Elwood Brehmer

Alaska Air Group has 5th straight record year, profit up 49%

Quarterly or yearly, record-breaking profits are officially old hat at Alaska Air Group Inc. During a Jan. 22 call with investors, executives of the parent to Alaska Airlines and Horizon Air reported a record full-year profit of $571 million in 2014 and a fourth quarter record profit of $125 million. The net income figures exclude special items. It is the fifth consecutive record-breaking year for Alaska Air Group and the 10th record quarter in the last 11. It is also the 23rd consecutive profitable quarter for the company. Per share, the profits break down to 94 cents for the quarter and $4.18 for the full-year. The yearly net income is a 49 percent increase over a record $383 million in 2013 and a 62 percent year-over-year improvement on a previous fourth quarter record. The pretax margins are even better. Pretax profit for the quarter was $206 million, a 67 percent improvement over 2013; and full-year pretax profit was up 50 percent at $922 million. “We had a record year on almost every front, even as we approach the end of the second year with much more competition in Seattle,” Alaska Air Group President and CEO Brad Tilden said on the call. Tumbling fuel prices during the second half of 2014 helped many major carriers have strong years, but Tilden said Air Group’s full-year margins grew 3 percent even when lower-cost fuel is excluded. Jet fuel averaged $1.57 per gallon for domestic carriers on Jan. 9, down nearly 50 percent from a year ago, according to the International Air Transport Association. Air Group Chief Financial Officer Brandon Pederson said the company saved $42 million on fuel in the fourth quarter because of lower prices. Alaska Air Group purchases fuel call options that act as an “insurance policy” and hedge against sudden price spikes but allow it to take advantage of price declines, he said. “Our monthly profit when compared to the same month in 2013 was higher in every single month,” Tilden said. “These results affirm that we’ve built a business that performs when challenged and that works well throughout the cycle.” Alaska Airlines’ competition at its home hub of Seattle has come primarily from Delta Air Lines, a mileage plan partner, which has pushed more into the Pacific Northwest market over the last couple years. Alaska Air Group’s total operating revenue was up 4 percent for the year at $5.3 billion; for the quarter it was up 8 percent at $1.3 billion. Overall 2014 passenger revenue grew 7.3 percent on a 7.1 percent growth in capacity. A drastic improvement was also seen in the company’s return on invested capital, or ROIC. Air Group had an ROIC of 18.6 percent in 2014, up a full 5 percent. Alaska Air Group leadership has expressed a desire to hold a debt-to-capital ratio of less than 40 percent, based on research done of other companies within the S&P 500. It ended 2014 with a debt-to-capital ration of 31 percent, down 4 percent for the year. Some investors asked if it would be prudent to borrow against its capital given the low interest rates afforded it based on the company’s position. Pederson said using debt to leverage returns to shareholders could be of interest, but the company has worked hard to put itself in the position it is today. At the end of 2011 Air Group held debt equal to 62 percent of its capital. “We do a lot of things to emulate high-quality industrials, including where we set our capitalization level in the mix between debt and equity,” Pederson said. Alaska Air Group stock traded for $68.65 per share on the New York Stock Exchange at the end of trading Jan. 23. The stock price has risen about 45 percent since a June two-for-one stock split. Just before the split it traded in the $95 range. During the call, Tilden announced Alaska Air Group would increase its quarterly dividend payment to shareholders by 60 percent per share. The dividend began in the third quarter of 2013 at 20 cents per share. It is back to 20 cents per share after the stock split. Alaska Airlines’ new Boeing 737s — the only aircraft the company flies — and their increased fuel efficiency has helped the company invest in long-term cost savings. Pederson said fuel burned per mile has improved 22 percent over the past 10 years. Alaska Airlines took delivery of 10 Boeing 737-900ER, or extended range, aircraft in 2014 and will get another 11 this year. It had a fleet of 137 aircraft at the end of the year and expects to have 147 by 2017. Alaska Air Group owns 77 percent of its fleet. “For Alaska, these great results come amidst unprecedented competition in our markets, and the folks throughout our company are rising to the occasion to make us a great airline every day for our customers,” Tilden said. The roughly 13,000 Air Group employees earned $116 million in incentive pay last year, according to Pederson. With a new five-year agreement with Alaska flight attendants approved in December, Air Group has average agreements in place with all its employees nearly four years out, Tilden said. Continuing into 2015 Alaska Airlines capacity will likely grow 11 percent in the first quarter and about 8 percent for the year, Air Group Vice President of Revenue Management Andrew Harrison said. Comparably, other airline capacity is expected to be up 15 percent early in 2015. Harrison said lower fuel prices would not lead to lower ticket prices on Alaska Airlines. “When pricing tickets, we look at the supply and demand in each of our markets and adjust prices to balance the two,” he said. “Approximately 90 percent of our flying is in the United States domestic market, and the U.S. economy continues to be strong.” Elwood Brehmer can be reached at [email protected]

State funds in slashed capital budget down 91% from 2013

Gov. Bill Walker’s capital budget is short, but not very sweet. The total proposed capital spend would be $1.4 billion under the governor’s proposal; of that, $150 million would be unrestricted state general funds. While federal dollars always make up a large share of the state capital budget, general fund spending is the real indicator of the state’s situation. The $150 million in Walker’s initial budget is a 71 percent decrease from the current 2015 fiscal year unrestricted capital spend of $510 million. Just a few years ago in fiscal 2013, the unrestricted general fund spend was about $1.7 billion. Plunging oil prices have put the state upwards of $3.5 billion in debt for fiscal year 2016, according to the Revenue Department. Walker released his budget shortly after his State of the Budget address Jan. 22. He said in a press conference the following day that the special speech detailing the state’s fiscal situation was a critical and tough one to relay. “Alaskans just need to know where we are,” Walker said. More than a third of the general fund spend in his current budget — $62.9 million — will be used to match federal Transportation Department program funding. Federal funds comprise more than $1.2 billion, about 84 percent, of the entire capital budget. Walker said the state needs to cut its overall annual general fund spend between the operating and capital budgets by 25 percent in the coming years. Such a prospect assuredly means minimal capital budgets in years to come. In his speech he said proven programs such as the Alaska Housing Finance Corp.’s. Weatherization and Home Energy Rebate programs would be funded in the future. The energy efficiency enablers received a combined $9.6 million from Walker, with a $1.5 million federal match. An $8 million allocation to the University of Alaska Fairbanks for construction of its engineering building made its way into the governor’s budget. In November, the University of Alaska Board of Regents asked for $31.3 million from the state to complete the $111 million project as part of its fiscal 2016 capital request. The regents also requested $50 million for deferred maintenance and repair work and got another $8 million in Walker’s budget. The Alaska Energy Authority’s Susitna-Watana Hydro project; the Alaska Industrial Development and Export Authority’s work towards an environmental impact statement for an industrial-use Ambler Mining District road; Department of Environmental Conservation wetlands permitting revision; Fish and Game’s Chinook Salmon Research Initiative; and a new Blood Bank of Alaska building in Anchorage are notable exclusions from the capital plan. Former Gov. Sean Parnell had a total of $39.8 million in his partially completed capital budget for the five projects. The Alaska Railroad Corp. is also requesting $21.8 million to keep its Positive Train Control development on track. Combined with prior appropriations, the federally mandated and unfunded safety system for passenger railroads will ultimately cost the state and the railroad about $156 million to implement through fiscal year 2018. In his Jan. 22 speech, Walker said he wants the state to invest more in resource development infrastructure through financing as it did with the Red Dog Mine road in Northwest Alaska more than 25 years ago. While a contentious issue among area residents and environmental groups, the roughly 200-mile Ambler road proposal would be a very similar project, and would provide access to copper deposits that could possibly support one or several mines just south of the Brooks Range. AIDEA needs $6.8 million to complete an EIS for the road, according to an authority report. Walker said in a press conference the road would be looked at along with the other large state projects he put on hold to see which made sense to pursue. The key, he said, is making sure a company can commit to a mine before spending more money. “Are there companies that are ready to step up today and say they are ready to pay and step up today and be a participant financially?” he said. “That’s what we’re looking for to take it to another stage of permitting; is there a company that wants to come in and take that process over? That’s the kind of discussion we will have.” The most likely participant is NovaCopper, which has been exploring the Ambler Mining District for years. Company CEO Rick Van Nieuwenhuyse said NovaCopper has spent nearly $85 million acquiring and exploring the Arctic and Bornite deposits in the region and is hoping to have a feasibility study on Arctic done by in 2017. “We’ve got skin in the game,” he said. Van Nieuwenhuyse said he understands the state’s fiscal situation, but noted that no general funds would be used for road construction. State investment in permitting the road would encourage other deposits in the 75-mile long district to be developed by other companies, he said. Whether the road construction is financed by AIDEA loans or bonds or paid for directly by private money is still up for discussion. He said NovaCopper financing the EIS is something the company would consider, but not before its feasibility study is complete. Elwood Brehmer can be reached at [email protected]

AIDEA begins broadening Interior gas search

The transformation of the Interior Energy Project has begun. This time, a Cook Inlet gas source is a real possibility. With the Alaska Industrial Development and Export Authority back on its own in the endeavor to get natural gas to the Fairbanks area, the AIDEA board passed a resolution Jan. 14 authorizing staff to spend $700,000 to investigate a new path forward for what was, and still could be, a plan to truck liquefied North Slope natural gas south. AIDEA formally terminated its agreement with project consultant MWH Inc. Jan 5. MWH was hired to pull together the web of stakeholders and private financing needed to bring the public-private partnership version of the project to fruition. Time ran out on the concession agreement between the authority and MWH at the end of the year and the parties declined an extension. The resolution authorized $500,000 of Sustainable Energy Transmission and Supply Fund money available to AIDEA be spent to further investigate Interior Energy Project solutions. Another $200,000 would come from the AIDEA’s Economic Development Fund, “to pay for the cost of the authority’s own personnel and facilities in evaluating means of supplying energy to Interior Alaska,” the resolution states. Using its own money also allows AIDEA to look at gas sourcing options other than the North Slope. Senate Bill 23, which gave AIDEA $332.5 million in loans, bonds and grants, required the financing be used to develop a North Slope supply. As of Jan. 5 AIDEA had spent $15.3 million of the $57.5 million direct appropriation in SB 23, leaving $42.2 million available for future work. An $8.1 million loan to the Interior Gas Utility for distribution work from the $125 million in SETS funds left $116.9 million in project loans available. The remaining $150 million bond authorization has not been touched, according to AIDEA’s financial records. Board member and former state senator from Fairbanks Gary Wilken said in an interview that he hopes the Legislature will give AIDEA more tools to draft a financially viable gas plan. “The thing at hand right now is to determine what changes we need in SB 23 to move forward. Now we need to look south and explore elsewhere, and that will require a change in the law,” Wilken said. He said he has discussed the project with several members of the Fairbanks delegation. One legislator Wilken has not talked to is Rep. David Guttenberg, who has criticized the authority’s handling of the Interior Energy Project. Guttenberg told the Journal in early January that AIDEA should stick to its role as a finance agency and not manage the Interior Energy Project. The public-private partnership, or P3, plan drafted by former Gov. Sean Parnell and passed without opposition by the Legislature was “doomed from the start,” Guttenberg said. According to Wilken, Guttenberg, who was excused from the House vote on SB 23, has not offered any suggestions to him on how to improve the project. Despite a failure to finalize financial terms to build and operate a North Slope-sourced gas truck operation, Wilken said the AIDEA-MWH team made great strides during 2014. Coincidentally, the Jan. 14 board meeting where discussion was had on how to continue without MWH was one year to the day after the board chose MWH to be its project partner. “I think everyone from the beginning knew it was a challenging project,” Wilken said. “I don’t think it was time wasted nor money wasted. We have a yardstick by which to measure every other project.” MWH developed an intricate modeling program that could take in detailed cost variables — construction, operation, financing — and compute out a final gas price. The work also narrowed down what it would cost to build a 6 billion cubic feet, or bcf, per year LNG plant on the North Slope. In its early proposal, MWH estimated the cost for a 9 bcf plant to be $180 million to $220 million. Those ballpark figures turned out to be optimistic, as the last refined estimate company representatives gave was $228 million for a plant with 6 bcf annual processing capacity. “If we made a mistake we probably didn’t give (MWH) enough time,” Wilken said. He added that he admired their willingness to tackle the multi-faceted task. Wilken noted that the energy “landscape” of the state has changed significantly since SB 23 was passed early in 2013. The price of oil is less than half of what it was during all of 2013 and much of 2014, shrinking the project’s feasibility margin; and a renaissance in Cook Inlet gas production has secured a once-tenuous market. Fairbanks Natural Gas now has a 10-year supply agreement with Hilcorp to feed its existing customer base in the heart of Fairbanks. Such a contract would have been unthinkable just a couple years ago. As the Legislature and Gov. Bill Walker’s administration move further the Interior Energy Project, Wilken said he sees AIDEA continuing to play a significant role. The authority is open to partner with any party that brings forth a well-developed plan to add cleaner and cheaper options to Interior’s energy portfolio, he said. Layered agreement strained IEP Reflecting on the year of Interior Energy Project work at the Jan. 14 board meeting, AIDEA Chief Infrastructure Development Officer Mark Davis said a long-term energy solution for the Interior ultimately led to the project’s demise as it was structured. The gas trucking project, always intended to be an interim solution, required LNG plant financing be spread over a 30-year plant life to make it viable. “When the project started we thought a joint development agreement would be used — AIDEA acting as a finance arm of it,” Davis said. The plant would be owned by MWH and its investor, Toronto-based Northleaf Capital Partners, the two would also operate it. The prospect of a gas pipeline created a financial risk “sticking point,” he said. If a pipeline was built within the 30-year plant lifetime, the investor would need loan forgiveness if it was to accept the alternative supply risk. However, Davis said AIDEA’s forgiving of the SETS loans would then create an unacceptable tax liability. Thus, the concession agreement formula was adopted. That model had AIDEA forming a limited-liability company with MWH — Northern Lights Energy LLC — which was then bound to a series of conditions and precedents that had to be met before financial close of the whole project, Davis said. AIDEA would own the plant and MWH would operate it for 30 years, after which it would revert back to AIDEA. Those conditions included an overall target gas price and an engineering, procurement and construction plant price. When those prices, which AIDEA had no control over, didn’t come in low enough it all fell apart. “We think the focus going forward needs to be on the product that’s going to be delivered,” Davis said. “Instead, the concession agreement focused on a complex relationship between AIDEA and MWH, or Northleaf, that really didn’t have complete buy-in from the customers and that proved to be a problem.” Elwood Brehmer can be reached at [email protected]

Anchorage office market hesitant, retail future bright

Commercial realtors, like many folks in Alaska, are waiting to see how slumping oil prices will affect their industry in the coming year. “Everyone’s anxious; there’s a lot of nervousness. But, the truth is, you don’t just close your business down because oil prices slip,” Reliant LLC manager Ted Jensen told members of the Building Owners and Managers Association Anchorage Jan. 9. He noted that while the current price drop does not bode well for an economy as heavily dependent on the petroleum industry as Alaska, the duration of the drop is much more important than its severity at any one point. Building owners with long-term leases in place likely have little to worry about, he said. However, those with short-term tenants or leases set to expire could have a harder time keeping space occupied. “Six months from now, I think we’ll be in a better position to see,” Jensen said. “We still won’t know how long (low oil prices) are going to last and how low they’re going to go, but the market will have had a chance to respond.” A big positive is that even if the commercial real estate market takes a hit over the coming year or two, it is in a strong position right now. In Anchorage, Class A office vacancy increased, but only slightly, over 2014 from 4.3 percent to 4.6 percent today. Class B space increased a little more from 5.7 percent to 6.5 percent. Jensen said the “very healthy” office market should be able to soften with minimal impact. “We’ve got a lot head room which is good.” Recent construction of office space has contributed to the modest increase in vacancy rates. New Class A vacancy jumped from about 4 percent to 6.4 percent over 2014, according to Jensen, while only 3.8 percent of existing space is open. As recently as 2011, new Class A vacancy was as high as 15 percent, he said. Overall office vacancy in Anchorage is currently at 5 percent. Industrial vacancy stayed at about 2 percent in 2014, after being as high as 6 percent in 2010, according to Pacific Tower Properties broker Brandon Walker. JL Properties’ new office building at International Airport Road and C Street has Calista Corp. as its main tenant, but also has about 25,000 square feet remaining to be leased. Midtown’s 188 West Northern Lights office complex also has about 40,000 square feet available, Jensen said. Rent for both office classes held steady over last year, with average Class A staying at about $2.60 per square-foot and Class B going for $1.95 per square-foot. Jensen said he expects rents decrease slightly in 2015 if they change at all. State Economist Neal Fried is predicting an overall job loss in Anchorage of about 800 positions in 2015 after losing about 400 jobs last year. He emphasized that the numbers are small — a 0.5 percent loss for 2015 on an average employment base of 156,300. The losses in 2015, as they were last year, will be attributable primarily to government contraction with a net loss of 500 government jobs. While almost all of those positions require office space, Jensen said the effect on the office market would be minimal. “If you’ve got the federal building and you lose someone through attrition or retirement and you don’t rehire, there may be an empty desk. That doesn’t mean you squish everyone over and try to lease out 500 square feet to the private sector,” he said. Even with high oil prices it would be hard for the Anchorage economy to grow at this point. The Anchorage and Matanuska-Susitna region’s population grew less than 0.5 percent over the past year, according to the state Labor Department. When that is combined with an unemployment rate of about 5 percent — considered full employment — there is little room to expand. Fried said the stagnant population growth is due largely to a burgeoning economy in the Lower 48, meaning less people are coming north looking for work. Retail remains strong What’s happening to the south will also impact the state’s retail market, Commercial Real Estate Alaska Vice President Lottie Michael said. What large chain retailers do nationwide is often reflected in what happens to their stores in Alaska, despite how the Alaska market is faring. “Nationally, the big boys, the big retailers, are anticipating 2015 and 2016 to be years of expansion,” Michael said. “Because they’re driving our car I think we’re going to have a really big year in the retail market.” She said no big stores are anticipated to leave; several chains are investigating Anchorage; and others have made commitments for 2015. Men’s Warehouse, Pier 1, and cosmetic-salon chain ULTA Beauty are all moving into Tikahtnu Commons in Northeast Anchorage this year. Michael said ULTA Beauty is the only national chain she’s aware of that has ever opened in Fairbanks — just recently — before Anchorage. “What we are seeing now is what we will continue to see: repositioning of tenants, restacking of tenants, and resizing of tenants,” she said. Overall retail vacancy in Anchorage was at 2 percent last year with about 500,000 square feet of space available. She said the five-year vacancy average is about 3 percent. Average retail space is going for about $1.65 per square-foot triple net; new space costs $2.25 or more. Michael will be watching what happens with JL Properties’ 200,000 square-foot outlet mall development on C Street in South Anchorage, as well as Dimond Center’s The Outlets of Alaska, she said. New space will also become available as Sears and Home Depot resize their stores as part of national plans. Home Depot usually occupies about 30,000 square feet and will be cutting its stores in half. Alaska locations are looking for tenants to lease the new space, she said. A remodel in the Midtown Mall at Sears is allowing Nordstrom Rack to move in as Sears downsizes. Michael said marijuana legalization will almost undoubtedly be felt in the state’s retail markets based on what’s happened in other states that now allow recreational use of the drug. “Regardless of your view, the marijuana industry is going to affect us. It’s going to affect all of retail,” she said. “Look at Colorado and Washington space in retail centers, especially the older retail centers; those prices just shot up and demand just outpaced available space. I think we can see that.” She said where dispensaries locate will depend greatly on whether lease conditions permit such a business and the attitudes of neighboring tenants. Elwood Brehmer can be reached at [email protected]

Walker fires DOT commish after road report

Gov. Bill Walker fired Alaska Transportation Commissioner Pat Kemp Jan. 12 after he urged Walker to move forward with the Knik Arm bridge and the Juneau access road projects, or face repaying up to $98.6 million to the federal government. Walker spokeswoman Grace Jang wrote in a statement to the Juneau Empire that the governor wants department commissioners aligned with his priorities. Status reports on three of the state’s biggest and controversial road projects were released Jan. 9 by Walker’s office. Kemp was appointed by former Gov. Sean Parnell and had been with the department since 1971. The Empire reported that Kemp planned to retire at the end of November, but Walker asked him to remain on month-by-month basis. The former state commissioner told the Empire that he was surprised to learn the projects weren’t in line with Walker’s priorities. “That memo I sent out was just a factual memo, there wasn’t any editorial stuff in there. We just gave facts, so that was a little surprising,” he said to the Empire. “(The Juneau road) project’s been around for a while and all the previous governors supported it and this one apparently doesn’t and that’s just what happens when someone takes over.” DOT Deputy Commissioner Reuben Yost was also asked to step down. Deputy Commissioner John Binder, who oversees the state airport system, will replace Kemp on an interim basis. Jang said the governor plans to name a permanent DOT commissioner by the end of January. Walker suspended spending on six large state projects, all in the pre-construction phase, with a Dec. 27 administrative order. The governor plans to investigate which, if any, of the projects should be continued as the state faces an ever-widening budget deficit currently topping $3.5 billion. He has long said the state needs to prioritize its infrastructure spending. Walker requested the agencies leading the projects submit the reports to him by Jan. 5. “Perhaps the most significant issue is that each project must be evaluated in total, as the many specific contracts and reimbursable service agreements with other agencies are intended to advance the project,” Kemp wrote in the report to Office of Management and Budget Director Pat Pitney, who is overseeing the reviews for the governor. “Halting or even suspending any one of these activities is essentially delaying the overall project, and as such would likely trigger a financial penalty.” The State of Alaska would not save money on the federal funds allocated to these projects if they are stopped because the required state match amounts would simply be shifted to other projects along with the Federal Highway Administration dollars, according to Kemp. Transportation projects that receive federal funding must be matched by state or local sources. Federal Highway Administration, or FHWA, allocations typically require an overall project match of 10 percent to 20 percent. The state would likely have to repay $72.9 million spent on the Knik Arm bridge and $25.7 million spent on the Juneau road — a 48-mile extension of the Glacier Highway north of the capital — if the projects are killed for what are deemed political reasons, according to Kemp’s report. To date, $74.3 million of federal money has been spent on the Knik Arm Crossing by the Knik Arm Bridge and Toll Authority and state DOT, and $28.9 million on the Juneau project. The expected repayment amounts are slightly less than the federal project expenditures due to an FHWA formula used to calculate what needs to be paid back, state DOT spokesman Jeremy Woodrow said. “The Federal Highway Administration wants to know what the direction of the department is. They want to know whether we are moving forward or stopping the projects,” Woodrow said. Further, quickly reallocating the “use it or lose it” federal dollars would be a challenge because transportation projects are planned years in advance, he said. KABATA was allocated $55 million for its work and DOT got $35 million for the Juneau road in the fiscal 2015 capital budget. Both allocations included $5 million state matches. The Knik Arm bridge construction responsibility has since been shifted to DOT, and project lead Judy Dougherty has said the $55 million would get the state to the early construction phase scheduled for late 2016. Additional state match funds would be included in the overall $300 million needed from the state and FHWA for the project’s three-pronged, $900 million financing plan. The $574 million Juneau access road would be paid for state-matched federal allocations. Putting the Juneau project on hold would be easier once it has a record of decision, or ROD, according to the status report. “Delaying the project prior to issuance of the ROD for more than a year or two would result in the requirement to later restart the process with agency and public scoping, and revising or replacing the draft (environmental impact statement) as appropriate,” the report states. A supplemental draft EIS was released for the project in September. In 2006 the FWHA issued a ROD in support of the road. However, a 2011 federal Appeals Court ruling required additional alternatives to the road be investigated. Arctic director for The Wilderness Society Lois Epstein called the reports “confusing and misleading” in a formal statement released Jan. 9. “Alaska’s now-limited revenues should go not to controversial mega-projects with known community harms, but to higher priority needs such as upgrading bridges and maintaining existing state infrastructure,” Epstein said. Public debate over the Juneau access road project has been renewed after the release of the latest draft EIS. On the Knik bridge, the report states that as long as DOT is making progress on a project: “Reasonable requests for time extensions are allowed. Due to the total cost of the project exceeding $500 million, FHWA requires that a financial plan be approved by the administration’s Major Projects Office. The financial plan must provide reasonable assurance that sufficient funds will be available to meet the proposed construction schedule.” The Alaska Industrial Development and Export Authority’s look into a 220-mile industrial road off the Dalton Highway to the Ambler Mining District is the third proposed thoroughfare on the governor’s chopping block. Walker cut an $8 million appropriation to the project from Parnell’s proposed capital budget in early December. AIDEA has $9.7 million from prior appropriations to continue work on the project’s EIS and would need another $6.8 million in the next two fiscal years to complete the work. The state has spent more than $52 million $26 million on the project since fiscal year 2011. AIDEA had hoped to submit an EIS application by the end of 2014, prior to Walker’s order to stop work, according to spokesman Karsten Rodvik. Construction of the industrial gravel route would be privately financed through the authority. NovaCopper, the primary explorer of the copper deposits in the large area of Northwest Alaska has said it needs the road to make final exploration and construction of one or more mines feasible. Villages along the route have expressed great concern over how it could impact migrating caribou relied upon for subsistence hunting. Epstein said a claim by AIDEA that “No appropriated funds would be used for the construction or maintenance of the road” cannot be substantiated. Giving AIDEA the opportunity to move forward with the EIS would better allow the agency to gauge public sentiment and address concerns. It would also validate to industry that the state is willing to develop infrastructure for resource development that brings value to the state, according to the authority. Elwood Brehmer can be reached at [email protected]

State shifts from 404 primacy to wetlands mitigation options

State agencies are collaborating on ways to improve wetlands permitting despite funding cuts. What was once an investigation into whether or not the State of Alaska should try to assume primacy over Clean Water Act Section 404 wetlands permit reviews has morphed into a look at developing a broader “404” program. During the 2013 legislative session state lawmakers approved spending that allowed the state to explore the possibility of applying to take on 404 wetlands permitting. Those permits are now issued by the U.S. Army Corps of Engineers for the Environmental Protection Agency. Section 404 of the Clean Water Act limits the impact development projects can have on wetlands. Senate Bill 27 provided $1.5 million per year for fiscal years 2014 to 2016 to the Department of Natural Resources and the Department of Environmental Conservation for pre-primacy application work. The bill also allowed for seven new positions between the departments to focus on the initiative, DEC Program Manager Ben White said. Michigan and New Jersey are the only states to have assumed primacy over wetlands permits within their borders. States that do have to adhere to federal standards and the EPA still holds veto power over any 404 applications. In 2014, the Legislature decided to cut the funding, essentially suspending the work. White said some contracts were already in place through the end of 2014 when the funding was cut. “Unfortunately the plug was kind of pulled a little early and we weren’t able to get as far into exploration as we’d hoped,” White said. Exactly what it would take for the State of Alaska to assume the responsibility of 404 permitting is still unclear, he said. The timeline of the work called for a decision on whether or not to apply for primacy to the EPA sometime in fiscal year 2016. “At this point we’re finishing up what work we can and trying to figure out what our next steps are,” White said. “We’re also working. We’ve kind of shifted our focus from 404 assumption to areas where we as a state could improve the process, the 404 permitting process.” That shift in focus has led the state’s 404 program development team to look at options for new general development permits and ways to expedite current ones. White said the state is currently partnering with the Corps to possibly revamp general placer mine permit renewals. A complete 404 permit also requires a Section 401 water quality permit from DEC. The state was starting to explore ways to combine the two into what could be a DNR permit, making “sort of a one-stop shop for permits so an applicant can come in and talk to one group and process it,” he said. The engineering and consulting firm HDR Inc. recently issued a report to DNR and DEC that investigates options for the state when it comes to wetlands mitigation banking, which is growing in popularity nationwide. It was one of the last pieces of work done under SB 27. “At some point I think the state’s going to have to explore being involved in mitigation banking as far as assisting in the setup of banking,” White said. The EPA and Corps of Engineers issued new standards in 2008 that “promote no net loss of wetlands by improving wetland restoration and protection policies,” according to the EPA. The rules increased the use of mitigation banking, which allows a project developer to improve off-site wetlands as a compromise for possible damage that could occur as a result of the project. Mitigation banking is only allowed after avoidance and minimization of on-site wetlands damage has been exhausted. Sharmon Stambaugh, a large project coordinator for DNR said the department took the lead on compensatory wetlands mitigation efforts. She has been looking at whether state lands could provide an opportunity for mitigation. The state could potentially save, and even make money if it started a compensatory wetlands mitigation bank program or became what is known as an in-lieu fee sponsor, Stambaugh said. State transportation departments are some of the biggest customers of mitigation banks. Since 2009, Alaska DOT has spent about $8 million to meet 404 requirements and offset damage its projects have done to wetlands across the state. Nationwide, 31 states have some wetlands mitigation banking options. With roughly 65 percent of the nation’s wetlands in Alaska it only makes sense for the state to have such a program, White said. Former Fish and Game commissioner Frank Rue is currently the executive director of the Southeast Alaska Land Trust in Juneau, one such in-lieu fee sponsor. An in-lieu fee sponsor organization is certified by the Corps of Engineers to take on the responsibility of finding wetlands to preserve that will offset those damaged by a development project. “A landowner can come to us and say, ‘This is what the Corps has told me my obligation is for the wetlands impact I’m causing,’” Rue said. “They ask us, ‘What would it cost me to just pay you a fee to take on this obligation?’” The impact to wetlands is measured in terms of acres and wetland type. Once a conversation is had about the project and a price is hammered out the landowner or developer sends the trust a check and the trust in-turn sends the Corps a letter stating the obligation has been transferred. The whole process is overseen and approved by the Corps of Engineers. “Once we send that letter to the Corps, the Corps gives the green light to the project and the project doesn’t have to worry anymore about meeting their obligation for wetlands mitigation. We have to do that,” Rue said. From there, the Southeast Alaska Land Trust begins the hunt for a similar size piece of property with similar wetlands — as rated by the Corps — to purchase from a private landowner. The property will be as close to the impacted site as possible, he said. Often the parcels are virtually undevelopable, Rue said, which makes finding someone willing to sell them easier. If the situation allows, the trust will donate the property to a local government or to the state while keeping an easement that prevents development. When a landowner wants to keep the parcel private the trust can purchase an easement — essentially development rights — to keep the wetlands intact. The trust currently holds easements on 3,400 acres in Southeast. Final cost of using a mitigation bank or in-lieu fee sponsor varies greatly, Rue said, because it all depends on the value of the property. He said the state could become an effective in-lieu fee sponsor, particularly because nearly all shoreline areas are state-owned. “If you’re trying to replace or protect something equivalent to what was lost the state really has all the cards. I think they could play a big role for inter-tidal fill,” he said. Stambaugh suggested the state look south to what is being done in the rest of the country in terms of wetlands restoration being used for banking instead of strict preservation. “There are different ways that you can provide compensatory mitigation. Preservation is not used in the Lower 48 very much because there isn’t much left to preserve in many states, but here it’s the primary way,” she said. “You can avoid and minimize the impacts but then you have to compensate. Preservation is not the preferred method. Restoration of wetlands and bringing marginal wetlands into productive ecological value, that’s considered a higher priority.” She said the state has “tons of land” where compensatory mitigation and restoration could be done. Elwood Brehmer can be reached at [email protected]

Interior Energy Project on hold as MWH declines extension

After a year-and-a-half of work, time has run out on the Interior Energy Project — at least for now. MHW Global Inc., the Alaska Industrial Development and Export Authority’s partner in the plan to truck North Slope-sourced liquefied natural gas to the Fairbanks area, withdrew its request for an extension to its contract on the project in a Dec. 30 letter. The working contract, known as the concession agreement, expired Dec 31. The AIDEA board of directors discussed the option to extend the agreement up to 90 days in an executive session at its Dec. 16 meeting but did not take any action on the matter. AIDEA spokesman Karsten Rodvik said the authority formally terminated its agreement with MWH Jan. 5. “AIDEA is fully committed to the goal of bringing affordable energy to the Interior, and we appreciate the effort that MWH put into helping bring the North Slope LNG plant closer to reality,” Rodvik said. “MWH achieved a great deal during 2014, and we thank the entire MWH team for all of their hard work.” With no contract in place for a gas supply and delivered gas price estimates coming in at up to 35 percent higher than first projected, the AIDEA-MWH team was unable to meet its own deadline of the Dec. 16 board meeting to have the complex project’s loose ends tied. MWH issued a statement to the Journal Dec. 31 from its corporate headquarters in Broomfield, Colo., saying the move does not mean it is withdrawing from the project and that the engineering and consulting company is still engaged with AIDEA and the local utilities to determine its role in the future. “We believe this is the most appropriate decision for all stakeholders given that the (Interior Energy Project) does not appear to have the level of community and utility support needed to be successful as it is currently structured,” the statement reads. “Without this support, we believe a 90-day extension to continue working toward financial close would be unproductive.” MHW declined additional requests for comment. On Dec. 22, AIDEA Executive Director Ted Leonard sent a letter to MWH Vice President and Alaska Manager Chris Brown that stated AIDEA had “no desire to deviate from the existing provisions of the concession agreement,” which was set to expire Dec. 31. Leonard encouraged MWH and its joint venture with AIDEA, Northern Lights Energy LLC, to complete all work to achieve financial close without an extension to the agreement. The concession agreement was formalized in September and references Nov. 21 as the first target for wrapping up Interior Energy Project financials. Leonard’s letter to MWH said AIDEA would be open to an extension, but the concession would be non-exclusive moving forward. Leonard also conditioned an extension on the premise that contracts with the utilities be in place by Feb. 28. Further, AIDEA was liable to MWH for $1.25 million of work under the original concession agreement. The authority’s conditions for an extension would have kept that cap in place. Brown responded in a Dec. 30 letter to Leonard that while financial close was not going to be reached by the deadline, MWH had met the project’s other requirements. It had provided a North Slope gas price lower than could be achieved from Cook Inlet, where a long-term supply has not been developed, according to Brown. “Our thoroughly vetted capital cost estimates resulted in an LNG price at the North Slope — the pricing reference point established under the concession agreement — which was within the acceptable range for the Interior Energy Project as described to us by AIDEA,” he wrote. Blowback from the public at the latest AIDEA board meeting based on a perceived lack of progress, notably from Fairbanks North Star Borough Mayor Luke Hopkins, led MWH to believe it did not have the community support it needed. Brown also wrote to Leonard that the conditions of an extension would discourage private investment in the project. “These conditions would undermine the commercial integrity of the concession agreement and make it impossible for MWH and other counterparties to undertake the commercial activities that are necessary for financial close,” Brown wrote. Brown concluded the detailed, three-page correspondence by noting that MWH would work with AIDEA to support an Interior Energy Project that pursued strictly public funding options and would make its work available “for appropriate and fair compensation.” Differing opinions were raised at the Dec. 16 AIDEA board meeting on how the authority should move the project forward. Hopkins and Interior Gas Utility chair Bob Shefchik said the Interior Energy Project needed a new direction. Dan Britton and Cory Borgeson, the respective heads of Fairbanks Natural Gas and Golden Valley Electric Association, asked the AIDEA board to grant the extension to MWH if for no other reason than the lack of a better, current option. “I believe that MWH is far enough along and has enough knowledge and enough respect from everyone that they would still be a potential contractor for this project,” Borgeson said Jan. 5. AIDEA officially took over the Interior Energy Project after the 2013 legislative session when the Legislature passed Senate Bill 23, sponsored by then-Gov. Sean Parnell, which gave AIDEA the right to allocate $332.5 million in loans, bonds and grants to support the North Slope LNG trucking operation. Project leaders began estimating that a final gas price to residents of about $15 per thousand cubic feet, or mcf, of gas would be feasible shortly after AIDEA began its work and before MWH was chosen as a partner. At $15 per mcf the natural gas would be about half the cost-energy equivalent of heating oil at $4 per gallon and save many residents thousands of dollars on their annual home heating bills. The first real blow to those estimates came in October when Borgeson told the Journal he believed the early delivered gas price would be in the $20 per mcf range and fall gradually as demand ramped up. MWH and AIDEA disputed the claim at the time. However, Borgeson, and later Shefchik were proved correct at subsequent AIDEA meetings when MWH’s Rick Adcock conceded to the board that first gas would likely be between $18 and $20.50 per mcf under the project’s current financial structure. Beyond simply not hitting the initial target, higher gas prices could deter residents from converting their home heating systems to natural gas — a conversion that could cost some up to $10,000. The substantial demand increase needed to lower gas prices in subsequent years of the project likely wouldn’t occur at the rate the utilities hoped without the expected conversions. The sticking point has been the cost of the North Slope LNG plant. The plant’s capital and operations costs would be diluted directly into the final cost of gas. MWH’s latest target cost was $228 million for plant with annual capacity of 6 billion cubic feet, or bcf. In its November 2013 proposal to AIDEA, MWH told the authority a 9 bcf plant would probably cost $180 million and likely not more $200 million. AIDEA’s early estimates — before MWH’s involvement — were that gas processing and liquefaction would cost less than $3 per mcf. Adcock said Dec. 16 that processing would likely cost at least $5 per mcf from a 6 bcf plant at operating at full capacity. With demand in the first couple years of the Interior Energy Project projected at about 3 bcf, the processing cost could be up to $9 per mcf, Borgeson said. In a last-ditch effort to save the project’s feasibility, Borgeson proposed Golden Valley would purchase 5 bcf of gas demand from the North Slope plant despite only needing 2 bcf of gas to offset the fuel oil it burns to produce about 30 percent of its power. “We would be willing to pay for a five-car garage when we only need to put two cars in it,” he said. Golden Valley could still save its members $5 million to $6 million per year even while paying for 5 bcf and using 2 bcf if oil were at $105 per barrel, Borgeson said in an interview. It wasn’t enough. MWH’s initial proposal also called for $65 million of private investment into a $180 million plant. The concession agreement called for a maximum AIDEA loan and grant contribution totaling $135 million, leaving nearly $100 million to be privately financed on a $228 million LNG plant. Toronto-based Northleaf Capital Partners was MWH’s silent investment partner. On top of the private investment that would need to be repaid, the concession agreement set a 12.5 percent maximum rate of return on Northleaf’s money, further driving up the cost of the plant and ultimately the cost of the gas. The Sustainable Energy Transmission and Supply Fund loans AIDEA was authorized to issue under the Interior Energy Project legislation are capped at 3 percent interest. “The concession agreement was really a P3, a public-private partnership, and I think now that model that Parnell came up with doesn’t work — that the investor in the (P3) would make requirements that would make this too difficult and costly,” Borgeson said. “It was always my belief that this project required aid funding because of the significant investment without a known customer base and the only way to make that work is to reduce the cap-ex (capital expenditure) cost.” Rep. David Guttenberg, a Fairbanks Democrat who has voiced concern about the project, said the financial structure doomed the current iteration of the Interior Energy Project. “I was concerned with bringing MWH in to begin with,” Guttenberg said. “It’s just an investment group in the end that’s going to be guaranteed a 12.5 percent return on their money.” The state or the Interior Gas Utility, controlled by the Fairbanks North Star Borough, should own the LNG plant, according to Guttenberg. A publicly owned plant would avoid $4 million or more of property taxes to the North Slope Borough each year, another cost that would be rolled into the gas price. In discussions with AIDEA leaders, Guttenberg said he has asked the authority to come up with a proposal that works and can be presented to the Legislature. In response, authority officials have said that would be going outside the bounds of SB 23, which controls the North Slope gas project. “I think AIDEA is acting as the project manager and they should just be the banker and not the project manager. A significant restructuring is the only way this project is going to move forward,” he said. Those in Anchorage, where AIDEA is headquartered, simply don’t understand the strain of Interior energy costs, according to Guttenberg. “Let me be blunt: people in Anchorage are clueless. People in Anchorage have no idea how crippling the energy situation is in this state,” he said. Guttenberg added that a lower-cost energy solution for the Interior would benefit the whole state by opening up roughly $300 million of disposable income that is now spent on heating bills. According to Borgeson and the Interior Gas Utility’s Shefchik, the project needs more public funding directed at the North Slope LNG plant to drive down the gas price and in turn encourage conversions. In the months leading up to the passage of SB 23, he and Borgeson pursued a $200 million grant for Golden Valley to build a North Slope plant, Shefchik said. With the prospect of such a donation out the window given the state’s immediate financial situation, he said other avenues of low-cost financing need to be investigated. “I expect there will be a one- or two-month window of, ‘Let’s look at all the options that are before us and reorient on the one that’s going to get us the gas approaching 15 bucks and move forward,’” Shefchik said. Whatever it looks like, the next iteration of the project should include the utilities at its core, he said. Guttenberg said AIDEA and the utilities would be asked to come before the Legislature in the coming session to craft a new plan. “It’s a process; nothing ends the way its started,” Guttenberg said. The near-term collapse of the oil market shouldn’t affect the viability of the Interior Energy Project, according to Shefchik. With first gas once scheduled for late 2015, then 2016 and likely later now, oil prices are likely to rebound in that time. The need for a cheaper, and cleaner, energy source will not go away, he said. A natural gas pipeline, however, could change plans, given the Interior Energy Project was always meant to be an interim solution. “The question of whether there is a gas line that will be on the near enough horizon to say, ‘Well, we wouldn’t want to invest in a plant;’ that’s a tough one,” Shefchik said. Elwood Brehmer can be reached at [email protected]

Retail growth signals a strong economy says AEDC

It’s no secret that Alaskans love to shop. A quick Saturday stroll through one of Anchorage’s many malls verifies that. “It is very impressive in a $50 billion or so state economy — before the collapse of the price of a barrel of oil — that we see retail is $6.1 billion out of that,” Anchorage Economic Development Corp. President and CEO Bill Popp said at the Jan. 5 Make it Monday forum hosted by the Anchorage Chamber of Commerce. Direct statewide retail sales totaled just more than $1 billion in 2013, Popp said. Sales in Anchorage accounted for more than half of the state total at nearly $529 million for the last tallied year. More evidence of the sometimes forgotten industry’s impact on the economy: 8.1 percent of Alaska’s private business earnings in 2013 were in the retail trade, according to AEDC. Anchorage 5th Avenue Mall General Manager Stephen Welch said overall sales at the popular Downtown center were up 30 percent over 2013 through November. That enthusiasm for a hot deal is finally translating into retail job growth. In 2014, the state’s retail industry added approximately 1,300 jobs through November, Popp said. That equates to about 3.5 percent growth in total industry employment. Retail positions made up roughly 18,000 of the 158,000 jobs in Anchorage last year. “We were in a great time in terms of retail job growth in what was 2014,” he said. The growth last year ended a nearly decade-long period of flat employment in the industry. Statewide, there were 37,200 retail positions in November. Alaska averaged 35,900 such jobs in 2013 and looking back further, average retail employment fluctuated between 35,500 and 36,200 jobs from 2005-12. Welch noted that nearly 20 percent of jobs in the state are supported in some way by the retail industry. The job growth is primarily a result of national retail chains entering the Alaska market, according to Popp. Outdoors sporting goods giants Bass Pro Shops and Cabela’s both opened stores in Anchorage in 2014. Between the two they required about 400 employees when they opened. With November unemployment at 4.8 percent in Anchorage, Popp said both national and local retailers are complaining about a lack of available workforce. Unemployment rates in the 5 percent range are typically considered full employment and the sign of a very healthy economy. “Many of our retailers are bringing in managers from the Lower 48,” Welch said, due to what Popp often refers to as Anchorage’s shrinking available “labor puddle.” Challenges facing the industry include Alaska’s new minimum wage requirements and, as is the case for many industries, the state’s out-of-the way location. “One of the biggest challenges for us in brining in national tenants is supply chain logistics,” Welch said. It’s there where Anchorage’s shopping centers become complimentary and not competitive for business, he said. Supply chain economics become more feasible for retailers that have more than one location in the city or the state. When it comes to a higher minimum wage, Northway Mall General Manager Mao Tosi said he believes any impact to employers’ bottom lines will be passed along in slightly higher prices. “It’s just another cost,” he said. Alaska’s minimum wage increased $1 to $8.75 Jan. 1 and will increase to $9.75 Jan. 1, 2016. Voters approved a ballot measure proposing the minimum wage hikes in the November elections. Popp said he believes the impact will be minimal because the tight labor market has for the most part driven wages beyond the mandated threshold. “If you want a good employee you’ve got to pay for it,” he said. Elwood Brehmer can be reached at [email protected]

Uncertain year for mega-projects as Walker halts spending

How little can the state afford to spend? Gov. Bill Walker halted immediate spending on six of the state’s notable pending mega-projects Dec. 27, part of an effort to scrutinize all expenditures and minimize the fiscal year 2016 budget deficit. Walker’s administrative order stopped work on a road to the Ambler Mining District; the Juneau access road; the Susitna-Watana Hydro project; the Knik Arm bridge; the Alaska Stand Alone Pipeline; and the Kodiak Launch Complex. “Our budget deficit grows deeper as oil prices go lower. These are large projects that require significantly more state investment to complete,” Walker said in a statement from his office. “I’ve requested that the state agencies not enter into any new contracts until we’ve had a chance to look at the various projects.” He said it is a way to keep the state from committing to further work on the projects that “may not be continued during this fiscally challenging time.” Walker wants the agencies in charge of the projects to submit reports outlining operating costs, current obligations and the potential consequences of delaying or terminating their work to the Office of Management and Budget by Jan. 5. Alaska North Slope crude prices in the $60 per barrel range are hitting the state coffers hard. Fiscal year 2015 revenue, once projected at about $5 billion, is now expected to be about half that, in the $2.5 billion range. For the 2016 fiscal year, which begins July 1, it gets worse; the Department of Revenue is predicted a little more than $2 billion of state revenue in its Fall 2014 Revenue Forecast released in mid-December. Associated General Contractors of Alaska Executive Director John MacKinnon said he urges caution when it comes to possibility of “killing” any of the projects the governor has brought attention to. “All of the projects are investments in the future of the state,” MacKinnon said. He noted that the by and large the funding for the six proposed developments would be financed and not come out of the state’s general fund. A negative message from state leadership can impact the public’s perception of the state’s economic future, according to MacKinnon. “My concern is that if government starts the Chicken Little — the sky is falling — syndrome, then you’re going to see private investment shrink very quickly,” he said. Speaking on budget issues before the Anchorage Chamber of Commerce Dec. 15, Walker said he is not “declaring a crisis” and Alaska can work through these tough times as it has in the past; MacKinnon said he hopes the public continues to hear that message. AGC of Alaska, in conjunction with the University of Alaska Anchorage Institute of Social and Economic Research, or ISER, releases its construction outlook in late winter each year. Going back to his campaign, Walker has said he would prioritize the state’s big projects. In an October interview with the Journal he referred to the Juneau access road as former Gov. Sean Parnell’s “road to reelection.” Parnell had said the state has sufficient funds to investigate large projects up to the point where major construction investment decisions had to be made. Walker pulled $20 million to the Alaska Energy Authority for Susitna-Watana study work from Parnell’s “in-progress” budget, and another $8 million for work on the Ambler road environmental impact statement by the Alaska Industrial Development and Export Authority. AIDEA needs about $10 million to conduct the Ambler EIS, according to spokesman Karsten Rodvik. The development authority had hoped to file the EIS application shortly, Rodvik said. AEA has $10 million in unencumbered funds for the hydro project from a $20 million fiscal year 2015 appropriation passed last legislative session. It is currently projecting Susitna-Watana to cost $5.65 billion. The state would still need to invest more than $330 million through 2018 for Federal Energy Regulatory Commission licensing and design of the large dam, according to AEA project leaders. From there, construction and program costs would likely be financed with a loan and bond package. The state has invested $192 million since 2010 in the latest attempt at building the Susitna-Watana dam. The Department of Transportation has enough money remaining from a $55 million appropriation to the Knik Arm bridge last session to take the project to construction. Knik Arm Bridge and Toll Authority Executive Director Judy Dougherty said in early December that a request for proposals on a design-build contract for the bridge and road connections would be let sometime next year to have a construction team under contract by June 2016. That process is at least temporarily on hold with Walker’s order. AEA spokeswoman Emily Ford wrote in an email that the authority is looking at FERC licensing options to preserve the investments already made in the project if it is ultimately shelved for a time. “The FERC Initial Licensing Process is very milestone driven and with no funding currently in the capital budget and the recent administrative order, there will be impacts to the overall schedule,” Ford wrote. AEA’s latest project timeline has first power coming from the dam in 2028 or 2029. The outlook for capital projects needing state money in 2015 is shaky at best. Going into the 2015 legislative session, the project topping the list in terms of immediate ask is the Port MacKenzie rail extension. The Matanuska-Susitna Borough needs $119.5 million to finish the 32-mile rail spur over the next few years, bringing the total project cost to $303.5 million. Segments one, three and six, totaling 14.4 miles are funded and rail has been laid on the 1.8 miles of segment six, the northern end of the spur. Work on a 7.4-mile segment to the east of Big Lake will be completed by the middle of next year, according to the borough. Right-of-way acquisition is in progress for 4.2 miles of future track near Houston, as it is for about 7 miles of the route to the south through the Point MacKenzie Agriculture District. Funding is needed to purchase and lay track and ballast on almost the entire route, including the rail loop at Port MacKenzie. At least in the near term, robust North Slope oil and gas activity should help offset a lack of state investment elsewhere. ConocoPhillips is in the midst of nearly $2.5 billion of capital projects to add production through 2017. New to the Slope in 2014, Caelus Energy announced a $500 million 2015 capital plan earlier this year for its two developments, Nuna and Oooguruk. And work continues to the east at ExxonMobil’s Point Thomson, where another roughly $1.5 billion is needed to get to first production in 2016. Elwood Brehmer can be reached at [email protected]

Anchorage sues feds, requests $350M for new port design

Another year began with another lawsuit in the Port of Anchorage saga, but it ended with the promise of progress as well. The Municipality of Anchorage filed suit against the U.S. Maritime Administration, or MARAD, Feb. 28 in Federal Claims Court, an effort to recoup damages the city claims it is owed for the failed port expansion project that spanned 10 years and yielded little for the more than $300 million spent on the 53-year-old port. MARAD managed the Port of Anchorage Intermodal Expansion Project from 2003 until 2012. The municipality took oversight control of the project late in 2012 and soon after sued the original port designer, a project consultant and MARAD’s contracted managing firm. Anchorage is looking for up to $340 million from one or all of the now five adversaries it has in court, according to city attorneys. The municipality sued GeoEngineers Inc. this year, adding another design consultant to its first case in U.S. District Court. Outside the courtroom, Anchorage closed the book on the Port of Anchorage Intermodal Expansion Project and began the scaled-down Anchorage Port Modernization Project. A weeklong design scoping meeting in August led to a preliminary design revealed in November that project manager — and defendant in the first port lawsuit — CH2M Hill said would cost about $485 million. The municipality is asking for $350 million from the Legislature to finish the project in the coming years. That amount would be added to the $130 million it still has from the first round of work. 2. Knik bridge gets new plan The Knik Arm bridge project changed hands and moved forward with a new plan in 2014. House Bill 23 passed by the Legislature in April shifted funding and construction responsibilities to the state Department of Transportation and Public Facilities from the Knik Arm Bridge and Toll Authority, which led the work for more than 10 years. The change was brought about by former Gov. Sean Parnell’s new financing plan for the up to $900 million toll bridge — a three-pronged public funding plan instead of a public-private financing collaboration. KABATA will manage toll collection and maintain the bridge if it is built. The financing plan passed in HB 23 calls for $300 million each in state bonds, federal infrastructure, or TIFIA, loans and state-matched federal highway funds. In December the project team released a long-awaited socioeconomic impact study that projects minimal impacts on job and population numbers for Anchorage, Palmer and Wasilla whether or not the bridge is built. Development at Point MacKenzie is dependent on the bridge being built. The study also determined that toll revenue from bridge traffic at $5 per use for noncommercial vehicles will be sufficient to pay for the federal loans a couple years after the bridge is finished in 2020. 3. Ferry construction underway, fares to increase Work began on two new ferries and the Alaska Marine Highway System announced its first system-wide fare increase in years. A keel-laying ceremony held at Vigor Alaska’s shipyard in Ketchikan Dec. 13 marked the official kickoff of construction on the first AMHS ferries to be built in Alaska. Vigor Alaska was awarded the contract Oct. 16 to build what have been dubbed the Alaska class day boats. The 280-foot ferries were funded completely with state money — $120 million for the pair — with the idea that they would always be built in Ketchikan if Vigor and the state could reach an agreement. They are scheduled to be ready for service in October 2018. The last ferry added to the state’s 11-vessel fleet was the fast ferry Fairweather in 2005. In September, the AMHS released the design study report for the M/V Tustumena replacement, which outlines the concept design and amenities for the vessel. Replacing the 50-year-old Tustumena will likely be a 330-foot vessel — 34 feet longer — better equipped to handle the open ocean Aleutian route the “Rusty Tusty” serves. A day before the keel-laying deputy at a Marine Transportation Advisory Board meeting Transportation commissioner Reuben Yost said fares on most AMHS routes would increase 4.5 percent beginning May 1. It is the first sweeping rate hike since 2007, according to Yost. The price hike will affect travel booked after Jan. 1. Routes with fares 25 percent higher than similar-length trips will not be included in the rate increase. The ferry system also pulled a ban on travel by unaccompanied minors in November before the policy went into effect. Yost said unforeseen flak from the public caused the AMHS to scrap the idea. In the future, parents of minors traveling alone will probably have to sign a form approving their travel depending on the age of the child, Yost said. 4. Unmanned aircraft industry takes off Alaska’s unmanned aircraft industry took some leaps forward in 2014. The nation’s first overland commercial flight of an unmanned aircraft system, or UAS, as they are called in the industry, took place in the North Slope June 8. UAS manufacturer AeroVironment flew its fixed-wing Puma for BP with the mission of surveying gravel roads and pads on the Slope. ConocoPhillips was the first company in the country to receive authorization for commercial flights over Chukchi Sea in 2013. A May, a quad-rotor flight in Fairbanks marked the opening of the Alaska Center for Unmanned Aircraft Systems Integration, which is affiliated with the University of Alaska Fairbanks. The Center for Unmanned Aircraft Integration was chosen by the Federal Aviation Administration to operate one of six test sites across the country on Dec. 30, 2013. The Alaska-based Pan-Pacific test site stretches into Oregon and Hawaii as well. UAS are believed to be a prime tool for all kinds of work — wildlife counting, wildfire monitoring, oil and gas infrastructure surveying — in remote parts of Alaska once the FAA approves widespread use of the craft. A draft rule detailing how commercial UAS operations will be regulated could be made available by the FAA for public comment within several weeks, according to agency officials in Alaska. 5. A year in flux for the Alaska Railroad It was an up-and-down year for the Alaska Railroad Corp. The year began on a sour note when Flint Hills Resources announced it would close its North Pole refinery, a major freight customer of the railroad. The Alaska Railroad hauled up to 2 million tons of jet fuel from the refinery to Anchorage annually since 2008. That loss of business probably cost the railroad about $11 million, according to its CEO Bill O’Leary. The 2014 legislative session was a mixed bag for the Alaska Railroad. It got $15 million of a $20.2 million appropriation to fund its federally-mandated Positive Train Control work. The unfunded safety system requirement for passenger railroads will likely cost the railroad more than $156 million in all. Over the next three state fiscal years, the railroad will need another $53.5 million from the Legislature and it has no where else to go, spokesman Tim Sullivan said. However, increased railroad-barge service, primarily from oil and gas companies, generated $5.1 million in unexpected revenue for the railroad through November, Sullivan said. That money has been put towards funding Positive Train Control infrastructure. Elwood Brehmer can be reached at [email protected]

Judge dismisses most claims in King Cove road lawsuit

A federal judge dismissed a majority of a lawsuit brought against Interior Secretary Sally Jewell in an attempt to get a King Cove emergency access road built. U.S. Alaska District Court Judge H. Russel Holland dismissed four of the five claims Dec. 19 brought by seven plaintiffs that include the Aleutians East Borough, the City of King Cove and area Native groups. Parallel claims by the State of Alaska as an intervenor in the case were also dismissed. Jewell announced her decision to deny a swap of 206 acres of federal land in the Izembek Wildlife Refuge for about 56,000 acres of state and Native village King Cove Corp. land on the Alaska Peninsula on Dec. 23, 2013. At the heart of the issue is a planned 11-mile gravel road that would cut across what is now Izembek land and complete a connection between the villages King Cove and Cold Bay. Area residents, the state and Alaska’s congressional delegation have all pushed for the road claiming it would provide safe and reliable access to Cold Bay’s 10,000-plus foot runway — a World War II military post — from where large planes can fly patients in need of urgent medical care to Anchorage. The sole claim Holland upheld was that the plaintiffs’ health and safety concerns arising from the Jewell’s decision do fall under the National Environmental Policy Act in this case. The Interior Department argued that the concerns fall outside of NEPA because they are not related to the environment. Holland ruled that they are at least worthy of consideration under NEPA given Jewell’s ruling was based at least partly on environmental concerns. When she made her decision, Jewell said the risk of impacting habitat to certain rare species of waterfowl with the road was too great and that an alternative could be sought. The federal government has spent nearly $40 million on improvements to King Cove care facilities and alternative transportation across the marine body of Cold Bay. Still, area residents assert the road is the only permanent fix. Over the years 19 people have died in plane crashes or waiting to get medevac service out of King Cove. However, no one has died trying to leave since 1994. Holland heard oral argument on the department’s motion to dismiss Oct. 20 in Anchorage. Holland agreed with the Interior Department that the plaintiff consortium’s claim that Jewell did not need to include a public interest determination with her decision because she chose the “no action” alternative. He wrote that the 2009 Omnibus Public Land Management Act passed by Congress that approved the land transfer “expressly addressed the specific question of when a public interest determination is required.” Such a finding would be needed only if Jewell had chose to approve the deal, according to Holland’s order. Also dismissed was an argument that Jewell violated the Alaska National Interest Lands Conservation Act, or ANILCA. Holland wrote that while the road could improve subsistence access to the Izembek Refuge as two of the plaintiffs alleged, the “no action” alternative invoked did not change public land status. Therefore the threshold for an ANILCA claim was not met. Holland ruled that the Interior Department did not violate a trust responsibility owed to Alaska Natives by the federal government because neither the 1976 Indian Health Care Improvement Act, nor the 2009 land transfer legislation place such a duty on the Interior Secretary to execute the land exchange. Finally, a claim that the department violated the Administrative Procedures Act was dismissed as duplicative to the Public Land Management Act and NEPA claims. Regardless of the outcome in court, Sen. Lisa Murkowski has made approval of the land transfer one of her central issues. She has railed on Jewell at every opportunity over the past year and she regretted voting to confirm the secretary when Jewell announced her decision. After fellow Republican Dan Sullivan defeated incumbent Mark Begich, Murkowski said Jewell was probably not happy with the outcome. “Sally Jewell is probably looking at the outcome tonight (Nov. 4) with a little concern about what she may be facing because I will not only be the chairman of the Energy and Natural Resources Committee, I will also be the chair of the Interior Appropriations subcommittee that has the authority over her budgets,” Murkowski said. “I’m not going to forget those women. I’m not going to forget these families. I’m not going to forget the people of King Cove. I’m not going to give up.” Elwood Brehmer can be reached at [email protected]

Interior Energy Project remains in limbo

Self-imposed deadlines have come and gone and the future of the Interior Energy Project is in doubt. Project team members from the Alaska Industrial Development and Export Authority and its partner firm MWH Global Inc. were unable to present the AIDEA board of directors with a financial package to move the energy plan forward at its Dec. 16 meeting. Dec. 16 was the most recent date circled by the Interior Energy Project team as its target to have agreements in place with all the project stakeholders. The close had been pushed back from a previous goal of early November. Overall project completion has been pushed from an original and aggressive first-gas delivery target of the fourth quarter of 2015 to the third quarter of 2016 as it stands now. MWH Managing Director Rick Adcock delivered more bad news to the board when he said current “burner tip” natural gas price estimates for Interior residents are in the $18 to $20.50 per thousand cubic feet, or mcf, of gas. “To make a $15 (per mcf) goal, that’s got to be a really cheap, efficient liquefaction plant,” on the North Slope, Adcock told the AIDEA board. With construction and engineering giant Kiewit Corp. leading the design of the plant, the target price for a 6 billion cubic foot, or bcf, annual capacity plant is $228 million now, Adcock said. That’s down from November estimates of up to $235 million but still significantly higher than the $200 million mid-range price for a 9-bcf plant MWH proposed to the board when it was competing to lead the project about a year ago. Representatives from Kiewit and MWH said the base plant cost is figured at $183 million without adding profit margin and risk contingencies. “We all want the (LNG plant) cost to come down; we’re not happy with the cap-ex (capital expenditures) now,” Adcock said. The state’s plan to truck LNG down the Dalton Highway began as a way to improve Fairbanks-area air quality and ease the burden of oppressive home heating costs by 40 percent to 50 percent — all based on $4 per gallon heating, or fuel oil. When early projections of a $15 per mcf final gas price were thought to be feasible it became the de facto target. A burner tip price of $15 per mcf is the energy equivalent to half the cost of $4 per gallon fuel oil. In late October, Golden Valley Electric Association CEO Cory Borgeson said the initial gas price to residential consumers would be in the $20 to $23 per mcf range. Adcock and other Interior Energy Project members disputed Borgeson’s claim at the time. The regional electric utility, Golden Valley would be a key anchor tenant industrial consumer of gas to make the project financially viable. For Golden Valley the gas would offset some of the fuel oil it burns to produce nearly 30 percent of its power. Then, in November, Interior Gas Utility chair Bob Shefchik largely echoed Borgeson’s gas price estimate during a presentation to the Fairbanks North Star Borough Assembly. A higher gas price reduces the incentive for residents to convert their home heating systems — a conversion that could cost some up to $10,000 — from heating oil to natural gas. If the public doesn’t convert, the project doesn’t succeed. Uncertainty over how many residents and businesses will convert creates a paradox for all involved, which makes accurately projecting the conversion rate essential. “We need to know the demand to come up with a price (of gas), and the buyer needs to know the price to come up with demand,” Adcock said. If the Golden Valley board of directors approves, the electric utility might be able to absorb up to 5 bcf worth of demand risk, Borgeson said — a way to shift risk away from the expanding gas utilities. “If the customers don’t convert, somebody’s got to pay for the plant on the Slope; that’s the reality,” Borgeson said. Previously, he had said Golden Valley could commit to purchasing 2 bcf annually. More recently, Golden Valley has modeled that it would have the need for 2.8 bcf per year for four years, according to Borgeson. After that, Fort Knox gold mine has plans to change its processes and lessen its power purchase, but that would provide time for the gas utilities to build demand, he said. The plan is a new one. “I don’t think the way things have worked out in the past week there has been much sharing of the risk,” Borgeson said. Fairbanks Natural Gas President and CEO Dan Britton and Shefchik disagreed about the demand risk, but noted that the Interior Energy Project has helped form a collaborative relationship among the utilities that have been competitors at points in the past. The three utilities have agreed to the framework of a deal that would have Fairbanks Natural Gas manage a joint fleet of LNG tanker trailers, they said. “It makes no sense for each one of us to run our own trucking operation,” Britton said. As the head of both Fairbanks Natural Gas and its partner company Titan Alaska LNG, Britton has overseen a smaller but similar operation from Southcentral to Fairbanks. Fairbanks North Star Borough Mayor Luke Hopkins testified to board during the public comment portion of the meeting that he is concerned the Interior Energy Project is becoming unsustainable. Area residents need to burn natural gas in lieu of coal and wood to improve winter air quality that can be dangerously poor at times, he said. “(The Interior Energy Project) is not going to be delivering the lowest cost natural gas in the community that we expect to get,” Hopkins said. Britton said in an interview that some in the Interior might feel entitled to lower cost energy, while others understand the challenges of the project. Ultimately, Britton said, “We want to see lower energy costs for increased economic diversity and sustainability of the community.” Fairbanks Natural Gas serves about 1,100 customers in the heart of Fairbanks with LNG trucked north from a small Southcentral plant. At the end of the Interior Energy Project discussion, the board met in executive session with MHW representatives and the utility leaders to discuss if AIDEA’s working agreement should be extended beyond a Dec. 31 financial close deadline. The concession agreement allows the development authority to extend its relationship with MWH for up to 90 days in the event an encompassing project agreement is not reached by the end of the year. Hopkins urged the board to end its affiliation with MWH over the project, as did IGU’s Shefchik. The 6-bcf plant MWH is currently recommending is “a significant change” from what was presented to the board and the public last January, when MWH was selected as the project partner, Shefchik said. “The results we have today we can’t afford,” he said. Borgeson and Britton supported extending the agreement for lack of a better option. The AIDEA board did not vote on what it will do with MWH. The next board meeting is scheduled for Jan. 14, exactly one year after the board selected the firm as the authority’s Interior Energy Project partner. Cook Inlet no cheaper Getting privately financed gas from Cook Inlet likely would not be much cheaper, if at all. WesPac Midstream LLC, an energy infrastructure company, is planning an LNG plant to serve Alaska markets at Port MacKenzie. It projects delivering LNG, without regasification and distribution costs, to Fairbanks for about $14.50 per mcf equivalent. Fairbanks Natural Gas just agreed to a 10-year LNG supply at a liquid price that equates to $15 per mcf from Hilcorp, Britton said. Titan Alaska LNG, a partner company to Fairbanks Natural Gas, recently sold its liquefaction plant that supplies the Interior utility to Hilcorp. The consent decree that binds Hilcorp Cook Inlet gas supply contracts makes it difficult to find cheaper gas in the state than what is under the Slope, Britton said. Borgeson has said the $332.5 million state financing package passed by the Legislature in 2013 to support the Interior Energy Project needs to be largely devoted to the North Slope LNG plant to drive down the cost of gas processing. With a primarily privately-financed plant, gas processing amounts to about $5 per mcf, according to MWH. Fairbanks Natural Gas and its parent Pentex Alaska Natural Gas Co. proposed a project plan to AIDEA, which competed with MWH’s, that recommended $155 million of state financing for a $185 million, 9-bcf plant. “When we envisioned this project we envisioned the North Slope plant was essentially a free plant, that’s why we wanted the state involved,” Britton said. Golden Valley requested a $200 million allocation from the state to jumpstart the project under its lead prior to the Legislature’s loan, bond and grant package. Complexity unavoidable There are legitimate reasons Fairbanks doesn’t already have a permanent natural gas supply, and the Interior Energy Project, an interim solution, is unavoidably complex.  Adcock said the team is working to reach agreements with 10 stakeholders to pull the project together — AIDEA, the three utilities, BP, Kiewit and MWH’s private financer Northleaf Capital Partners, among others. Just getting a gas supply contract in place has been more of a challenge than expected. Former Fairbanks state senator and AIDEA board member Gary Wilken has been visibly frustrated at recent meetings over the lack of progress made on a fundamental part of the project. The board was told in May that a supply contract with BP to feed the North Slope plant was nearly in place. The terms remaining to be negotiated with the producer are “perfecting amendments,” Adcock said, but it has yet to be finalized. Apparent confusion over whether or not AIDEA would use a gas supply contract Golden Valley has with BP has slowed the process, multiple project members said. Wilken said he is “not interested in crawling in bed with (BP)” given the company’s inability to reach an agreement to sell a small amount of gas. “We have spent eight months of — I’m trying to be kind — of dithering by BP and we still don’t have a contract and we’re two weeks from the end of this thing,” he said. Borgeson confirmed a rumor that former Gov. Sean Parnell called Alaska BP leadership about the Interior Energy gas agreement before he left office. “I think (BP is) hoping this project will go away,” Borgeson said. The tentative gas supply contract has a price indexed to oil, according to Adcock. At current prices of about $60 per barrel, the natural gas feedstock would be in the $2 per mcf range; at $150 per barrel, it would be $4.50 per mcf. Oil price drop a factor To make matters worse, falling oil prices could strain the projects economic viability even at a $15 per mcf burner tip price. Britton said heating oil at $2.70 per gallon would be the energy-cost equivalent to natural gas at $20.50 per mcf, the high range of MHW’s current projection. Board member Wilken, of Fairbanks, said he just purchased heating oil for $3.07 per gallon. Britton said a common price in the area is about $3.40 per gallon, but that would likely continue to drop, he said. Shefchik said conversions would probably still happen, but over 10 to 12 years instead of the vast majority happening within six years as was once thought. Low oil prices have also hurt the feasibility of storage expansion for Fairbanks Natural Gas Britton said. The utility suspended its $20 million loan application to AIDEA for construction of a 5.25 million-gallon LNG storage facility in Fairbanks. Regardless of short-term oil price, the consensus at the meeting was the need for a cleaner, cheaper energy option in the Interior will not go away. “We talk about at Golden Valley what this community needs and this community needs natural gas; there’s no doubt about that,” Borgeson said. Wilken emphasized that the Interior Energy Project work should continue in earnest. However, he said if immediate market forces can ease the heating cost burden in Interior residents the group might have a chance to search for better solutions. “Time is no longer a reason for us to make bad decisions,” he said. Elwood Brehmer can be reached at [email protected]

Most ferry rates going up; day boat work gets underway

The cost of your favorite state ferry trip is likely going up. Fares for most Alaska Marine Highway System routes will increase 4.5 percent Jan. 1 or shortly thereafter, deputy state Transportation Department commissioner Reuben Yost said during a Dec. 12 Marine Transportation Advisory Board meeting. The fare increases will first affect the 2015 summer schedule, Yost said, which begins May 1. Trips planned before the new rates are released for the upcoming spring and summer will not be impacted. “Any travel that’s already been paid for will be at the current rates,” he said. The decision to increase ferry fares is left to the discretion of the DOT commissioner. The expected rate hike comes after legislators last session requested a tariff analysis and rate report be done between sessions and presented to them in February. AMHS fares have not been changed since 2007, according to Yost. Also noteworthy, the ferry system derives about 30 percent of its total revenue from fares at the current rates. Nearly all special fares except for a winter “driver goes free” and in-state senior and child discounts have been cut in recent years to grow revenue without implementing an across-the-board fare hike, AMHS General Manager Capt. John Falvey has said. Yost said that falling gas prices should help mitigate the impact of fare increases to ferry passengers, particularly to those traveling with vehicles. “We think we are doing this in a good year,” Yost said. Not all fares are going up, however. Routes with fares that are at least 25 percent higher than the average per nautical mile rate for similar length trips will be frozen, Yost said, until they are in line with the general fare structure. For instance, the passenger fare on the Whittier to Valdez route that is popular with tourists is $89. At that price it is 68 percent more than the average fare for a comparable route, so it will not be a part of the general fare increase. The Northern Economics report commissioned by the department recommends ways to standardize and simplify the current fare, or tariff, structure. Yost said there have historically been system-wide and terminal specific fare increases but little reasoning between the two. “The relationship you see between fares has been in place for 30 years or more,” he said. In addition to freezing unusually high fares, the report recommends AMHS adopt a two-tiered structure to meet winter and summer demand periods. The seasonal adjustment should be standardized, but somewhere between 5 percent and 30 percent for passenger fares and 30 percent and 40 percent for vehicles. Commercial vehicle rates should be 60 percent to 120 percent of passenger vehicle tariffs, according to the report The system was also encouraged to set a “target farebox recovery” of 39 percent to 65 percent of its operating expenses, Yost said. Fare income of $46.8 million in state fiscal year 2005 accounted for 54 percent of total AMHS revenue, with the remainder coming from the general fund. Despite growing generated revenue by more than 16 percent since 2010 without a system-wide fare increases, the need for general fund help has grown with escalating operating costs. AMHS officials expect to gross about $56.2 million in fiscal year 2015. Yost said the fare increase would help offset a $1.8 million reduction in funds designated for the system in former Gov. Sean Parnell’s budget, which was released but not endorsed by Gov. Bill Walker.  Marine Transportation Advisory Board Chair Robert Venables said anecdotally that people in Southeast have told him that they would rather see a fare increase than reduced service. “Nobody wins if you tie up the boats,” Venables said. Alaska class vessel construction underway Vigor Alaska held a keel-laying ceremony Dec. 13 for the Alaska class ferries being built at its shipyard in Ketchikan. The twin 280-foot “day boats,” intended to service Lynn Canal between Haines-Skagway and Juneau, are entirely state-funded and will be the first AMHS ferries built in Alaska. Scheduled for completion in 2018, they will also be the first vessels added to the state’s 11-ferry fleet since the fast ferry Fairweather in 2005. The shipyard operated by Vigor Alaska is owned by the state through the Alaska Industrial Development and Export Authority. Vigor Alaska was awarded the contract to build the ships Oct. 16, but it was always the state’s goal to build them there at the largest shipyard in Alaska. The ability to control the construction location and eschew federal contracting procedures is the primary reason no federal money will be used to fund the vessels. The state has appropriated $120 million to a vessel replacement fund to build the two ferries. Initially meant for one mainline vessel, it was determined the two smaller ferries would be a cheaper way to add to the fleet. “It was quite an effort to get to (awarding the contract),” AMHS General Manager Capt. John Falvey said. “We all know we only had so much money to work with and we were able to sign that contract within that figure.” Putting the 33,000-pound bulbous bow sections in place was not only a good way to kick off the vessels’ much-anticipated construction, but it also saved the system money by sneaking in a work window just before an Environmental Protection Agency deadline. Falvey said many new vessels constructed after Jan. 1 will need to meet Tier 4 EPA emissions standards. AMHS has four, 3,000-horsepower Tier 3 power plants purchased and ready for installation in the day boats when the time comes. “(Tier 4 engines) are going to be much more expensive to purchase and much more expensive to operate because of the filtration that is required to hold the emissions,” he said. Falvey added that the La Grange, Ill.-based Electro-Motive Diesel Inc. engines are also dual-fuel, meaning the ships could be converted from diesel to liquefied natural gas to save money and lower emissions if a fuel source ever becomes available. Replacing the ‘Rusty Tusty’ The Marine Transportation Advisory Board also got a look at the features of the vessel that will someday replace the M/V Tustumena. The concept ferry will likely be bigger, 34 feet longer and 11 feet wider, than the Tustumena to add capacity and better handle the rough seas often encountered on the open-ocean Aleutian route it will primarily serve. Still, it will be smaller than the M/V Kennicott that fills in for the 50-year-old Tustumena so it can call on some of the small docks in the Aleutians that aren’t state-owned. Total cost for the vessel is currently projected to be $211 million to $237 million early in the design phase. At 330 feet, the replacement will carry 250 passengers, 76 more than the Tustumena, and have 24 more staterooms and roomettes. Space the Tustumena is often limited, particularly in the summer months. The concept is based on the design study report released in September. Final design is expected in about a year. It will also add 415 feet of vehicle space from the Tustumena, which equates to 16 additional full-size pickup trucks. With a 15-knot cruising speed the vessel will be 1.5 knots faster than the Tustumena as well. It will not have a bar, which is ultimately a revenue drain on other mainliners because of staffing expenses, according to Yost. A public participation period regarding the Tustumena replacement’s characteristics wrapped up in May. Elwood Brehmer can be reached at [email protected]

Capital budget cuts leave large projects unfunded for now

When Gov. Bill Walker released a bare bones capital budget Dec. 15, opponents of the state’s major infrastructure projects hailed the move. Walker pulled $114.3 million from the “work in progress” capital budget of former Gov. Sean Parnell that Walker released without endorsement Dec. 5. The latest 19-page capital proposal includes $104.9 million of total unrestricted general fund spending, and $73.8 million of that is money needed to match federal appropriations. It has no designated general fund spending, while Parnell’s budget had $40.8 million in designated funds; The largest appropriations were $22 million to the Alaska Housing Finance Corp.’s Weatherization Program and $15 million for the Alaska Energy Authority’s Renewable Energy Fund. Walker’s total capital budget, with federal receipts, is $1.34 billion. Parnell’s budget totaled $1.41 billion. The Legislature will almost certainly add back in some of the cuts Walker made and fund other work across the state that is time sensitive. The current fiscal year 2015 capital budget passed by the Legislature in April was $2.12 billion, with $584.1 million of total unrestricted general fund spending. Of that, $444.2 million was unrestricted general fund receipts, the money that the state has the most discretion to spend on projects. Just a few short years ago in fiscal year 2013, state lawmakers spent more than $1.66 billion at their leisure from the general fund. It’s a sign of the times. Alaska North Slope crude sold for $57.70 per barrel on Dec. 16. Notable cuts from Walkers budget include $20 million for the Susitna-Watana Hydro project, the major dam on the Upper Susitna River being pursued by the Alaska Energy Authority. “Gov. Walker’s common-sense, economics-based decision to remove funding for the Susitna dam is a strong show of leadership and willingness to walk the talk from last fall’s campaign when it comes to doing what’s best for Alaskans,” Susitna River Coalition President Mike Wood said in a Dec. 16 release. “Spending over $5 billion to dam the fourth-largest king salmon river in the state doesn’t make sense for the future of Alaska.” The need to prioritize expensive state infrastructure projects was a fundamental message of Walker’s campaign. AEA Executive Director Sara Fisher-Goad told the authority’s board Dec. 16 that the dam, which would secure long-term electrical needs for the Railbelt, would likely cost $5.65 billion. Authority spokeswoman Emily Ford said AEA has about $10 million in unencumbered funds from the $192 million it has received for the project to date. The Legislature approved $20 million for the project last session. “It has been challenging to execute full field seasons with annual appropriations,” Ford said. “In order to be in the field in May, we have to go to bid and contract with vendors before the capital budget is passed. As a result, we have worked to prioritize field efforts based on the level of funding received.” AEA needs about $100 million more to get the project through the Federal Energy Regulatory Licensing process, Fisher-Goad said. The Alaska Industrial Development and Export Authority’s study of a potential industrial access road to the Ambler Mining District in Northwest Alaska at least temporarily lost $8 million as part of Walker’s cuts. AIDEA spokesman Karsten Rodvik said the development authority is continuing to listen to community input about the road and had several days of public meetings scheduled in Fairbanks the week of Dec. 15 to 19. AIDEA is working to submit its environmental impact statement application for the project soon, and would need $10 million to complete the multi-year assessment, according to Rodvik. “We just need to wait and see what the administration wants to do,” he said. The Alaska Railroad Corp. can’t wait much longer for state help to pay for its unfunded federal mandated to complete the Positive Train Control project. The railroad is requesting $21.8 million in fiscal year 2016 to keep work moving on the technology system that would allow trains traveling at unsafe speeds to be slowed and stopped remotely. It would need another $31.7 million through fiscal 2018 to complete the $156 million project. The Federal Railroad Administration has a December 2015 implementation deadline set for the nation’s railroads, but Alaska Railroad spokesman Tim Sullivan said only one of the more than 40 rail corporations nationwide is expected to meet the deadline. As a result, an extension is expected. If a railroad does not meet the PTC deadline it can be fined daily or have its ability to offer passenger service revoked. The University of Alaska Board of Regents is requesting $97.3 million from the State of Alaska for deferred maintenance and other work. Of that, $31.3 million is needed to finish the University of Alaska Fairbanks engineering building. The project was put on hold last year while the state pays for a new and much-needed combined heat and power plant at the university. UAF spokeswoman Marmian Grimes said the original cost of the engineering building project was $108.6 million and $3 million has been added to that because of contingencies and delaying completion. About $2.5 million can be added to the total project cost each year it is delayed, she said. The university is also asking for permission to bond for $5 million to put towards the engineering building. Other projects up in the air include the $574 million Juneau access road, a project Walker criticized during his campaign. In Southcentral, the Municipality of Anchorage will eventually need $350 million for the do-over of its port construction. The municipality has about $130 million in the bank for port work now and could look to bond for some of the remainder it will need, but Mayor Dan Sullivan said the importance of the port to the whole state means it focused on the state for funding help. The Matanuska-Susitna Borough also needs $120 million over the next few years to finish its 32-mile rail spur from Houston to Port MacKenzie. Like Sullivan, Mat-Su Borough Manager John Moosey has said the rail would benefit the economy of the entire state and thus the borough should not be saddled with the bill. The rail spur would allow bulk commodities to be imported or exported efficiently from the deepwater port. Port MacKenzie is set up as raw commodity operation, while the Port of Anchorage best handles containers, fuel and consumer good shipments. Elwood Brehmer can be reached at [email protected]

State says revenue to get worse

The bad budget news keeps coming. The Alaska Department of Revenue is predicting unrestricted general fund revenue of $2.6 billion for the current 2015 fiscal year. For the 2016 fiscal year the outlook is worse; the state is expected to take in $2.2 billion in unrestricted cash. By comparison, the state took in $5.4 billion of unrestricted revenue in fiscal 2014, which ended June 30. The State of Alaska’s total revenue for fiscal 2014, including investment income, was $17.2 billion. The state released its forecast Dec. 10 in the Revenue Sources Book Fall 2014. The projections are alarming, but not surprising. Alaska North Slope oil prices have tumbled in recent months from $110 per barrel in July to $63.67 as of Dec. 8. In fiscal 2014, approximately 88 percent of unrestricted state revenue came from oil, according to the Revenue Department. A year ago the department forecasted $4.5 billion of unrestricted revenue in fiscal 2015. Gov. Bill Walker released former Gov. Sean Parnell’s fiscal 2016 budget Dec 5., without endorsement, which laid out $5.5 billion in unrestricted general fund spending. That would put the state in a roughly $2.9 billion deficit for 2016. Walker plans on releasing an amended budget proposal to the Legislature early next session, which begins Jan. 20. Reigning in state spending was a cornerstone of Walker’s campaign. Despite the currently collapsing oil market, acting Revenue Commissioner Marcia Davis is forecasting what could be seen as a dim light at the end of the tunnel. “After (fiscal year) 2016, we believe that oil prices will recover above $90 per barrel and remain higher throughout our forecasted period to (fiscal year) 2024,” Davis said in a department release. Long-term revenue projections are for annual unrestricted state income between $3.6 billion and $4.8 billion from fiscal 2017-2024 after bottoming out in 2016 at $2.2 billion. Also on the bright side, North Slope oil production is expected to increase after this fiscal year, Davis said. Following a decline of 22,000 barrels per day in fiscal 2015, Revenue anticipates production will increase 15,000 barrels per day in 2016 and 10,000 barrels per day in 2017, keeping average production rates above 500,000 barrels per day for the next three fiscal years, she said. North Slope production was flat between the 2013 and 2014 fiscal years, bucking a historic trend of roughly 6 percent annual decline. “Although, in the short term, lower oil prices lead to lower revenues, our long-term view is optimistic,” Davis said. “Greater investment by the oil and gas industry on the North Slope and solid performance of state investments makes Alaska’s overall financial health sound.” Elwood Brehmer can be reached at [email protected]

Knik bridge study indicates minimal population impact

Other than changing the view to the north, the Knik Arm Crossing would not impact the look of Anchorage much at all, even in the long term, according to the latest study of the proposed bridge released Dec. 8. Alaska’s population hub will likely be home to nearly 302,000 people by 2040 if the bridge is never built, according to the Knik Arm Bridge and Toll Authority’s Comprehensive Traffic and Revenue Study. If built, there would be a few less people, about 296,300 residing in the City of Anchorage by 2040. The city had a population of 259,300 in 2012, the baseline year for all study data. The rest of the Municipality of Anchorage would see about 3,200 less people if the Knik Arm bridge is built, but still nearly double its population from 35,400 in 2012 to 60,700. Some local and state leaders have viewed the bridge as a relief valve for Anchorage, which has escalating housing prices and diminishing developable land. Bill Reid of Cardno Entrix, which compiled socioeconomic data for the study, said the bridge would encourage some businesses to move as well, but not many. “The isolation (of Alaska) bumps up the growth economically, but not substantially,” he said, when compared to the impact major infrastructure projects can have in the Lower 48. The entire Municipality of Anchorage would lose about 1,500 jobs from the bridge, less than 1 percent of the 203,600 by 2040 projected without it. The up to $900 million project would build a 1.7-mile bridge from Anchorage to Point MacKenzie; an 800-foot tunnel underneath the North Anchorage Government Hill neighborhood; and about 4.5 miles of total connections to existing roads on either side. Population forecasts for the Matanuska-Susitna Borough are inverse of Anchorage, but similar in that they are impacted little by the bridge. Without the second link between the jurisdictions, the Mat-Su Borough population is expected to more than double from about 90,000 in 2012 to nearly 197,000 residents by 2040. If the bridge is completed by the state’s current 2020 goal,there will be about 207,000 people in the borough, a difference of about 9 percent, according to the study. The borough’s population has grown by about 6 percent annually since 1990; the Municipality of Anchorage has grown about 1 percent per year over the same period. People and subsequent jobs from Anchorage and the broader Mat-Su Borough would meet at Point MacKenzie. The bridge would add more than 33,000 people and 8,000 jobs by 2040 to the rural area that had a population of less than 2,000 a couple years ago. As soon as 2025, it is estimated that Point MacKenzie’s population would grow nearly seven-fold with the crossing. Given the area’s close proximity to Anchorage, that would provide for a significantly shorter commute — 20 to 25 minutes as opposed to 45 minutes or more in other parts of the Mat-Su Borough — to the city’s Downtown. The Mat-Su Borough is in the concept stages of planning two new town sites between the proposed bridge corridor and the Parks Highway to the north. Traffic projections from the study indicate the toll bridge would get used enough, even in early years after construction, to pay for federal loans that would fund a third of the project, KABATA Executive Director Judy Dougherty said. With the $5 one-way toll for passenger vehicles that KABATA and the state Department of Transportation have proposed, it’s estimated 7,600 vehicles would cross the two-lane bridge each day immediately in 2020. That would be about 15 percent of the 50,700 trips projected between the borough and Anchorage that year. Without the toll the daily traffic jumps to 10,200. By 2040 the bridge would handle 40,700 trips per day, 37 percent of the traffic between the areas, according to the study. Dougherty told the Senate Finance Committee in April that about 10,000 vehicles per day would be needed to pay for the federal loans and operations and maintenance of the bridge. The latest study estimates that the 10,000 daily crossings threshold would be met sometime before 2025, when the bridge should handle 16,700 crossings per day. A traffic forecast done in 2011 projected 16,200 vehicles per day would cross the bridge in 2020 but that assumed a 2016 completion, which would be the start of construction as the project stands now. The state’s latest funding plan for the project is to take advantage of U.S. Transportation Department Transportation Infrastructure Finance and Innovation Act, or TIFIA, loans to cover $300 million of the project. Another third would be paid for with state bonds and the remaining roughly $300 million would come from the Federal Highway Administration with a roughly 10 percent state match. Overall, the state would pay about $30 million in general fund appropriations for construction. KABATA has spent about $80 million on the project since its inception in 2003. The Legislature approved $55 million for early construction of the project last session — largely federal money with the required state match. If traffic does not materialize as quickly as forecasted Dougherty has said the 20-year TIFIA loan could be refinanced out to 35 years. Since the Legislature transferred the funding and construction responsibilities from KABATA to state DOT last session there has been some delay in drafting the loan application documents, according to Dougherty. KABATA retains its role as the toll collector and maintainer of the bridge if the project is completed. A letter of interest to the Federal Highway Administration, the first major step in the loan application, has been revised to include DOT as the borrower, she said. Additionally, DOT and Revenue needed to be brought up to speed on operations and maintenance projections, $7 million to $8 million per year, and benefit-cost analyses, Dougherty said. It still needs to be worked out with the Highway Administration whether the operations and maintenance costs can come off the top of the toll revenue, or if the loan payments are serviced first by the money. Working as a part of DOT’s bridge team, she said, the revised work was ready for submission just prior to the election, but now will need to be held back as members of Gov. Bill Walker’s administration are familiarized with the details of the plan. The hope now is to submit the letter of interest documents sometime in January, Dougherty said. Once it is sent off, the state’s initial eligibility for the loan should be determined within two months. She said the entire process, which includes a plan for toll collection — the state will do it electronically — and submission of contract documents, could take a year to 15 months. Regardless of financing, construction cannot begin until outstanding environmental permits are secured. Dougherty said the state asked the U.S. Army Corps of Engineers to close its pending application for a Clean Water Act wetlands permit because of the delays in the project. It can be reopened at the state’s request. A permit application needs to be approved by the National Marine Fisheries Service as well. NMFS is responsible for assuring construction will not significantly impact the endangered Cook Inlet Beluga whales. Dougherty said the current construction plan is to suspend pile driving from August through October, when the whales commonly use the upper portions of the Inlet to feed on salmon. “It’s specific to noise, and noise at those decibels that is anticipated to affect the behavior of the Belugas,” she said. It’s one of several conservation recommendations NMFS has made to the project team. NMFS officials have said a decision can be expected by early 2015, according to Dougherty. She noted that there has never been a case in which NMFS has issued a “no jeopardy” biological opinion after a proposal has gone through the National Environmental Policy Act process, as is the case with the Knik Arm bridge, and not been approved for construction. If the bridge is the first, Dougherty said the state would likely challenge the decision. Elwood Brehmer can be reached at [email protected]

Transboundary issues remain thorny

Alaska groups concerned about the impact of British Columbia mines on Southeast fisheries continue to push for federal intervention in Canada’s project review process. Leaders from Rivers Without Borders, the Southeast Alaska Conservation Council, Salmon Beyond Borders and the United Tribal Transboundary Mining Working Group urged attendees of the Dec. 2 Bureau of Indian Affairs Tribal Providers Conference in Anchorage to sign a petition requesting Secretary of State John Kerry to initiate the International Joint Commission process — the only way the Alaskans can have their voices heard they said. The commission, or IJC, consists of five commissioners, two from Canada and three from the U.S., who review transboundary watershed issues. The IJC can only get involved when called upon by both governments. In the U.S., the State Department makes that call. Rivers Without Borders Alaska Campaign Director Chris Zimmer said there are about a dozen proposed mines in British Columbia that his organization is concerned about. However, the Kerr Sulphurets Mitchell, or KSM, gold proposal on the British Columbia side of the Unuk River drainage seems to be top priority for most individuals worried about the issue. The Unuk empties into the Pacific between Wrangell and Ketchikan and supports runs of all five Pacific salmon species. KSM received preliminary provincial approval earlier this year. It would be a combined above and below ground mine. KSM’s tailings facility would be 18 miles away in the Upper Nass River drainage, which flows south and is not a transboundary river. The groups at the BIA conference said their fears are not heard in the Canadian provincial and federal environmental assessments. “The Canadian oversight process really isn’t design or capable of protecting interests downstream,” Zimmer said. Transboundary concerns are something that have bound Southeast tribes together like few issues have in the past, he said. The working group is made up of 12 of the region’s 19 tribes, according to Zimmer. Carrie James of the United Tribal Transboundary Mining Working Group said it was formed from in March from a two-day Transboundary Mining Summit held in Craig, which brought together tribes, state agencies and others to discuss cross-border development. “It was during this time that the tribes decided our best approach was to unite and find our strength in numbers to address the transboundary issues,” James said. The working group sent formal comment letters regarding KSM to Canadian agencies and also requested the U.S. Agriculture and Interior departments, Environmental Protection Agency and the National Oceanic and Atmospheric Administration engage the Canadian governments. “Alaska as a whole is under attack; our watersheds are under attack and we must band together to protect our economy and our way of life,” James said. After the Mount Polley tailings dam failure in August, Sens. Lisa Murkowski and Mark Begich sent letters to Kerry asking him to urge Canada to initiate a “panel review” of KSM. Neither specifically requested the activation of the IJC. Zimmer said mines proposed today are of particular concern because changes to Canadian review processes have reduced environmental protections to speed up permitting. Alaska Department of Natural Resources Large Project Coordinator Kyle Moselle said British Columbia and federal Canada water quality standards are “quite robust” and on par with Alaska’s requirements. “We measure the same constituents. They’re more stringent on a few constituents than we are and we’re more stringent on a few compared to them,” Moselle said. “We use the same approach and have defined standards that an effluent into a water body must meet.” Moselle acts as a liaison between Canada and Alaska on transboundary watershed development projects. “(The State of Alaska) has a seat at the table. It’s extremely important for us to have a seat at the table,” he said. “The Canadian First Nations and treaty nations are also at that table and that’s why I feel their process is quite robust.” He said that he understands the concerns Alaskans have about making sure their voices are heard in the provincial and federal reviews of British Columbia mines because he has had the same worry when representing Alaska before U.S. federal agencies. The comments of all stakeholders are addressed, regardless of their country of origin, Moselle said. Canada’s overall environmental assessment process mirrors the National Environmental Policy Act procedures domestic development projects are subject to, he said. Moselle and British Columbia Minister of Energy and Mines Bill Bennett said the province struggles with the perception that Alaskans feel they are not being heard when that’s not the case. In a November interview with the Journal, Bennett said it is the province needs to do a better to highlighting the public involvement portion of mine reviews to quell Alaskans’ fears. Moselle said the environmental assessment reports for KSM list dozens of comments from stakeholders and how each comment is addressed or mitigated in the mine plan. “There is significant discussion about the downstream concerns that were raised by Alaskans” in the public comment period, he said. Moselle set up a Canadian Large Projects page on the state DNR website devoted to shedding light on the work that goes on between the governments regarding British Columbia mines. It also contains links to the comments the state submitted after its review of the KSM proposal. Part of the problem could be some individuals do not feel they are being heard unless their requests are granted, he said. In an interview, Zimmer said that despite the state’s best efforts Canadian officials can still do what they want without IJC intervention. “Canada is fully within their right at the end of the day to say ‘Thanks, but no thanks’” to the State of Alaska, he said. Moselle said he doesn’t know if IJC intervention is warranted in the case of KSM, but he encouraged Alaskans to take advantage of the public comment periods afforded them by during Canadian mine reviews just as they would for in-state projects. Elwood Brehmer can be reached at [email protected]

Business outlook positive amid oil price drop

“Slow and steady” was the motto for most of Alaska’s banks and credit unions in the third quarter. Total assets grew 3 percent combined at five of the major state banks for the quarter. Similar asset growth was 5.9 percent year-over-year. Northrim Bank had the largest year-over-year asset growth at 20.6 percent, following its acquisition of Juneau-based Alaska Pacific Bank. With 2.8 percent growth in the third quarter, First National Bank Alaska assets grew to more than $3.2 billion. All of the state’s major credit unions also saw year-over-year asset growth for the quarter as well. The largest percentage increase was at Denali Alaskan Federal Credit Union with an 8.7 percent asset expansion. Net income results were mixed compared to the second quarter but positive year-over-year at the banks. FNBA pushed its third quarter income to more than $9.3 million, an 11.5 percent increase quarter-to-quarter and had a 12.2 percent increase year-over-year. Northrim saw its income decline 9.6 percent from earlier in the year but achieved 16.6 percent income growth from the third quarter of last year. Fairbanks institutions Mt. McKinley Bank and Denali State Bank saw income growth on both comparisons. Mt. McKinley CEO Craig Ingham has a positive outlook on the year overall. “We’re projecting for 2014 to have a better year on net income after tax, but very comparable to last year,” Ingham said. The mixed results also extended to the credit unions. Alaska USA Federal Credit Union had a 28.7 percent decline in year-to-date income, while Credit Union 1 grew its net earnings more than 35 percent. The most significant increase was at Juneau’s True North Federal Credit Union, which had a 41.1 percent increase in income. Loan activity picked up slightly from the second quarter when businesses around the state waited for voters to settle the oil tax debate in August. Wells Fargo Alaska Regional Business Banking Manager Darren Franz said his company’s state portfolio will likely end up growing about $80 million when all of the third quarter loans are funded. “We’re still hanging in there at about $1.8 billion in commitments,” Franz said. While the retention of Senate Bill 21’s oil tax structure was generally viewed as positive in the business community, he said there is always a lag in investment, which occurred in the third quarter. Franz said he expects to see more investment by the first quarter of 2015. Loan portfolios grew year-over-year at nine of 10 major state banks and credit unions, with an 8.1 percent decline at Denali State Bank being the lone outlier. The number of small business loans increased at Wells Fargo, Franz said, and deposits did too. “We continue to see deposits coming in so that’s an indicator to us that companies in Alaska are definitely operating increasingly more profitably,” he said. He attributed the deposit growth to an overall conservative business climate lingering from the financial crash of 2008-09. “We had a bunch of people keeping a bunch of dry powder in the bank waiting to see how Senate Bill 21 would go and we’re over that,” Franz said. “All of a sudden we’re worried about how this political race might go; now we’re over that and all of a sudden oil prices are throwing the state in some red operations probably.” Past due loan totals — those up to 90 days late — decreased 7.7 percent overall at Alaska banks quarter to quarter, but grew about 50 percent at Mt. McKinley and Denali State Bank. Ingham said there is some seasonality to late loan payments and that while the percentage increased sharply it was not significant in terms of total dollars. The past due total at Mt. McKinley increased about $600,000 in the third quarter. “Some of the people that are past due when they get their PFD (checks) or whatever, they bring it current,” he said. According to Franz, Alaska’s economic climate should remain strong for the near term despite Alaska North Slope oil prices approaching $70 per barrel. “I continue to maintain I would rather be a banker with Wells Fargo here in the great state of Alaska than anywhere else in the world right now for a lot of reasons, but for one its pretty fun,” Franz said. “Things are moving forward and (are) a lot better than a lot of other places.” In Fairbanks Ingham said the bright side of low oil prices is the hope that the community could see a “pass through” that would lower heating oil prices for the winter. Elwood Brehmer can be reached at [email protected]

Sealaska nears completion of land deal in Defense act

Sealaska Inc. might finally be whole after the Dec. 3 announcement of a lands package agreement between the House and Senate. The broad package of lands bills would allow the Southeast Native corporation to select about 70,000 acres of the Tongass National Forest for timber production and historic preservation, according to a release from Sen. Mark Begich’s office. A release from Sen. Lisa Murkowski said the bill, which will be attached to the National Defense Authorization Act of 2015, is a balanced approach to land management that would support economic growth. Sealaska leaders have said for years the conveyances are critical to reviving the region’s fading timber industry. The latest Sealaska land bill, submitted in February 2013, allocated slightly more than 70,000 acres to the corporation; acreage owed to it under the Alaska Native Claims Settlement Act. Sealaska Vice President and General Counsel Jaeleen Araujo said in an email that the company is thankful for the work that went into the bill. “Sealaska is pleased that its land entitlement bill is included in the omnbibus lands package that is attached to the National Defense Authorization Act. We can now only wait in anticipation, along with the rest of the public, for further developments on the (act) as it moves through the process,” Araujo said. Sealaska requested nine timberland tracts totaling 68,400 acres. Both Begich and Murkowski sponsored the bill, which omitted about 26,000 acres of selections from northern Prince of Wales Island that had been in previous versions because of concerns raised by conservation groups about timber harvest in the area. “This package includes important provisions that will boost communities throughout our state, including the settlement and finalization of lands issues in Southeast Alaska; the conveyances of land for community development in Anchorage and at Wainwright,” Murkowski said in a formal statement. Murkowski is the ranking Republican on the Senate Energy and Natural Resources Committee and will chair the committee in the new Congress. About 150,000 acres of the Tongass will be put into “protected status,” Begich’s release states. “While this overall bill and this package are not perfect, through negotiation and hard work we have been able to move forward on development interests that advance Alaska’s economy,” Begich said. “This is a big win for Alaska and the regional communities in Southeast and Northwest Alaska.” The federal government will also sell the Wainwright DEW, a former radar station on the North Slope, to the Olgoonik Corp. if the bill passes. The legislation package was nearly six years in the making, according to Begich’s office. The first Sealaska land bill was submitted in 2007. Elwood Brehmer can be reached at [email protected]

Repsol plans $240M in drilling, seismic work for winter

Repsol is continuing its North Slope exploration with $240 million of drilling and seismic planned this winter company Alaska manager Bill Hardham said. The Spanish major will drill three wells and test two. It will also conduct a 360 square-mile 3-D seismic program, what the company calls the Horseshoe project. The Horseshoe area is south and west of the Colville River Unit and mostly south of the Greater Moose’s Tooth Unit. The Colville River bisects the area and a large portion of it is in the National Petroleum Reserve-Alaska. Hardham said Repsol will build 30 miles of ice road into its “focus area” that is the Colville River delta. “To date, we’ve invested approximately $650 million on our North Slope projects and we have another significant campaign planned,” Hardham said at the Resource Development Council for Alaska conference. All three of the wells will be in the Colville delta area on the eastern edge of the Colville River Unit, roughly the same area that Repsol has drilled most of its wells in previous years. Of the three wells it drilled during its 2014 winter program, two were on the delta and one was south of the Kuparuk River Unit to the east. Permits have been submitted for the drill areas and an ice airstrip at the head of the delta will allow the company to transport crews directly to the area, he said. Work on the seasonal infrastructure will commence as soon as conditions allow. This winter’s activity will require a largely contracted workforce of more than 500 people on the North Slope, Hardham said. Repsol operates in more than 30 countries and its U.S. headquarters are in Houston. When the 2015 winter season is over the company will have drilled nine wells on the Slope over the last three seasons, based on its current plans. Along with the three wells drilled last winter, Repsol tested two wells and conducted two 3-D seismic programs. The company had success with its 2013 drilling program. “We did end up discovering oil in all three wells” Repsol drilled in 2013 on the Colville delta, Hardham said. Repsol is the second-largest leaseholder on the North Slope, with more than 650,000 acres under lease. Its holdings are around the Colville and Greater Moose’s Tooth units on the western part of the developed Slope and south of the Kuparuk River Unit. Repsol became a player on the Slope in March 2011 when it partnered on about 500,000 acres of leases with Denver-based Armstrong Oil and Gas. It completed its first drilling campaign about a year later in April 2012. The company also has offshore leases in the Beaufort and Chukchi seas. Hardham said back in 2011 the state’s projected willingness to overhaul the oil tax structure was “instrumental in Repsol’s decision to enter Alaska.” Repsol’s $240 million is a small chunk of the large investment pool currently on the North Slope. Caelus Energy, which agreed to purchase Pioneer Resource’s Alaska operations in late 2013, announced a $550 million capital budget for 2015 on its Oooguruk and Nuna developments at the RDC conference. Meanwhile, ConocoPhillips’ 2014 capital plan for the state will total about $1.6 billion, according to the company’s Alaska president Trond-Erik Johansen. ConocoPhillips has also announced plans this year to add two drilling rigs to the Kuparuk River field. Each rig requires about 100 direct and indirect positions to operate it. Elwood Brehmer can be reached at [email protected]


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