Elwood Brehmer

UA prioritizes its way through budget cuts

University of Alaska leaders are trying to minimize the impact of budget cuts on the new school year while at the same time remodeling operations to make institutions statewide more efficient. In raw numbers, the UA System absorbed a $26.3 million cut from the Legislature to its unallocated General Fund appropriation, according to the operating budget approved by the Board of Regents. However, the actual cut is closer to $31.4 million, UA officials say, when unfunded fixed cost increases, such as pay raises for union employees are included. Most union faculty and staff throughout the system received 2 percent pay increases July 1, the beginning of the 2016 state fiscal year. Direct state appropriations account for about 40 percent of the overall system budget each year. The overall budget is $920.6 million for the current fiscal year, $355.7 million of which came from unrestricted General Fund dollars. Statewide Programs and Services took the largest hit percentage-wise with a $4.9 million cut from a 2015 fiscal year appropriation of $28.3 million, UA Vice President of University Relations Carla Beam said. Beam also serves as president for the UA Foundation. The statewide offices are making ends meet through program cuts, furloughs and direct staff reductions, according to Beam. Staff reductions totaled 17 positions statewide from a count of about 240 employees. UA senior leaders and administrators will be furloughed for seven to 10 days, while non-union faculty, such as deans and heads of university institutes will take five days of unpaid leave this fiscal year. Savings were identified from a 90-day hiring delay. “As we curtailed spending in fiscal year 2015, we were able to keep over some funds that are also helping fill the gap,” Beam said. She noted that the university system is not allowed to carry over general funds, but other revenues can be banked when available. Other service and support reductions include terminating a contract with a Washington, D.C., firm that aided in federal relations. Beam said that will now be done in-house. The fact that the cuts this year are not a surprise — growth in state UA appropriations slowed in 2013, funds peaked in 2014 and have fallen the past two budget years — has helped somewhat in preparing the mindsets for tough times, according to Beam. It’s understood that tighter budgets will be the norm for the foreseeable future, she said, which is a mantra carried at the three major campuses as well. “Just like the three universities are doing, we’re really trying to balance our near-term need to cut with preserving opportunities in the long term,” Beam said. “Looking at what can we cut so we can reallocated funds to things that might provide long-term benefits, either in cost reduction or revenue generation.” UA Fairbanks Research costs money, and Alaska’s primary research institution, the University of Alaska Fairbanks, receives the largest share of state funding, despite having a significantly smaller student body than the Anchorage campus. UAF’s portion of the overall state budget cut is $13.1 million from its $179.2 million base 2015 appropriation. This fiscal year is the third-straight year of state funding reductions at UAF. The actual gap is closer to $20 million when university-specific fixed costs, debt service and pay increases are factored in, according to a UAF budget report. “UAF-wide, spending reductions in (fiscal year 2016) will amount to approximately 11 percent of state revenue and more than 7 percent of all unrestricted funds, which includes tuition, indirect cost recovery for sponsored activities and other external funding sources,” according to the report. University executives will take furloughs and support and administrative service departments will take deeper cuts than academic wings of UAF to minimize direct impacts to students. Over two years, spring 2013 to spring 2015, UAF’s total employee headcount has fallen by 205 positions, nearly 5 percent of faculty and staff. Regular employees may be asked to work reduced contracts, for example, working 11 months per year, to save cash in the future. The measure is being implemented to some degree at the Anchorage and Southeast campuses as well. Academic units under the provost were targeted for the smallest percentage cut of General Fund revenues at 11.4 percent. Rural, Community and Native Education was pegged for an 11.7 percent General Fund reduction and UAF’s 40-plus research centers and institutes absorbed a 13.3 percent General Fund hit. The chancellor’s office took the largest percentage cut at 17.3 percent. UA Anchorage The University of Alaska Anchorage is facing a $13 million shortfall from a base 2015 fiscal appropriation of $133.3 million. “We’re doing everything we can to minimize the impact on our students,” UAA spokeswoman Sarah Henning said. Students should expect longer waits for administrative procedures such as processing paperwork, she said, but UAA is also trying to give students a heads-up where services are reduced or slowed. While more than 200 positions have been affected by the university’s fiscal plan, only 17 employees were laid off, according to a university release. UAA’s satellite campuses in Kodiak, Kenai, Palmer-Wasilla and Valdez collectively took a $1 million hit. Academic departments in Anchorage will manage a $3.4 million shortfall, while support services at the main campus are facing an $8.6 million cut. Significant indeed, but Henning said the university is grateful the cuts are not as great as some of the numbers that were discussed through the legislative session. Each department was given a budget number to try to reach and staff was tasked with finding their own ways to reach the goal. Those recommendations were then rolled into the fiscal plan, according to Henning. Additionally, UAA is canceling nearly 40 degree programs from certificates to master’s degrees and reworking dozens more as part of a prioritization effort started in 2013, long before the budget cuts of today were envisioned. Henning said many of the programs were simply outdated and no longer fit UAA’s mission. “Through prioritization, some of the changes we’re making are good ones regardless of the fiscal environment,” she said. Henning noted that uncertain economic times in Alaska could push more people to further their education, and UAA is still ready to meet new demand, she said. A new Doctorate of Nursing Practice program opened this year, the first doctorate offered specifically through the university, according to a UAA release. “I want to reassure you that UAA remains a vibrant and resilient university,” Chancellor Tom Case said in a formal statement. “Our commitment to our students and employees — as well as to our incredible state — remains optimistic and forward-looking.” UA Southeast The smallest of the main three institutions, the University of Alaska Southeast, is absorbing a $2.3 million budget gap — 7.9 percent — on a $28.8 million state revenue base in 2015. As a result, UAS was forced to eliminate 21 funded positions in fiscal year 2016, according to a university budget report. Like the larger schools to the north, Southeast is also saving through reduced full-time contracts — keeping less IT support during the summer, for example, Vice Chancellor of Administration and IT Services Michael Ciri said. “Given the fact that between 60-80 percent of your budget, depending on how you count it, is staff costs, you really can’t get there without tackling the staffing side of the budget,” Ciri said. Staff vacancies were shifted to non-essential positions as much as possible through promotions, he added. In recent years UAS has sold buildings, reduced IT funding and continues to strive to be more energy efficient, efforts to defray fixed overhead costs. “There’s been a huge emphasis to reduce our energy consumption, which hasn’t necessarily reduced costs, but if we were still consuming energy now at the rate we were in 2008 it would be costing us about $350,000 more a year,” Ciri said. Still, like its much larger siblings to the north, UAS is eliminating programs. Among those is the school’s MBA. UAS Live!, course delivery via broadcast television, is being cut due to staffing reductions. Some required fixed costs make it more difficult for a smaller institution to absorb budget cuts, but Ciri said being able to adapt quickly because of its size has helped UAS through challenging budget times, now and before. “We’ve been able to do some innovative things at UAS in large part because we’ve been able to be very fast moving,” he said. “Thus far, I would say that our smaller size has helped more than it’s hindered.” Elwood Brehmer can be reached at [email protected]

Port biz bustles around stalled expansion

Business is bustling at the Port of Anchorage around the remnants of a $300 million mistake. Fuel distributor Delta Western Inc. is building a 360,000-barrel storage facility, which will push petroleum storage capacity to more than 3 million barrels at the port. Across the yard, Alaska Basic Industries Inc., which owns Anchorage Sand and Gravel, is working on a $14 million facility that will triple its cement storage at the port. Alaska Basic Industries President Dale Mormon said the new capacity should ensure most of the state has a reliable cement supply year-round. The basic building block cannot be shipped in winter and Alaska Basic Industries supplies all of mainland Alaska, he said. The Flint Hills Resources mothballing of its North Pole oil refinery last year was a headache for the Interior and meant lost freight revenue for the Alaska Railroad, but ultimately benefitted the Anchorage port. The jet fuel produced at the refinery was hauled south by rail and supplied much of the demand at Ted Stevens Anchorage International Airport. With that supply gone, jet fuel for one of the busiest cargo hubs on Earth must be imported by tanker. In 2013, 4.2 million barrels of petroleum products moved across the Port of Anchorage; last year the fuel business grew to 6.7 million barrels, according to a port release. Overall, roughly 90 percent of the goods entering mainland Alaska come across the docks in Anchorage. Port Director Steve Ribuffo said the uninterrupted day-to-day business at the port has been overshadowed by the major construction project that went wrong years ago. He wants to the Port of Anchorage Intermodal Expansion Project in the rear view. “The port that everyone loves to criticize is the Intermodal Expansion port,” Ribuffo said. “There’s been very little acknowledgement that’s been made that we came to a conclusion a little over two years ago that we’ve got plenty of port to support the population of the state for many, many years to come.” Projections for cargo growth in the 1999 port master plan, which was the basis for growing business capacity with the expansion project that began in 2003, simply haven’t materialized. The master plan forecasted gross tonnage at the port nearing 4.5 million tons by 2015. In actuality, business has fluctuated between 3.4 million tons and 3.7 million tons since 2012. Ribuffo said overall state population projections have flattened, which means demand for bulk commodities should follow. He noted that today the docks are regularly occupied only two days per week, Sunday and Tuesday, when regular freight service calls from Totem Ocean Trailer Express Inc. and Matson, formerly Horizon Lines. The Municipality of Anchorage, which owns the port, unveiled the Anchorage Port Modernization Project plan last November. Pegged at $485 million, it will replace the existing terminals and add another fuel berth. The U.S. Maritime Administration, or MARAD, led the previous iteration of the Port of Anchorage Intermodal Expansion Project for nine years. The municipality cut ties with MARAD in 2012 after major construction damage was discovered. No significant work has been done to Alaska’s largest marine hub since 2010. MARAD expended more than $300 million of the $439 million spent on the expansion project by the feds, State of Alaska and the port itself. There is $127 million left, which should pay for Phase 1 of the four-phase project — relocating the port administration building and adding a new point of loading dock at the southern end of the port — according to port engineer Todd Cowles. That leaves nearly $360 million for the municipality to round up in the coming years. Anchorage Mayor Ethan Berkowitz told the Journal that finishing Phase 1 is his main priority at the port, and getting that done by 2018 is the current goal. Cowles said the cargo terminal docks need to be replaced at some point, preferably sooner than later. The port has been repairing the most corroded support piles at the 54 year-old port under the main dock face since 2005, starting at about 20 per year, he said. Once the expansion project ground to a halt the number of patch sleeves installed was upped to about 100 per year, at the cost of $2 million to $3 million per year. To date, about 470 of the 1,400 steel piles have been sleeved, which is a temporary fix that does not significantly improve the fading seismic capability of the port infrastructure. “Our projection is these sleeves won’t last more than 20 years,” Cowles said. The piles under the new dock will be a combination of steel and concrete designed for a 75-year working life. The forces of nature will have to eat through a layer of concrete up to 3 inches thick before reaching the load-bearing steel pile, he said. “Over the total life cycle you have a very robust and resilient design,” Cowles said. They will be driven approximately 150 feet through tide mud to the firm glacial till. “It becomes really a reinforced concrete structure sitting on the steel going down to the bed layer,” he said. In the meantime, critical environmental permits must be reacquired as most have expired since the expansion project was terminated. The most significant permit is an incidental harassment permit for driving piles near endangered Cook Inlet Beluga whales, Cowles said. A construction team led by Kiewit Corp. is tentatively scheduled to drive test piles next spring to gather data on how the whales react to the noise, according to Cowles. The expansion project included whale-spotting towers and installation of the sheet piles was immediately stopped when the belugas approached the project. Cowles said the Alaska Department of Transportation and Public Facilities has expressed interest in the data collected by the trial pile driving for other coastal projects across the state. Elwood Brehmer can be reached at [email protected]

Senators push against wetlands requirements at field hearing

WASILLA — With Congress on its annual August recess, Alaska’s senators took the opportunity Aug. 17 to commiserate with Alaskans troubled by federal wetlands regulations and grill the federal officials tasked with implementing the requirements at a Senate field hearing in Wasilla. Invited testimony during the first hearing panel was heard from mining and construction industry representatives, North Slope region Alaska Native corporations and the State of Alaska through Department of Natural Resources Deputy Commissioner Ed Fogels. A second panel comprised of Alaska-based federal land and environment management officials heard the senators’ frustrations. Sen. Lisa Murkowski, chair of the Senate Energy and Natural Resources Committee, said the purpose of the hearing was to examine the regulatory practices that “impact and often delay and prevent development in our state.” Murkowski also noted the oft-cited statistic that roughly half of Alaska is deemed wetlands by the federal government and that the U.S. Bureau of Land Management oversees 72 million acres of Alaska. “The federal government is in many ways both a gatekeeper and a landlord here in Alaska,” Murkowski said. Sen. Dan Sullivan, who chairs the Senate Subcommittee on Fisheries, Water and Wildlife, drove home the theme that all federal regulations must be based in statute or the U.S. Constitution throughout the hearing. “Many agencies forget or even ignore this bedrock principle of the rule of law,” he said. Sullivan is a former Alaska attorney general and Department of Natural Resources commissioner under former Gov. Sean Parnell. He said compensatory wetlands mitigation requirements dictated by the U.S. Army Corps of Engineers and the Environmental Protection Agency can seem arbitrary and punitive, particularly when applied on private and state land. Dredging and filling of wetlands under federal jurisdiction is strictly regulated by the EPA through Section 404 of the Clean Water Act. If wetlands adjacent to navigable waterways are to be disrupted by a development project, some sort of compensatory mitigation must occur as a reaction to offset the original loss of wetlands. Compensatory mitigation can be achieved through direct restoration, enhancement or preservation of other onsite wetlands by the 404 permittee. A mitigation bank, or offsite wetlands improvement or preservation area can also be established to compensate for future development in wetlands. Finally, an in-lieu fee program, in which the permittee pays a third party to handle its compensatory mitigation responsibilities, can be used. The type of mitigation is typically left up to the permittee or developer. However, the amount of wetlands that must be mitigated, or the cost to an in-lieu fee program, is dictated by the federal agencies and can vary depending on the determined ecological value of the disrupted area. Kuukpik Corp. Vice President Joseph Nukapigak testified that the EPA required 292 acres of Kuukpik property be set aside in permanent conservation status as compensation for construction of a 5.8-mile road from the North Slope village of Nuiqsut proposed in 2013. Negotiations with the agency ultimately led to 127 acres being set aside for a project with a 51-acre footprint, he said. Kuukpik’s other option was to pay $1.8 million for offsite mitigation, according to Nukapigak. Kuukpik Corp. is the Native village corporation for Nuiqsut. Nukapigak testified that there is an “inherent conflict” between the Alaska Native Claims Settlement Act, which awarded Kuukpik its land, and the Clean Water Act, which demands the same land be set aside through a conservation easement. He proposed Alaska Native corporations be exempted from Clean Water Act requirements when a project is on Native corporation land. “The power to require payment and other concession on what occurs on private and state lands effectively grants federal agencies the ability to zone the whole state and that should concern all of us,” Sullivan said. “A dollar spent on mitigation is a dollar not spent building Alaska.” Sullivan requested the BLM, Corps, and EPA officials to each provide the statute that gives their respective agencies the authority to calculate and mandate mitigation fees and requirements. Murkowski likened unchecked fee requirements for in-lieu fee mitigation to extortion. At the same time, the Native Village of Nuiqsut Tribal government complained in an Aug. 14 release that it was left out of the hearing, despite holding the responsibility of protecting subsistence resources for the community. “(Native Village of Nuiqsut) supports mitigation requirements that protect natural and cultural resources, and routinely provides comments and position statements with respect to industrial activities as well as land management proposals and decisions,” the release stated. “Native corporations, in contrast are structured to maximize profits to Native shareholders.” Nuiqsut Village President Sam Kunaknana was part of a group of plaintiffs in an unsuccessful lawsuit filed in 2013 against ConocoPhillips’ for its nearby CD-5 oil development. Kuukpik and Arctic Slope Regional Corp. sided with ConocoPhillips in the matter. Army Corps of Engineers Regulatory Division Chief for Alaska David Hobbie testified that the goal of the Corps, which oversees 404 permits for the EPA, is to “ensure no net loss of wetlands function and values, while remaining as flexible as possible to allow reasonable and sustainable development.” In the 2015 federal fiscal year, the Corps has granted 431 wetlands permits in Alaska, according to Hobbie. Of those, approximately 6 percent required compensatory mitigation. Murkowski said that nearly half of the wetlands in the Lower 48 have been filled over the past 200 years, while less than 0.1 percent of Alaska’s wetlands have been lost over that time. “Our consideration (in Alaska) should simply be different from those in the Lower 48 and yet Alaska is again categorically analyzed through the lense of national and regional portfolios,” she said. Fogels, of DNR, said duplicative requirements often slow and complicate development project permitting. “Federal regulators, especially the BLM, need to increase coordination and transparency in permitting,” Fogels testified. “This is especially important in the area of mitigation for the impacts of permitted projects, where overlapping federal authorities are burdening applicants and delaying progress on critical state and private projects.” He said federal cooperation through project permitting is inconsistent. Sullivan encouraged the BLM and the Corps to institute a program similar to the Alaska DNR Office of Project Management and Permitting, which helps environmental permit applicants navigate the process. The permit applicant pays for DNR staff time dedicated to their project. Hobbie said the Alaska Department of Environmental Conservation sits on an inter-agency review team and regularly comments on wetlands permit applications in the state being reviewed by the Corps. The state and the Corps should be “co-regulators,” Sullivan said, for projects on private and state lands. Elwood Brehmer can be reached at [email protected]

GOP cites constitutional question in lawsuit vs. Gov. Walker

The fight over expanding Medicaid between Gov. Bill Walker and Republican legislators has gone from the Capitol to the Anchorage Legislative Information Office and is now headed for a courtroom. The Republican-heavy joint Legislative Council voted 10-1 Aug. 18 to sue Walker over his use of executive authority to accept federal funds to expand the state Medicaid program. Minority Democrat Rep. Sam Kito of Juneau was the only dissenting vote. Senate Majority Leader John Coghill, R-Fairbanks, said the attorney fees would be split between the House, Senate and Legislative Council budgets. Walker announced July 16 that he would accept $148.6 million from the federal government for Medicaid expansion beginning Sept. 1, the end of a mandatory 45-day waiting period. It is possible the majority’s push for an injunction to halt the expansion process could be heard as early as Aug. 24, Coghill said. “We’ve kind of been put in a position where you either defend the integrity of the Legislature or not defend it,” he said. Accepting and spending money by the State of Alaska typically requires the Legislature’s approval. However, because this Medicaid funding is federal dollars and does not involve the general fund, it could be done administratively. The legislators contend that expanding Medicaid coverage to a group of previously uncovered individuals qualifies as adding a new, optional group, which would require the Legislature’s approval. Also approved was spending $450,000 to secure legal counsel from the Washington, D.C.-based law firm of Bancroft LLC and the Anchorage firm of Holmes, Weedle and Barcott.  “I’m just really disappointed,” a visibly frustrated Walker said during a press briefing after the Legislative Council vote. “I cannot understand, I cannot fathom to understand why suing to take away health care coverage of working Alaskans is a partisan issue. I don’t have a clue as to why they’ve done that.” Growing the low-income health care program will make about 42,000 uninsured residents eligible for coverage; about 20,000 are expected to sign up in the first year. Newly eligible for Medicaid under the program will be adults without dependents who make less than 138 percent of the federal poverty level; for single individuals that is $20,314 per year and for married couples it’s $27,490 annually. House Speaker Mike Chenault, R-Nikiski, said he understands the governor’s frustration, but that Walker exceeded his authority when he moved to start a new state Medicaid program. “We as the Legislature have the authority to pass laws and set state policy and we feel that this time the Legislature has been left out of that policymaking decision, and out of that process, and this is the constitutional way that we are allowed to uphold the powers that the Legislature has,” Chenault said. “The legislative process is working. Government was never intended to be fast. Normally when legislation moves through quickly, that’s when we find we have the most problems.” Walker said he is confident in his position and that Alaska governors have accepted outside money this way seven other times. He did not directly address the potential legal issue of establishing a new program without legislative approval. Ultimately, the state will likely spend about $1 million in the fight after his administration hires outside counsel because of cuts to the Department of Law, Walker said. Kito said in a formal statement that the decision to sue the governor will cost the state money and up to 4,000 jobs that could be associated with adding money to the state’s health care system. “I am very disappointed with the Legislative Council vote to hire outside counsel to pursue a lawsuit against our governor, challenging his action in accepting Medicaid expansion,” Kito said. “The governor’s attorney general and the legislative legal department have both prepared legal opinions indicating that the governor, under existing state law and our Constitution, has the ability to accept Medicaid expansion under the Affordable Care Act.” Rep. Andy Josephson, D-Anchorage, said U.S. Supreme Court rulings made accepting the federal money optional, not providing care to the expansion population once the money is taken, and therefore the governor is not accepting optional funds for a new program. Alaska state Medicaid law encompasses those groups required to be covered by the federal statute and an additional 15 groups that are eligible. State law requires any new groups to be approved by the Legislature, but Attorney General Craig Richards has asserted that the expanded eligibility for Medicaid under the Affordable Care Act falls under the federal “required” group. Under that interpretation, the only thing struck down by the U.S. Supreme Court was the enforcement mechanism allowing the federal government to withhold Medicaid funds from states that refused to expand their coverage. Republicans skeptical about expanding Medicaid, one of the largest line items in the state budget at about $1.5 billion per year, have long said the current system must be reformed to save money before federal expansion money is accepted. The governor said that he had been encouraged by recent conversations he has had with Legislative Budget and Audit Committee chair Rep. Mike Hawker, R-Anchorage, on reforming the Medicaid program. “We began working on (Medicaid) reform on Dec. 1, 2014, when we were sworn in,” Walker said. Both sides insist there is still a good working relationship between Walker and Republican leaders despite the current situation and battles on other matters. Walker, who included Medicaid legislation in a special legislative session he called in late April, said all he has ever asked for is a vote by the Legislature. Chenault said repeatedly that the Legislature and the administration each hired expert consultants to make recommendations on how to restructure the Medicaid program. Legislators need that information before making a decision, he said. Coghill said the Medicaid legislation was tough to handle during the special session on top of trying to close budget negotiations “in a very austere year.” Health and Social Services Commissioner Valerie Davidson has said more Medicaid money would also save the state $6.6 million this year and more than $100 million over the next six years by using federal funds to foot the bill for things the state is currently paying for. The state would not have to contribute this fiscal year, which ends next June 30, but contributions would begin in fiscal year 2017 and by 2021, the state would be required to put up a 10 percent match on any federal Medicaid expansion dollars, which would be about $20 million, according to Health Department projections. Senate President Kevin Meyer, R-Anchorage, noted that cost projections have exceeded projections in a number of the 29 states that have accepted Medicaid expansion. A $145 million line item for federal receipts to expand Medicaid included in Walker’s operating budget proposal was cut out by the Legislature during the budget process, and a bill to expand Medicaid introduced by Walker did not make it out of the House Finance Committee during the special session. Elwood Brehmer can be reached at [email protected]

Susitna-Watana studies resume after spending freeze lifted

Work is resuming on the Susitna-Watana hydroelectric project under spending guidelines put in place by Gov. Bill Walker’s administration. The overall cost for the proposed 705-foot dam in the upper reaches of the Susitna River has been pegged at $5.6 billion in 2014 dollars by the Alaska Energy Authority, or AEA. AEA will need $105 million, maybe more, to get through the Federal Energy Regulatory Commission licensing process and to construction, authority Executive Director Sara Fisher-Goad said during an Aug. 6 board meeting. However, AEA only has the ability to spend the $6.6 million it has in the bank for the project through 2017. That money should get the project to the study plan determination, at which point FERC would rule whether or not the authority has gathered sufficient relevant data to apply for a project license. The FERC license is the last and largest pre-construction hurdle. Fisher-Goad said AEA will continue to update data with field studies as necessary to prevent work from becoming stale or outdated. National Marine Fisheries Service officials have questioned the validity of some Susitna-Watana fisheries studies. “The longer we stretch this out, we’re losing our economy of scale to be able to have logistics support on several studies at one time,” she said. “We’re doing this in more of an incremental fashion.” AEA has completed 14 of 58 FERC-approved studies so far, according to Dyok. To date, the project has received $192 million in state appropriations. The Walker administration lifted an administrative order July 6 that halted spending on the dam, one of six large infrastructure projects that were put on hold in late December. After 2017, once AEA has exhausted its funds for working towards a study plan determination, “the project will be revisited in the context of the fiscal environment and other competing major capital projects,” Office of Management and Budget Director Pat Pitney wrote in a memo to Fisher-Goad. Mike Wood, president of the lead Susitna-Watana opposition group the Susitna River Coalition, in a July 16 release, called resuming the project a “slap in the face” to Alaskans as state leaders discuss ways to increase state revenue during a time of multi-billion dollar budget deficits. “The proposed dam has already wasted hundreds of millions of state dollars and needs to be immediately shut down,” Wood said. “It diverts necessary funds for other, more responsible and reasonable alternative energy developments, as well as goes against Walker’s campaign promises of fiscal responsibility and fish-first policies.” AEA has touted the dam, which would generate about 2,800 gigawatts, as a way to provide half of the Railbelt’s energy demand with clean energy at long-term stable prices. Continuing at a slower pace to prevent unnecessary spending could end up costing the state if the dam is ultimately built, AEA Project Manager Wayne Dyok said at the AEA board meeting. At $5.6 billion to build today, inflation on project financing could add up to $150 million to the cost each year construction is delayed, he said. If everything goes according to the current plan, AEA will be able to submit its license application with FERC in 2019, and hopefully begin construction soon after a typical two-year review, according to Dyok. However, if AEA gets the $100 million-plus it needs to submit its application before 2017, that timeline could be accelerated by two years and potentially save the state $300 million. The cost of financing the project could also have a direct impact on long-term electric rates. “What you get out of a constructed hydro project is this inflation-proof aspect, but you don’t get that until it’s constructed and generating,” Fisher-Goad said. Dyok said the dam would save Railbelt consumers an average of $224 million per year on energy costs over the first 50 years in production, a total savings of $11.2 billion over that time. Initial electric rates from Susitna-Watana — with first power in 2029 — would be in the 13 cents per kilowatt-hour range, AEA estimates. That price would continue to drop to an average of 6.6 cents per kilowatt-hour as about $8 billion in principal plus interest is paid off over 50 years. By contrast, natural gas-generated electricity from the large Alaska LNG Project would be about 11 cents per kilowatt-hour in 2029 and increase to a more stable rate of about 15 cents per kilowatt-hour over several decades, according to Alaska Center for Energy and Power projections. On the energy savings alone, Dyok said the cost-benefit ratio for the project is 2.39-to-1. When the avoided cost of building new gas-fired generating capacity, generation facility retirement, and greenhouse gas reductions are included, the ratio improves to more than 3-to-1, he said. Roughly half of the project qualifies for a U.S. Department of Agriculture Rural Utilities Service loan, which is conservatively projected with 4 percent interest, Dyok said. The rest of the project financing is planned as nearly $4 billion paid in state bonds at 5 percent interest over 30 years a portion of which would be refinanced at a lower rate, according to AEA officials. Economic, study impacts As an added bonus, Susitna-Watana would generate billions for Alaska’s economy during construction along with clean, affordable power once its turbines are turning, AEA claims. The dam would have an economic impact of $3.4 billion and generate about 1,300 jobs each year during construction, according to a Northern Economics study commissioned by the authority. Preconstruction study work has generated jobs, but also information that is being used by other state agencies. “This project has advanced the state of science for a number of agencies, particularly the Alaska Department of Fish and Game through some of the salmon work,” Dyok said. ADFG Mat-Su area sport fish biologist Richard Yanusz said in an interview that AEA’s funding for fisheries studies has provided significant benefit to the department. He said there is relatively little data on chinook salmon in the Susitna drainage, despite the popularity of the species. AEA’s studies in 2013-14 provided drainage-wide abundance estimates through radio telemetry tracking and mark-recapture efforts. According to Yanusz, some of that information had not been gathered since the first time Susitna-Watana was proposed in the 1980s. “It’s been a long time between those abundance estimates, so having such a basic piece of information is very helpful to management,” he said. “It is almost new information, very rare information, so just having those reference points will be helpful.” Similar studies were done for coho salmon, the other primary sport fish in the drainage, on the main stem of the Susitna, without including the major tributaries such as the Yentna. Dyok said the Department of Natural Resources has also found flow data helpful for other potential projects in the region. Managing flow below the dam has been an issue of contention for those opposed to Susitna-Watana, because of the potential impacts to juvenile salmon, particularly in winter. AEA is developing models to better project flow regimes throughout the year, but how much water is let through the dam is ultimately regulated by FERC, according to Dyok. Average winter flow at the dam site would increase about four times and roughly be cut in half during the summer to retain water during times of lower electric demand based on early projections, he said. Flow at the dam site currently comprises about 16 percent of the average annual water in the Susitna. “Fisheries, recreation, and power; you need to balance all of those factors,” Dyok said. Elwood Brehmer can be reached at [email protected]

Chugach, Hilcorp agree on gas supply contract

Chugach Electric Association has extended its natural gas supply deal with Hilcorp Alaska for five years at prices less than those prescribed at the end of the current contract. The third amendment to the Gas Sale and Purchase Agreement between the Southcentral utility and the Cook Inlet producer kicks in April 1, 2018, at a base load price of $7.35 per thousand cubic feet, or mcf, of natural gas. That is 8.5 percent lower than the March 31, 2018, price. In the first quarter of 2018, Hilcorp will sell base load gas to Chugach for $8.03 per mcf. That marks the end of the Consent Decree Hilcorp signed with the State of Alaska when it became the dominant producer in the basin after purchasing Cook Inlet assets from Chevron Corp. and Marathon Oil Co. in 2012 and 2013, respectively. In the out years, the gas price increases 2 percent per year until reaching $7.96 per base load mcf of gas in March 2023. Chugach’s base load price from Hilcorp is $7.13 per mcf for all of 2015 and $7.42 for all of next year. The contract amendment was submitted to the Regulatory Commission of Alaska July 23 for approval. Mark Fouts, Chugach director of planning analysis, said the pricing is likely a combination of new competition from small producers entering Cook Inlet and Hilcorp having a better confidence in its reserves and the ability to produce them efficiently. “When (Hilcorp) signed that first five-year deal with everybody under the Consent Decree they had just bought the Chevron and Marathon assets, but they had not really had time to go through and check everything out,” Fouts said. Hilcorp spokeswoman Lori Nelson wrote in a formal statement that the company has indicated to each of its customers that it is ready to enter contracts beyond the Consent Decree in order to provide lead time to execute the requisite projects to meet the needs of its customers. “In order to ensure Hilcorp has long-term success in the Inlet and on the Slope we remain focused on increasing production, lowering costs and growing reserves,” Nelson wrote. “Each of these factors play a key role in extending the life of the fields and supporting competitive supply contracts with local utilities.” The eight-year commitment, with a price drop roughly halfway through, is a stark contrast to the market conditions when Hilcorp came to Alaska via its purchases in 2012. At that time, there were open discussions about the prospect of importing LNG to Southcentral and a cold 2012-13 winter strained the immediately available gas supply. The current proven plus probable natural gas reserves in Cook Inlet are estimated at 800 billion cubic feet to 1.3 trillion cubic feet by the state Division of Oil and Gas. Demand from the basin totaled about 120 billion cubic feet, or bcf, last year. Hilcorp’s commitment to supplying Chugach’s base load drops from nearly 8 bcf of gas per year in 2017 to 5.5 bcf from 2019 through the end of the contract. That leaves roughly 2.5 bcf per year in swing load as an optional purchase, at prices between $9.19 and $9.95 per mcf in the last five years of the agreement. Emergency load is covered in the $11 per mcf range in the out years. It is listed at $12.04 per mcf in early 2018. Chugach projects its gas demand to remain virtually flat in the 8 bcf per year range through early 2023. Fouts said the flat demand projection accounts for uncertainty in the market, but also includes the expectation that the Railbelt utilities will eventually work more efficiently together as economic dispatch is emphasized. The RCA issued a recommendation to the Railbelt electric utilities earlier this summer that urges them to increase cooperation as a way to maximize the use of low-cost power. The RCA stated it would use its authority and seek legislative action to mandate cooperation if the utilities don’t work more closely together voluntarily. “A lot of (demand) is hard to predict, but through the Hilcorp contract we have the optionality to move up and down and cover the uncertainties, which adds a lot of value to us in the Hilcorp contract,” Fouts said. Chugach spokesman Phil Steyer added that the optional load is the utility’s way of balancing assurance of a fuel supply with the prospect of more competitive prices from other producers to fill that gap in the future. Other factors that play into the flat demand projection are increased efficiency from the new gas-fired Southcentral Power Plant, which Chugach operates in partnership with Anchorage’s Municipal Light and Power, and less individual electric consumption from residential customers, Steyer said. Average residential consumption has decreased more than 10 percent per customer over the past 20 years, Steyer said, due to energy efficiency improvements among other things. Elwood Brehmer can be reached at [email protected]

AIDEA gets 16 options for Interior gas

There are plenty of options for the Alaska Industrial Development and Export Authority to choose from in this go-round of the Interior Energy Project. A request for proposals, or RFP, that ended Aug. 3 yielded 16 plans from 13 respondents for getting a lower cost, cleaner energy supply to the Interior, according to AIDEA representatives. Nick Szymoniak, an AIDEA energy infrastructure development officer, outlined the types of proposals during an authority board meeting Aug. 6. The 16 proposals, ranging from strictly natural gas liquefaction, to gas supply, liquefaction and transport, break down as follows: Cook Inlet LNG: 9    • LNG plant only: 5    • LNG plant and gas supply: 1    • Gas supply, LNG plant and gas transport: 3 North Slope LNG: 3    • LNG plant only: 1    • LNG plant and transport: 2 One each for a small diameter pipeline from Cook Inlet; imported propane; imported LNG; and Cook Inlet “other.” Now the task of separating the detailed, well-rounded and cost-effective plans from the rest begins. A project partner will have access to the low-interest state financing package meant to improve the feasibility of the financially challenging and logistically complex project. The RFP states the proposals will be evaluated based on five weighted criteria: project understanding, methodology, experience and qualifications, project description and costs, and lastly, the ability to meet the project goals. It is noted in the RFP that $4 to $5 per thousand cubic feet, or mcf, of gas will almost certainly be added to any delivered LNG price to cover the costs of storage and distribution to consumers. As a result, the price for LNG delivered to Fairbanks would likely have to be in the $10 to $11 per mcf equivalent range to meet the project goal of a $15 per mcf “burner tip” price for consumers by 2017. The added cost would be slightly lower for a natural gas pipeline project because gas storage and regasification of LNG would be unnecessary. Attorney General Craig Richards recently nixed a contract between Pentex, the parent company of Fairbanks Natural Gas, and a Hilcorp Energy subsidiary to provide a small amount of LNG to the utility for $15 per mcf. AIDEA has said it would provide a long-term gas supply contract that Golden Valley Electric Association has with BP if another attempt at a North Slope LNG trucking operation is deemed the most viable. Golden Valley offered up that contract when AIDEA attempted to get LNG from the Slope last year. Ultimately, capital expenses for the North Slope liquefaction plant turned out to be too costly, and initial gas was pegged in the $18.50 to $20 per mcf range. Interior Energy Project manager Bob Shefchik said the evaluation team will spend August evaluating the projects and unveil a group of likely three to five finalists in early September. From there, AIDEA will enter into negotiations with the final group and final offers from each proposer will be evaluated by a committee, in hopes of reaching a consensus on a preferred plan, according to the RFP. That entire process should take 60 days, Shefchik said. The proposals and the rankings associated with them will be made available to the public when the final group is announced, he said. According to Shefchik, the review committee will take a “more qualitative than quantitative” approach in evaluating non-cost items of the proposals. “At the end of the day, all the proposals can be looked at by anyone in the public who says, ‘why did they do that and how?’ including the score sheets, and that’s where the openness of the ranked evaluations comes out,” he said. It was discussed at the board meeting that this approach would be more transparent than the last time an Interior Energy Project partner was chosen. At that time, in January 2014, little was known about the plans put forth by AIDEA’s three suitors — Pentex, Spectrum LNG and MWH Global Inc. — until after MWH was chosen. Once the Interior Energy Project team reaches a preliminary agreement with its latest partner, Shefchik said the plan is to make a recommendation to the AIDEA board at one meeting and ask for formal approval at the next to keep the process open and allow for ample review. He has said he hopes to have the process wrapped up by December. AIDEA board meetings are typically held every four to six weeks. The last meeting of the year is currently scheduled for Dec. 3. The Interior Energy Project team also closed a request for information, or RFI, for Cook Inlet natural gas supply and prices July 16. That information is being held much tighter. AIDEA’s Szymoniak said the responses, number of respondents, results and even who is doing the evaluating will be kept confidential. “I will go as far as to say we do have responses to evaluate, so that is a good thing,” Szymoniak told the AIDEA board. The RFI was intended to test the market and determine if Cook Inlet could reasonably supply the Interior as well as Southcentral with natural gas, he said. At the end of the evaluation process, a single memo with the RFI results will be sent to the RFP team, according to Szymoniak. Hilcorp recently reached an agreement with Chugach Electric Association to extend its gas sale and purchase agreement through March 2023. The initial gas price when the amended agreement kicks in is $7.35 per mcf in April 2018. That is 8.5 percent lower than the price of $8.03 per mcf Hilcorp will sell base load gas for under a Consent Decree the producer agreed to with the state when it became the dominant supplier of natural gas in the Cook Inlet basin. Hilcorp acquired the former assets of Chevron and Marathon in 2012 and 2013, respectively. Shefchik said in an interview that he is happy to see the price drop, but declined to comment further on the Cook Inlet natural gas market. Pentex subsidiary Titan Alaska LNG, which liquefies and transports LNG for Fairbanks Natural Gas, charges $3.55 per mcf for liquefaction and up to $3 per mcf for transport costs, according to FNG President and CEO Dan Britton. Titan’s small, 1-billion cubic feet, or bcf, per annum LNG plant is located on Point MacKenzie and is a possible location for expanded LNG capacity for the Interior Energy Project. Adding the $7.35 per mcf gas cost to Titan’s costs comes out to nearly $14 per mcf before storage and distribution costs are added. However, a 6-bcf plant needed for the Interior Energy Project could add economies of scale, which when combined with a low-interest state financing package could improve the feasibility of a basic Cook Inlet project. AIDEA and Fairbanks Natural Gas also plan to begin testing a 13,500-gallon LNG trailer within the next month. A large LNG trailer is not currently legal in Alaska. Titan uses 10,000-gallon trailers, which are filled to about 85 percent capacity to allow for expansion, and using a larger trailer could directly lower transportation costs. Home conversions The Interior Energy Project is a futile exercise if enough Fairbanks-area consumers can’t afford to convert their home heating systems from fuel oil or wood to natural gas. Alaska Energy Authority Energy Policy Director Gene Therriault, who has led the conversion aspect of the project, said he had an encouraging meeting with U.S. Department of Agriculture officials in Washington, D.C., regarding the Energy Efficiency and Conservation Loan Program. A USDA official characterized the loan program, which has been in place less than two years, as “underutilized,” Therriault said. The loans can be passed through an electric cooperative, such as Golden Valley, to consumers. “It provides low-cost capital for electric co-op customers to perform energy efficiency and conservation efforts to their home,” he said. Converting to more efficient appliances and a lower emitting home heating fuel both qualify, Therriault said. Converting from an old fuel oil boiler heating system to a high-efficiency natural gas system can cost as much as $10,000, which could challenge some Interior residents who want to make the switch but are already struggling with high fuel costs. Interest rates on the Energy Efficiency and Conservation loans vary little from 1 percent on a short, two-year loan to up to 2 percent on a 10-year term. The maximum term is 15 years, according to the USDA. Therriault also said the cooperative can’t add more than 1.5 percent interest to any pass through loan. Homeowners with houses that qualify for the Alaska Housing Finance Corp.’s Home Energy Rebate Program could also utilize state money to finance their conversions, Therriault noted. Rebates of up to $10,000 are available for significant energy efficiency improvements, which could include changing out an old heating system. While the Rebate Program did not receive additional funding in the 2016 fiscal year budget, AHFC still has about $26 million available for new applicants, according to July 29 program report. AHFC Energy Program Information Manager Jimmy Ord said that heating conversions could qualify for the rebate if the original boiler or furnace is old and inefficient, but simply switching to a cleaner fuel doesn’t. “It solely has to do with the efficiency of the appliance,” Ord said. He encouraged Interior residents to check whether or not they would qualify for a rebate as part of a heating conversion before the funds run out and also before demand for heating technicians rises. Elwood Brehmer can be reached at [email protected]

Medicaid cost projections vary by millions

Only time will tell which Medicaid expansion cost and enrollment projection is correct, and the difference could be hundreds of millions of dollars. The State of Alaska is using lower estimates generated by the Portland, Ore.-based research firm Evergreen Economics, which projects the number of individuals newly-eligible for Medicaid services under the state’s expansion plan at 41,900 in the 2016 state fiscal year that began July 1. Evergreen expects little growth in that number, with 42,260 expansion-eligible Alaskans in 2021. The newly-eligible group is generally healthy adults, without dependents, who make less than 138 percent of the federal poverty level; for single individuals that is $20,314 per year and for married couples it’s $27,490 annually.  Evergreen made its projections to the state last winter. A Feb. 6 memo from Evergreen Economics Vice President Dr. Ted Helvoigt to Department of Health and Social Services Commissioner Valerie Davidson presents the numbers as preliminary results of Evergreen’s Medicaid expansion analysis. States are eligible to expand Medicaid under the Affordable Care Act. The cost for new enrollees in Alaska will be covered completely by federal money in fiscal year 2016, and for the first half of fiscal year 2017. Alaska’s share of that cost will gradually increase to a 10 percent match by 2021, which is similar to much of the federal money the state accepts, namely Transportation Department funding for roads and airports. Gov. Bill Walker announced last month that he plans to accept federal Medicaid expansion funding beginning Sept. 1 without legislative approval. The newly-eligible population is the foundation for what a larger Medicaid program will cost Alaska, and an April 2013 study by the health care research firm The Lewin Group projected the new Medicaid market to be 54 percent larger than Evergreen. The Lewin projection was for a newly-eligible population of 64,700 persons in the 2015 calendar year, with 1.4 percent annual growth to 69,700 by 2020. The Alaska Department of Labor and Workforce Development’s population projection for all adults ages 19-64 over the same period is 0.03 percent growth. Helvoigt said in an interview that Evergreen used Labor Department population data combined with Behavioral Risk Factor Surveillance System, or BRFSS, data from the state Division of Public Health to form its projection. Helvoigt presented the Evergreen report to the Legislature in March. The BRFSS data provided demographic information that was weighted and added to the population figures, he said. “When we reweighted the data using the Department of Labor data, there was essentially no difference from what Public Health came up with in the BRFSS with their weighting scheme,” Helvoigt said. He noted that the similar results added confidence to the final numbers. Representatives from The Lewin Group could not be reached for comment on their study completed in early 2013, but the methodology behind the results is detailed in the report. The Lewin projection of 64,700 newly eligible Alaskans was generated from a simulation based on the federal Census Bureau’s Current Population Survey data from 2008-10, which included demographic characteristics, according to the study. “The (Current Population Survey) reports up to 40 percent fewer Medicaid enrollees than program data show actually participate in the program,” the Lewin study states. “To correct for this problem, we identified people who appear eligible for Medicaid in these data and assigned a portion of them to Medicaid covered status.” It is important to note that Alaska’s population was growing at a faster rate from 2008 to 2010 — 1.2 percent annual growth — than between 2012 and 2014, when the state’s population grew just 0.2 percent per year. If the Lewin projection for the expansion-eligible population is ultimately correct, that would mean nearly 1-in-11 Alaskans fall into that demographic. Helvoigt surmised that many rural Alaska Natives could fall into the income demographic and technically be eligible for expanded Medicaid coverage. However, that group would already be covered 100 percent by the federal government through Indian Health Services programs, which could skew some data sets. While Helvoigt said he is “extremely confident” in Evergreen’s eligible population projection, forecasting the number of actual enrollees is much more difficult.Evergreen used Lewin’s 63 percent enrollment rate in its projections. “What’s that take-up rate going to be?” he said in an interview. “Is it going to be that 63 percent? I just don’t have a great feel for that and I don’t think anyone really does. There’s just a lot of different things that drive that.” The Lewin study suggests an increase in enrollment among those currently eligible for Medicaid but not enrolled. That could come from increased media coverage of the Medicaid program. Helvoigt said that is exactly why it is so difficult to predict how many people will sign up. Looking at what has happened in other states that have accepted new Medicaid money — some have spent tens of millions more in match dollars when initial projections turned out to be low — isn’t reliable because public outreach and sentiment is different in each state, he said. Of the 31 states that have accepted Medicaid expansion, half are likely to be greater than projected enrollment and half are likely to be fewer, Helvoigt predicted. “No one’s going to hit it right on,” he said. The demographics of the newly-eligible population could also lend to less enrollment, according to Helvoigt. “There’s reason to believe that the expansion population —working age, not disabled, no children — that their take-up rate is going to be lower than other current Medicaid eligible (populations) simply because this population is going to be more mobile, in general younger and more male,” he said. Male or female, young people just out of college could fall into the income demographic but be looking for work that will soon make them ineligible or plan on moving out of Alaska and thus not sign up, he suggested. In the end, The Lewin Group projects a final tally of about 43,000 new Medicaid enrollees, while Evergreen Economics pegged 26,600, which is the number the State of Alaska is using, at the end of the forecast periods. The disparity between the enrollment projections and a difference in per-individual cost sums to a significant overall cost gap. In fiscal year 2021 (state fiscal years runs from July 1 to June 30), Evergreen and the state project Medicaid expansion to cost $224.5 million, of which the state will pick up almost 10 percent. The Lewin Group projects a cost of $517.2 million in calendar year 2020. That would mean the State of Alaska is on the hook for about $50 million that year, more than the total amount it would pay from fiscal year 2019-21 under the Evergreen projection. Evergreen estimated a cost of $7,200 per individual in fiscal year 2016. In the 2015 calendar year, Lewin had a cost estimate of $9,700 per person. The origin of this disparity is less clear, as both firms report using historical Medicaid cost data from groups as demographically similar as the newly-eligible population as possible. Helvoigt said he ran cost estimates for former Gov. Sean Parnell’s administration, which ultimately turned down expansion, and investigated if there would be an initial spike in Medicaid costs because of health services use by people previously without insurance. The assumption that new enrollees will seek health care at an abnormally high rate doesn’t hold water based on historical data, according to Helvoigt. “Regardless of who they were, and even after accounting for inflation, you find that people enroll and then they start using a little more (health care) each year,” he said. “It’s possible that there’s something about this population that’s going to make them very costly, but I don’t know what that would be.”                   Elwood Brehmer can be reached at [email protected]

Economy faring well amid uncertainty says AEDC

Anchorage’s economy is doing better than expected based on job growth reported by Anchorage Economic Development Corp. CEO Bill Popp. The city added about 1,000 jobs in June based on a new U.S. Department of Labor calculation. Private sector employers added 2,200 jobs for the month, according to Popp. The job market was strong through the first half of 2015, despite depressed oil prices. “Oil and gas, in direct employment, is up 500 jobs (statewide) according to the new Department of Labor numbers, so we are seeing some very positive indicators in the overall numbers mainly driven by private sector growth,” Popp said. He made his remarks at AEDC’s annual three-year economic forecast luncheon July 29. While Anchorage’s job market ended 2014 below forecast — losing about 690 jobs — so far 2015 is outpacing AEDC’s prediction of a flat market. Most of the job losses last year were attributed to contracting government workforces at the federal and local education levels, Popp said. Losses in the business and professional services portion of the private sector in 2014 should flatten out this year. Those jobs were lost in large part due to less need for engineering and design services, a result of slightly less capital construction spending, he said. The health care industry is expected to continue to grow because the State of Alaska is poised to accept Medicaid expansion funding from the federal government starting Sept. 1. June unemployment in the city was 5.5 percent, the lowest it has been during the month in eight years, according to the AEDC forecast report. Popp said unemployment could drop near 5 percent, which is considered full employment, or less by the end of the year. “That is a great unemployment rate,” he said. As wages go, Popp said Anchorage is still better than the national average, but the delta is shrinking. Much of that could be related to an improving Lower 48 economy, which is driving wages up in most of the country. Average wages in Alaska are typically some of the highest in the nation, the direct result of high cost-of-living expenses. AEDC’s employment forecast for the entirety of 2015 has Anchorage adding 730 jobs, or about 0.5 percent growth. That would give the city a record of 155,800 jobs. The size of Anchorage’s workforce will mirror its population over the next several years, according to AEDC. This year, the city is expected to peak at 302,000 people, similarly up 0.5 percent from 2014, and a record number of Anchorage residents. Recently announced force reductions of 2,600 Army personnel from Joint Base Elmendorf-Richardson could begin to drop Anchorage’s population back below 300,000 in 2016, with a leveling out at 297,500 people in 2017 and 2018. The overall population decline includes the roughly 3,500 spouses and children that could leave with the active-duty personnel. “We’re trying to engage our friends and neighbors in the military to stay in Anchorage and fill many of the jobs that are currently going unfilled for lack of qualified or available candidates,” Popp said. AEDC expects the Anchorage workforce to hold steady at 155,800 in 2016 and shrink slightly to 155,000 workers in 2017 and 2018, following the track of population projections. Considering low oil prices and contracting government spending, the outlook is fairly positive, and projections are good for Anchorage’s primary industries despite the tepid job market. Passenger volumes at Ted Stevens Anchorage International Airport are expected to match the 2008 record of more than 5.3 million people and climb steadily each year to nearly 5.7 million in 2018. Those are promising numbers for both the airport and the city’s tourism industry, which combine to account for roughly 20 percent of direct and indirect employment in Anchorage, Popp noted. The air cargo business at the Anchorage Airport should also return to banner years of record volumes over the next several, according to AEDC. Roughly 3 million tons of cargo is expected to move across the tarmac at TSAIA this year for the first time since 2007. By 2018, 3.5 million tons is expected due to lower fuel prices and larger Boeing 747-800 and 777 aircraft capable of carrying heavier loads from Asia markets. Popp said, however, that the larger aircraft could mean fewer landings and in-turn some lost revenue for the airport. Freight volume at the Port of Anchorage is projected to follow a similar, growing trend. Collective personal income should continue to rise as well, Popp said. This year, AEDC expects Anchorageites to take home $18 billion, up about 3.5 percent from a year ago. That growth over the next several years could see personal income in the city hit $20 billion in 2018. A chunk of that income this year will come from the Permanent Fund Dividend checks deposited in October. Another large check — AEDC is projecting it near $2,000 per Alaska resident — should add $540 million to bank accounts in Anchorage. A discretionary spending bump reliably follows deposits in a large PFD year. Elwood Brehmer can be reached at [email protected]  

Utilities welcome exemption from emissions rule

Alaska utilities will not have to comply with new federal standards requiring cleaner power production. The state is currently exempted from the Environmental Protection Agency’s Clean Power Plan, announced in its final form by President Barack Obama Aug. 3. Proposed in June of last year, the ultimate goal of the 1,500-page Clean Power Plan is to reduce carbon emissions from power plants by 32 percent from 2005 levels by 2030. Fossil fuel-fired plants emit roughly a third of the country’s total carbon pollution output, according to the EPA. Alaska’s exemption from the requirements came as welcome news to electric utility leaders in the state. “The federal government has acknowledged that the circumstances here are unique and the fact that there’s very little interconnection amongst the utilities,” Alaska Railbelt Cooperative Transmission and Electric Co. CEO David Gillespie said. “It’s a very different animal here (than the Lower 48) and I think the EPA has acknowledged that in this ruling and that’s a good thing.” Sen. Lisa Murkowski also praised the EPA’s decision to omit Alaska, saying in a release that the final rule is a “victory” for the state, which has unique needs because of its limited ability to generate cost-effective and compliant energy, she said. “Although I appreciate the EPA’s recognition of Alaska’s unique needs and challenges, I continue to have strong concerns about the national impacts of this rule. In the days ahead, I will be reviewing it closely to determine its impacts on electricity prices, the reliability of our electric grid, and many other related factors,” Murkowski said. “While it is a positive for Alaska to be exempt, I am mindful of the fact that nearly every other state will be forced to comply, and of the burdens that will impose across the country.” Murkowski chairs the Senate Energy and Natural Resources Committee and has moved an energy bill package of her own through the committee that is waiting to be heard on the Senate floor. Gov. Bill Walker lauded the EPA’s decision on Alaska as well. “Alaska has over 200 small utilities across the state, and a very limited power grid on the Railbelt,” Walker said in a release. “Alaska can and should be a leader in affordable, clean energy development. However, this has to be on Alaska’s terms given how unique our state is.” Department of Environmental Conservation Air Quality Division Director Denise Koch said the exemption was unexpected. A State of Alaska consortium of the Department of Law, Alaska Energy Authority, RCA and DEC combined to draft 70 pages of comments when the Clean Power Plan was proposed. “We were preparing to have to comply with the rule,” Koch said. “We were hopeful of course that the EPA would have considered our comments, but it was not certain for sure that we would not be included in the rule.” Along with Alaska, Hawaii, Vermont and the District of Columbia are exempt from Clean Power Plan requirements. Hawaii has the highest residential electric costs in the country at 30 cents per kilowatt-hour, while neither Washington, D.C., nor Vermont have fossil fuel-fired power plants, according to the U.S. Energy Information Administration. Supplied largely by Canadian hydropower, Vermont also has the lowest total carbon dioxide emissions of any state. The Clean Power Plan is the first set of national standards to address carbon emissions from power plants. “We limit the amount of toxic chemicals like mercury an sulfur and arsenic in our air and our water and we’re better off for it,” Obama said in a speech announcing the regulations. “But existing power plants can still dump unlimited amounts of harmful carbon pollution into the air. For the sake of our kids and the health and safety of all Americans that has to change.” While the U.S. has cut carbon pollution more than any other nation over the past decade, this is the single largest step the country has taken in that regard, the president said. “We’re the first generation to feel the impact of climate change and the last generation that can do anything about it. That’s why I committed the U.S. to leading the world on this challenge,” Obama said. According to the EPA, 14 of the warmest 15 years on record have come in this century. To reach their goals, other states will have to come up with plans as to how they will comply and submit those plans to the EPA. Those plans will include steps to lower energy use from high carbon output plants through dispatch of power from cleaner and renewable sources and end-user energy efficiency measures. Until 2030, the EPA will establish interim carbon performance rates for coal- and oil-fired plants separate from performance rates for existing natural gas-fired combined cycle generating plants. States will able to measure carbon output as a rate — pounds of carbon per megawatt of power produced — or through total carbon output in short tons per year, according to the EPA Alaska will not be asked to submit an efficiency plan, at least for now. “The basis of that proposed rule was really based on the assumption that every location had this robust interconnected grid and we felt like some of the assumptions that the rule was based on were not appropriate and they were not accurate in Alaska,” Koch said. The Clean Power Plan would likely have impacted five coal and natural gas power plants in the Railbelt, she said. Developing a more reliable and efficient Railbelt transmission grid at a cost of more than $900 million has been a hot topic among region utilities and the Regulatory Commission of Alaska and even spilled over into the Legislature during the last session. Koch encouraged tempered optimism about the announcement because of the reason for the exemption. “It’s clear that Alaska isn’t included in this; we have no goals or deadlines for submitting plans,” Koch said. “However, EPA talked about the reason for that is that they lacked appropriate information and they do go on to say that the EPA is going to seek additional pieces of information.” The state group that drafted the comments plans to meet soon to discuss the meaning for Alaska, particularly if the EPA wants more information from them on what Alaska can do to lower its carbon emissions. Elwood Brehmer can be reached at [email protected]  

Judge finds Greenpeace USA in contempt

Greenpeace USA must immediately get its activists out of the way of a vessel contracted to work in the Arctic for Shell or face fines ramping up each day until it does. An annoyed-looking Alaska U.S. District Court Judge Sharon Gleason imposed a fine of $2,500 per hour beginning at 10 a.m. Alaska Time Thursday on Greenpeace until the 13 environmental protesters dangling from ropes below the St. Johns Bridge across the Willamette River in Portland, Ore., pull themselves onto the bridge. The fines will escalate daily until reaching $10,000 per hour if they aren’t off the bridge by 10 a.m. on Aug. 2. Gleason also found Greenpeace in civil contempt of court for violating an injunction she issued in May that prohibits Greenpeace from impeding any vessels working on Shell’s offshore Arctic drilling. She made her ruling at approximately 9:45 a.m. Thursday, setting the fines to begin accruing 15 minutes later and disregarding a Greenpeace request for a three-hour grace period to get the activists up from below the bridge. Gleason said she was “unpersuaded that a grace period is warranted” before the fines take effect because there is no assurance Greenpeace would follow the latest order. The activists can be on top of the bridge, she said, but need to be off the ropes beneath the structure. Greenpeace immediately appealed Gleason’s decision to the 9th Circuit Court of Appeals and a hearing has been set for August. Early Thursday before the hearing, the activists lowered themselves into the path of the icebreaker Fennica on its way from a Portland shipyard back to Alaska. Greenpeace attorneys contended kayakers not associated with the environmental group got in the way of the vessel and the Fennica did not enter a 100-meter safety zone from the activists that would have violated the injunction. Gleason said the evidence was “clear and convincing” that Greenpeace intended to violate the order, despite how close the Fennica actually got. An email from the master of the ship Tommy Berg was filed with the court that stated the activists forced the Fennica to retreat. “Please be advised that Fennica has made an attempt to sail for sea as instructed by Shell. However, the eNGO (environmental non-governmental organization) activists dangling from ropes off St. Johns Bridge clearly prevent the vessel from passing and cause a navigational hazard. We have thus decided to await further instructions,” Berg wrote. The Fennica is a 380-foot ice-management vessel. It was in Portland for repairs after it sustained a three-foot gash in its hull when it hit a shoal leaving Dutch Harbor for the Chukchi Sea July 3. The hourly fines will increase $2,500 each day at 10 a.m. Alaska time until reaching $10,000 per hour the morning of Aug. 2, or when Greenpeace gets its employees out from under the bridge. Shell first asked for fines of $2,500 per hour in a Wednesday hearing, which it says is equal to the contract rate it pays for the Fennica. In Thursday’s hearing the oil company’s representatives upped their request to $250,000 per day, arguing that Greenpeace uses its acts of protest as fundraising tools, which offsets smaller fines that might be levied against it. Gleason said the progressive fines are intended to “coerce behavior that would have them leave.” The environmental group offered its reaction to the decision in a formal statement from Greenpeace USA Executive Director Annie Leonard. "Right now we're asking the activists what they think we should do next. As of this moment, the 26 activists will stay in place," Leonard said. "Shell is still trying to circumvent the growing global call to preserve the Arctic, and has turned to the courts for help. While we respect the courts, we also respect the increasingly urgent science that tells us Arctic oil needs to stay underground." Shell was pleased with the outcome. "We have consistently stated that we respect the right of individuals to protest our Arctic operations so long as they do so safely and within the boundaries of the law," wrote spokesperson Meg Baldino. "The staging of protesters in Portland was not safe nor was it lawful. Furthermore, Greenpeace demonstrated a complete lack of regard for the authority of a U.S. Federal Court. We are pleased with today’s court ruling that holds Greenpeace in contempt and prescribes fines for further non-compliance." Gov. Bill Walker spoke with Portland Mayor Charlie Hales and Oregon Gov. Kate Brown’s chief of staff Thursday morning, according to a release from Walker’s office. The governor urged Oregon’s leaders to stop the illegal protesting and allow Shell to conduct the activities it is permitted for. “Alaska and the United States have the chance to be leaders in responsible offshore drilling in the Arctic,” Walker said in the release. “As our state faces a multi-billion dollar budget deficit, and an oil pipeline that is three-quarters empty, we would be foolish to turn away such significant economic opportunity. I hope that leaders from outside Alaska can understand and respect that.” Shell’s two drilling vessels are in the Chukchi Sea and ready to drill, Shell and federal agency sources said July 29. Shell has permission to drill “top holes,” or the upper parts of wells that do not penetrate potential oil-bearing formations, until the Fennica gets to the Arctic with the capping stack after its repairs. Elwood Brehmer can be reached at [email protected]

Another record for Alaska Air despite increased competition

Alaska Air Group Inc. rode low fuel prices and debt to another record-high second quarter profit of $230 million, company leaders announced July 23. The Seattle-based parent company to Alaska Airlines and regional carrier Horizon Air has turned record net incomes in 12 of the last 13 quarters, along with five consecutive record-breaking profit years. The $230 million profit is a 46 percent increase over 2014. By comparison, Air Group’s full 2014 profit was $571 million. Alaska Air Group CEO Brad Tilden said it also marks the largest profit in the company’s history. “As we pause to take a look at how we’re doing mid-year, and two-and-a-half years into the biggest competitive incursion we’ve seen in a while, I’m happy to share that we are thriving,” Tilden said during a call with investors, with his “incursion” comment referring to the foray of Delta Airlines into state markets. “Our operation is firing on all cylinders, our leaders are focused on execution, and we are generating returns that far exceed our cost of capital.” Profit growth coupled with a stock repurchase program — about 3 percent of outstanding shares totaling $262 million in the first two quarters — pushed earnings per share up 56 percent to $1.76 per share in the second quarter. Alaska Air Group stock traded for $73.04 at the end of trading July 27. The stock price has improved 53 percent since the company executed a 2-for-1 split of shares in late June 2014. Per gallon fuel cost was down nearly 34 percent year-over-year, at $2.12 per gallon. Total fuel expense was down 28 percent despite a 10.7 percent increase in capacity companywide. Alaska Air Group’s financials, driven primarily by Alaska Airlines, were strong before fuel prices dropped last year. The company hedges its fuel purchases through call options to mitigate drastic price swings. Other major domestic carriers have enjoyed record profits over the past several quarters due to lower oil and subsequent lower fuel prices. Southwest Airlines and United Airlines each posted record second quarter profits despite 2 percent revenue growth for Southwest and declining revenue for United, according to a July 23 Associated Press report. Chief Financial Officer Brandon Pedersen said the company’s fuel burn per available seat miles, essentially the fuel efficiency of its aircraft, improved 2.6 percent year-to-date. Alaska Airlines is transitioning its fleet from older Boeing 737 models to newer 737-800s and -900s. It will add 42 of Boeing’s 737-900 Extended Range aircraft over the next two years, according to Pedersen. Also notable is Air Group’s debt-to-capitalization ratio, which was down to 29 percent. Pedersen said he believes Alaska Air Group is the only major domestic carrier owner to have net interest income on its profit and loss, or P&L, statement. The company expects to generate about $500 million of free cash flow for the year, he said. Company executives often note their wish to have the balance sheet of an investment-worthy industrial company, not just a healthy airline. Overall operating revenue was up 5 percent to more than $1.4 billion for the quarter. Operating expense was down 4 percent on $101 million of fuel savings year-over-year. That led to a net operating income of $372 million, or 41 percent growth. Passenger revenue increased $57 million, nearly 5 percent on the 10.7 percent capacity growth. “We’re growing significantly to strengthen and fortify our franchise in Seattle, and we crossed the 1,000-flight per day threshold on July 2,” Tilden said. Delta Air Lines, an Alaska Airlines partner, has increased its traffic through Seattle and in Alaska significantly in recent years. Chief Commercial Officer Andrew Harrison said overall capacity is expected to be up 10 percent in Hawaii and 17 percent in Alaska in the third quarter. Despite that, competitive capacity growth is generally trending down, according to Harrison. “We have confidence in the resilience of our business model, and we expect our positive momentum to continue,” he said. Alaska Air Group airlines have added 18 markets since the first quarter of 2014. Harrison said nearly 70 percent of those markets are profitable within a year; and half would be profitable at $3 per gallon fuel. The company is also adding another 18 new markets in the second half of the 2015, some of those through agreements with partner airlines. Notable among the new markets this fall is service to New York’s John F. Kennedy International Airport, Charleston, S.C., Raleigh, N.C., Nashville, Tenn., and Costa Rica. Harrison said he expects 2016 growth to be “somewhere in the high single digits.” Air Group also announced a new mileage plan partnership with Chinese Hainan Airlines July 22. Elwood Brehmer can be reached at [email protected]

Treatment center named for 'American Sniper'

Alaskan veterans and active service members have a new option for seeking treatment of the invisible scars inflicted by combat. Taya Kyle, widow of U.S. Navy SEAL Chief Petty Officer Chris Kyle, helped dedicate the Chris Kyle Patriots Hospital in Anchorage July 28. A decorated Iraq War veteran, Chris Kyle worked with fellow veterans dealing with post traumatic stress disorder, or PTSD, after he returned home from four tours of service. He also authored the autobiography “American Sniper” that became a surprise worldwide blockbuster after its release last Christmas. Chris Kyle was murdered in 2013 at a Texas shooting range while working with a veteran struggling with PTSD. Opened in April by North Star Behavioral Health, the facility on Bragaw Street in East Anchorage is a primary treatment center for active duty military and veterans who want help dealing with PTSD, or any other challenges they may face after returning home from deployment. Kyle said she was first hesitant about allowing her husband’s name to be used in naming the hospital, but after talking with staff she was impressed by the “holistic” treatment North Star Behavioral Health and its sister facilities under Universal Health Services Inc. provides. “They’re listening to the veterans that come, and that’s what Chris did often,” Kyle said during the dedication ceremony. North Star Behavioral Health has residential hospitals and treatment centers in Palmer and Anchorage. It is part of the Universal Health Services network of facilities, which offers behavioral health treatment to 450,000 veterans and active-duty military at 160 bases and installations across the country, UHS Vice President Debbie Osteen said. North Star CEO Dr. Andrew Mayo said the PTSD and substance abuse care programs offered at the Chris Kyle Patriots Hospital were developed after studying what is offered at the 14 other UHS Patriot hospitals. After touring the facilities, potential patients were asked for feedback, which was integrated into the program development, according to Mayo. Because Alaska’s military bases don’t have a behavioral health facility, active-duty and veterans often go to traditional hospitals where they get acute, crisis treatment, rather than longer-term care, Mayo said. North Star also offers the state’s only residential preteen focused behavioral health treatment center. The Chris Kyle Patriots Hospital has capacity for 36 patients in 28-day inpatient treatment programs. At full capacity its current staff of 40 would likely grow to about 100, he said. “We’re taking patients in as folks are calling, but we’re doing it at a pace to make sure — ok, did we miss anything, did we get everything correct — consistently evaluating our opening strategy from a clinical standpoint,” Mayo said. Staff includes a full range of therapists, psychologists, psychiatrists and dieticians to meet as many individual needs as possible under the core programs. “What you really have is a program schedule that for the most part is constructed as a core schedule, but then as people’s individual issues are identified, we move them off into the more specialty groups for specialty time with our staff that are more appropriate for their particular issue,” Mayo said in an interview. Once patients exit the programs they can be transitioned to follow-up care through Veterans Affairs facilities, according to Mayo. Alaska Commander U.S. Air Force Lt. Gen. Russell Handy said only half of individuals with PTSD seek treatment and only half of that group gets adequate treatment, which makes facilities like the Chris Kyle Patriots Hospital so important. Kyle said an average of 22 military veterans commit suicide each day and 80 percent of those are Vietnam War veterans from an era when the psychological wounds of war were not treated, which exemplifies the need to offer treatment today. Mayo said he believes the hospital’s capacity should meet the need of the state’s military and veterans as demand for what it offers grows. The state has the highest population of veterans per capita in the U.S. Universal Health Services CEO Alan Miller said the Chris Kyle Patriots Hospital is the only facility in the company’s network named after an individual. Mayo said that’s an honor that comes with a responsibility. “My job is to make sure we fulfill our programs and our outcomes in a way that (Kyle) continues to be proud of us,” Mayo said. Elwood Brehmer can be reached at [email protected]

State, industry examine fees, taxes to fund rural airports

State aviation officials and industry leaders are looking for ways to ease the burden of the state’s 247 rural airports on the general fund. Revenue from the rural airports with scheduled service and airports nearby the hubs covered less than 25 percent of their own operating cost over recent years. The average annual combined revenue generated at the 22 hubs from state fiscal years 2012-14 was slightly more than $4.9 million, while the operating expenses totaled $23.2 million, leaving a funding gap of $18.2 million yearly, according to a Department of Transportation and Public Facilities report. Deadhorse was the only airport to break even — an average of $39,000 net income on about $1.7 million in revenue — among those airports recording operating expenses. Prospect Creek and Galbraith Lake, two small airports along the Dalton Highway, did not report operating expenses during the period and are not scheduled to be open this fiscal year. The airports listed in the revenue report are those that have scheduled service from carriers with aircraft designed to carry at least 10 passengers. They are certified by the Federal Aviation Administration as Part 139 airports. The Anchorage and Fairbanks international airports are owned by the State of Alaska but are self-sustaining enterprise businesses. Juneau International Airport is operated by the City and Borough of Juneau. Statewide Aviation Division staff collected data on four options to increase rural airport revenue and presented them to the Aviation Advisory Board at a July 15 meeting in Anchorage. The board is expected to make its recommendations to Gov. Bill Walker after its next meeting in Ketchikan tentatively scheduled for late August. Aviation Division Operations Manager Troy LaRue said in an interview that personnel and operating hours at many airports have already been cut this fiscal year to save money. Bethel’s airport, which used to be open around the clock, is now open from 6:00 a.m., to 10:30 p.m. The challenge with cutting operations particularly at a busy hub such as Bethel is getting adequate conditions reporting and surface maintenance done before each day’s flights — always a challenge in changing weather, he said. “I still believe we’ll be able to provide safe transportation systems, but it might take longer to clean up Mother Nature’s messes when they come our way,” LaRue said. The three widespread options for revenue enhancement include increasing the state aviation fuel tax and instituting airport user and landing fees. Alaska Air Carriers Association Executive Director Jane Dale said her group hasn’t taken a stance on any of the proposals and is currently soliciting comments to see what member businesses are willing to support. The Air Carriers Association is also seeking more background from the state, as well. “We’ve asked the state for some more information to describe each one of the scenarios and also, not just to provide how much revenue they expect from each one of the proposed options, but what the net is, because some are going to be more costly (to implement) than others,” Dale said. Alaska’s taxes stand now at 3.2 cents per gallon for jet fuel and 4.7 cents per gallon for aviation gasoline, or avgas, used primarily by small, general aviation aircraft. The state’s jet fuel tax ranks 32nd among the 47 states with similar taxes, according to the Tax Foundation, a national tax policy research firm. In April, the Legislature approved raising the taxes on vehicle gasoline, marine and heating fuel by 0.95 cents to fund the Department of Environmental Conservation Spill Prevention and Response Division — an issue that was subject to lengthy debate. Aviation fuels are exempt from the tax hike. Raising each fuel tax to 5 cents per gallon would generate about $2.3 million in new revenue; a tax of 7 cents per gallon would add $5.1 million and 10 cents per gallon would generate an additional $9.3 million for the state’s general fund, according to a DOT model. At its highest level the fuel tax would get DOT to its goal of self-generating about 50 percent of the revenue needed at its Part 139 airports. The state collected $4.6 million from aviation fuel taxes in fiscal 2014, and about 90 percent of that revenue came from the jet fuel tax. LaRue said aviation fuel tax and airport lease revenue are poured into the general fund partially because the airports operate so far in the red and require such a significant subsidy from the general fund. If more rural airports were closer to breaking even there would be more of a reason to keep funds in-house, he said. Dale noted that aircraft on foreign born and foreign bound flights that stop to refuel in Alaska are not subject to the state fuel tax. At the same time, she said the fuel tax increase would likely be the least expensive option to implement because the system is already in place. An annual $300 airport user fee — a new fee — instituted on each of the more than 9,200 aircraft registered in Alaska would generate a little more than $2.7 million. A $100 fee would produce an additional $922,000 for the state. The smallest $50 fee would earn $461,000. A user fee and sticker could be required to park aircraft in transient state parking areas, for example, LaRue said. DOT’s model for instituting new landing fees at state airports is a slightly more complex one. A flat $5 per landing fee for aircraft under 12,500 pounds gross weight, which is 97.8 percent of the aircraft registered in the state, would generate $391,000, the department estimates. A $10 fee would gross $783,000 and $12 per use charge would bring the revenue total up to $939,000. For primarily commercial aircraft with a maximum gross weight of 12,500 pounds or more, a per 1,000 pound fee system was modeled. Charging $1 for each 1,000 pounds of a large aircraft would make the state $2.7 million; at $2 it would be $5.4 million and at $3 the state would generate another $8.2 million. At the lowest end of the fees, with a 5-cent per gallon fuel tax, the state would take in $5.5 million in new money, according to DOT. At the high end, with a 10-cent per gallon tax the state could nearly break even with $21.2 million of new revenue. In the mid-range example — a 7-cent per gallon tax, a $200 user fee and a $2 per 1,000 pounds large plane landing fee — the state would collect about $12.4 million. LaRue said the state’s fiscal situation and subsequent discussions about getting more revenue from its airports has actually made an existing partnership with Alaska’s aviation industry stronger. The objective with any fee or tax changes is to be fair to all users without growing the size of government just to administer changes. “The goal is to generate enough money to protect the airport system we have,” he said. A fourth revenue option, a passenger facility charge, would help pay for capital improvements at 13 of the state’s Part 139 airports. Passengers on aircraft with at least 60 seats would be charged the fee to support work at the airport of enplanement, per FAA guidelines. There were 709,410 such enplanements in 2014, which could have generated up to $3.2 million with a $4.50 charge. A passenger facility fee could not be charged at airports with Essential Air Service, according to DOT. “There’s a lot of research that needs to go into a (passenger facility charge) before it can be implemented,” LaRue said. “We want to make sure that any direction we go is very sustainable and cost-effective to implement.” A year-plus study of state airport lease rates is nearly complete, and those results could be used to increase revenue and comply with the FAA. State property at rural airports can be leased for between 5.5 cents per to 12.3 cents per square foot of raw land depending on the facility. Most of the rates were increased by 0.02 cents at the end of 2012, according to DOT data. The FAA requires airport lease rates be at market value for similar nearby property. Airport leases generated about $5.2 million in fiscal 2014 and cost about $1.9 million to administer, according to DOT. Elwood Brehmer can be reached at [email protected]

Berkowitz ready to move on housing, port

New Anchorage Mayor Ethan Berkowitz is ready to make things happen when it comes to his city’s housing woes. The city needs to capitalize on all the resources it has, as well as what potential development partners can offer, he said in a July 17 interview with the Journal. Focusing on issues government can impact such as land availability and permitting and not those determined by external forces — costs of labor and building materials — seems obvious, but can be clouded by layered issues. Anchorage’s housing problem is a simple economic problem of short supply generating high demand and cost, Berkowitz said. But the solution is far from straightforward. Rental vacancy in the city has been in the 3 percent range for several years; real estate experts typically consider 5 percent vacancy to be a healthy market. At the same time, overall housing costs are some of the highest in the country among cities of comparable size with Anchorage. Berkowitz announced the appointment of former Republican Anchorage mayoral candidate Andrew Halcro to lead the Anchorage Community Development Authority July 7. “We’re going to be very aggressive with how we use the Anchorage Community Development Authority,” he said. “I’ve talked with Andrew Halcro significantly and we have a shared goal to make sure we address the housing situation.” At the end of the 2014 calendar year, ACDA held more than $12 million in unrestricted assets. However, effectively using the authority’s position will require more than just accessing its funds, Berkowitz said. It’s the authority’s ability to engage in financing options, as well as possibly working with the municipality’s Heritage Land Bank to transfer city-owned property into the right hands for development, he said. “We’ve got to improve deal flow if we’re going to see any kind of development,” Berkowitz said. The Heritage Land Bank, a division under the municipality’s Real Estate Department, manages roughly 10,000 acres of city property spread out across the municipality. About half of the property is in the Girdwood Valley. Berkowitz said his goal is to engage private developers in all sorts of public-private partnerships to find ways to ease utility infrastructure costs, for example, which are often cited by real estate and building experts as a major impediment to housing developments in Anchorage. In recent years Anchorage Community Development Authority staff tasked with review building plans and permit applications have been simply overwhelmed with work as manpower has been cut, and that has led to paperwork bottlenecks that can discourage prospective developers, according to Berkowitz. A long-awaited transition to a computerized system should help ease the burden and is nearly complete. He said the often-contentious Title 21 zoning regulation rewrite has limited what city officials can do to work with builders. “What’s happened here is the classic problem — when you take away discretion from people who are charged with enforcement (of land-use requirements), then you get very rule-bound,” Berkowitz said. “We’ve got to get to a situation where the folks charged with enforcement are more in a situation of trying to help people through the process rather than simply being a toggle that says ‘yes, your in compliance; no you’re not.’” Adequately tackling the housing issue will also require further evaluating Anchorage’s transportation system and how it fits what neighborhoods demand, whether that is trail accessibility or advancing public transportation to meet higher density living. That will mean truly listening to what the city’s residents want, he said. “The goal is to look out across Downtown in a couple years and not see all this surface parking,” Berkowitz said. “The goal is to make sure we have mixed-use, that there’s housing across Anchorage, that we’ve rehabilitated parts of the city that have languished for too long. We can’t do that by continuing to do what we’ve done.” Less than a month into his term, Berkowitz announced the opening of permanent housing July 21 for chronic homeless residents and those struggling with mental disorders. The city leveraged $200,000 to support more than $1.5 million in state and federal funding to open 56 units at Safe Harbor Inn in Downtown Anchorage. The units had previously been used for transitional housing with limited assistance for those in-need who used the resource. Anchorage Port On the city’s biggest construction burden, the Port of Anchorage, Berkowitz said he is focused on making immediate fixes to make sure current operations continue to run smoothly. That means getting Phase 1 of the six-phase Anchorage Port Modernization Project conceptual design built, and entails digging up a portion of the backlands created on the north end of the port during the first iteration of construction. Doing so would stabilize the waterfront and alleviate some silting issues that have arisen as the backlands that jut out from the incomplete project disrupt current flow along the face of the docks. The $60 million Phase 1 also includes moving the port administration office off the docks where it is now located and building a new multi-purpose terminal on the south end of the facility. The full plan with four new terminals is projected to cost the city another $485 million, leaving Anchorage to find another $350 million beyond the roughly $130 million it has left from the first Port of Anchorage Intermodal Expansion Project. That could make the new design a very long-term project, according to the mayor. Port customers have said despite the fact that the facility runs well now it is in need of significant upgrades. Berkowitz said he plans to discuss specifics of what is needed at the port with its director Steve Ribuffo. The port, a self-sustaining day-to-day business owned by the city, currently spends more than $1 million per year patching and maintaining its corroding 54-year old pile dock. The mayor said he expects to collect a suite of financing mechanisms with contributions from the city, state and federal governments for the full scope of the modernization plan, because the port is the offload point for 85 percent of the goods that enter mainland Alaska. Further, it is of national importance as a strategic military port — the primary route out for deployed troops and equipment. “It’s unfair to expect Anchorage to shoulder the entire burden for a port that serves the state and the United States,” Berkowitz said. “We’re the beneficiary of geography given this is where the port is, but the fact that the port is the portal to the rest of the state and serves important national interests means that we should not be the only ones who shoulder the fiscal responsibility to see that it’s developed, modernized.” How willing the state and federal governments are to spend more money on a project that has already cost more than $300 million and yielded very little remains to be seen. Berkowitz added that he has a very good working relationship with Gov. Bill Walker and that the governor and legislative leaders understand the situation the city is in regarding port funding. Further, he said the city is confident in its lawsuit against the U.S. Maritime Administration, or MARAD, the Department of Transportation agency first in charge of the problem project, and that could produce a portion of the funding for the new plan. Elwood Brehmer can be reached at [email protected]

What will exploration permit ruling mean for industry?

The mining industry is waiting for the Department of Natural Resources to chart a path forward after an Alaska Supreme Court ruling that could change permitting procedures and require public notice for exploration work. Two months after the ruling in the case over Pebble Limited Partnership exploration permits went against the State of Alaska, it is still unclear exactly what the state will do to respond. Alaska Miners Association Executive Director Deantha Crockett she’s hopeful some members of the industry will be able to assist DNR in moving from “temporary permits for temporary activity to permanent permits for temporary activity.” However, the detailed work has not yet taken place. The case focused on whether or not temporary state land-use permits for exploration of Pebble’s claims were truly functionally revocable at any time, as the state claimed. DNR typically issues five-year Miscellaneous Land Use Permits, or MLUPs, and Temporary Water Use Permits, or TWUPs, for mining exploration done on state land, as in the case of Pebble. The plaintiffs listed, the anti-Pebble group Nunamta Aulukestai, Ricky Delkittie, Sr., the late Violet Willson, Vic Fischer and Bella Hammond claimed DNR should allow for public comment prior to issuing these permits, because among other things, permanent damage is could be done to state land. Exploration impacts that constitute a permanent “disposal” of land are something Alaska residents should be able to weigh in on under the state constitution, they argued. Exploration drill, or bore, holes are usually filled with concrete or other impermeable cement-like mixtures to prevent movement of groundwater between layers of bedrock and subsequent possible contamination. Robert Retherford, president of the exploration and geology consulting firm Alaska Earth Sciences, said steel drill casing is sometimes left in the hole when it becomes stuck or is needed to prevent collapse. In those instances, cement is forced down the casing until it pushes up around the outside of the casing, sealing and entrapping it in a safe concrete environment. The Supreme Court found these “concrete pillars,” as it referred to them in its May 29 ruling, to be permanent structures, which in part made the exploration permits irrevocable. DNR argued that the common practice of filling boreholes is environmentally benign. It’s a long-time common practice in the mining industry. Retherford said defining old bore holes as permanent structures “creates a lot of fog and haze” around the permitting process. Executive director for the environmental advocacy law firm Trustees for Alaska Vicki Clark said in a release after the ruling that the state has “issued permits behind closed doors without even looking at the harm to public resources,” and the Supreme Court ruling will put an end to that practice. “This decision means that all Alaskans, especially those whose rights and livelihoods are jeopardized by intensive exploration activities like those at Pebble, have the constitutional right to participate in the decisions affecting them,” Clark said. The court also found the permits to be irrevocable for large exploration projects such as Pebble’s, which totaled more than $300 million, because DNR staff could be swayed to issue or protect permits when such large sums of money are at stake. The court did not determine a monetary threshold where that becomes the case. Retherford said the issue off permanent structures simply doesn’t make sense. “We’re concluding that the people making the regulations, in this case the Supreme Court, that they’ve had enough coaching or enough time to really understand how (the exploration process) works. It doesn’t seem like that in this case, so we’ll see,” Retherford said. When a borehole penetrates no aquifers, as is often the case in mountain drilling, putting the drill cuttings back would be an acceptable way to meet the new requirements if sealing a hole is unfeasible, he said. Changing current regulations to meet the Supreme Court’s view could make some exploration cost prohibitive, according to Retherford. He said he uses a ballpark figure of $150 per foot for exploration drilling when discussing cost with potential clients. “It’s not uncommon to see a million bucks go into a hole if you’re drilling say 3,000, 4,000, 5,000 feet” when preparatory work is included, he said. The Supreme Court decision overturned a Superior Court ruling that shot down the plaintiffs’ six claims for relief. Alaska Miners Association attorney Larry Albert noted that the court did not find evidence of actual environmental harm from the filled holes, but rather used potential harm as the basis for its ruling. He also said the Supreme Court did an “end run” on the Superior Court ruling and did not rule on the merits of the case. Rather, it determined the case to be moot because Pebble’s permits had expired and exploration had ceased, but decided to rule based on the need for a resolution that had implications in an associated case dealing with attorneys’ fees. Albert said that is a legitimate course of action; however, the court ended up ruling on what happened in Pebble’s case and not on what would likely happen in future cases, thus issuing a contradictory ruling. Crockett said the ruling should concern individuals on either side of the development debate — for or against — because it clouds a permitting process that should be built on science alone. “We need to have a permitting process that’s clear, that’s predictable, that we understand and that we have confidence in,” she said. Without a defined regulatory framework using the best available science, the confidence of the public and potential project investors is damaged, Crockett said. Rick Van Nieuwenhuyse, CEO of NovaCopper, which is exploring copper deposits in the Ambler Mining District along the Brooks Range, said his company has always found Alaska to be a good permitting environment to conduct work. NovaCopper’s $5 million summer season exploration and data gathering plan is one of the few significant mine exploration projects going on in the state this year. Van Nieuwenhuyse commended the work DNR and the Department of Environmental Conservation have done in the past and said he expects state regulations “to reflect what’s reasonable.” “What we do currently and what we’ll continue to do is meet the regulations,” Van Nieuwenhuyse said. Elwood Brehmer can be reached at [email protected]

Walker expands Medicaid without Legislature

There were hugs and high-fives between Gov. Bill Walker and members of his administration as he announced the State of Alaska would accept funding to expand Medicaid via executive authority. “Today, Alaska becomes the 30th state to accept the benefits of Medicaid expansion,” Walker said during a July 16 briefing at the Alaska Native Tribal Health Consortium office in Anchorage. Accepting and spending money by the State of Alaska typically requires the Legislature’s approval. However, because the Medicaid funding is federal dollars and does not involve the general fund, it can be done administratively. Walker sent a letter to Legislative Budget and Audit Committee chair Rep. Mike Hawker, R-Anchorage, July 16, stating he would begin the administrative process by submitting the requisite Legislative Revised Programs to expand Medicaid and accept $148.6 million for the state’s 2016 fiscal year that began July 1. Growing the low-income health care program will make about 42,000 uninsured residents eligible for coverage; about 20,000 are expected to sign up in the first year. Newly eligible for Medicaid under the program will be adults without dependents who make less than 138 percent of the federal poverty level; for single individuals that is $20,314 per year and for married couples it’s $27,490 annually. The Legislative Budget and Audit Committee now has 45 days to vote on whether or not to accept the funds. If the governor’s recommendation is voted down, he must then evaluate the committee’s decision and send another letter notifying members of his final decision. The administrative move has been used seven times prior in the state’s history, according to Walker, to accept settlement money resulting from the Exxon Valdez spill and other unusual agency funding. Regardless of the committee’s vote, Walker said he expects the State of Alaska to accept additional Medicaid funding Sept. 1 at the latest — the end of the 45-day period. Health and Social Services Commissioner Valerie Davidson said more Medicaid money would also save the state $6.6 million this year and over $100 million over the next six years by using federal funds to foot the bill for things the state is currently paying for. Walker noted in his speech that 160 local governments, associations and nonprofit organizations in Alaska have formally supported expanding federal Medicaid funding, which was a cornerstone of his campaign last year. It was also major issue left unresolved by the Legislature this year after the regular session and a special session called by Walker that included Medicaid expansion and reform. More than 60 percent of Alaskans support the move, according to the governor. “This is not a partisan issue,” he said. Democrats in the House and Senate commended Walker’s announcement. “Gov. Walker is being forced to use his executive power to expand Medicaid because the Republican controlled leadership in the House and Senate refused to properly consider an expansion bill this past session,” Independent Democratic Coalition Leader Rep. Chris Tuck, D-Anchorage, said in a formal statement. “We have an opportunity to get health care for 40,000 Alaskans and receive nearly $400,000 a day (in) federal funding. It’s the right and moral thing to do and our coalition applauds the governor’s leadership on this issue.” A $145 million line item for federal receipts to expand Medicaid included in Walker’s budget proposal was cut out by the Legislature during the budget process. Walker introduced reform and expansion legislation, Senate Bill 78, in the middle of the session, which some legislators said did not give them enough time to review the complexities of overhauling a $1.5 billion program. Sen. Pete Kelly, R-Fairbanks, one of the most vocal critics of expansion in the Legislature, introduced Senate Bill 74 focused on reform. Both pieces of legislation remain in committees. “Regardless of federal funding, we cannot afford the Medicaid system we currently have now. In addition, our current system is broken. Adding tens of thousands of people to a broken system will do nothing to improve the quality of care, access, or efficiency,” Kelly said in a formal statement after the governor’s announcement. Walker said he wanted expansion to happen through the legislative process, but he was left with no choice.  “This is the final option for me; I’ve tried everything else. Alaska and Alaskans cannot wait any longer,” the governor said during the press conference. A release from the Alaska Republican Party claims Walker agreed with legislative leadership to hire experts to determine the actual cost of the existing Medicaid program and help plan for reform. “Prudence demands caution. I’m disappointed the governor has chosen to abandon the legislation he introduced,” House Speaker Mike Chenault said in a release. “I think his rush to judgment before even hearing from expert consultants is the wrong approach — with potentially serious negative consequences for Alaska.” Walker spokeswoman Katie Marquette said the governor never made the agreement purported by the Alaska Republican Party. Medicaid expansion is “a catalyst for reform” and DHSS has plans to implement reforms that could save $570 million over six years, Davidson said. Those reforms focus on fraud control, overuse of emergency rooms, refinancing home and community-based services and encouraging Alaska Natives to use Indian Health Service Facilities, which is completely federally reimbursed, she said. Greater Fairbanks Community Hospital Foundation President Jeff Cook said expanding Medicaid would ease costs on the rest of the health care system right away. “Patients without coverage often have to resort to the emergency room for what should have been basic care, but often they wait so long it becomes chronic care. This is uncompensated care that could have been done more efficiently and effectively in a better setting which Medicaid expansion will allow,” Cook said. The cost of the emergency room care Cook described is absorbed by providers, hospitals and the insured general public through higher premiums, he said. Concerns about further stressing a once broken Medicaid billing and payment system have largely been alleviated, according to Davidson. The much-maligned Medicaid Management Information System is now making accurate and on-time payments at a better than 90 percent rate, she said. The Walker administration also estimates expansion will generate about 4,000 new jobs in the health care industry, but also in construction of facilities and support services. Labor Commissioner Heidi Drygas said her department is using a $3 million federal grant to accelerate registered apprenticeship programs in the health care field. “The (Labor) Department is working to ensure that our vocational training programs in Alaska are designed to provide skilled health care workers to employers,” Drygas said. “Increased access to targeted training will likewise increase the quality of healthcare in Alaska.” Walker said he’s not sure if the Legislature will refuse to fund expansion when it requires a 10 percent state match after several years. Currently, federal money covers the entire expansion. He likened the 90-10 federal-state funding of this portion of Medicaid to federal transportation funding, which the state accepts yearly and requires a 10 percent match. Walker has said in the past the state would drop the program if the match exceeds 10 percent. He also noted in a later speech July 16 that funding changes to the system at the federal level are unlikely because they would require congressional approval that would be unpopular given a majority of states are in the program. Elwood Brehmer can be reached at [email protected]

Back to work for Knik, Juneau and Susitna mega projects

Three of the state’s mega projects are back in business, at least temporarily, after Gov. Bill Walker’s administration partially lifted an administrative order halting spending on the development work. State officials overseeing the Knik Arm bridge, the Susitna-Watana dam and the Juneau access road all got the go-ahead to continue work with existing funding in memos sent out by Office of Management and Budget Director Pat Pitney July 6. Each of the memos notes that once authorized work is completed and immediate goals are met the projects will be evaluated in the context of the state fiscal environment and competing major capital projects at that time. On Dec. 26 of last year Walker issued Administrative Order 271, which stopped spending on six projects in its tracks: the Knik Arm bridge; the Susitna-Watana dam; the Juneau access road; the Alaska Stand-Alone Pipeline, or ASAP, natural gas project; the Kodiak Launch Facility expansion; and the Ambler Mining District industrial access road. At the time the governor said his administration would evaluate each of the projects and determine a path forward in light of lower oil prices and the resulting drastic decline in state revenue. Knik Arm bridge Department of Transportation and Public Facilities spokeswoman Shannon McCarthy said the department will pretty much pick up where it left off when work stopped in December. That work includes securing funding and a key remaining environmental permit. In early 2014, the 1.7-mile bridge and about 4.5 miles of associated connections between Anchorage and Point MacKenzie were estimated at a cost of $782 million. The state’s three-pronged financing plan has contingencies to allow for that cost to grow to $894 million without issue. Pitney wrote in the memo that moving forward with existing appropriations would give the state up to 20 years to address the bridge without needing to pay back federal money already spent. Project leaders have said the $55 million state capital appropriation to the project in fiscal year 2015 is sufficient to get it to construction. McCarthy said DOT would now advance its letter of interest for a $300 million federal Transportation Infrastructure Finance and Innovation Act, or TIFIA, loan, which would cover about a third of the project cost. Yearly Federal Highway appropriations and state bonds would roughly equally cover the rest of the cost under the plan. The department also needs to finish up the final requirements for its National Marine Fisheries Service Marine Mammal Protection Act permit. That is needed to approve an in-water construction plan in Knik Arm that would not impact endangered Cook Inlet beluga whales, which feed in the arm each summer. “The National Marine Fisheries permit is really what all the other permits hinge on at this point,” McCarthy said. Right-of-way acquisition and obtaining and a needed easement through Joint Base Elmendorf-Richardson will also resume. McCarthy noted that approval of the state easement through the military installation goes all the way to the Secretary of Defense, which will take some time. The six-month delay likely pushed first construction back to 2017 at the earliest, she said. Susitna-Watana hydro The Alaska Energy Authority can spend the $6.6 million it has left from $192 million of previous capital appropriations to move forward on work related to the $5.6 billion Susitna-Watana dam. AEA spokeswoman Emily Ford said the authority was in the midst of the study report process on Susitna-Watana for the Federal Energy Regulatory Commission. If constructed, the dam in the upper reaches of the Susitna Valley would to stabilize electric rates for Alaska’s Railbelt region for generations, proponents tout. Critics of the project claim AEA’s cost estimates are shaky and argue it would harm salmon returns to the Susitna by altering natural flood cycles. The next steps are less about intensive fieldwork and research and more about holding public meetings with stakeholders on the study plan. “Hopefully next year we’ll work towards the study plan determination with FERC,” Ford said. That determination — whether AEA has met its federal requirements — is the next major step for the project. The memo states that AEA should work through 2017, at which time the Walker administration will review the Susitna-Watana dam again. Juneau access road The cheapest of the three projects, pegged at $574 million to build, is the 48-mile Glacier Highway extension north of Juneau. In September, DOT released a draft supplemental environmental impact statement, which included its preferred alternative to build the road parallel to Lynn Canal. Spending the remaining $900,000 in general fund appropriations to the project should allow the state to complete the supplemental EIS and reach a record of decision on the project, expected in January 2016. Doing so would ensure the state does not have to repay $27 million in federal investment on the project, according to Pitney’s memo to DOT Commissioner Marc Luiken. Those opposed to the Juneau road extension claim it would actually make traveling to Juneau from Haines and Skagway more difficult, as the Auke Bay ferry terminal near Juneau would be closed in favor of a terminal at the end of the road. As for the other projects, the Alaska Stand Alone Pipeline project natural gas line, has been shelved for now as the Legislature pulled funding for its development in a battle with the governor, who is interested in expanding its scope. All but $3 million of the original $25 million in capital funding to the Kodiak Launch Facility has been put back in the general fund, according to Walker’s Press Secretary Katie Marquette. “As of this year, the state no longer subsidizes the operation with general funds. The state will continue to evaluate the project in December as they are moving toward a more private partnership mode,” Marquette wrote in an email to the Journal. Funding early environmental work by the Alaska Industrial Development and Export Authority for the 220-mile Ambler Mining District road is still being evaluated by the administration. Elwood Brehmer can be reached at [email protected]

RCA report recommends realignment of Railbelt utilities

Issues of reliability and cost in Alaska’s Railbelt electric transmission system are slowly coming to a head. The Regulatory Commission of Alaska released its recommendations on how to improve power dispatch through the region June 30 in a six-page letter signed by RCA Chairman Robert Pickett to Senate President Kevin Meyer and House Speaker Mike Chenault. In 2014, the Legislature appropriated $250,000 to the RCA to provide its input on how to improve the Railbelt system the commission called “fragmented” and “balkanized” in its letter. Upgrading the Railbelt system has the potential to save ratepayers between $146 million and $241 million per year, according to the RCA. Those upgrades amount to a $900 million overhaul. More than half of the work, about $480 million worth, is in the northern portion of the intertie, according to the Alaska Energy Authority. That would improve line capacity and reliability to the Interior and regional utility Golden Valley Electric Association. Getting power from Southcentral natural gas-fired power plants and the Bradley Lake Hydro project, located east of Homer near the end of Kachemak Bay, helps lower rates for Golden Valley ratepayers by offsetting high-cost fuel oil generation. “Right now the utilities can get Bradley power but they don’t always have access to it at the optimum time of the day,” AEA Energy Policy Director Gene Therriault said during a presentation at the authority’s June 25 board of directors meeting. Not being able to draw power from a relatively cheap hydro source thus kills the economic benefit of Bradley Lake, he said. Increasing transmission capacity and efficiency would also be a must if the Susitna-Watana Hydro project were to come to fruition. The transmission work largely involves adding transformers, substations and line capacity and redundancy. While the current intertie can handle more electricity in most places, trying to push more power through the lines increases transmission losses exponentially, Therriault said. Additionally, redundancy in the lines could help keep the system operating smoothly in the event of a natural disaster. By maximizing economic dispatch of power, each Railbelt consumer would save 3 cents to 6 cents per kilowatt-hour, according to AEA. Those savings would be the avoided cost increase of doing nothing, AEA Railbelt Energy Infrastructure Engineer Kirk Warren said to the authority board. The State of Alaska owns 173 miles of transmission line between Willow and Healy, which is operated by AEA. The state authority works with the owner utilities through the Intertie Management Committee. How the overhaul of the Railbelt system is configured and paid for are the big unknowns. “A key weakness in the current Railbelt electrical system is the lack of an institutional structure to finance significant transmission assets crossing the service areas of several utilities,” the RCA letter states. Along with AEA, each utility along the intertie owns at least a small portion of the transmission infrastructure. That individual ownership complicates and challenges wholesale change to the system. Unified command To rectify the separate ownership of transmission assets, the RCA in its letter recommends an independent transmission company, or TRANSCO, be created to operate the system and execute major maintenance projects. Alaska Railbelt Cooperative Transmission and Electric Co. CEO David Gillespie said in an interview that his member utilities are largely in support of the RCA’s findings. However, actually realizing the savings projected by the RCA is the difficult part, he said. ARCTEC, as the member organization is known, is made up of five Railbelt utilities. Anchorage’s Municipal Light and Power and Homer Electric are not members. Gillespie said ARCTEC is in favor of establishing both a TRANSCO and an independent system operator; the combination would oversee all aspects of the complex Railbelt electric regime. The TRANSCO would be made up of transmission asset-owning utilities — each with an ownership stake equivalent to their asset value — and a separate firm, which would bring liquid capital to the table, Gillespie envisions. The organization would be managed however the utility leaders decide, by another entity or in-house. He emphasized the utilities do not want to outsource this responsibility. The utilities could then collectively decide which major transmission projects to tackle and use the pooled resources and added capital to fund the big work, he said. Any outside or contracted firms would be used as sources of capital, expertise and labor, Gillespie said. Midwest utilities Xcel Energy Inc. and American Transmission Co. have presented to the Legislature and the RCA over the past two years about their work to form TRANSCOs in that part of the country and expressed interest in entering the Alaska market. American Transmission Co., or ATC, was established in 2001 as the country’s first multi-state, transmission-only utility. Xcel is a generation and transmission utility. An independent, or unified, system operator would govern the actions of the TRANSCO. This would almost likely include determining the proper balance between utility returns and economic dispatch, as well as setting fair transmission tariffs. Establishing a TRANSCO would also prompt utilities to implement a “postage stamp” transmission tariff, or a single rate to wheel power along the entire Railbelt system. Currently, each utility has its own tariff, which leads to what is known as “rate pancaking.” Stacking the tariffs has hurt the economic feasibility of some renewable energy projects, including Cook Inlet Region Inc.’s planned expansion of its Fire Island Wind project outside of Anchorage. The issue has been one of contention for small power producers in the state. Gillespie said ARCTEC would need to be a facilitator of a TRANSCO and could be a vehicle organization to start a system operator. An independent system operator, if modeled after Lower 48 groups, would be comprised of non-partisan industry experts. Simply finding enough such individuals in Alaska — those without direct ties to certain interests — could be another little hurdle, Gillespie and others have said. The RCA demanded a report on development of a TRANSCO by Sept. 30 and another report on the process of transmission restructuring by the end of the year. Gillespie said TRANSCO discussions are ongoing among Railbelt utilities. “Failure to file these reports will be construed as a failure of the current voluntary efforts to develop an independent Railbelt electric transmission company,” according to the RCA letter. “If voluntary efforts fail, the commission will work with the Legislature and the administration to develop and implement specific legislation and to prioritize actions necessary to create an independent Railbelt electric transmission company.”  Past efforts to transform the Railbelt electric system have failed and the RCA was blunt in emphasizing the lack of trust that has formed as a result among independent power producers and large power customers in its findings. A reliance on state appropriations to fund transmission work has also led to this “dysfunctional history,” according the to the commission. Thus, the strict reporting timelines were called for. A push for merit order economic dispatch was also recommended. The RCA states in its letter that it should use its authority to “strongly promote economic dispatch, and seek new statutory as needed to promote this goal.” House Bill 78, currently in House committees, would clarify the RCA’s authority over electric transmission and direct the authority to bring state regulations in line with federal rules. Bill sponsor Tammie Wilson, R-North Pole, has said it would provide open access to small power generators and ease tariff disputes. Opponents, including several Railbelt utility leaders, claim the RCA already has much of the authority the bill calls for and say the legislative directive is not the way to handle complex regulatory matters. Gillespie said everyone believes there are significant opportunities to save ratepayers money, but achieving real economic dispatch is extremely difficult in practice. The fundamental flaw is that savings from the upgrades necessary to benefit one end of the Railbelt, for instance, don’t show up everywhere, he said. Thus, one utility ends up paying for infrastructure it doesn’t really need. “The costs show up in one pocket and the benefits show up in another pocket,” Gillespie said. Further, utilities have invested in nearly $1.5 billion of new generation over the last five years, as noted by the RCA. Those power plants have debt tied to them, which can only be paid for if they are making power. AEA’s Therriault and Gillespie said this power plant debt service and gas purchase contracts the utilities have can be unavoidable impediments to seemingly common sense dispatch. “Our desire to be able to predict cost and benefits is very high and our ability to do so is very low,” Gillespie said. Still, Therriault said Chugach Electric Association projected annual savings of $60 million from the $900 million transmission system rebuild in its worst-case scenario. “The cost-benefit ratio is tremendous,” he said. Transmission line bondholders would likely be open to a compromise on short-term returns if it meant more use of the system in the long-term, according to Therriault. “If you’re holding the paper on a piece of transmission infrastructure that basically is a means of wheeling a commodity, you want to see that piece of infrastructure used as much as possible,” Therriault said. “Right now, what we’re suggesting is the existing system is not being used to its full potential.” The utility boards have a narrow view out of necessity to protect their own assets and customers, Gillespie said, which can inhibit them from taking long-term views. AEA’s Warren said everyone on the Railbelt would ultimately benefit from the new system. “We’ve continuously said we don’t believe there are any losers, there’s just people winning at different levels,” Warren said to the AEA board. If or when the Railbelt electric hierarchy is sorted out, the matter of paying the $900 million bill for the transmission upgrades will still linger. Gillespie said a public and private financing combination would likely be the best solution, based on what the utilities have found now that direct state grants are boots up. “Return on equity is trivial,” Gillespie said. “There is not a material difference to customers whether it’s publicly or privately financed.” The best role for the state would be in backstopping private bonds, according to Gillespie. Therriault said the challenge ahead is finding a governing structure to maximize ratepayers’ savings and then capturing “one or two of those pennies to use for financing.” Elwood Brehmer can be reached at [email protected]

Budget cuts take Alaska-grown lunches off the menu

July 1 was a dreaded day across much of Alaska. It marked the start of the 2016 state fiscal year and the harsh realities of the state’s new financial future were about to take hold. Alaska’s youngsters will taste the impact of state budget cuts at the lunch table when the go back to school in fall. The Nutritional Alaskan Foods in Schools program was cut from this year’s capital budget. Started in 2013 under former Gov. Sean Parnell’s administration, the $3 million grant program provided reimbursable funding for school districts to purchase foods grown, raised and caught in Alaska. District leaders across Alaska that spoke with the Journal understood the need to cut state grants, theirs included, but that didn’t lessen the disappointment. Petersburg School District Superintendent Erica Kludt-Painter summed up the sentiment succinctly: “It’s kind of a bummer.” Bristol Bay Borough School District Kitchen Manager Tanya Dube said the program introduced her to the wide array of crops and livestock available in the state. It also helped her keep up with changes in national nutritional standards that require grains served in schools to be at least 51 percent whole grain. “Now, all the breads and pizzas I make from scratch contain Alaska barley. Starting next year that won’t be the case,” Dube said. The barley came from a farm near Delta. The Bristol Bay district’s annual food service budget is about $70,000, according to Dube. It got a $27,000 boost from Nutritional Alaskan Foods in Schools in fiscal year 2015. “That’s a huge jump in the funds that I have available to feed my students,” she said. Dube purchased vegetables from Meyers Farm in Bethel and salmon from local docks. “Obviously, as you know, Bristol Bay has the best salmon in the world,” she noted. And the students took notice. Dube said they began shunning produce from Outside in favor of more flavorful local crops. More staff and teachers in Petersburg have been staying at school and buying lunch since the program took off, too, Kludt-Painter said, in another testament to the difference in the quality of the products. In its last year, 54 school districts across the state took advantage of the Alaska foods program, which was managed by the Commerce Department’s Division of Community and Regional Affairs. Grant administrator Debi Kruse said the program was a huge success while it lasted. Anecdotes similar to Dube’s about students preferring and asking for homegrown foods are plentiful, Kruse said, and some farms had to grow to meet demand. “In the beginning I was really excited about the educational aspect of getting nutritional food, healthy Alaska food into our kids stomachs,” she said. “What’s more exciting to me now is from the commerce side of things. These producers have started expanding what they’re raising.” Nutritional Alaskan Foods in Schools got meats and produce moving from places outside of the state’s traditional agriculture districts near Delta and the Matanuska Valley. Kruse said carrots were going all the way from Gustavus to Kotzebue. “You hear these stories about kids saying, ‘This is what a fresh carrot tastes like,’” she said. “Those are the success stories to me.” Down the road the students are also more likely to purchase local products when they become consumers after getting a taste of what Alaska has to offer, Kruse noted. Tim Meyers, owner of the Bethel farm, sent his cool weather crops to Cordova, King Cove, Sand Point and to Dube in Bristol Bay. “What a way for the state to get ag going — to give it to the schools,” Meyers said. “It’s a real good market to motivate me to do more than I have been.” Rutabagas, of all things, were a big hit with Cordova’s kids, he said. Meyers sent about 5,000 pounds of produce to schools across the state last year, he said. This year he hopes to up his total output from 45,000 pounds to more than 65,000 pounds of veggies and greens. Another year or two of the program would have allowed him to establish firmer relationships with the schools and merge expansion and efficiencies in his operation, he said. Kruse said she thought the program needed another three years to strengthen the bonds between districts and farmers, as well as help grow the overall economy of scale of the local food buys. Initial worries about farmers and distributors inflating prices when grant money was available were ultimately unfounded, according to Kruse. However, local foods from small operations cost more nearly everywhere, and the realities of Alaska just add to those costs. “There is no doubt that the cost of raising beef up here and slaughtering it and doing all of those things is going to cost a bit more than getting something that was slaughtered three months ago, frozen and sent up here, but the bang for the buck that (the schools) are getting I think benefits us as a state,” she said. Also cut from this year’s budget was $181,000 for the Division of Agriculture’s Farm to School program. Started in 2009, that initiative was designed to simply foster relationships between farmers, fishermen and schools. The Commerce Department grants were a separate but related program. Together, the short-lived programs managed to gain national notoriety. A U.S. Department of Agriculture State Farm to School program report published in March of this year used Alaska’s local food in schools work as one of four national case studies of successful programs. According to the report, 22 states and the District of Columbia had enacted farm-to-school legislation through 2014. Ag Division Director Franci Havemeister said by 2012 the program had reached 38 districts, about 70 percent of the school districts in the state. “I think that everybody, including the Legislature, recognized the good work the program had done,” Havemeister said. Without state funding, the division is very close to securing a federal reimbursable services grant to continue the Farm to School program from the Department of Education, she said. However, that means abiding by Uncle Sam’s stipulations instead of doing completely what the state wants. Petersburg’s Kludt-Painter said her district forward-funded the food service budget with $60,000 each of the next two years because keeping superior offerings on plates is such a priority. Petersburg is also trying to source as much local fish as possible, she said. It’s of particular importance in her district, which offers breakfast, snack, lunch and after school meals, because some kids do most of their eating during the year at school, according to Kludt-Painter. “We’re hoping that we can continue to use as many of those (Alaska) products as possible if we can manage, just because the quality is better, the kids like them better and we like using things that are Alaska-grown. We just do,” she said. From each end of the supply chain, Kludt-Painter and Meyers both indicated shipping costs as being at least as much of a challenge as wholesale pricing. Reimbursement request statements from the state grant program show shipping expenses being as much as a third of the total cost of in state produce. Still, Meyers was ultimately optimistic about his ability to meet districts’ pricing needs as he expands. “I’ll definitely work with the schools I’ve been working with,” Meyers said. “I’m sure there’s absolutely no reason I can’t get them my stuff for the same price they’re getting other stuff elsewhere.” Elwood Brehmer can be reached at [email protected]


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