Elwood Brehmer

Spill response comments range from status quo to modernization

Department of Environmental Conservation officials received a mixed bag of comments, but not a huge volume, to their somewhat controversial opening of the state’s oil spill prevention and response regulations to possible revisions. While the decision last fall to solicit public input on and proposed changes to the regulations drew sharp responses from numerous conservation and fishing industry groups as well local governments in coastal communities, just more than 120 businesses, trade groups, community organizations and individual Alaskans commented over the 153-day comment period that ended March 16. Most members of the public urged DEC officials to maintain the current levels of protections in the regulations and many questioned why the department would open the regulations to possible changes given the state’s reliance on marine resources and the relative lack of large fuel or oil spills in the state since the Exxon Valdez in 1989. DEC Commissioner Jason Brune said he wanted to make sure the regulations weren’t unnecessarily burdening industry without a corresponding environmental benefit and had no intent to do away with the requirements prior to opening the scoping period last October. Brune said at the time that he had heard from industry representatives that there are ways the detailed rules could be improved; however, he declined to elaborate on specific suggestions, saying he did not want to color any subsequent public comments. He said in a department statement following the close of the comment period that he's excited about the feedback the department recieved. "It is not our intent to roll back environmental protections. If the department determines there are changes to be made to the regulations, those will go through a fully transparent public process later this year that will include additional opportunity for the public to provide comment," Brune said. Local government officials by and large also emphasized a general desire for the department to uphold current levels of oversight on the oil and gas industry while also suggesting some changes to clarify and strengthen the existing regulatory code. City and Tribal councils and assemblies from Cordova, Homer, Kodiak, Valdez the Kenai Peninsula Borough and Kotzebue submitted resolutions against actions to ease the regulations. Oil and gas producers did not offer comments but businesses in other subsets of the industry such as fuel shippers, oilfield service companies and Alyeska Pipeline Service Co. all offered numerous ways they feel the regulations are too rigid, unclear, or outdated. The Prince William Sound Regional Citizens’ Advisory Council offered 12 pages of comments stressing a belief that the regulations are not necessarily flawed as written. The council acknowledged that it’s likely the “current regulations could be clarified or simplified to improve their usability,” but also said the oil discharge prevention and contingency plans that all companies processing and shipping fuels and crude must have to operate in the state serve seven broad objectives to protect the environment. The contingency plans, often referred to as C-plans by stakeholders, amount to “working” emergency plans that provided detailed and long-term response procedures, according to the PWS council. They are also a way to assess past spills at a facility and serve both as a demonstration that the plan holder is using best available technology in its operations and as “a permit to operate that, if not followed, is a violation of law,” PWS council officials wrote. Cook Inlet Regional Citizens’ Advisory Council Executive Director Mike Munger similarly emphasized the seven functions of the regulations and wrote that council officials “believe that sweeping changes to the current requirements are not warranted,” adding that any changes easing spill prevention, preparedness or transparency would be “unacceptable.” The councils for Cook Inlet and Prince William Sound, established following the Exxon Valdez spill and mandated by the Oil Pollution Act passed by Congress in 1990, used the scoping period to offer several ways the regulations could be strengthened or otherwise improved. The Cook Inlet council, for instance, requested that international standards be used to determine oil skimmer recovery rates and that efficiency mandates be established in the regulations. “At this time, there is no generally required methodology for response organizations to determine the best equipment to use or for plan reviewers to assess the adequacy of the equipment included in plans,” Munger wrote. Skimmers are towed behind or alongside vessels to collect oil from the surface of the water. While widespread in oil spill response, questions to their efficacy, particularly in waves or ice conditions, are regularly raised amongst stakeholders. Jim Ayers, a former director of the Exxon Valdez Oil Spill Trustee Council and chief of staff to former Gov. Tony Knowles argued against major changes to regulating an industry “that has repeatedly proven its inability to self-regulate,” and urged DEC to continue incorporating lessons from the Exxon Valdez and the 2010 BP Deepwater Horizon Gulf of Mexico spills into its oversight of the oil industry. “DEC’s supposition that this framework is too burdensome — after 30 years of industry compliance and numerous revisions to streamline regulations — is not only untrue, but also transfers the burden of another disaster to the communities and environment DEC is charged with protecting,” Ayers wrote. Alyeska Pipeline Emergency Preparedness and Response Director Andres Morales suggested numerous technical and clarification changes that company officials feel would help “optimize” the regulations. Alyeska is owned by the major North Slope Producers. It operates the Trans-Alaska Pipeline System and the Valdez Marine Terminal. Morales offered a handful of examples where Alyeska officials believe state regulations are duplicative to federal requirements; requested more specificity in areas of regulation that defer to “department discretion;” and — as did other industry stakeholders — asked for more standardized timelines and processes in approving C-plan amendments and other procedural mandates. The Alaska Oil and Gas Association supplied 28 pages of comments asking DEC officials to modernize regulatory language and standards to reflect current industry standards. AOGA Regulatory and Legal Affairs Manager Patrick Bergt also wrote that the trade group does not believe a “best available technology” analysis should be required in instances when C-plans must be in line with good engineering practices, applicable industry standards and state and federal regional and area contingency plans. “AOGA believes these issues can be addressed and the regulatory schemes streamlined without increasing any risks of damage or harm to the environment,” Bergt wrote. “More certainty in the requirements and a clearer description of compliance standards would lend itself to more consistency in implementing spill prevention.” The Alaska Fuel Storage and Handling Alliance, multiple fuel shipping companies and Marathon Petroleum Co., which owns the Nikiski refinery, submitted similar comments along those conceptual lines. Elwood Brehmer can be reached at [email protected]

Energy Secretary: ‘Topping off’ reserve with US purchases signals confidence in industry

President Donald Trump’s push to refill the country’s oil reserves is intended to reassure domestic producers at a time when collapsed prices are straining the industry and a substantive rebound appears to be months away at the earliest, the nation’s top energy official said in a March 17 interview. Trump on March 13 directed the Department of Energy to purchase upwards of 77 million barrels of domestic oil to top off the Strategic Petroleum Reserve. Energy Secretary Dan Brouillette said by phone that the reserve, or SPR, exists specifically “to mitigate these types of disruptions, if you will, wherever they come from.” The current price collapse started gradually in early February as traders reacted to lower demand forecasts from China due primarily to the country’s response to COVID-19, which amounted to a major and ongoing slowdown of the country’s massive economy. The price fall picked up speed earlier this month when Saudi and Russian officials could not agree on curbing production rates to stabilize oil markets in the face of less demand due to the virus curtailing economic activity worldwide. That disagreement quickly turned into a price war, with officials from each side refusing to cut production on the premise they can outlast the other in a time of painfully low prices for each oil-dependent government. The West Texas Intermediate benchmark price for Lower 48 oil has fallen nearly 40 percent since the end of February to $28.70 per barrel on March 16. Alaska North Slope crude prices have closely followed that trend, ending that day at $29.30 per barrel, according to figures provided by the state Department of Revenue. According to aggregated figures provided by the Department of Revenue, Alaska companies currently spend nearly $39 per barrel, on average, to produce oil and ship it to West Coast refineries. ConocoPhillips leaders have said they restructured their operations during the 2015-16 price downturn to be profitable at prevailing prices of $40 per barrel. “We want to send a very strong signal to the American producing community that we believe in them. They’re a very good industry, a very strong industry and we liken this and the president likens this to much like a company buying back its own stock,” Brouillette told the Journal. “You have confidence in your enterprise and you show the world that by investing in it yourself.” He said the administration is also trying to take advantage of a “good time to buy” that could save taxpayers hundreds of millions of dollars versus making the purchase at higher prices. Alaska crude largely sold in the mid-$60s per barrel range for more than a year prior to the current price collapse. Constructed following the oil embargo of the mid-1970s, the Strategic Petroleum Reserve is the country’s counter to volatility in oil markets and supply chains. It is made up of oil stored in cleared salt caverns along the Gulf Coast and has an overall capacity to store up to 713.5 million barrels of oil, according to the Department of Energy. While Trump announced the plan, it relies on funding from Congress and Brouillette said the administration is working closely with lawmakers and has bipartisan support in both chambers, including from Sens. Lisa Murkowski and Dan Sullivan, to get an SPR funding package passed. Sullivan said in a statement from his office March 16 that he proposed only purchasing oil produced in the United States to fill the reserve in discussions with Brouillette. “The energy sector supports tens of thousands of jobs in Alaska, and millions of jobs across the country. It’s crucial that we do what we can to shore up our domestic energy market by purchasing only American-produced, and in particular for our state, Alaskan-produced oil — all of which the Department of Energy has the authority to do,” Sullivan said, adding it should be done as quickly as possible. The oil and gas industry provides approximately 10.9 million jobs nationwide, according to the American Petroleum Institute. In Alaska, oil accounts for nearly 10,000 direct industry jobs, with thousands more oil-related jobs in closely tied support sectors, such as construction and engineering. Brouillette said current market prices in the $30 per barrel range would necessitate a $2.3 billion to $2.5 billion appropriation to buy the 77 million barrels, but $3 billion could be needed if expectations of a purchase send prices slightly higher ahead of the sale. It’s unclear exactly where the oil would come from and what price the government would ultimately pay because a purchase would be done through an auction, according to Brouillette. He said Energy officials would start by soliciting proposals from sellers and review bids ahead of making purchases. Department officials are confident they can begin purchases within two weeks of Congress approving the funding, according to Brouillette. He also said that the idea has widespread industry support, but stressed that “they certainly don’t see it as a lifeline or anything like that. What they see is a common-sense policy decision being made by the president, so they’re just very, very supportive of that.” Frank Macchiarola, a senior vice president of economics and policy at the American Petroleum Institute, wrote in an emailed statement that the industry group is not seeking policy relief from the current situation, and added that the Trump administration is simply exercising the authority afforded it by Congress to manage the SPR. Murkowski said in a statement for the Journal that she believes near-term SPR purchases would ease oversupplied markets and “likely result in a small bump in oil prices.” Murkowski chairs the Senate Energy and Natural Resources Committee. “The health of Alaska’s economy is inextricably tied to the health of our resource industries, and plummeting oil prices are having a detrimental effect on our state. I support President Trump’s proposal to fill the Strategic Petroleum Reserve — right now, we have an opportunity to buy low and buy American — and my team and I are working with Senate leadership and administration officials to make that happen,” she said. Representatives from the Alaska Oil and Gas Association and ConocoPhillips Alaska said they did not have enough information to comment on the sale’s specific impact on Alaska producers at this point. Longtime Alaska petroleum economist Roger Marks said in a brief interview that he doesn’t think the sale will boost oil prices domestically because it would be a small amount relative to overall production, but it could offer producers another place to sell their oil during a market glut. The Energy Information Administration estimates U.S. production will hit 13 million barrels per day this year. Brouillette said it’s unclear when oil markets will rebalance, in part because it’s hard to know when downward pressure on oil demand stemming from the global response to COVID-19 will ease. However, he expects demand to rebound quickly once the virus subsides. The day-to-day changes in the situation also make it difficult to quantify immediate demand, which makes it hard to know how out-of-balance oil markets are worldwide, Brouillette said. He added that a major pandemic-induced demand drop is not something energy market observers are familiar with. “It’s unprecedented, in that sense,” he said. More generally, the EIA is predicting a global surplus of about 1.5 million barrels per day in the first quarter of the year and a surplus of 2 million barrels per day in the second quarter. The EIA expects global oil production and consumption to align in the fourth quarter of 2020 at about 102 million barrels per day, according to its Short-Term Energy Outlook published earlier this month. Last fall, Gov. Mike Dunleavy urged former Energy Secretary Rick Perry to consider building a second SPR at the site of the remote former naval base on Adak Island in the Aleutian chain. Brouillette said he believes adding redundancy to the oil storage system would be a good thing but he hasn’t given Dunleavy’s proposal much additional consideration. Elwood Brehmer can be reached at [email protected]

CEO: Permanent Fund still source of stability for state

Alaska Permanent Fund Corp. leaders stress that they are working to find investment opportunities that will have long-term benefits for the fund amid the drastic market downturn brought on by the COVID-19 pandemic. The Permanent Fund, which has become the state’s primary source of budget revenue in addition to providing annual dividend checks, has seen its value drop from nearly $66.7 billion at the end of January to $58.7 billion at the close of markets March 16, a decline of about 12 percent. Over that time, the Dow Jones Industrial Average lost a full quarter of its value, closing at 21,328 on March 12. The market index rebounded to almost 23,000 near the end of trading March 13 following President Donald Trump’s national emergency declaration in response to the virus. Airline industry groups have begun requesting government assistance to weather the pandemic, with Airlines for America, which represents 10 of the largest domestic passenger and cargo carriers, on March 16 asking for up to $50 billion in government grants and loans. Trump administration officials on March 17 began pitching an $850 billion national economic relief package to Congress. Stock investments currently comprise about one-third of the value of the Permanent Fund, according to unaudited financials provided by the corporation. However, markets fell further in initial trading March 16 following additional domestic travel restrictions and economic disruptions from trying to contain the spread of the virus. Officials were forced pause trading Monday for 15 minutes in an attempt to slow the sell-off, a move that has been made three times in the past week. The Dow closed trading March 17 up more than 5 percent at 21,237. It was at a record high or more than 29,000 points as recently as Feb. 21 before beginning a precipitous fall. APFC officials said via a statement issued March 13 that they “remain diligent” in their management of the fund and they will be able to meet the state’s near-term expected cash calls despite the tough times. The APFC is scheduled to transfer $3.1 billion from the Permanent Fund’s Earnings Reserve Account to the general fund in the 2021 state fiscal year, which starts July 1. The money has been dispersed in installments as it is needed by the Department of Revenue since the Legislature and former Gov. Bill Walker approved an annual percent of market value, or POMV, draw on the fund in 2018 to help fund state services. CEO Angela Rodell acknowledged the economic concerns the virus has generated in addition to the broader public health crisis in a formal statement, but stressed that “the fund continues to be a source of stability” for the state. “Yes, we have taken losses, but the diverse mix of assets along with our long time horizon means we are keeping our commitment to provide a stable source of revenue for Alaskans to rely on,” Rodell said. McKinley Capital Management CEO Rob Gillam offered a similar perspective. In an interview, Gillam stressed that while immediate concerns are rightly over the health of individuals who have contracted the virus and others whose livelihoods have been affected; however, from a financial standpoint the pandemic and its impacts are likely to be relatively short-term for investments that are intended to grow over many years and even decades in some instances, he said. “This is a disruption event. Disruption events tend to be short-lived,” Gillam said. “Whether it’s a week, month or three months — that’s relatively short-lived.” Prior to the POMV draw, APFC officials are first scheduled to transfer $4 billion from the Earnings Reserve into the corpus of the fund where the money cannot be appropriated by lawmakers. The large transfer is intended to cover inflation-proofing payments for up to the next four years. Legislators originally approved a $9 billion transfer in the 2020 operating budget but that was vetoed down to $4 billion by Gov. Mike Dunleavy, who has pressed the Legislature to appropriate additional funds from the earnings reserve to fulfill full, statutory Permanent Fund dividend payments that have not been made since 2015 as the state continues to grapple with billion-dollar-plus annual deficits. The Earnings Reserve held roughly $18 billion as of Jan. 31, but that was down to $16.1 billion by March 16 and according to an APFC statement, the fund had lost approximately $6.2 billion in unrealized gains through the first half of March. About $1.1 billion in unrealized gains remained as of March 16. More than $7 billion of the ERA balance is committed to the inflation proofing and general fund transfers. On March 5 the APFC Board of Trustees passed a resolution recommending the Legislature restructure the fund into a single account through a constitutional amendment and limit annual draws to 5 percent of the fund’s overall value. The change would help ensure the corporation can meet the state’s cash calls during times challenging financial times when the fund’s near-term earnings are limited, according to APFC officials. If the high thresholds for passing a constitutional amendment cannot be met this session, the board urged lawmakers to make statutory amendments to their guidelines for using the fund. Those include a periodic review of the average annual real return assumption of 5 percent and working to maintain a “four-times buffer” in the Earnings Reserve that would keep at least four times the annual POMV draw amount in the account to allow managers to absorb times of low market performance and still meet the state’s cash needs from the fund. Spokeswoman Paulyn Swanson wrote in an email that the $4 billion transfer, which is currently listed as “committed” in the fund’s monthly financial statements, is scheduled for the end of the fiscal year in late June. Swanson noted that the APFC trustees have not considered a resolution asking the Legislature to amend the transfer in any way. Senate Finance Committee co-chair Sen. Natasha von Imhof said in a brief interview that legislative leaders are “looking at everything right now” pertaining to the budget and as of March 13 were not considering changing or delaying the $4 billion transfer to the fund’s corpus. House Finance members heard from Legislative Finance Division officials last week that even under the corporation’s low annual return scenarios for the year the Permanent Fund would likely still realize at least $1 billion to $1.5 billion in statutory net income to the Earnings Reserve this year in dividends, interest and rent from real estate investments that are independent from market performance. Legislative Finance budget analyst Alexei Painter noted the fund could still capture income from stocks bought several years ago even if those same investments have lost value recently as long as the value when they are sold is greater than when they were purchased. “It won’t be a realized loss because, really, the last two years have been positive and this is just an unwinding of some of that. It’s not like 2008 when we were actually selling at a loss,” Painter said. Von Imhof noted lawmakers were still waiting for the Revenue Department’s spring revenue forecast update and the Senate is still forming its version of the state operating budget. Elwood Brehmer can be reached at [email protected]

Price war could cost Alaska hundreds of millions in oil revenue

What started as a small dip in oil prices from concerns of a virus-induced global economic slowdown has turned into a free fall from battling authoritarians. It all adds up to another big hole in the State of Alaska’s budget. Lawmakers heard from Legislative Finance Division officials on March 11 that the ongoing drop in oil prices will likely add $300 million to the current year budget deficit and upwards of a $600 million revenue reduction in the 2021 fiscal year that starts July 1. Oil price forecasts in the $60 per barrel range — that in recent years has been the baseline for the “new normal” in oil markets — now appear very optimistic. Legislative Finance Director Pat Pitney told House Finance Committee members that it would be irresponsible to continue to assume the projections made in the Fall 2019 Revenue Sources Book will hold given the disruptions of the past few weeks. The updated Legislative Finance figures for state oil revenues are based on Brent benchmark futures, or oil market trading today based on what traders believe the price will be weeks and months from now. Brent is the global standard price for waterborne crude shipments and Alaska North Slope crude has historically traded close to the going Brent price. “There’s futures trading at $40 per barrel and that’s as good a predictor as anything to say what it’s going to be,” Pitney said. The Energy Information Administration predicted last week that Brent crude will average $43 per barrel in 2020 and return to $55 per barrel in 2021, but those projections could change along with the global response to COVID-19. The Department of Revenue typically provides legislators an update in March to their annual fall state revenue forecast. However, department officials said the sudden volatility of oil and financial markets has caused them to temporarily put that on hold. Alaska oil prices were largely in the mid-$60s per barrel through most of 2020 fiscal year — in line with Revenue’s forecasted average of $63.54 per barrel. They began falling in early February as traders reacted to lower demand forecasts from China due to the country’s reaction to COVID-19. That price decline turned into a plunge earlier this month when Saudi and Russian officials could not agree on curbing production rates to stabilize oil markets in the face of less demand due to the virus curtailing economic activity worldwide. That disagreement quickly turned into a price war, with officials from each side refusing to cut production on the premise they can outlast the other in a time of painfully low prices for each oil-dependent government. Alaska North Slope crude sold for $29.30 per barrel on March 16, according to the Revenue Department. Bloomberg reported March 17 that Saudis officials plan to increase the country’s oil exports to a record 10 million barrels per day over the coming months. If Alaska oil prices average $40 per barrel for the rest of the 2020 fiscal year, the yearly average will be about $55 per barrel, or about 13 percent less than the fall forecast price. Revenue officials originally estimated a $59 per barrel average price for Alaska oil in fiscal 2021, meaning prices in the $40 per barrel range would be more than 30 percent less than what lawmakers once presumed they could budget from. The most recent Legislative Finance projections put Alaska’s final 2020 fiscal year deficit at approximately $930 million. The state would have a deficit of more than $2.1 billion in 2021 based on Gov. Mike Dunleavy’s proposal for ostensibly flat state budgets and full, statutory Permanent Fund dividend payments. Pitney said the bottom line for Alaska is the Constitutional Budget Reserve, the state’s last remaining savings account, is in serious jeopardy in nearly all budgeting scenarios, especially those that include large PFDs. The CBR held $2.2 billion at the end of February, but state officials will make additional calls on that money before the June 30 end to this fiscal year. Dunleavy’s 2021 budget proposal originally included a roughly $1.5 billion deficit that has only grown as oil prices have fallen. “In considering the governor’s amended budget, the CBR would be completely depleted and we wouldn’t get through the fiscal ’21 period,” Pitney said. Without a PFD, the governor’s budget originally had a roughly $430 million general fund surplus, but that has all but evaporated. Pitney said it’s hard to project a scenario in which the CBR lasts beyond the 2022 fiscal year at current budget levels of about $4.5 billion in unrestricted general fund spending plus nearly any level of substantive PFD payments. Lawmakers and Revenue officials have said the CBR needs to hold at least $500 million or so to allow for daily cash management as money is continually added to and drawn from the general fund for state operations. Legislative Finance analyst Alexei Painter noted that a broad-based tax would take months to set up and start collecting, meaning the revenue couldn’t be used immediately to help remedy the situation. Most income and sales tax proposals have been pegged to generate about $500 million at most. Painter said the state could likely maintain current levels of services and balance the budget without dividends at the new oil price and revenue projections as long as large annual supplemental budgets can be avoided. “If you assume no supplementals it would be a balanced budget, so the CBR balance would increase over time because there would be (interest) earnings to it but no draws from it,” he said. However, the supplemental budget is a near yearly necessity to pay for unexpected costs, such as wildfire expenses, incurred after the budget is set each spring. The 2020 supplemental passed by the House and under consideration in the Senate has $298 million in unrestricted general fund spending. The largest appropriations are for Alaska’s severe 2019 wildfire season and backfilling Medicaid cuts the Department of Health and Social Services was unable to achieve. Rep. Adam Wool, D-Fairbanks, noted that the legislative majorities have committed to not overspending from the Permanent Fund, but added that the situation laid out by Legislative Finance leaves the Legislature few other immediate options. “I haven’t heard too many people say they don’t want a dividend, so it’s really a conundrum,” Wool said. Anchorage Democrat Rep. Andy Josephson predicted lawmakers will ultimately approve a “significant CBR draw to pay a modest dividend” in October, but how they will deal with a potentially long-term oil price drop is unclear. Most legislators are still trying to fully comprehend the situation. Finance co-chair Rep. Jennifer Johnston, R-Anchorage, said any idea of full PFDs is “built on fairy dust” and questioned whether Revenue officials could use the Permanent Fund Earnings Reserve Account as a cash management tool instead of the CBR in future years. “However we look at this we’re taking our CBR away as a cash management fund,” Johnston said. Elwood Brehmer can be reached at [email protected]

Opponents of $40M Kake Road argue for shift to ferry system

State transportation officials are preparing for a $40 million road project in a remote part of Southeast Alaska while many residents are questioning whether the money could be better spent addressing more immediate needs. The Kake access project would link 21 miles of existing logging roads with 13 miles of new roads across Kupreanof Island in central Southeast. The new single-lane gravel road with turnouts would end at a new boat launch near Twelvemile Creek in Frederick Sound. Kake is a community of roughly 600 residents on the west side of Kupreanof and the road to the east side of the island would provide locals a way to get closer to Petersburg on nearby Mitkof Island, which has a larger airport with daily Alaska Airlines service and a small hospital, among other benefits, proponents say. However, skeptics of the plan, including a contingent of Kake residents, contend lawmakers should reappropriate the money to help restore ferry service across much of coastal Alaska at a time when a combination budget cuts and unexpected mechanical issues on the vessels have left many communities in the region without service for months. Joel Jackson, president of the Organized Village of Kake, the Tribal government for the community, insists most Kake residents don’t believe they will see the benefits of the road — some of which would require more state-funded infrastructure — and therefore don’t want it. Jackson called it “our road to nowhere” in an interview. He believes the money would be better spent improving ferry service. The Kake road was approved by the Legislature way back in 2012 but was one of several state-funded construction plans put into abeyance by former Gov. Bill Walker’s administration following the fall of oil prices in 2015 that brought on years of large budget deficits lawmakers are still trying to resolve. Most of those paused projects have been restarted by the Department of Transportation under Gov. Mike Dunleavy. While Dunleavy has fought for deep spending cuts across much of state government, he has also proven to be an ardent supporter of road projects of nearly any size across the state. Department of Transportation and Public Facilities Commissioner John MacKinnon said the department restarted the project in part to follow through with what the Legislature directed them to do years ago. “It’s one of those things, when we get an appropriation to do something we consider that an obligation to try and carry out,” MacKinnon said in an interview. Kake is one of the smaller communities on the Alaska Marine Highway System and many proponents of the project have said they see it as a precursor to a shorter ferry trip between Petersburg and Kake, although at this point there are no plans for a ferry terminal at the end of the road and building one would likely be another multimillion-dollar endeavor. “You go back to day one on the ferry system and the model has always been: You build roads where you can and where you can’t you do short shuttle links with ferries,” MacKinnon said. “That’s the most efficient system to provide the service.” DOT’s website for the project cites a purpose to provide “increased recreational and subsistence opportunities” for area residents. No one lives along the route that is entirely through U.S. Forest Service lands. Republican Sen. Bert Stedman represents the area and originally secured the state general fund money to pay for the road. Stedman has maintained his support for the project while also pressing the Dunleavy administration to limit funding cuts to the Alaska Marine Highway System. Stedman did not return calls seeking comment in time for this story, but he wrote a letter to Petersburg Borough Mayor Mark Jensen Feb. 14 outlining his rationale. For starters, Stedman notes the $40 million — a figure which, coincidentally, nearly matches the cut to the ferry system’s operating budget this year — cannot be used for vessel repairs or increased service without a formal reappropriation in the capital budget that would have to be approved by the Legislature and the governor. Lawmakers frequently move state funding around via language in budget bills, but Stedman noted in his letter that Dunleavy previously vetoed additional ferry appropriations last summer. However, that was before unexpected repairs cropped up on multiple ferries, prompting the administration to seek additional capital funding for vessel work in the 2020 supplemental budget this winter. MacKinnon said DOT officials agreed they would need to get Stedman’s approval to seek a reappropriation of the funds and Stedman told them to move ahead with the project in subsequent discussions. The Petersburg Assembly voted down a resolution opposing the road and requesting the money be spent on ferries on March 2. Member Jeigh Stanton Gregor, who sponsored the resolution, acknowledged it’s unlikely the money would be moved but argued there has not been an “honest dialogue” about the project. “To advocate for all of coastal Alaska is important. I think it’s our responsibility to try,” Stanton Gregor said in support of the resolution. The eastern portion of the road would cross through the Petersburg Borough. Other assembly members who voted against the resolution said they did so because Kake Mayor Lloyd Davis wrote a letter in January to Dunleavy supporting the road, in part because it could improve emergency access to the community, Davis wrote. Jackson claimed Davis is out of touch with most Kake residents on the issue. He said the Tribal government, which formally opposes the project, represents about 80 percent of the community. Jackson additionally cited an informal poll of Kake residents and claimed 217 are against the project and just 27 support it. “It’s unfortunate our mayor sent out that letter without realizing how people really feel,” Jackson said. Davis also did not return calls seeking comment. Jackson said he is also Kake’s incident commander and dismissed the viability of shuttling individuals in need of medical care down the road in the community’s only ambulance. For one, he said, it would still require water or air travel to get to larger medical facilities. Additionally, a several hour round-trip down the road — DOT states it would have a 25 miles per hour speed limit — would leave the rest of the community without an ambulance for that time, Jackson said. Stedman and other supporters also contend the road is a first step to a power line intertie between to Kake that would reduce energy costs. Petersburg Assemblyman Stanton Gregor said Kake deserves cheaper energy but he doesn’t believe road will lead to it. That project, estimated at roughly $60 million, has been shelved until more state funding is available, according to Southeast Alaska Power Agency CEO Trey Acteson. DOT officials expect to finalize permitting for the road this summer and complete construction in 2022. Elwood Brehmer can be reached at [email protected]

Laid up: Ferry fixes compete with federal road funding

Alaska’s ferry system is in disarray with 10 of 12 vessels out of service for repair or lack of funds, leaving many communities without service for many months, but paying for major fixes to the aging ships could mean taking money away from road projects. Righting the Alaska Marine Highway System is the top priority going in the Department of Transportation and Public Facilities, Commissioner John MacKinnon said in a March 9 interview. The current situation is underlain by the constant tension between many road-system Alaskans who feel the ferries cost too much to serve too few and the residents of 35 coastal communities, for whom ferry service is their road system. Understanding the funding options available to the state requires a deep dive into the arcane world of federal transportation formula programs. Some of those formulas are so complex even career transportation officials — state and federal alike — cannot succinctly explain how the money the state receives from the federal government is calculated. At the highest level, the State of Alaska typically receives between $550 million and $600 million per year in formula-driven federal funds for highway projects in its Surface Transportation Improvement Program, or STIP. That money comes from up to 15 Federal Highway Administration, or FHWA, programs, but roughly $450 million of it is derived from the National Highway Performance and Surface Transportation Block Grant programs. And while many of the FHWA programs are dedicated to specific issues such as reducing road and rail intersections or metropolitan planning, that $450 million can be spent more generally on road construction or ferry projects, according to state DOT officials. Alaska also receives $15 million to $20 million per year from the FHWA Ferry Boat Funding Program solely for vessel and terminal projects. This money is calculated based on ferry route miles and the number of passengers and vehicles carried by the Alaska Marine Highway System. It can only be used on AMHS capital projects, such as vessel overhauls or shore side terminal improvements. Nearly all federal transportation formula funding also requires a state match, which is often at least 10 percent. Ferry Boat Funding requires a 20 percent match, according to the STIP. The National Highway Performance and Surface Transportation funds eligible for roads and ferries are largely calculated based on roads classified as part of the National Highway System by FHWA. Ferry officials often tout that they operate approximately 3,500 miles of routes and those routes linking communities on the National Highway System — Whittier-Valdez, Haines-Juneau, Homer-Kodiak and others — are also part of the national system and can generate formula funding. But DOT officials also point out that the National Highway Performance funds are partly derived from metrics meant for roads that simply don’t work for ferry routes. The current state of the ferries has led some system advocates to question why the state is laying up vessels and deferring repairs that have been deemed too costly as lawmakers continue to debate how to close a structural deficit of more than $1.5 billion per year. Gov. Mike Dunleavy’s first budget proposal released Feb. 14, 2019, largely panned by legislators, called for a 75 percent cut to the AMHS annual operating subsidy for this fiscal year, which would have shut the system down in October after three months of operations. A compromise struck with legislative leaders kept funding in place to offer year-round service at significantly reduced levels, but unexpected maintenance issues with several ferries meant the system was ostensibly shut down for much of the winter outside of a daily shuttle route between Ketchikan and Metlakatla served exclusively by the small, purpose-built ferry Lituya. As for funding ferry operations, Dunleavy and many other road system Republican lawmakers argue the ferry system’s annual subsidy of $90 million to $100 million in recent years is just too much money for a network of vessels with declining ridership. The number of ferry passengers has fallen to about 250,000 per year after peaking at nearly 340,000 passengers in 2011 and 2012. The number of vehicles carried has remained relatively flat at about 100,000 per year over the same period. System revenue from tickets, staterooms, and dining service among other fees has averaged about $50 million in recent years, for an annual cost recovery of about 35 percent. Comparatively, the state’s 8-cent per gallon gas tax on highway fuels has generated approximately $30 million per year of late. That money is the only state fee drivers pay for vehicle infrastructure and accordingly has traditionally been allocated for highway maintenance. DOT officials have also begun using about $30 million per year of FHWA capital funds for road maintenance as state oil revenues have dwindled. The Alaska Senate on March 2 approved Senate Bill 115 to double the state’s highway fuel tax, which is by far the lowest in the nation and hasn’t been changed since 1970. Funding options Robert Venables, executive director of the regional development nonprofit Southeast Conference, said in an interview that he feels up until this year state officials have allocated adequately balanced capital funds for roads and vessel repairs. “It looks to be quite scaled back in terms of previous years,” Venables said of the AMHS capital projects plan. The state spent $277 million of federal capital funds on ferry projects from 2009 to 2019. Another $161 million of state general funds were spent on annual vessel overhauls over that same period, according to AMHS officials. State funds in the range of $12 million to $16 million per year are used for vessel maintenance partly so the work can be done at a shipyard in Ketchikan rather than likely being done Outside under the procurement guidelines that come with federal money. The STIP calls for spending roughly $35 million of combined Ferry Boat and state matching funds in the current 2020 state fiscal year, the vast majority of which is targeted for a major terminal overhaul in Skagway. Some of the $35 million total is also debited against federal funding anticipated next fiscal year. None of the AMHS capital projects are scheduled to be funded by discretionary FHWA funds in 2020 or 2021 other than a plan to eventually replace the 56-year-old Tustumena ferry, a $238 million project, according to the STIP. The Tustumena, and its eventual replacement are specially designed for open ocean voyages to primarily serve Alaska Peninsula and Aleutian Island communities. The Dunleavy administration did request an additional $5 million of state money for an unexpected steel repair for the ferry LeConte in the 2020 supplemental budget. That money was approved by the House and is under consideration by the Senate. Venables emphasized that the problem is not so much funding in any given year, as it is not having a long-term vision for the system — a common refrain among ferry stakeholders. He pointed to the ferry Taku, which the state sold for scrap at a price of $171,000 just a couple years after an approximately $10 million overhaul. “The real issue is not having the one, large strategic plan; not how much has been spent over the past 10 years,” he said. The Southeast Conference partnered with the Alaska DOT under former Gov. Bill Walker to commission a multi-year study aimed at finding ways the system could be transformed from a state agency subject to political influence to a more independent organization as a way to maximize operational efficiencies and implement a long-term strategy. Dunleavy administration officials said the result of that work — a recommendation to make the AMHS a public corporation with an expert board of directors — did not do enough in their eyes to reduce the need for an annual state subsidy in the near-term. A subsequent ferry reform study released in January concluded full privatization of the system is not feasible, but little more than that. Dunleavy has since formed a nine-member AMHS Working Group comprised of public members, lawmakers and state transportation advisors, including Venables, who also chairs the Marine Transportation Advisory Board. MacKinnon, of DOT, said in an interview that there’s simply more projects in need of funding than there is money to spend even with the large annual federal contribution. “We’ve got a STIP that’s significantly oversubscribed and when we have just $500 million a year coming into that through the federal program we have to go through the process of how we prioritize those,” said MacKinnon, who is the former head of the Associated General Contractors of Alaska. Prioritizing what projects are funded in what year and how is a multi-step process and a large part of that is just finding projects that are truly ready for construction, he said. When it comes to balancing ferry and road projects he emphasized that there is a conversation about the benefit of each one — similar to balancing competing projects of any type. “I don’t want to say we’re picking this ferry project over that road project,” MacKinnon said. He added that in recent years the AMHS had typically operated three or four of its ferries in Southeast during the slower winter season and if not for one vessel dedicated to serving Prince Rupert, British Columbia — service now suspended in part for customs issues — it likely would have been just two vessels. The ferry Tazlina joined the aforementioned Lituya as the two ferries currently operating system-wide when it returned to service March 5 following warranty repairs and inspections. ‘Rusty Tusty’ replacement paused As for the aging Tustumena’s long-awaited replacement, the project is paused as the state waits for a federal waiver from the Buy America Act for parts made outside of the U.S. But even if the waiver were granted soon, MacKinnon said he would be hesitant to approve it for construction at least until the AMHS Working Group issues its recommendations for ways to reform the system, which are expected next fall. He also said it would be difficult to justify funding the Tustumena replacement via a single-year FHWA appropriation, regardless of the circumstance. “That’s almost half of our annual allocation from Federal Highways,” he said. “If I were to do that in one chunk you’d hear a lot of screaming coming from the rest of the state; not just from communities that are looking for a (road project) for their community but you’d hear it from contractors who would go, ‘There’s no highway projects bidding this year.’” Instead, MacKinnon would prefer selling guaranteed anticipation revenue vehicle, or GARVEE, bonds, that act as revenue bonds for reliable future federal funding and would allow the state to fund the Tustumena replacement in one year and repay the bonds over up to 10 years. The state last used GARVEE bonds in 2002, according to MacKinnon. “I think for an isolated project like the Tustumena (replacement) a GARVEE would make sense,” he said. Venables, in his capacity as head of the Southeast Conference, said the situation with the Tustumena exemplifies why a long-term strategy for the system is so badly needed. AMHS General Manager Capt. John Falvey said during a January public meeting that repairs this winter to the Tustumena could keep it going for another 10 years barring major unforeseen problems. Given that, Venables said the Tustumena’s replacement “should move forward in an orderly fashion” so the vessel is ready for service before its predecessor is derelict. Building the replacement vessel is expected to take close to five years, AMHS officials have said. Elwood Brehmer can be reached at [email protected]

Interior files response to lawsuit challenging King Cove road land swap

A third federal court ruling is the next step in the ongoing fight over a proposed emergency access road through the Izembek National Wildlife Refuge. Attorneys for the Department of the Interior on March 3 filed their arguments in U.S. Alaska District Court in response to a motion for summary judgment sought by a consortium of conservation groups that sued the department last August to block a land exchange to facilitate construction of the road. Interior Secretary David Bernhardt signed a land swap deal with King Cove Corp. leaders last July after Dean Gould, president of the Native Village Corp., sent a draft agreement to him in May. Led by Sen. Lisa Murkowski, advocates argue that the 11-mile segment to complete an approximately 30-mile road will provide a safe and reliable way for the roughly 800 year-round residents of King Cove — a village shrouded by mountains and notoriously bad weather — to reach Cold Bay’s airport and its 10,100-foot runway during medical emergencies. The Cold Bay airport was originally built as a military airfield in World War II and has occasionally been used by commercial jetliners needing to make emergency landings. The Izembek National Wildlife Refuge is breeding ground for nearly all of the world’s Pacific black brant geese and is home to other rare and threatened waterfowl populations. The land deal Bernhardt signed is strikingly similar to what former Interior Secretary Ryan Zinke, Bernhardt’s predecessor, approved in early 2018 but it does not cap the federal government’s land conveyance to 500 acres or explicitly prohibit the proposed gravel road from being used for commercial purposes. U.S. Alaska District Court Judge Sharon Gleason threw out Zinke’s land swap in March 2019 following a lawsuit from the same group now opposing Bernhardt on the basis that Zinke did not provide a rationale for reversing Interior’s policy on the exchange. The current case is being heard by Judge John Sedwick. In December 2013, then-Interior Secretary Sally Jewell rejected a congressionally-approved exchange of 206 acres within the Izembek refuge on the Alaska Peninsula for about 56,000 acres of state and King Cove Corp. land, concluding the road would unacceptably damage critical waterfowl habitat in the refuge. A federal judge in 2015 threw out a lawsuit against Jewell by the Agdaagux Tribe of King Cove over her 2013 decision, ruling that she did not violate the National Environmental Policy Act by rejecting the land exchange and subsequent road construction. Several national groups, including The Wilderness Society and the Sierra Club joined with local groups such as Friends of Alaska National Wildlife Refuges and the Alaska Wilderness League to sue both Zinke and Bernhardt over the issue. The Anchorage-based conservation nonprofit firm Trustees for Alaska has argued both cases on their behalf. In addition to the specific issues of Izembek, opponents to the exchange also stress that allowing a road to be built through congressionally-designated wilderness — one of the highest land preservation classes available — would set a dangerous precedent for public lands nationwide. Trustees attorneys contend in their Jan. 23 motion for summary judgment that — as with Zinke’s deal — Bernhardt did not adequately justify his decision despite drafting a 20-page memo supporting the agreement in a direct attempt to address why the prior deal was rejected by the court. They insist that, among other problems, Bernhardt violated the landmark 1980 Alaska National Interest Lands Conservation Act, or ANILCA, multiple times and did not conduct the requisite environmental analysis of the yet undetermined land exchange. “The Secretary’s memo does not confront the prior findings, only offering conclusory statements instead of reasoned explanation,” Trustees’ motion states, noting that U.S. Fish and Wildlife officials repeatedly concluded the land exchange and road would irreparably harm the refuge. Jewell’s 2013 rejection was based on a Fish and Wildlife Service recommendation to do so. According to Bernhardt’s agreement, the land swap would be an equal-value trade not subject to acreage limitations. However, King Cove Corp. would agree to relinquish its rights to 5,430 acres of land it had selected within Izembek under the Alaska Native Claims Settlement Act but has yet to be conveyed. The Native village corporation would still have rights to other yet-to-be-conveyed selections outside of the refuge. Bernhardt wrote in his accompanying memo that Jewell committed to finding alternatives to the road, which spurred a 2015 U.S. Army Corps of Engineers study of a possible King Cove-Cold Bay ferry, King Cove airport upgrades and a helicopter shuttle, but to-date has not amounted to much more. That study concluded that a ferry and two terminals would be more than 99 percent reliable but would cost between $30 and $42 million to build, according to Bernhardt. The State of Alaska estimates the road would cost about $30 million to build. He added that since the report, Aleutians East Borough officials, strong advocates for the road, have said they don’t intend to develop a landing craft. The borough previously operated a federally funded hovercraft as a means of emergency transportation during bad weather to Cold Bay but cited high operating costs and reliability concerns when that operation was scrapped. Bernhardt also noted in the memo that the State of Alaska is instituting drastic cuts to funding for the Alaska Marine Highway System, although it’s unlikely the state would operate a King Cove-dedicated ferry. The Corps of Engineers determined expanding King Cove’s small airport or using a helicopter to be more expensive and less reliable options. The conservation groups argue that the overarching purpose of ANILCA and the refuge are for conservation and protection of habitat important not only to wildlife, but also local subsistence harvesters. Congress gave the Interior leader the ability to make land deals in ANILCA for the purpose of acquiring private in-holdings inside a refuge or park boundary not to “undercut the protections it was enacting,” the summary judgment motion states. Interior attorneys counter in their brief that it is Bernhardt’s duty to balance multiple interests under ANILCA, “relating not only to protection of the national interest in the scenic, natural, cultural and environmental values of the public lands in Alaska, but also to the provision of an adequate opportunity for satisfaction of the economic and social needs” of the state, which includes public health and safety. They also argue that an environmental analysis of the land exchange is unnecessary because Section 910 of ANILCA states that the National Environmental Policy Act does not apply to a “conveyance” of Alaska federal land to an Alaska Native corporation. Bernhardt is not additionally bound by another section of ANILCA prescribing a consultation process to build a transportation corridor through a refuge because it only applies to federal lands and the road would not be built until King Cove Corp. owns the road right-of-way, according to Interior’s March 3 court brief. The department’s attorneys also note that the Interior-King Cove Corp. agreement only authorizes a land exchange — the details of which are still undecided — and not road construction, which means it’s premature for intra-agency Fish and Wildlife consultation over the potential impacts to wildlife listed under the Endangered Species Act that use the refuge. Trustees attorneys insist that is an argument in semantics, and that there would be no land exchange if it wasn’t for the road proposal. Elwood Brehmer can be reached at [email protected]

FERC completes environmental review of Alaska LNG Project

Alaska is a major step closer to securing the key federal license to build a long-sought North Slope natural gas pipeline and export project. The Federal Energy Regulatory Commission on Friday issued the final environmental impact statement, or EIS, for the roughly $40 billion Alaska LNG Project, a massive document that largely affirms the plan proposed by the state-owned Alaska Gasline Development Corp. The Alaska LNG Project is the latest attempt to commercialize the large volumes of North Slope natural gas. State and energy company officials have tried since the late 1970s to put together a plan to produce and sell the gas that is considered “stranded” based on the location lacking infrastructure to access global or even local markets. However, frequently changing market and political conditions, combined with the tremendous expense of developing a North Slope gas project, have scuttled prior efforts. To that end, it’s also unclear at this point if the Alaska LNG Project is economically viable, especially at current low prices amid a global oversupply. At its core, the project consists of a large North Slope gas treatment plant; an 807-mile buried natural gas pipeline from the Slope to the Kenai Peninsula; offtake points for state use, and a three-train liquefaction plant at Nikiski capable of producing up to 20 million metric tons of LNG per year for export to Asian markets. If developed, the project would generate upwards of 18,000 jobs during construction and roughly 1,000 new jobs during its 30-year operational life, according to AGDC and state Labor Department estimates. It would also provide natural gas to the Fairbanks area and other communities along the pipeline route that currently rely on fuel oil for heating and in some cases power generation. The final EIS documents support AGDC’s conclusion that the project should terminate in Nikiski despite prior objections from officials in the Matanuska-Susitna Borough and the City of Valdez who contend their areas were not adequately considered. The end-point location was chosen way back in 2013 when the project was led by a consortium of North Slope producers. Mat-Su officials in particular have argued the borough’s Port MacKenzie was dismissed based on inaccurate information submitted to FERC. The EIS authors wrote that information provided by the Mat-Su Borough regarding the wetland acreage at Port MacKenzie was added to the final EIS but did not change the final decision. AGDC officials have said locating the LNG plant at Port MacKenzie — farther up Cook Inlet than Nikiski — would require more tanker trips over the long-term as well as additional dredging to accommodate the large tankers in the shallow waters of the upper inlet. FERC officials rejected siting the LNG plant at Anderson Bay near Valdez in part because it would require 113 miles of spur pipelines to get gas to Fairbanks and Anchorage, which would have additional environmental impacts, although Valdez leaders insisted the spur lines should not be evaluated as part of the overall project, according to the EIS. Ending the project in Valdez would additionally require building the pipeline through an “exceptionally rugged stretch of terrain” through Thompson Pass as AGDC concluded there is not enough room in the parallel Richardson Highway and Trans-Alaska Pipeline System corridors to accommodate another pipeline, the EIS states. Gov. Mike Dunleavy called the final EIS a “milestone” for the project and commended the work of AGDC officials throughout the three-year permitting effort in a formal statement. “We look forward to reviewing the EIS and receiving the record of decision from FERC, at which point we will evaluate our next steps,” Dunleavy said. “FERC licensure is an important component in determining if Alaska LNG, which must be led by private enterprise, is competitive and economically advantageous for development.” AGDC President Frank Richards said the EIS collates more than 150,000 pages of data. Richards, a longtime engineering executive for the quasi-state agency, was appointed as president by the AGDC board of directors Feb. 28 after interim president Joe Dubler announced his retirement. “Such a rigorous, comprehensive environmental analysis provides assurance that the merits and impacts of Alaska LNG have been carefully vetted by numerous federal regulatory authorities,” he said in a formal statement. Dunleavy has been sharply critical of the state leading the project through AGDC — a structure championed by former Gov. Bill Walker — but has followed the recommendation of the large North Slope producers and others who urged the administration to finish the permitting that was already well underway when Dunleavy took office in late 2018. Many observers and insiders view securing the FERC construction license as a way to de-risk the project for potential investors and developers. As Dunleavy mentioned in his statement, his administration is in the process of refining the project’s costs and economic viability. Several lawmakers also commended the AGDC team on its work to get to the final EIS in official statements. Republican Sen. Peter Micciche, who represents Nikiski, said reducing risk in the project is “key to attracting capital” for the project and ensuring that it generates revenue for the state if it is built. Since the current iteration of the project began in 2013, the three major Slope producers and the state have spent more than $600 million to reach this point, with the state share about $237 million of that total. AGDC leaders have said they will attempt to sell the project to a private developer once FERC issues its final record of decision, which is expected in June and, based on the final EIS, is likely to be a favorable ruling for the project. “Once we have the final approval from federal regulators — expected later this year — Alaskans will know the true marketplace potential for this monumental LNG export project,” Micciche said. A state-led project was touted as a way to reduce costs by capturing the state’s federal tax-exempt status for LNG sales when AGDC took it over from BP, ConocoPhillips and ExxonMobil in early 2017 following the collapse of world oil and LNG markets. BP and ExxonMobil signed gas sales term sheets with the state in 2018, but those were allowed to lapse under the Dunleavy administration. The companies, which hold the rights to the majority of the gas in the Prudhoe Bay and Point Thomson oil and gas fields, subsequently agreed last May to commit up to $10 million each to help AGDC finance the rest of the complex FERC permitting process. They are also assisting the state in its economic review of the project plan. Elwood Brehmer can be reached at [email protected]

Court hears MARAD case to dismiss port lawsuit

After nearly six years in court, a lawsuit against the federal government worth hundreds of millions of dollars to Anchorage currently hinges on whether or not a commonly invoked working pact can constitute a binding agreement. Attorneys for the Municipality of Anchorage and the U.S. Maritime Administration spent Feb. 18-19 in a San Francisco courtroom sparring over the enforceability of a memorandum of understanding officials for the city government and federal agency signed in 2003 to coordinate work on the since-failed Port of Anchorage Intermodal Expansion Project. Department of Justice attorneys representing the Maritime Administration, commonly referred to as MARAD, argued that Congress tasked the agency with managing the project through language in a February 2003 omnibus federal spending bill that allowed MARAD to accept and spend state and local money on the work, according to transcripts of the proceedings. They insist the MOU simply clarified Anchorage officials’ decision-making authority for the project and it was the city’s responsibility to provide requirements and direction to MARAD for the project. Vincent Phillips said on behalf of MARAD that it was the February 2003 spending bill, not the MOU signed the following month, that acted as the “operative agreement” for the project and therefore the federal government is not liable for all of the work that went awry. “Anchorage, in their lobbying efforts convinced — induced Congress to spend $140 million for this project by saying Anchorage was already going to spend $163 million for the project. So what Anchorage wanted the government to then do — wanted Congress to then do was essentially make it a federal project and allow a federal agency to not only spend the federal appropriation to build the project but also spend Anchorage’s money,” Phillips told Federal Claims Court Judge Edward Damich. Anchorage is seeking upwards of $320 million from MARAD to recoup the $163.4 million of state and municipal money spent on the project as well as the more than $180 million that port officials estimate it will cost to partly remove and stabilize 35 acres of fill added to the north end of the port during the expansion project, according to city attorneys. The federal government also contributed $140 million to the project through Department of Transportation grants and Defense allocations. Overall, MARAD accepted $306.4 million of federal, state and local money for the construction project and spent $302 million of that on the work, according to court filings. State lawmakers additionally approved another $128 million in grants and bonds for the project that was matched by $9 million from the port after work stopped in 2010, but that money stayed with Anchorage and was not transferred to MARAD. Port officials have since used part of the remaining money to fund a new design for a port overhaul. Lengthy legal battle The Municipality of Anchorage sued MARAD in March 2014 alleging the agency’s mismanagement of the project ultimately led to improperly installed — and subsequently damaged — steel sheet piling that served as a foundational element of the expansion project dock design. In sum, more than $300 million of public money was spent on the project with little to show for it. The municipality commissioned MARAD to oversee the expansion project; it began in 2003 as a way to direct federal funding to the Anchorage port, which is designated by the Department of Defense as a national strategic port for its importance to troop and equipment deployments from Alaska bases. MARAD, in turn, hired Integrated Concepts and Research Corp., or ICRC, to manage the project. ICRC was owned by Koniag Inc., the Alaska Native Regional corporation for Kodiak, when the project started but has since been sold to a Virginia company. The MARAD-Anchorage relationship ended in 2012. The municipality first sued a suite of contractors, including ICRC, involved in the dock design for the expansion project in March 2013. That lawsuit netted $19.3 million for Anchorage through seven individual settlements made in early 2017. A wholly new set of municipal and port officials have since started work on a scaled-back port modernization program, which aims to replace the existing infrastructure at the port without significantly adding new space, which the expansion project sought to do. A final price for the new project is still being revised — an eye-popping estimate of $1.9 billion emerged last year that is still being whittled down — but city officials acknowledge it will very likely be many hundreds of millions of dollars. The members of Alaska’s congressional delegation have said Anchorage needs to resolve its lawsuit with MARAD before they can seek large amounts of additional federal funding for the port modernization effort. Work resumes without resolution The Anchorage Assembly also officially renamed it the Port of Alaska in 2017 as a means of signifying the city-owned port’s importance to the rest of the state. The port is the primary import terminal for all of the consumer goods, fuel, building materials and other things destined for communities across mainland Alaska. Major work is scheduled to resume at the port next year with the first of two construction seasons to build a new, roughly $220 million petroleum and cement terminal at the port — a full 10 years after the first project was stopped. In November, the U.S. DOT awarded a $25 million infrastructure grant to port officials for construction of the new commodity terminal. MARAD announced a similar $20 million grant to the port Feb. 11. What’s in an MOU? For their part, city attorneys stressed during the two-day “mini-trial” intended to fully vet MARAD’s summary judgment motion filed last June that the 2003 MOU was implemented as a binding contract, even if it wasn’t explicitly titled as one. Anchorage and MARAD also signed a second MOU in 2011 to “more substantively involve” city and port officials in the project, the 2011 memorandum states. Municipal attorney Jason Smith said the MOUs were used in a manner similar to the countless other contracts the federal government enters into in that at its core it contained “consideration,” or one thing in exchange for another. “Consideration, at its most basic, is a promise for a promise and that is exactly what both the 2003 MOU and the 2011 MOU demonstrate. There is no dispute because MARAD admits it agreed to provide the services of federal project oversight, contract management and administration of funds to the Municipality of Anchorage,” Smith told Judge Damich. In exchange for oversight, Anchorage agreed to help fund the project, Smith said. He repeatedly pointed to a common contract clause also found in both MOUs that allowed MARAD to withhold 3 percent of all project funding for administrative costs the agency incurred from managing the project. The administrative fee paid the salaries of contractors working on multiple projects, covered intra-government audit costs and other ancillary expenses, according to Smith. Phillips countered that MARAD actually withheld only $3.2 million for its administrative costs — just more than 1 percent of the total spend — and that money all came from the $140 million federal contribution to the project. A true 3 percent administrative fee would’ve been more than $9 million, Phillips noted. “We’re saying no fee was paid to retain services and Anchorage didn’t actually retain MARAD’s services,” Phillips said. “The 2003 MOU was merely a means by which MARAD implemented its statutory obligation from Congress to administer the project,” he added later. However, Smith rebutted that in his closing arguments by noting MARAD used state and port money in part to secretly settle two contract disputes with ICRC in 2012 and 2017 totaling $15.4 million. According to accounting records submitted by government attorneys, MARAD paid approximately $9 million of state and port money to ICRC in October 2012 as part of an $11.3 million settlement and another $1.6 million of nonfederal project funding in a $4.1 million January 2017 settlement. Municipal attorneys allege those settlements were deliberately made without the city’s knowledge, which MARAD’s lawyers don’t dispute. “The municipality wishes that the government had restricted itself to 3 percent of the state (and) municipal funds,” Smith said, adding that Anchorage officials only learned about the 2017 settlement through disclosure of lawsuit-related documents last December. Federal attorney Phillips also argued more broadly that MARAD was not under contract with the Municipality of Anchorage because the agency derived no tangible benefit from the project. The federal benefits, he stressed, were indirect and went to the Department of Defense, as the final design included added developments to account for the military’s needs. Among those was an access road built between the port and nearby Joint Base Elmendorf-Richardson to allow for direct troop and equipment transports without using public roads. Another part of the expansion portion of the project was adding dock space requested by the military. Unique project Former port finance administrator Cheryl Coppe testified that she helped coordinate MARAD’s involvement in the project and agency officials discussed its military uses. But they also saw it as a “demonstration project” to prove up the agency’s project management chops, according to Coppe. “It was a first-of-its-kind project; the Maritime Administration had never before been involved in port infrastructure development. They had never been involved as a federal lead agency, unlike their sister administrations in the DOT,” Coppe testified in questioning from Smith. Congress subsequently tasked MARAD with marine infrastructure projects in Hawaii and Guam after MARAD took control of the Anchorage port work in 2003. A 2013 DOT Inspector General’s audit of the projects concluded that problems arose in the Anchorage and Hawaii projects due to the agency’s narrow interpretation of its responsibilities. “Rather than take on a comprehensive role in developing and overseeing the port infrastructure projects, MARAD’s main role has, until recently, been limited to obligating and distributing funds to contractors for project tasks, such as project oversight, program management, engineering, design, and construction,” the 2013 IG report states. Failing to draft independent cost estimates — a step required by general federal and U.S. DOT regulations — could also have led to cost overruns at Anchorage, Hawaii and Guam, the report states further. Under cross examination by MARAD attorneys, Coppe said it was assumed before federal money became available that only port and state funds would be used on the project. She said city officials — with the help of Alaska’s congressional delegation — went to MARAD for quicker procurement and overall project development once it became clear federal money could be used. MARAD’s attorneys added that even if the military did garner benefits from the project they were indirect and minimal; but Smith countered that MARAD debunked that argument itself. “There’s no dispute that the military gained direct benefits as a result of this contract arrangement. We know it’s undisputed because MARAD all the way up until July of 2019 bragged about all of these benefits on its website and blast it out to the general public,” Smith said in his closing arguments. He claimed statements promoting the Anchorage port project on MARAD’s website were taken down at the behest of the agency’s attorneys. Judge Damich did not indicate when he would rule on the government’s motion for summary judgment, which was the impetus for the two days of arguments and witness testimony. Municipal attorneys have said they’re hopeful the case can reach a bench trial sometime this year. Elwood Brehmer can be reached at [email protected]

$15M Furie sale on hold over dispute with winning bidder Hendrix

John Hendrix was poised to purchase Furie Operating Alaska LLC after winning a December bankruptcy auction for the Cook Inlet gas producer with a $15 million bid, but initial negotiations to close the sale appear to have hit roadblocks, leading the company and its lenders to work on other arrangements, according to court records. A longtime oil industry professional and adviser to former Gov. Bill Walker, Hendrix sought to purchase Furie through his newly formed company Hex LLC. While Hex won the Dec. 5 auction, an apparent misunderstanding or disagreement over the structure of the sale prevented the company from meeting deposit deadlines and finalizing the security purchase agreement for Furie. Hendrix was general manager of Apache Corp.’s operations in Cook Inlet prior to working in the Walker administration. Houston-based Apache left Alaska in 2016 as the company prioritized its global operations during the bottom of the downturn in oil prices. According to a court notice filed Feb. 20 by Hex attorney David Bundy, the auction was advertised as an asset sale but conducted as an equity sale to keep Furie in control of its Inlet operations and eligible to receive outstanding refundable tax credit payments from the state. Uncertainties stemming from a royalty claim filed by three minority owners in the state leases that Furie operates are alleging collectively shorted them an estimated $50.7 million also prevented Hex from obtaining financing for the sale, according to Bundy. “Until that (royalty) issue was resolved, Hex could not forecast its future income and expenses and lenders were unwilling to commit,” Bundy wrote, adding that Furie leaders were not willing to extend Dec. 24 and Jan. 10 deposit deadlines laid out in the auction terms. Attorneys for Furie and its primary lenders claim in separate court filings that Hex did not negotiate “in good faith” during the process, an allegation Bundy disputes. According to the Feb. 20 filing by Bundy, Furie was continually informed of the challenges Hex encountered while trying to close the sale. He said in a brief phone call that discussions to resolve the situation are ongoing but referred further questions to Hendrix. Hendrix and Furie leaders did not return calls seeking comment in time for this story. Furie operates the Kitchen Lights Unit in central Cook Inlet and currently has contracts to supply Homer Electric Association, or HEA, and Enstar Natural Gas. Furie also signed a contract with Chugach Electric Association in 2017 to supply the Anchorage electric utility with firm gas shipments beginning in 2023. Texas-based Furie filed for Chapter 11 bankruptcy protection Aug. 9 in federal Bankruptcy Court for the District of Delaware. According to the company’s bankruptcy petition, Furie owed lenders approximately $440 million when it filed for Chapter 11 protection and was also owed roughly $105 million in refundable tax credits from the State of Alaska. Furie officials estimated the value of the company’s assets at between $10 million and $50 million in their initial bankruptcy filings. The financial challenges were nearly continuous for the company, which had net gas sales of $25.4 million and absorbed a net loss of $58.5 million in 2017, according to the bankruptcy filings. The situation worsened in 2018 when the company sold $42.8 million of natural gas but took a loss of nearly $152 million. Furie lost $21.4 million in the first quarter of 2019, when a freeze-up in a gas production pipeline kept the company from supplying HEA and Enstar with gas for more than a month. Once gas deliveries resumed, Furie was only able to supply Enstar with less-than-contracted amounts for several months as well. The utilities purchased gas from other area producers and drew on reserves stored in the Cook Inlet Natural Gas Storage Alaska facility commonly known as CINGSA. The company installed the Julius R platform in the Kitchen Lights field in 2015, which at the time was the first new development platform the Inlet built since the 1980s. Hex’s struggles to close the auction sale pushed Furie to turn to an “acquisition by foreclosure” with Kachemak Exploration LLC, a newly formed company owned 50-50 by New York-based Melody Capital Partners LP and GFR Holdings LP of Dallas. Melody Capital Partners was one of several lenders that collectively loaned approximately $244.5 million to Furie, according to the original bankruptcy filing. Attorneys for Furie and Kachemak Exploration filed a bankruptcy reorganization plan with the court Feb. 26, which indicates the $50.7 million in royalty working interest owner claims have been settled for $500,000 in total. Furie officials said in 2017 they planned to work on developing oil prospects in the Kitchen Lights gas field, but those plans were largely scuttled because of the state’s delay in repaying millions of dollars in oil and gas tax credits the company earned for its previous work, according to the company’s filings with the state Division of Oil and Gas. Elwood Brehmer can be reached at [email protected]

‘Historic’ Railbelt electric grid legislation on the move

Lawmakers are moving forward with legislation culminating years of work to better align Alaska’s Railbelt electric utilities in an effort to maximize the efficiency of their interconnected system. Senate Bill 123 was passed out of the special Senate Railbelt Electric System Committee Feb. 26 and testimony on the long-awaited bill was promptly heard in the Finance Committee March 3. Similarly, House Bill 151, an identical version of the Senate legislation moved from House Energy to the Resources Committee Feb. 26 as well. The bills seek to codify the work that the Railbelt electric utilities have done at the behest of the Regulatory Commission of Alaska to better integrate the long-term planning of the six utilities and provide a consistent path for renewable power producers to access the regional transmission system. Matanuska Electric Association spokeswoman Julie Estey told the Senate Finance Committee that it is a “historic time” for the utilities that can’t be missed. “There is unprecedented alignment around this solution, not only from the utilities but also with independent power producers and other stakeholders, with the RCA, with two very diverse legislative energy committees and we hope that this committee will support the passage of SB 123,” Estey said. At a high level the bills would mandate the utilities form an electric reliability organization, or ERO, that would oversee implementation of system-wide reliability standards and coordinate long-term planning amongst the utilities. It also gives the RCA explicit authority to rule on the necessity of large infrastructure projects, such as generation plants, that utilities may pursue. It is the result of nearly five years of work since the RCA issued a sternly-worded letter to the Legislature in 2015 that was largely critical of the utilities’ efforts to work together on broader generation and transmission planning as well as day-to-day power sales that could greatly improve the overall regional electric system efficiency. Senate Finance co-chair Natasha von Imhof, R-Anchorage, noted the utilities are ultimately responsible to their individual members but said the legislation should help facilitate streamlined operations between the utilities and provide an avenue for sharing backup generation, known as spinning reserve, which can be a large cost to utilities. “To me, this is a long time coming and should have significant benefit for Alaska ratepayers,” von Imhof said. The primary end goal for many stakeholders is to achieve “economic dispatch” across the entire Railbelt — from Homer to Fairbanks — or consistently maximizing use of the most efficient power generation through near-constant power sales between the utilities. The RCA’s 2015 letter characterized the Railbelt system as “fragmented” and “balkanized” at the time, as utilities focused on their own service territories with less concern about what was happening throughout the region. Some critical observers of the Railbelt electric system contend the six utilities — spread over a large area but with collective demand less than many individual Lower 48 utilities — have overbuilt generation capacity in recent years while ignoring transmission investments that could make it more cost effective to move lower cost power from one end of the system to the other. The 2015 letter notes the utilities had spent roughly $1.5 billion on new generation facilities over the previous five years. Currently, the Railbelt utilities continuously buy and sell power to each other; however, they also each apply their own transmission, or wheeling, tariffs, when power is sent across the portion of the main transmission lines they own. This can lead to situations where tariff “pancaking” disincentives power transactions that could otherwise maximize the efficiency of the system as a whole. Rate pancaking can also kill the economics of otherwise lower-cost independent power projects that aim to sell power to utilities across the grid. As a result, independent power producers, or IPPs, are strong advocates for a single system wheeling tariff that allocates revenue to the participating transmission owners, usually utilities. A memorandum of understanding signed by the utilities Dec. 18 lays out a path for them to set up the Railbelt Reliability Council, which will act as the regional ERO, and directs them to work on solving the pancaking issue. The council will have a board comprised of the six utilities and six other stakeholder members as well as the council’s CEO — in line with the directives in the legislation. It is the broad composition of the council’s leadership, the push to simplify grid access for IPPs and the assurance that the RCA can clearly require collaboration amongst the utilities if the voluntary efforts to form the council fail that has helped garner support for the bills from renewable power advocates. Renewable Energy Alaska Project Executive Director Chris Rose said in written testimony to Senate Finance that the Railbelt-focused legislation will help residents statewide by at a minimum stabilizing electric prices in the region that is the base for calculating the Power Cost Equalization electric rate subsidy statewide. “More efficient and affordable electricity in the Railbelt means more PCE support for rural communities that still rely primarily on expensive, imported diesel fuel to generate electricity,” Rose wrote to the committee. If passed, the bills would not take effect until July 2021 to give the RCA time to draft accompanying implementation regulations and give the utilities time to set up and start the Railbelt Reliability Council. RCA Commissioner Antony Scott testified to the Senate committee that he hopes and expects the structure of the bills means the commission will need to do little to solidify the ERO structure the utilities are working to form through the reliability council. He also clarified that the mandate to establish an ERO would be limited to the Railbelt because there are few other areas in the state that are sufficiently developed to make such an organization necessary or viable. ^ Elwood Brehmer can be reached at [email protected]

AGDC board taps longtime VP for top spot

The Alaska Gasline Development Corp. board of directors has promoted longtime Vice President Frank Richards to lead the agency. The board unanimously approved Richards’ appointment to AGDC president, which is effective March 1, during a brief Friday morning meeting. Richards will replace Interim AGCD President Joe Dubler who announced his retirement Feb. 20. Dubler will remain with AGDC through May 2 to continue supporting the roughly $40 billion Alaska LNG Project that is the corporation’s primary effort through the transition, he wrote in an email to AGDC staff. Dubler asked staff to congratulate Richards, who has been with AGDC for eight years. “We’re in capable and familiar hands for the road ahead through the permitting process and steps beyond,” Dubler wrote. The state-owned corporation is nearing the end of a roughly three-year permitting process with the Federal Energy Regulatory Commission to secure the key construction license for the Alaska LNG Project. A civil engineer by trade, Richards has long served as a senior vice president of program management at AGDC leading the design and permitting of both the Alaska LNG and the in-state Alaska Standalone Pipeline projects. Richards thanked Dubler for his work and said he hopes the work AGDC is doing to optimize the project will ultimately help improve its economics and lead to construction. “I look forward to the challenge ahead of us,” Richards told the board. Richards will be paid $350,000 per year as president of AGDC, in line with Dubler’s salary, he told the Journal. FERC is scheduled to issue the final environmental impact statement for Alaska LNG in early March; a final ruling on the license is expected later this spring. Last summer, BP and ExxonMobil announced they would contribute $10 million each and provide technical assistance to help the state complete the FERC process. AGDC Board Chair Doug Smith echoed Dubler’s sentiment in a formal statement issued following the meeting. “AGDC is fortunate to have someone of Frank’s caliber who is deeply familiar with Alaska LNG (and) ready to take the helm. The board thanks Joe for his service and leadership. Under Joe, Frank and the AGDC team we have made tremendous strides towards realizing Alaska’s natural gas potential, and I’m confident that progress will continue as Alaska LNG advances through the permitting process,” Smith said. Richards will be the third leader of AGDC since the start of 2019. Dubler took over in January 2019 after Gov. Mike Dunleavy made sweeping changes to the AGDC board of directors. The board then quickly acted to fire then-President Keith Meyer, who championed former Gov. Bill Walker’s vision for the state to lead the Alaska LNG Project. Since then, AGDC has ended its active marketing to potential Alaska LNG customers and cut 60 percent of its staff to focus on securing the FERC license. Under the Dunleavy administration the corporation has been directed to transfer or sell the project to a private entity for development once the construction once FERC approves the license. Elwood Brehmer can be reached at [email protected]

Corps finds less risk of Pebble dam failure

A leaked summary of the Pebble mine project’s preliminary final environmental impact statement says U.S. Army Corps’ of Engineers officials declined to model a tailings dam failure at the mine because of the designs chosen by the company but mine opponents contend that’s simply unacceptable. The executive summary of Pebble’s preliminary final EIS — which was sent to some Bristol Bay-area Tribes as well as state and federal government organizations acting as “cooperating agencies” to provide input on the final document prior to its release — states that the modeling of an “extremely unlikely” tailings release was deemed inappropriate by the Corps due to Pebble’s use of a flow-through tailings dam design, which is fundamentally different than major tailings dams that have failed around the world in recent years. Pebble CEO Tom Collier said in a formal statement issued shortly after the typically confidential summary was released that criticism of the Corps’ review is rhetoric that ignores what happened during review of the draft EIS, which was published about a year ago. Pebble has interpreted the leaked summary as indicative of a favorable permitting conclusion for the project. “Just because some of the groups opposed to Pebble do not like the conclusions reached by the USACE (Corps) does not that the USACE’s work is not valid,” Collier said. “Rather, the USACE’s work on this issue is sound. It is defensible and it should be commended for its completeness.” Commercial fishing and conservation groups have criticized the entirety of the summary, and argue that the tailings dam issue is just another symptom of a rushed and incomplete EIS process. According to the summary, a not-yet-published appendix to the full, final EIS details the rationale behind the probability of a large-scale tailings dam release from the bulk tailings storage facility, or TSF. That appendix addresses several recent dam failures, such as those in Brazil and the 2014 Mount Polley dam failure in British Columbia, and discusses “the higher probability of failure of water-inundated tailings slurries behind upstream dams compared to drained, thickened tailings behind downstream/centerline dams.” Corps Alaska officials have said in prior interviews that a detailed analysis of the tailings facilities is outside the scope of their review, noting the State of Alaska is responsible for reviewing permitting for the specific tailings dams designs and construction through its Dam Safety Program administered by the Department of Natural Resources. Pebble has yet to apply for its state dam permits. The company plans to build a centerline-style dam for its bulk TSF that will allow water to pass through the dam and subsequently be collected below the embankment for storage and treatment before it is released back into the environment. Pebble Permitting Vice President James Fueg said the company specifically examined what has happened during TSF failures around the world while designing its facilities. “Everything we’ve done in our approach — not just to designing the tailings dams but into laying out the entire site and combining the tailings management systems and the water management system — was all done specifically to address things that led to the failures at Mount Polley and the failures in Brazil,” Fueg said. “It’s more than just saying, ‘This is how we’re going to design the tailings embankment;’ you’ve got to look at the whole project.” The January 2019 collapse of an iron ore mine tailings dam near the Brazil city of Brumadinho released a mass of tailings sludge and killed 270 people. It was preceded by another large-scale tailings dam failure in the country in 2015. Pebble leaders first point to the fact that they plan to build two, separate tailings facilities: one to store the benign waste rock that makes up the lion’s share of the finely ground mine waste, or tailings, and another that will hold the pyritic tailings, or those that can generate acid when exposed to air and water. The main bulk TSF dam will be 600 feet high and the pyritic tailings embankment will be approximately 250 feet high, according to Pebble’s permit application materials. Combined, the facilities will cover more than 3,800 acres. Fueg said the large, bulk TSF will hold 85 percent to 90 percent of the waste that is left over from the mining process and the focus there is simply building the most stable facility possible. Part of that is allowing water to flow through the dam itself, rather than allowing the water to build up behind the dam and become a static force that is constantly pushing on the upstream face of the dam, according to Fueg. Part of the problem at Mount Polley was that water breached the dam prior to its collapse; removing water helps stabilize the associated tailings. Separating the water and tailings reduces the already slim risk of a dam failure and also limits the impact if a failure does occur, he said. “If you take a glass that’s a mix of sand and water and pour it out over the table, what’s going to happen? That sand and water is going to run all over the table and drip over the edges. But if you take a glass of — whether it’s dry sand or damp sand — and you dump it on the table you’re going to end up with a pile of sand in the middle of the table and that’s what we’re trying to do with this concept,” Fueg described. Pebble’s pyritic, or potentially acid-generating waste rock will be stored in water behind a separate, downstream-style tailings dam in a lined-facility while the mine is active. The pyritic tailings will be moved from the storage facility and into the bottom of the roughly 1,500 feet deep mine pit at the end of the mine’s 20-year life. The pyritic tailings will again be covered with water as the pit naturally fills and will safely remain there after closure and reclamation, according to the company. Fueg said Pebble will be mining rock specifically for the tailings dams rather than utilizing tailings and waste rock to build the dams, as is often done at other mines. He added that the downstream slope of the bulk TSF will be very gradual, with a 2.6-to-1 slope. “Ours is a much flatter slope, which again increases stability and the factor of safety in the design,” Fueg said. Finally, Pebble will dig down to bedrock before building the dam to prevent a potential weak layer of soil from compromising the dam from below, as also happened at Mount Polley, Fueg said. The whole system hinges on the ability to treat lots of water in an already wet place, which Fueg acknowledged, but he said Pebble has designed its two large water treatment plants to handle the combination of a large storm during the peak of snow runoff in the midst of the wettest 20-year period in the 76 years of weather records available for the nearby Iliamna Airport. “Half of the overall (water management) capacity is simply there as a precaution to deal with flood events or a series of wet years. It’s a massive pond,” he said. Alaska Dam Safety Program Engineer Charlie Cobb declined to discuss the specifics of Pebble’s TSF designs because he could eventually be tasked with adjudicating them in the state’s permitting process. Cobb did note that Pebble’s tailings dams would be among the largest in the state. He said generally, though, that evaluating the failure risk of a given tailings dam against those that have failed is problematic because the design of each structure is extremely site and material specific. “The rates of failure in the tailings dam industry are based on a whole fruit basket of dams. When one goes bad now and then it’s like, ‘OK, what kind of fruit was that?’” Cobb said. More often, he said the failure risk is vetted through a Failure Modes and Effects Analysis by a group of engineers that search for weak spots in a design in a back-and-forth exercise until the design is sufficiently reinforced. However, Dave Chambers, an engineer and geophysicist who founded the Montana-based nonprofit Center for Science in Public Participation said Pebble’s tailings management plans were developed to save money and do not jive with the reality of the mine or the available mineral resource. Chambers counters the claim that the flow-through bulk TSF will reduce the risk of failure with the contention that allowing the dam to fill with water from the inside could actually add to the risk. “You don’t want the dam to ever become saturated. When you allow a dam to get saturated you can have static failures,” he said. According to Chambers, many modern tailings dams are built with a thick internal layer of clay or other impermeable material that prevents water flow. Instead, the water is directed to a drain at the toe of the dam and is subsequently routed to the water treatment pond. He said the flow-through design inherently allows some saturation of the dam material and while water is not supposed to build up behind the dam, it could and is a scenario that needs to be modeled. “To my mind, flow-through dams aren’t as safe as a more conventional flow-through dam with a barrier in it because that (barrier) gives you another check on controlling the saturation of the dam,” Chambers said. The company went with the flow-through design to avoid the added cost of designing and building the dam with the internal barrier, he argues. “A permeable dam is just adding basically a second drainage system that shouldn’t be required,” he said. Chambers is more concerned with the pyritic tailings plan, he said, despite the fact that the pyritic tailings dam will be built with a conventional downstream method that includes the impermeable internal layer he’s calling for in the bulk TSF. That’s because he doesn’t believe Pebble will ever end up dumping the pyritic tailings in the bottom of the pit. Doing so would preclude expansion of the mine beyond the current plan, which many observers believe is necessary to make the overall project economic. He called the proposal a “lawyer’s mine plan.” “The reason that won’t happen is that there’s 88 percent of that main resource sitting in the ground at the end of their 20-year mining life and if they backfill that (pyritic) material into the pit they sterilize that resource — that is, they can’t mine it until they take all that stuff out again, which is hugely expensive,” Chambers said. “I know that they’re not going to do it. They know they’re not going to do it. The investors know that they’re not going to do it, which is why they’re not complaining about the plan.” He expects Pebble to build a second, larger pyritic TSF once they move ahead with expanding the project. In response to the assertion that Pebble will expand the project, Pebble spokesman Mike Heatwole wrote that the current plan calls for putting the pyritic tailings back into the pit and the company believes that the proposal is a significant improvement to its closure plan. He noted that any further development plans would require a wholly new permitting process. Elwood Brehmer can be reached at [email protected]

PFD, spending stalemate remains a month into the session

The 2020 legislative session is still young but little visible progress has been made to settle one of the biggest debates in the state’s history. The future of the Permanent Fund Dividend is still up in the air and until it is resolved it will continue to weigh heavily on nearly every other fiscal decision lawmakers can make, according to Anchorage Republican Sen. Natasha von Imhof. Von Imhof, a co-chair of the Senate Finance Committee called the PFD “the tail wagging the dog,” during a Feb. 24 speech to the Anchorage Chamber of Commerce. She has advocated for reducing the PFD in order to preserve the viability of core state services and noted paying a full, statutorily-calculated PFD of approximately $3,100 per Alaskan this year would consume more than $2 billion, which is about 40 percent of the state’s projected General Fund revenue in the 2021 fiscal year that starts July 1. Von Imhof recalled a Senate vote last year to pay full PFDs that was split 10-10. “The state is divided,” on the issue she said, adding that Gov. Mike Dunleavy’s proposed budget of roughly $4.5 billion in unrestricted General Fund spending would leave the state with a projected surplus of about $470 million if the state did not pay PFDs. With the full dispersal to residents, the governor’s budget leaves a roughly $1.5 billion deficit that Dunleavy is proposing be filled via the dwindling Constitutional Budget Reserve, the state’s last remaining savings account. The CBR currently holds about $2.1 billion and many lawmakers have resisted drawing on it much further, as it is the state’s financial buffer to fluctuations in oil revenue, emergencies and day-to-day cash management. The CBR will also fund the large fiscal year 2020 supplemental budget that is currently pegged at roughly $300 million, and more will be drawn to cover the annual deficit as the current fiscal year plays out. That means with or without full PFDs the state’s options for dealing with its structural fiscal imbalance under the status quo are increasingly limited, according to von Imhof. “Either way the day of reckoning is here,” she said to the Anchorage Chamber members. The Legislature’s continued split over the PFD is exemplified in the various bills submitted to change the dividend formula. While Dunleavy continues to push for full, statutory payments until or unless the law is changed — the administration on Feb. 19 also submitted legislation to pay a supplemental PFD of $1,034 per Alaskan for last year — the proposals from the Legislature vary widely. Fairbanks Democrat Rep. Adam Wool, a member of the Legislature’s bicameral Permanent Fund Working Group, submitted House Bill 300 on Feb. 24, which would allocate 15 percent of the state’s annual percent of market value, or POMV, draw on the Permanent Fund to dividends. With a 2021 POMV payout of nearly $3.1 billion, Wool’s proposal would pay PFDs of roughly $700 per Alaskan in October. HB 300 would allocate the rest of the POMV appropriation to K-12 education, the University of Alaska, community assistance and capital projects and would result in a nearly balanced budget in 2021 based on current revenue projections. He noted in a formal statement, as von Imhof and others have, that the size of the PFD has consumed the Legislature in recent years and prevented lawmakers from budgeting on time and addressing other pressing issues facing the state. “This plan allows a dividend that is sustainable, while also addressing the needs of our communities. Businesses, public servants, municipal governments and Alaskans all deserve stability. By protecting the Permanent Fund, committing funding to essential services, and directing funds to capital projects and communities, we can now focus on building Alaska’s future,” Wool said. Sen. Lyman Hoffman, D-Bethel, quietly submitted legislation to change the PFD on Feb. 24, which was the deadline for individual lawmakers to propose new bills this session. Hoffman’s Senate Bill 227 would split the annual POMV draw 50-50 between dividends and the General Fund, which would equate to PFDs of approximately $2,300 in October. The 50-50 split has been seen as an equitable calculation by many legislators, but von Imhof noted it would still leave the state with a deficit of about $1 billion in the coming fiscal year. She said a lot of legislators are supportive of dividends in the $900 to $1,100 range in private discussions. Legislative leaders are in regular talks with the governor on the issue, according to von Imhof, but there has been little movement publicly on the since the session started in late January. A state spending cap, another von Imhof priority, is currently languishing in the Finance Committee where she said it currently lacks the votes among the seven members to advance to a floor debate. In a radio interview Feb. 25, von Imhof also said there is also some desire within the Legislature to have a capital budget in the $300 million range as opposed to the bare minimum of a bit more than $100 million from recent years needed to generate federal matching funds. The Permanent Fund Working Group, which was supposed to come up with recommendations for the PFD at the start of the session, was unable to reach a consensus on a new formula. Von Imhof urged Anchorage Chamber members to contact their legislators with specific proposals for changing the PFD or otherwise resolving the state’s continual budget deficits. She noted there is still nearly two months to go in the regular session and she believes the “log jam will break at some point,” but having lawmakers continue to set the PFD on an ad hoc basis isn’t workable either, according to von Imhof. “I certainly didn’t run for office so I could argue about how big the PFD is each year,” she said. Elwood Brehmer can be reached at [email protected]

Dubler resigns as interim president at state gasline agency

The temporary head of the state’s gasline agency publicly announced his resignation Thursday morning. Interim Alaska Gasline Development Corp. President Joe Dubler made his plans to retire public at the corporation’s board meeting in Anchorage. He will remain at AGDC through May 2, he said. Dubler stepped into the lead role at the state-owned corporation in January 2019 after Gov. Mike Dunleavy made sweeping changes to the AGDC board of directors, which quickly acted to fire then-President Keith Meyer, who championed former Gov. Bill Walker’s vision for the state-led Alaska LNG Project. Over the past year AGDC ended its active marketing to potential Alaska LNG customers and cut 60 percent of its staff to instead focus on securing the key construction license for the project from the Federal Energy Regulatory Commission, which would then be sold to a private developer who would build the project. FERC is scheduled to issue the final environmental impact statement for Alaska LNG in early March; a final ruling on the license is expected later this spring. Last summer, BP and ExxonMobil announced they would contribute $10 million each and provide technical assistance to help the state complete the FERC process. Dubler, who worked as an executive at AGDC from 2010 to 2016, stressed throughout his most recent tenure that he always intended to lead the corporation on an interim basis. Dave Cruz, AGDC’s longest-serving board member reiterated that message in a brief interview. Cruz said the board had been aware of Dubler’s plans for some time. “From day one it was going to be a six-month deal and it dragged on from there,” he said of Dubler’s employment, adding that, “He did everything we asked him to do.” Dubler said he and his wife Patti will be staying in Alaska and spending more time with their grandchildren. He does not expect to work full-time elsewhere. Cruz said the board is starting the search process for Dubler’s replacement who will be expected to lead the Alaska LNG Project through the final permitting steps, sell the license and reams of associated data to a firm ready to develop the project and represent the state throughout that process. “We’re going to have someone come in and finish the job,” Cruz said. Elwood Brehmer can be reached at [email protected]

State dusts off look at Susitna-Watana hydro project

Proponents of the massive Susitna-Watana hydro project contend it is the linchpin to making a large-scale shift to renewable energy in Alaska, but it’s unclear exactly what it would take for the state to dust off the shelved dam proposal. Former Gov. Bill Walker suspended the mega project through an administrative order in 2015 when the state was mired in a string of multibillion-dollar annual budget deficits. While the state’s fiscal situation has improved somewhat but is far from cured — the fiscal year 2021 deficit is pegged at roughly $1.5 billion — Gov. Mike Dunleavy lifted Walker’s freeze in 2019 as part of his overarching goal for the state to explore the gamut of economic development prospects available to Alaska. To that end, lawmakers heard from Alaska Energy Authority officials what it would take to restart Susitna-Watana during a Feb. 11 Senate Community and Regional Affairs Committee hearing. Alaska Energy Authority officials who would lead the restarted project told legislators that they are about two-thirds done with the pre-licensing study work required by the Federal Energy Regulatory Commission before the state-owned authority could apply for the FERC license that would trigger a wholesale environmental and socioeconomic review of the plan. AEA estimated the 705-foot dam in the upper reaches of the Susitna River valley would cost roughly $5.6 billion in 2014 dollars. The hydro project would generate up to 619 megawatts of electricity — meeting about 60 percent of the Railbelt’s electricity demand — and would form a reservoir about 42 miles long and 1.25 miles wide, according to the authority. AEA Executive Director Curtis Thayer said AEA couldn’t resume work on Susitna-Watana without explicit direction from the Legislature and the governor, which would also have to include significant state funding to finish the environmental studies for the project. The hefty construction cost would be paid up front through bonds that would be repaid once the dam started producing power. Thayer told legislators he didn’t know specifically how much it would cost to get through FERC licensing, but AEA officials said when the project was suspended they needed about $100 million over four years to obtain the key federal construction license. “If it is greenlighted, obviously determining the licensing status would be the next step and then updating the cost estimate to obtain the license; updating the cost-benefit and economic analyses and then reviewing the data to make sure it remains reflective of the current conditions,” Thayer said. He added that AEA estimates power from the dam would cost about 6.5 cents per kilowatt before transmission costs are factored in, which is about 20 percent less than current costs for natural gas-fired electricity in the Railbelt and about 40 percent more than existing hydropower in the region. According to AEA Hydro Group Manager Bryan Carey, power would likely start flowing from the project after eight years of construction, though it wouldn’t be completely done for a couple years afterwards. Carey said AEA completed 19 studies and made “significant progress” on another 39 of the 58 total studies FERC approved for the project starting in 2012. However, dam opponents, led by the Susitna River Coalition point to a lengthy June 2017 determination report from FERC officials on study requirements for the project as indication that advancing Susitna-Watana would require much more work than advocates claim. That report states that the agency partially approved changes recommended by third parties to 17 AEA studies covering baseline water quality data, the dam’s impact to ice formation, in-river sediment, fish passage and other issues. It notes that AEA has conducted a significant amount of water quality data, but it’s difficult to tell if that data represents current conditions because it has not been fully vetted. “Consequently, we find that in its current state, the (water quality) data are largely unusable, and we are also unable to determine the adequacy of the data to characterize baseline water chemistry, water quality, water temperature and groundwater of the Susitna River,” the 2017 FERC determination report states. The project was essentially frozen at that point. The report authors additionally state that it would be “premature to require AEA to essentially redo the study as requested by the commenters” until the authority has the chance to support its conclusions. AEA officials emphasize that while the dam would restrict water flow in one of the state’s largest salmon-bearing drainages, it would be upriver of nearly all salmon habitat. That’s because Devil’s Canyon — about 20 miles downstream of the proposed dam site — acts as a natural fish barrier for all but a few chinook salmon. However, members of the Talkeetna-based Susitna River Coalition counter that operating the dam to meet energy demand would mean more stable year-round flows in the river that are counter to what juvenile salmon rearing in the river and its back channels have adapted to. The coalition further disputes claims that the dam would provide decades of clean power by displacing natural gas-generated electricity because the reservoir would inundate many thousands of acres predominantly spruce forests that would release carbon gasses as they decay. ^ Elwood Brehmer can be reached at [email protected]

‘1 percent’ rule reverts to July 31 for Peninsula setnetters

They’re not always counted numerically, but coho salmon in Upper Cook Inlet are highly sought after by sport fishermen and commercial fishermen alike — and, naturally, lead to disagreements over who gets to harvest them and when. Though the most recent Board of Fisheries meeting was largely focused on the regulations on sockeye and king salmon fisheries in Upper Cook Inlet, concerns about coho fishing pulled the strings on some of the regulations, particularly for set gillnet fishermen on the east side of Cook Inlet. In particular, changes to the one percent rule — a rule established for the commercial fisheries in the area, largely designed to minimize commercial harvest of coho salmon — could cost commercial fishermen more time in the August each season. The board approved moving the 1 percent rule date back to July 31 on a 4-3 vote, with members John Jensen of Petersburg, Fritz Johnson of Dillingham and Gerad Godfrey of Eagle River voting against the change. Coho salmon, also known as silver salmon, aren’t as numerous in Cook Inlet as sockeye or pink salmon and aren’t as high-value as kings, but they’re still a highly prized species. In the commercial fishery, they were worth about $1.02 per pound last season, a little less than half as much as sockeye. In 2019, commercial fishermen across the area harvested about 164,859 coho salmon, with a little more than half landed via the drift gillnet fleet, according to the Alaska Department of Fish and Game’s annual management report. Silver salmon are worth big money in the sport fisheries around the Cook Inlet basin, too, with guides marketing trips from late July through September based on silvers. When the Kenai River king salmon run closes for sportfishing at the end of July, anglers turn most of their attention to silvers. The board rejected proposals to increase the Kenai daily sport bag limit of two coho in August to three fish. Anglers are allowed to harvest three Kenai coho per day starting Sept. 1. ADFG staff in past meetings have said they consider coho salmon in Upper Cook Inlet to be fully allocated, meaning that they in order to increase harvest for one group without damaging the population, the allocation for another group would have to be reduced. However, there are a number of data gaps that made the board’s decisions on how to move coho around difficult. For one, there is no regular enumeration project on the Kenai River counting silver salmon — the last comprehensive population estimate ADFG has is from 2004. As part of an overall attempt to move more silver salmon toward in-river users, the board members passed a proposal to move the effective date of the 1 percent rule for East Side setnets back from Aug. 7 to July 31. Next season, if the setnet fleet collectively catches less than 1 percent of its total season harvest of sockeye salmon in two consecutive periods after July 31, the fishery will automatically close prior to its normal closing date of Aug. 15. “Everyone is worried about overexploiting the coho because we don’t know (enough),” said board member Israel Payton during the deliberation process in Anchorage. “ I was comfortable leaving it as it was a few years ago … I thought it was appropriate. I think the in-river users think two fish is appropriate, and the in-river users think the one percent rule should be back to the July 31 date.” The 1 percent rule went into effect after the 2014 board meeting, and the effective date moved from July 31 to Aug. 7 after the 2017 meeting. Payton, who voted against moving the date at the 2017 meeting, said he thought the board made the wrong decision at that time to move the date back to Aug. 7, especially as the board also voted against increasing the bag limit for inriver users. Setnetters objected, saying it would unfairly truncate their opportunity to harvest sockeye salmon. Sockeye runs on the Kenai have been increasingly arriving in August—in 2018, for the first time on record, more than half the run arrived after Aug. 1. The fleet also shrinks in August, as more people begin pulling nets out of the water and fewer people are fishing. The rule is evaluated based on the entire fleet, and so the one percent rule makes it a challenge for the whole fleet to keep up with the catch. Gary Hollier, a longtime East Side setnetter, told the board the fleet’s harvest of Kenai-bound coho salmon is relatively minimal. Genetics data provided by the department estimated the East Side setnet harvest of Kenai-bound coho at about 5,400 fish last year, said Pat Shields, the commercial fisheries management coordinator for Upper and Lower Cook Inlet. The total yearly Cook Inlet-wide coho harvest has declined by about 56 percent, or roughly 150,000 fish per year since 1999 compared to historical averages, according to department figures. Comparatively, the Kenai River sport coho harvest has remained roughly flat over that time. Historical data indicate the Kenai coho run is about 150,000 fish. “(The commercial coho harvest) is already minimized,” Hollier said. “There’s no reason to change this. If anything, the minimize date… was Aug. 15. That’s the minimize date.” Shields said the 1 percent rule was not used since being moved back to Aug. 7 in 2017, but other restrictions were placed on the setnet fishery in recent years because of low king and sockeye returns. It was used periodically in years when it took effect July 31, according to Shields. Kevin Delaney, a former ADFG sportfisheries biologist and consultant with the Kenai River Sportfishing Association, pointed to another proposal for the board to increase the bag limit of coho to three from the current two. In 2017, the board declined to do so, citing concerns about harvest rates, but still moved back the effective date for the 1 percent rule. Coho are worth more to the sportfishery than the commercial fishery, he said, especially with the decline in king salmon availability across Alaska. “We stand ready to present reams of economic data that would reflect and inform the board and the public on the value of coho salmon for sportfishing in Upper Cook Inlet,” Delaney said. “That value has gone up exponentially because of the low abundance of king salmon we have. We’ve seen a real decline in the abundance of king salmon … what’s that done is it’s pushed a lot of the effort toward sockeye and coho salmon.” What the new rule is likely to cost setnetters, though, is sockeye. ADFG was neutral on the proposal but had concerns about the effect on management for escapement goals, said Alyssa Frothingham, the assistant area management biologist for commercial fisheries in Upper Cook Inlet. “The department has concerns, however, with restrictions that might impair our ability to meet sockeye salmon escapement objectives in the Kenai and Kasilof Rivers,” she told the board. Board member Fritz Johnson said that variability in salmon runs could end up unfairly restricting setnetters from harvesting sockeye. “In (Bristol Bay), fish don’t arrive where they’re headed in a steady stream,” he said. “The changes that can take place from a day or a tide can be significant, and under those circumstances, there can be a lot of lost opportunity if we enact this rule too early. I don’t think it’s right that the commercial fishery take a hit on this and lose opportunity.” The board ultimately voted to pass the proposal moving the date to July 31, taking no action on other 1 percent rule proposals based on it. Commercial fishermen had proposed eliminating it entirely, while other proposals sought to expand it to 2 or 3 percent, largely based on concerns for coho salmon harvest opportunities.

Alaska Permanent Fund up 4% for 2Q, 5% for FY20

The $68 billion Alaska Permanent Fund generated a strong return of 4.07 percent in the second quarter of the 2020 state fiscal year, which beat its long-term return objective handily but did not quite match comparable investment indicators. The Alaska Permanent Fund Corp. reported that as of Dec. 31 the fund had a total market value of $68.3 billion and had returned 5.38 percent on its investments for the first half of the fiscal year that started last July 1. The most recent quarterly return of 4.07 percent was well better than the quarterly return objective of 1.31 percent — calculated as the federal Consumer Price Index plus 5 percent annually. However, the corporation’s passive index benchmark for the quarter was a return of 5.71 percent. The $68.3 billion Dec. 31 value included more than $1.4 billion in liabilities largely to the state for a total fund balance of $66.9 billion. The fund’s Earnings Reserve Account — the portion spendable by the Legislature — held more than $17 billion but $7.7 billion of that was committed at the time. The Legislature and Gov. Mike Dunleavy agreed to transfer $4 billion to the constitutionally-protected Permanent Fund corpus in 2020 and nearly $3.1 billion is destined for the state General Fund under the annual 5.25 percent of market value draw the Legislature and former Gov. Bill Walker approved in 2018 to help fund state government. In total, the fund’s balance grew by nearly $700 million in the first half of the 2020 fiscal year, according to the corporation’s Dec. 31 financial statement. The fund had an unaudited total value of just more than $68 billion as of Feb. 17. Public equities, or stocks, account for 36 percent of the fund’s investments and netted a 9.66 percent return for the quarter. Comparatively, the Dow Jones Industrial Average grew 6.9 percent over the period. The fund’s $16 billion fixed income portfolio generated 1.35 percent during the quarter, which was just better than the corporate benchmark, but its collective $18.5 billion real estate, infrastructure and private equity and special opportunity portfolios lagged behind benchmark returns. Most notably, the private equity and special opportunities portion of the fund lost 1.36 percent during the quarter due to a 6.52 percent decline in the value of more than $3 billion in special opportunity investments. The fund’s $4 billion real estate portfolio netted 0.64 percent last quarter. An APFC spokeswoman did not respond to questions about the fund’s performance in time for this story. The APFC Board of Trustees was scheduled to hold its quarterly meting Feb. 19-20 in Juneau. Elwood Brehmer can be reached at [email protected]

Board tightens rules to protect Kenai kings

The Alaska Board of Fisheries on Feb. 14 approved a new escapement goal aimed at getting more of the once iconic late-run king salmon into the Kenai River, but the move amounts to another blow to many Kenai Peninsula commercial fishermen targeting sockeye salmon also returning to area rivers. After numerous amendments to the proposal and hours of discussions with stakeholders and Department of Fish and Game managers, the board voted 5-2 in favor of managing the late-run Kenai kings with an optimum escapement goal, or OEG, of 15,000 to 30,000 large fish at its Upper Cook Inlet finfish meeting in Anchorage. In 2017, department officials set a sustainable escapement goal, or SEG, of 13,500 to 27,000 large late-run Kenai kings and the board made several corresponding changes to in-river sport fishing regulations. The department sets — and the board approves — biological and sustainable escapement goals based on scientific data for salmon stocks across the state; the board can then set optimum escapement or in-river goals at higher levels. Such larger goals set by the board often account for in-river harvest or other allocative considerations. The department managed to an escapement goal of 15,000 to 30,000 late-run Kenai kings of all sizes from 2013 through 2016 before switching to the slightly lower range goal for large fish — kings more than 34 inches long — in 2017. The large fish goal was implemented in part to focus escapement on bigger fish that are productive spawners. It also aids department managers in achieving a more accurate escapement census for Kenai kings, which are counted by sonar in the lower river. (All numbers that follow referring either to run size or harvest are in terms of large Kenai king salmon, as estimated by ADFG) The late-run kings return to the Kenai in July and early August when sockeye, pink and coho salmon are also in the river, so counting only large kings allows managers to better enumerate kings from sonar images including multiple species of similar- sized salmon. The total return of late-run Kenai kings before harvest has been on a general downward trend since peaking at more than 91,000 kings in 2004. In 2019, the total late run of Kenai kings was just 12,780 fish, which was the smallest run in more than 20 years according to Department of Fish and Game data. The restrictions on all fishing just to achieve that number for Kenai kings led in part to another disappointing commercial season, with only 2.1 million salmon landed, or about 37 percent less than the recent 10-year average. That brought in a total of about $18 million in ex-vessel value, which is about 40 percent less than the recent 10-year average in the fishery, according to an ADFG season summary released Nov. 25, 2019. Both the Kasilof River and Kenai River sockeye salmon escapement goals were exceeded in part because of restrictions on commercial fishermen due to the weak Kenai River late-run king salmon numbers. The average size of the Kenai king — historically renowned for being the largest king salmon on Earth — has been in decline for years as well. The Kenai River Sportfishing Association, commonly known as KRSA, submitted the proposal to establish the OEG for late-run Kenai kings. Board members who voted for the new, higher OEG said getting more fish into the river is one of the most fundamental ways they can help rebuild the stock. Board chair Reed Morisky of Fairbanks said the board is not going to let the late-run Kenai kings disappear under his leadership. “We’d be irresponsible not setting (the OEG) there for these kings,” said Israel Payton, a board member from Wasilla. Payton acknowledged the 15,000 to 30,000 large fish OEG at times will have implications on commercial sockeye fisheries, but also stressed the “paired restrictions” implemented to limit fishing time and gear in the East Side setnet fishery when managers restrict the in-river sport fishery only take effect during years of low king returns. Märit Carlson-Van Dort concurred with Payton’s assessment of the Kenai king situation. “If we’re in times of abundance and if the run improves, then we have no problem. That’s how I see it,” said Carlson-Van Dort, a board member from Anchorage. “But right now it’s not improving and that’s a big problem.” However, managing to the new, higher OEG instead of the 13,500 to 27,000-fish SEG increases the likelihood that the department in any given year will use the paired restrictions. The paired restriction concept was first enacted during the board’s 2014 Upper Cook Inlet meeting and has since been modified. KRSA and other sport fishing advocates have pushed for restricting or outright eliminating the East Side setnet fishery because the near shore nets intercept Kenai and Kasilof-bound king salmon at a higher rate than other Cook Inlet commercial fisheries. Salmon tend to swim along the beach as they approach their natal rivers and while kings generally swim deeper than the sockeye that the set netters are targeting, a portion of the kings returning to the Kenai are caught in set nets each year. KRSA founder Bob Penney insisted in testimony to the board that he has long supported the commercial fishing industry in general, but Cook Inlet king salmon, and particularly those in the Kenai, are managed for sport fishing. “Stop killing kings or stop fishing,” was Penney’s message to setnetters at the meeting. From 2014 to 2019 the East Side setnet fishery harvested an average of 1,764 large Kenai king salmon per year, or about 8 percent of the total average run of 20,469 fish according to Fish and Game data. During that time the in-river sport and dip net fisheries took an average of 3,976 large kings per year between harvest and catch-and-release mortality estimates. Cook Inlet sockeye, on the other hand, are managed with a commercial fishing priority. A KRSA-backed 2016 ballot initiative would have banned setnets in Cook Inlet but was declared unconstitutional by the Alaska Supreme Court. KRSA Executive Director Ben Mohr said commercial fishing appropriately drives management across most of Alaska; however, the urban centers that surround much of Cook Inlet mean the region’s fisheries should be managed differently, according to Mohr. “Cook Inlet is different. We hear it all the time and it’s true,” Mohr said to the board. Paired restrictions The latest paired restrictions approved Feb. 14 call for limiting the East Side setnet fishery to no more than 48 hours of fishing per week when department managers restrict the Kenai River king salmon sport fishery to no bait in an attempt to reduce in-river harvest in times of low returns. According to the department, prohibiting bait in the Kenai king sport fishery reduces the catch rate by approximately 50 percent. If managers feel based on sonar counts and run projections that the no-bait and 48-hour setnet restriction is not sufficient to meet the OEG, the sport fishery can be restricted to no bait and no retention of king salmon greater than 34 inches long. At that point, setnetters would be limited to no more than 36 hours of fishing per week. KRSA’s original proposal called for limiting harvest to kings less than 36 inches under this restriction tier, but Payton proposed the 34-inch maximum to align with the size fish department officials consider “large king salmon” for counting purposes. When the sport fishery is limited to strictly catch and release, the setnet fishery is limited to 24 hours of fishing time per week; and when the Kenai late-run king sport fishery is closed the East Side setnet fishery is closed as well. The regulatory language also calls for a mandatory 36-hour setnet closure starting between 7 p.m. Thursday and 7 a.m. Friday each week while the paired restrictions are in effect. Managers can also allow East Side set netters to fish 600-foot “beach nets” without the time limitations during times of paired restrictions. Central Cook Inlet district setnet fishermen are typically allowed to fish up to 1 or 1.5 miles offshore depending on the sub-area. Kenai/Soldotna Advisory Committee vice chair and Kasilof-area setnetter Paul Shadura said that 600-foot beach nets can be productive at some setnet sites but noted the paired restrictions are announced via emergency order from the department, which means fishermen don’t know at any given time how or when they will be implemented. That uncertainty can have practical implications on scheduling fishing crews and work hours for setnetters with other employment, according to Shadura. Additionally, the new regulations direct department managers to implement the paired restrictions earlier in the setnet fishery when they project the OEG will not be achieved under the normal regulatory regime. Previously, the setnet restrictions kicked in July 1 — when the late-run sport fishery also officially starts — in years of low returns; the board pushed that date up to June 20 in an effort to protect the early-returning late-run kings. The setnet restrictions can only be lifted after the OEG is reached based on daily sonar counts. Setnetters often bristle at the premise of paired restrictions, noting that while harvest is restricted in the sport fishery when king returns are low, anglers and guides are still allowed to fish continuously when setnet fishing time is greatly reduced. Board member John Jensen, of Petersburg, highlighted that situation in discussing KRSA’s proposal. “I know we have to conserve king salmon and that’s paramount but it’s going to come at some cost,” he said. Jensen and Fritz Johnson of Dillingham voted against the new Kenai king management measures. Commercial fleet protest latest restrictions On a larger scale, Shadura and other commercial fishermen said their groups again took the brunt of conservation-focused fishing restrictions at the Upper Cook Inlet meeting. “Board of Fisheries members should be aware of the devastating consequences of enacting these series of restrictions at this board cycle to the Cook Inlet commercial fisheries,” Shadura wrote in comments to the board. “The industry will be damaged, losing the baseline economies within Southcentral communities, many of which have anchored these communities for decades.” Setnetters also questioned the science behind the new OEG. Allowing more fish to escape and spawn during years of large returns makes it less likely that the overall run will be as productive as it could be in the long-term if it were managed to the lower SEG range based on department modeling. That’s because, among other factors, juvenile kings rearing in the river will compete with each other for limited food supplies, the commercial fishermen argue. Commercial fishermen generally support management that achieves the lower end of a sustainable or biological escapement goal, as that usually limits forgone harvest opportunities while also allowing the run to be as productive as possible by returning many more fish than were allowed to spawn several years prior, they insist. The theory is known as maximum sustained yield management. Specific to the Kenai, they note the early run of kings, which is not subject to commercial harvest in the Inlet, is also suffering. However, KRSA and other in-river advocates note that sport fishing is at its best when more fish are allowed to enter the river and can be harvested there. They argue that while ADFG models indicate the OEG likely won’t result in maximum sustained yield, it will not exceed maximum sustained recruitment, or the point at which so many fish escape and spawn that their offspring do not replace them one-to-one. ADFG Commissioner Doug Vincent-Lang said the OEG is an allocative decision that will simply put more fish in the river at the expense of other users. “It will increase the number of fish into the river. It may not over time increase the yields of fish into the river,” Vincent-Lang told the board. He added that the department doesn’t have a firm answer as to what is harming Kenai kings — or king stocks statewide — but said it is likely numerous factors impacting the fish when they go out to sea. “When we don’t understand ocean conditions we should err on the side of caution and put more fish in the river,” Vincent-Lang said. ^ Elwood Brehmer can be reached at [email protected]

Board approves new dip net fishery on Susitna River

Mat-Su residents will have another opportunity to dip net salmon in their own backyard starting this summer. The Alaska Board of Fisheries voted 5-2 on Feb. 13 to approve a personal use dip net fishery on a section of the lower Susitna River for all species other than king salmon at its Upper Cook Inlet Finfish meeting in Anchorage. A proposal by the Matanuska Valley Fish and Game Advisory Committee to establish the dip net fishery was amended by the board to better align it with the extremely popular July dip net fisheries on the Kenai Peninsula. The fishery approved by the board will be open Wednesdays and Saturdays from July 10 to July 31, which is in line with the Kenai Peninsula dip netting periods. However, those fisheries are open seven days per week under normal regulations. The Matanuska Valley AC originally pushed for opening the portion of the Susitna to dip netting Wednesdays, Saturdays and Sundays from July 10 to Aug. 15. “The attempt was to build a fishery that was conservative and still offer a decent amount of opportunity,” said Andy Couch, a Susitna-area guide and Matanuska Valley AC member in testimony to the board. Mike Wood, a Northern District set netter who chairs the Mat-Su Borough Fish and Wildlife Commission, said in testimony that he cautiously supports the Susitna dip net fishery because “giving people the opportunity to harvest food from their backyard is very important,” despite the allocation issues and concerns that the newly conceived fishery could become popular to the point of being problematic at times, as has happened with Kenai River dip netting. “There’s a huge amount to be gained by having a new user voice on the river,” Wood said of the new Susitna fishery. Department of Fish and Game officials and others said the Susitna will largely avoid the habitat degradation issues that have arisen on the Kenai as the popularity of the dip net fishery there has grown, in part because the Susitna is a very large, glacially turbid and fast river with dramatic water-level fluctuations; the river is constantly changing. The location of the fishery also will inherently curb its popularity to some degree, as a boat is required to get there. Dip netting will be open on the Susitna in a roughly seven-mile area starting one mile downstream from Susitna Station to the upstream end of Bell Island. The area starts about 20 miles downriver from the nearest boat launch at Deshka Landing in Willow. The Susitna River dip net fishery will be the second personal use fishery in the region. A dip net fishery targeting sockeye on Fish Creek in Knik Arm is opened by the Department of Fish and Game via emergency order during years of large sockeye returns. Representatives from the Kenai-Soldotna Fish and Game Advisory Committee said their group was split on the Susitna proposal, with some supporting any way to reduce pressure in the Kenai dip net fishery, which targets sockeye, and commercial fishermen opposed to it because it would add another harvest group to fisheries that are already fully allocated. Upper Cook Inlet Drift Association President David Martin said the numerous sport fisheries in the massive Susitna drainage already provide for ample harvest opportunity in the region. He also highlighted previous actions the board took at the meeting to restrict commercial drift fishing in the central portion of Cook Inlet as a means of allowing more sockeye and coho salmon to reach the Northern District of the Inlet and make it into the Susitna as rationale against opening the river to dip netting. “To put another new fishery on top of (the commercial fishing restrictions) is kind of pouring salt in the wound,” Martin said. Other supporters of the fishery testified that it is intended to target chum and pink salmon, which generally are not targeted by commercial or sport fishermen in the Inlet and are largely considered plentiful in the Susitna drainage. Board member John Wood, of Willow, suggested prohibiting retention of sockeye salmon as board members expressed continued concern for Susitna sockeye stocks and urged continued conservative management by Department of Fish and Game officials in prior discussions. He said he does not want to add additional sockeye harvest on the Susitna until weir counts improve. Earlier in the meeting the board removed a “stock of yield concern” designation from Susitna sockeye at the recommendation of the department. However, other board members and department staff noted that the “bright,” or fresh, chum salmon prevalent in the lower river can be difficult to differentiate from similarly bright sockeye, even to the experienced eye. Board member John Jensen, of Petersburg, stressed that the board needs to “be really precautionary” when it opens a new fishery, but ultimately voted in favor of it with the season amendments. Wood and Gerad Godfrey, of Eagle River, voted against the Susitna dip net fishery after the board rejected the sockeye restriction. “It’s a clean fishery with a selective harvest component,” board chair Reed Morisky of Fairbanks said, noting fish can be released quickly from a dip net. Board member Israel Payton, of Wasilla, noted that the sport catch of sockeye in the Susitna drainage is about 6,000 fish per year out of an in-river run that is in the hundreds of thousands of fish most years. “If the department is worried about abundance the fishery will close,” Payton added. The board also rejected numerous proposed changes to the Kenai dip net fishery. Elwood Brehmer can be reached at [email protected]


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