Hermanns at a rate of $125 per hour, according to the invoice. Another $1,898 was billed for Hermanns’ airfare, hotel and food expenses incurred while working under the AFA contract last March. The state was also charged a total of $1,800 for Hermanns’ travel time in March at a rate of $75 per hour, according to a bill from Hermanns to the AFA. According to the invoice and associated receipts, Hermanns also spent $8,456 on computer equipment and software, including two laptop computers, three IPads, a 32-inch computer monitor, two external hard drives and Microsoft Office, GIS and antivirus programs. Much of it was purchased at the Billings, Mont., Best Buy store, while other items were purchased online and shipped to the AFA office in Ketchikan. Hermanns is listed as a Billings-area forester in the State of Montana employee directory. He was formerly a forester with the State of Alaska in Tok from 2006 to 2016, according to a LinkedIn account, at which point he began work with the State of Montana. The state was charged $45,187 for Hermanns’ work time from March through July in addition to the equipment and travel expenses, according to the contract records. Overall, the state paid the AFA $143,110 during the period. DNR spokesman Dan Saddler wrote in response to emailed questions that approximately $150,000 has been billed to the AFA contract in total. Maisch said he doesn’t expect many additional charges, but more work could come up if the Forest Service makes significant changes to the final version of the Roadless Rule EIS. The overall bill also included $24,781 for work done by Southeast Alaska Resources in Ketchikan. While state business records do not list a firm incorporated under that name, business license records for individuals show an active business license for Clarence Clark of Ketchikan under the name Southeast Alaska Resources. Alaska’s employee directory does not list Clark as an active employee of the state, but numerous prior Alaska Department of Natural Resources publications reference Clark as a former manager of the state’s Southeast timber sale program. A bill from Hermanns to the AFA — passed on to the state — contains a “Forest Solutions” header, but Montana and Alaska business records do not show Hermanns as owning a business or holding an active business license in either state. According to online records, Hermanns most recently held an Alaska business license for Forest Solutions, a consulting business, that expired in December 2018. That license lists a Billings, Mont., address that matches the address on the materials Hermanns submitted to the AFA. Clark did not respond to requests for comment and Hermanns left a voicemail when returning a call from the Journal but did not return subsequent calls seeking comment about the work. AFA President Burkhart referred questions for a prior story on this issue to state DNR officials and did not respond to emailed questions. AFA Executive Director Owen Graham also declined to comment. The Roadless Rule contract records do not indicate he directly participated in the execution of the contract; Burkhart signed the original contract and is the association’s contact on related materials. Another $26,146 was billed for the combined work of three Pacific Northwest forestry consulting firms: Terra Verde Inc., Estes Timber LLC, and Cascade Appraisal Services Inc. A Terra Verde representative said he could not comment on the company’s work without prior consent from a client when contacted for a prior story. Burkhart’s employer, Local Manufacturing of Aberdeen Wash., also billed $6,723 to the April 30 invoice for “travel time and travel expenses.” Burkhart additionally charged $3,312 over several months for his time on the project. Finally, the Alaska Forest Association charged a 12.5 percent administration fee on all of the expenses incurred under the contract, regardless of their nature. The administrative fees totaled $15,903 through July, according to the invoices. A source with direct knowledge of the situation said that money was put into the nonprofit association’s general fund. The source also said Hermanns was made a temporary employee of the AFA for his work. Records accompanying the invoices for Hermanns show he electronically signed AFA time sheets on an “employee signature” line and Burkhart approved the logs. As for the computer equipment and software that Hermanns purchased and was reimbursed for, DNR’s Saddler wrote that the AFA retains ownership of it. He acknowledged that the appropriateness of spending public funds — ultimately federal money that passed through the state — on equipment that a state contractor would keep was something Forestry officials initially questioned, but the situation was approved after consultation with DNR procurement staff. Research results The analysis produced by the AFA and its consultants is dated Dec. 13 and was included in DNR’s comments on the draft EIS submitted to the Forest Service on Dec. 16. The AFA product is comprised of 10 pages of high-level written analysis and more than 50 pages of accompanying data tables and charts. The written analysis concludes that, “No matter the alternative selected in the Record of Decision for the ‘Rulemaking for Alaska Roadless Areas’ at least 82 out of every 100 acres of suitable old-growth forest within the Tongass National Forest will not be available to maintain the existing timber industry through transition (to completely young-growth harvests).” Forestry Service Director Maisch and timber advocates have frequently noted that even a full exemption from the Roadless Rule means only about 165,000 acres of additional old-growth timber stands will be available for harvest under the 2016 Tongass Land and Resource Management Plan, which must also be considered when drafting timber sales and aims to transition the industry to young-growth harvests from the forest over the coming years. That translates to an additional 149 million board feet of harvest volume with a full exemption — a 28 percent increase from current Roadless Rule management — over the next 15 years, according to the AFA. “It’s not this big timber play that I keep hearing about,” Maisch said, referencing claims by some opponents to the current process that vast areas of old-growth stands could be subject to logging by repealing the Roadless Rule. “It’s really not even 200,000 additional acres that get added in from a timber point of view; it’s really been the state’s position that this is about flexibility for communities in Southeast for a whole host of other reasons besides timber.” He added that there are “many, many steps that have to be gone through” likely over several years to also amend the Tongass Management Plan to allow for more logging. Staff shortages When asked why the Division of Forestry did not simply conduct the timber sale analysis itself and at least avoid the administrative and equipment expenses, director Maisch said cuts to the state budget back in fiscal year 2016 halved his full-time Southeast Forestry staff from eight to four and three of those individuals promptly left, anticipating further cuts. That meant many combined years of experience in Southeast forest management disappeared in addition to having less staff able to work on the Roadless Rule issue, according to Maisch. “We really had to rely on other resources to help us keep the Roadless project on track,” he said. Statewide, the Division of Forestry has turned to temporary employees and contracted with private groups to get its work done in recent years given its reduced in-house capacity, according to Maisch. “We use a lot of different ways to try to still keep the cars on the tracks, if you will, and that’s what we did with AFA. They were very knowledgeable about the (Tongass) forest plan, had been involved with this topic for many years and they had staff that had been involved with this topic,” he said, adding that Tongass management is a unique issue and related work is very difficult for people without specific experience with the forest to conduct efficiently. University of Alaska Fairbanks Emeritus Professor of Forest Ecology Glenn Juday largely concurred with Maisch when asked about the state’s ability to conduct the analysis itself. With less timber activity in the Tongass than in decades prior, Juday said the Forest Service and a small group of private contractors are likely the only entities with the background knowledge to effectively conduct the research done by the AFA through its contractors. “If you wanted an answer to the question: What would be the timber volume impacts of Option A, B, C and D on a landscape basis if you had these boundaries in it, if you had those boundaries in it — probably the most cost-effective route to go is to hire the expertise,” Juday said. Maisch also noted that by utilizing the AFA to administer the contract, at least some of the money would stay in Alaska, which is a regular goal for state officials when faced with these types of situations. He also said that state officials were cognizant of the “look” of awarding a no-bid contract to an industry trade group that strongly supports opening the Tongass to much more logging, but stressed that the analysis was strictly “presenting data.” “Appearances are always important but we also felt they were a nonprofit trade organization — admittedly a trade organization — but we had worked with many other groups in the process,” Maisch said, noting the state under Walker in 2018 put together a Roadless Rule advisory group that included stakeholders with the full range of forest management views. “We cast a pretty wide net to work with a wide variety of interests. In this case, I do get it, we were hiring these interests to do some work on our behalf but it was very specific work focused on the economic analysis. It was not providing us policy recommendations.” Elwood Brehmer can be reached at [email protected]

Former AGDC president makes pitch to retake reins of AK LNG Project

At a Jan. 9 meeting in Anchorage, the former leader of the roughly $40 billion Alaska LNG Project in Gov. Bill Walker’s administration made a last pitch to take it over again with private backers. Keith Meyer — who was president of the state-owned Alaska Gasline Development Corp. from early 2016 until being fired by the board of directors a year ago after Gov. Mike Dunleavy replaced several members — said the state’s current path virtually assures a long-sought North Slope gasline project won’t be built for at least another decade. Meyer insisted he put together a private group that could take over the Alaska LNG Project from the state and develop it without the need for any additional state funding but the move needs to be made quickly before Alaska is left out of the quickly evolving global LNG industry. “The state will not have to invest another dime in the project, but you cannot continue to drag your heels while the opportunity turns to dust. Waiting two or three years hoping someone will fund (final design) is not a strategy for success,” Meyer said. He made his comments during the public testimony portion of a monthly AGDC board meeting. Meyer highlighted AGDC’s achievements in attracting large potential financiers and Asian LNG customers — Korea Gas Corp., Tokyo Gas, PetroVietnam Gas Corp., and consortium of Chinese mega-corporations — to the project during his tenure with the state. The joint development agreement with the Chinese consortium was signed at a November 2017 trade summit in front of President Donald Trump and China President Xi Jinping. AGDC also initiated the Alaska LNG Project’s environmental impact statement with the Federal Energy Regulatory Commission in April 2017 with what was one of the largest and most comprehensive socioeconomic and engineering data packages ever assembled for review, agency officials said at the time. “We rose to a point of admiration in the global industry,” he said, thanking those who supported the Walker administration’s efforts on Alaska LNG. “Those accomplishments formed a strong business development foundation to move the project forward and build a new economic future for Alaska; an economic future with reduced energy costs and increased job opportunities.” However, he said, the Dunleavy administration’s decision to “systematically dismantle AGDC to cut expenses” has put the state at a significant disadvantage if the ultimate goal is truly to get the gasline built. This past July, Interim AGDC President Joe Dubler announced the corporation would cut its staff by 60 percent to reflect its reduced mission: focusing on finishing major Alaska LNG permitting with the Federal Energy Regulatory Commission without continuing the marketing or commercialization work that occurred under Meyer’s leadership. Under Dubler, AGDC has allowed nonbinding agreements with prospective customers and gas sales term sheet agreements with BP and ExxonMobil to expire. Dubler has said AGDC previously engaged customers prematurely and the state would look to privatize Alaska LNG once it received a favorable decision from FERC if the project was deemed economic after an ongoing review. Joey Merrick, a leader in Alaska’s construction trade unions and a former board member appointed by Walker, said he’s discouraged by what’s happened at the quasi-state agency over the past year. Merrick was one of several board members replaced by Dunleavy at the same time Meyer was fired. He noted that AGDC’s website has largely been scrubbed of any reference to the work done during under the Walker administration. “Everything that was done when I was here is removed; all the press releases, all the things that we did is no longer there. I don’t know why that would be,” Merrick said. “We made progress. The folks that were on the board when I was there — they know how close that we were.” AGDC’s “Newsroom” web page currently holds links to just three statements; the oldest being the Jan. 10, 2019, announcement of Meyer’s firing and the corresponding board changes. According to Meyer, he first tried to pitch his plan to a reshaped AGDC board of directors in March after he saw the agency start to “unwind” the work that he had led. That plan would transfer Alaska LNG Project information and control to Meyer and the undisclosed company backing him. Meyer’s group would then see the project through permitting by utilizing current AGDC staff on a contract basis to maintain the deep knowledge base on the work that has been done. If the decision is made to construct the megaproject, the state would get $100 million back from the group for its work, according to Meyer. His group would honor previous AGDC labor agreements to give Alaskans the first chance to work on the project and utilize union labor, he added. If the transfer were made immediately, natural gas could be flowing from the North Slope to Alaska communities a Southcentral liquefaction plant by 2028, he estimated. Overall, the state has spent $237 million on the project, according to Dubler. Meyer said board members refused to meet with him in March and the generalities of the proposal were relayed largely via email because the plan would be “politically inconvenient” for the Dunleavy administration, which has been highly critical of much of the work Meyer did on the project. Since leaving AGDC, Meyer made four trips to Asia on his own to keep the potential customers the corporation had been courting engaged, with a message of, “Please be patient. Please don’t give up on Alaska,” he said in an interview. “You have to appreciate the value of the momentum we had,” he said further, adding that AGDC was in the process of drafting firm customer contracts when the leadership change was made and commercial work was all-but stopped. According to Meyer, several of those customers have moved on and secured LNG supplies from other projects around the world but there is still significant interest in Alaska. He said there was financing available for the project roughly a year ago and there is still interest, but AGDC’s actions over the past year have made private investors skeptical that the state is truly interested in advancing the project. Meyer stressed that time is of the essence if the state does not want to wait many more years for another potential opportunity to monetize North Slope gas to come along. “If you miss the 2020s window, nobody is going to contract for five years or more,” he said, echoing a message that was common at AGDC during his tenure. “The global market is moving whether we’re moving or not.” Qilak LNG, a firm led by former Lt. Gov. Mead Treadwell, is trying to capture a portion of the growing global LNG market with a North Slope project as well. Announced in October, Qilak is proposing an offshore North Slope LNG plant and has an agreement with ExxonMobil to source gas from the producer’s Point Thomson field, which has also been seen as a source for approximately 25 percent of the gas that would feed Alaska LNG. AGDC board chair Doug Smith said the board has not vetted Meyer’s proposal but he knows the company backing Meyer is also working on a large LNG plant on the Gulf Coast, which amounts to competition for Alaska. Smith also questioned the appropriateness of handing the currently public project over on a sole-source basis to a company that wants exclusivity without going through a formal proposal process. That is going to come when AGDC has its approval from FERC to move ahead with construction. Meyer said he’d be happy to compete for the project in a traditional request for proposal, or RFP, process but it needs to be done now instead of June or later when FERC is scheduled to rule on the Alaska LNG Project environmental impact statement. The company backing him wants to remain confidential for the time being but “It’s a capable entity,” Meyer said. “The board liked them. They did not like my involvement.” Dubler said Meyer presents an opportunity for the state, but added that the AGDC board has shown “good restraint” in not moving on it at this point. “As a state corporation we can’t just hand something over,” Dubler said. Dubler and other Dunleavy administration officials have stressed that getting a favorable decision from FERC will greatly de-risk the project and help attract private investors that could take over the project. Meyer countered that the benefit of having FERC’s approval in-hand for investors has been overblown. While FERC is a highly technical agency, it has a prescribed process that everyone in the LNG industry is familiar with. “We had a project. We could easily move it to the private sector if that was the desire,” Meyer said. “What scares me a little is whether this board and this administration will be sincere in moving this project forward.” Elwood Brehmer can be reached at [email protected]

Army Corps of Engineers expands plan for Nome port

A broader look at the potential benefits of increased infrastructure has spurred the U.S. Army Corps of Engineers to grow plans for a bigger port in Nome. Utilizing authority approved by Congress in 2016, Corps of Engineers officials in Alaska released their new, $611 million proposal to overhaul the city-owned Port of Nome on Dec. 31, Alaska Chief of Civil Works Bruce Sexauer said. The plan, which would allow the remote Western Alaska port to accommodate larger tankers and cruise ships among other vessels, builds off of a $210 million proposal in early 2015 to expand the area of protected water in front of Nome and dredge the area for larger vessels. That design was generated in response to Shell’s oil exploration in the Chukchi Sea at the time. When Shell announced that it had come up empty and would cancel its offshore Arctic exploration work later that year, the corresponding plan to renovate Nome’s port to better handle oil and gas industry support vessels was scrapped as well. Without the prospect of long-term oil and gas activity in the region, the direct need for expanding the Port of Nome couldn’t be economically justified, Sexauer said. However, Congress responded in 2016 by growing the scope of potential benefits the Corps is permitted to evaluate when considering bolstering marine infrastructure in Alaska. The 2016 Water Resources Development Act, or WRDA bill, included a provision allowing Corps officials to consider the “viability of regions” when thinking about ports in Alaska, rather than strictly looking at a direct and immediate cost-benefit review for a given project. “We could look at the entire region around Nome with all the remote villages and how their viability may be positively affected by a deep-draft port, so that was the basis for this analysis,” Sexauer said in an interview. “It’s more of a regional assessment that Congress authorized us to utilize to justify the project.” The primary benefit to residents of Nome and outlying communities would be potentially lower-cost goods brought in by larger vessels. The latest draft Port of Nome Modification Feasibility Study contemplates several expansion options, but the plan recommended by the Corps calls for roughly doubling the length of the port’s existing west causeway to reach approximately 2,100 feet farther into Norton Sound with a nearly 1,400-foot breakwater to protect harbor entrance from incoming waves. The L-shaped barrier would also hold two new 450-foot and one new 600-foot dock to handle the larger vessels that have started calling on Nome, according to Sexauer. The existing east causeway-breakwater would be demolished and replaced with a larger, 3,900-foot causeway-breakwater that would greatly expand the port’s outer basin. Approximately three-quarters of the material from the existing east causeway would be used to build its replacement, according to the study. The bigger outer port basin would also be dredged deeper — from 22 feet currently to 28 feet — and the three new docks would be near the end of the longer west causeway-breakwater in an area dredged to at least 40 feet deep. The 2015 plan called for adding 2,150 feet to the existing west causeway and dredging the harbor entrance channel to a maximum depth of 28 feet. Members of Alaska’s congressional delegation, state lawmakers and Defense and Coast Guard leaders in the state for years have emphasized what they believe is a need for an Arctic deep-draft port in Western Alaska as shipping traffic through the Bering Strait increases as a result of the ever-receding sea ice. While not technically in Arctic waters, a renovated Port of Nome has been identified as the most practicable northern location for harboring emergency response, industry support and research vessels in Western Alaska. Nome Port Director Joy Baker said a team from the city has been actively working with the Corps on every aspect of the project; she estimated they’ve gone through about a dozen rough design iterations for the project over the past year. A primary goal for city officials is to relieve congestion at the port and generally make it easier for vessels of all sizes to utilize the facilities. “The depth is a big issue because we’ve only got 22 feet right now,” Baker said. Baker added that she expects more activity at the port from fishing fleets as populations of cod, Pollock and other species historically confined by water temperatures to the southern Bering Sea move north with warming water over the long term. More and more vessel companies from multiple industries are already using Nome for refueling and crew changes, she said. Sexauer said fuel companies have started using larger vessels that anchor outside of the current harbor and lighter fuel to smaller vessels for transport to Nome or nearby villages since the last port expansion was contemplated in 2015 and the new plan could get those operations into protected water. More and larger cruise ships have also started touring the Bering Strait and Arctic waters to the north and though the port wasn’t designed specifically for them, it would also provide more facilities for cruise vessels, Sexauer said. He also noted that while less winter sea ice has exposed the region’s coast to more damaging winter storms that have caused major erosion problems in coastal communities, the warming has also allowed for longer construction seasons. “There’s a greater need for raw materials and supplies and fuel to meet those needs of a longer construction season,” Sexauer said. If the draft port design is finalized with few modifications — a determination made by Army Corps of Engineers leaders in Washington, D.C. — it could be up for legislative authorization late this year when Congress is expected to consider the next WRDA bill, according to Sexauer. “We are working very yard to get this project approved in time for consideration in the next authorization bill,” he said. However, ultimately constructing the new infrastructure would be contingent upon Congress approving to spend the $340 million federal portion of the project in a separate appropriations bill. Baker said the city has conceptual plans to come up with its share of the project costs — roughly $270 million — that include public-private partnerships and federal grants but more solid financing plans can’t be made at least until the project is approved by Corps leaders. Though it’s just a draft at this point, Baker is confident this project will move forward this time because it almost has to, she said; there is no other place on the Western Alaska coast for large vessels to resupply or seek repairs. She also expects the oil industry to return to the region at some point. “There is demand for search and rescue and oil spill response in the Arctic. The traffic is increasing — there’s no question,” Baker said. “I think folks are starting to realize we need to protect the northern coast.” The Army Corps of Engineers Alaska District is accepting comments on the Nome port proposal until Jan. 30. ^ Elwood Brehmer can be reached at [email protected]

Schroeder pitches ANSEP model to reform education

The founder of a wildly successful program initially aimed at preparing Alaska Natives students for college insists there is no good reason the model couldn’t be expanded to help transform Alaska’s entire struggling education system. Herb Schroeder said the state simply needs the political will to dedicate resources to growing the Alaska Native Science and Engineering Program beyond what his team and their industry and charitable partners have already done. By his count, investing existing education funding into ANSEP-style learning for middle and high school students across Alaska would return a savings of about $25,000 per student to the state, Schroeder told a gathering of Anchorage Chamber of Commerce members Jan. 6. Started in 1995 at the University of Alaska Anchorage, ANSEP at its core focuses on sparking a student’s interest in science and engineering fields through active, hands-on learning exercises and challenges. According to the UAA, current enrollment and alumni of ANSEP total nearly 2,500 students. In practice, ANSEP leaders draw willing middle school students from schools across the state and enroll them intense, multi-week sessions, often in summer, that eventually help prepare them for future classes all the way up to the college level. Schroeder, an engineer, Ph.D. and vice provost of the program, said the first task many ANSEP middle school students tackle after arriving at the UAA campus is building a top-end personal computer. “The thing about the computer is it’s kind of scary when you start and that’s what we want. We want to present the students with something that’s real intimidating and maybe they think that, ‘I can’t do this,’ and then there’s this sense of exhilaration at the end and they go, ‘Whoa, I want to do something else so I can have that same feeling again,’” Schroeder described. “We’re looking for that moment when they realize, ‘Wow, this is what I want to do. This is so cool.’” ANSEP started as a way to prepare Alaska Native students for engineering degrees but Schroeder said the model could be used to support students interested in all degrees and fields of work. ANSEP recently opened high school Acceleration academies in Anchorage and Palmer that take students from 8th grade to a bachelor’s degree in six years instead of the eight years that the education system is designed for. By giving the students the tools to gain college credits at the academies they are able to graduate with a degree two years earlier and in the process save the state approximately $25,000 per student; and it can save families up to $50,000 by avoiding two years of tuition, books, and room and board, according to Schroeder. “You get this thing up to scale and you’re talking about for 100 students, $2.5 million in savings to the state; for 1,000 students, you’re talking about $25 million, so the more you grow this the more you save,” he said, adding that the back-end savings can be reinvested in earlier grades to help inspire more students to care about their education. Beyond the dollar benefits, it could provide the state with a more educated workforce, he emphasized. A fundamental goal of the program from its early days has been to have students proficient in basic algebra by the time they leave 8th grade, which Gov. Mike Dunleavy has said is one of his priorities for the state’s K-12 system. Studies commissioned by the University of Alaska have found between 50 percent and 60 percent of Alaska high school graduates that enroll in the university still need remedial coursework to truly get them ready for college-level classes even if they have taken the requisite classes, which university officials contend is a large reason the UA colleges have less-than-desirable graduation rates; taking remedial classes adds cost and time to their college timelines. By better preparing the students for college, Schroeder said, the ANSEP model improves outcomes at the college level as well. ANSEP currently relies on partnerships primarily with federal agencies, large companies and donations from charitable organizations for about 80 percent of its funding, according to Schroeder. With more secure base funding from the state, he envisions a system of Acceleration academies across the state in hub communities that also have University of Alaska campuses. “There’s absolutely no reason we can’t do this for every single kid in the state,” he said. “We just need to have the political will to make the transformation and provide the resources so that we can do what we set out to do.” Legislators that attended the talk expressed immediate interest in finding ways to help expand ANSEP, Schroeder said in a brief interview. Allowing the state base student allocation, or BSA, to be used for ANSEP would be one way to channel existing K-12 funding to the program, he added, though he has not discussed growing ANSEP directly with Department of Education and Early Development officials. A spokeswoman for the department said Education Commissioner Michael Johnson is travelling and couldn’t be reached for comment in time for this story. Elwood Brehmer can be reached at [email protected]

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