BP, ExxonMobil commit $10M apiece to Alaska LNG

BP and ExxonMobil are contributing $10 million apiece to help get the $43 billion Alaska LNG Project get its federal construction authorization, Lt. Gov. Kevin Meyer said Thursday. Meyer made the announcement at the Alaska Oil and Gas Association’s annual conference in Anchorage. The state-owned Alaska Gasline Development Corp. estimates it will take roughly $30 million to complete the environmental impact statement the Federal Energy Regulatory Commission is currently drafting. FERC is scheduled to release a draft version of the Alaska LNG Project EIS in June; the agency pushed back from February earlier this year. AGDC officials said at a May 22 board meeting they expect the draft document to be roughly 4,000 pages. The major producers signed a memorandum of understanding with AGDC in March to provide technical assistance on the project. They also signed separate confidential gas sales precedent agreements with AGDC last year that outline the terms — including price — under which they would sell gas from the Prudhoe Bay and Point Thomson North Slope fields into the project. The state capital budget that passed the Senate in early May authorizes AGDC to accept up to $25 million from outside sources to support the Alaska LNG Project. AGDC officials expect to have approximately $22 million remaining for the project at the end of the 2019 fiscal year, which is June 30. Gov. Mike Dunleavy has stressed a desire to bring the producers back into the project after they stepped away in 2016 amid poor oil and gas market conditions. The state has since focused on advancing the regulatory and marketing aspects of the project. “All future decisions on Alaska LNG will be rooted in world-class LNG experience,” Meyer said. The companies are also currently assisting AGDC in reevaluating the overall economics of the project and its $43 billion cost estimate amid new global LNG market conditions. BP Alaska Vice President of Commercial Ventures Damian Bilbao said in an interview that the company continues to be excited about monetizing Alaska natural gas because the company’s share of North Slope reserves are still its “single largest undeveloped resource on the planet.” On the $43 billion estimated cost of the project — a figure calculated in 2016 that includes $9 billion in contingencies — Bilbao said he believes there are avenues in supply procurement and other areas to bring the cost down. Alaska LNG officials have always cited the cost of the 800-mile gas pipeline from the North Slope to the Kenai Peninsula as the main cost obstacle to developing the long-sought project. “Four years is a long time in this industry; it’s a technology-driven industry so our experts feel very confident that the number that was delivered at the end of (the preliminary design period), that $43-$44 billion — they can really look at some opportunities to bring that into the high 30s and we’re going to look at some opportunities to take that down even further,” he said. As for North Slope oil, Assistant Secretary of the Interior Joe Balash, a former Alaska Department of Natural Resources commissioner, said during remarks at the conference that a draft environmental impact statement should be published by the end of summer for ConocoPhillips’ large Willow prospect in the National Petroleum Reserve-Alaska, with a final EIS coming in 2020. ConocoPhillips estimates Willow, with a cost of $4 billion to $6 billion, could produce more than 100,000 barrels of oil per day. Balash also said the Bureau of Land Management, which he oversees, just completed consultation with Canadian officials over the potential impacts to the Porcupine caribou herd from possible oil and gas activity in the Arctic National Wildlife Refuge; the herd migrates across the border. A final EIS analyzing industry development in the ANWR coastal plain should be ready in August and a lease sale will follow towards the end of the year, according to Balash.   Elwood Brehmer can be reached at [email protected]                  

Legislature preps for lawsuit against Dunleavy

After returning from Memorial Day weekend activities across the state, legislators promptly doubled down on their belief that they have properly funded education for the coming year by preparing for a lawsuit against Gov. Michael J. Dunleavy’s administration. The House voted 23-14 and the Senate voted 14-4 May 28 to authorize the joint Legislative Council to file a lawsuit against the administration for withholding more than $1.2 billion in K-12 formula funding approved last year in House Bill 287. The move is presumptive, given the money cannot be dispersed until after the July 1 start of the 2020 state fiscal year. Legislative Council chair Sen. Gary Stevens, R-Kodiak, said during a rare joint House-Senate press briefing that a suit would not be filed until after July 15, which is when the first round of formula-based yearly K-12 state funding is set to be dispersed to school districts. The 14-member Legislative Council handles business and legal matters for the overall Legislature. Dunleavy insists the Legislature’s actions last year to forward fund education violate the Alaska Constitution because, according to a legal opinion from Attorney General Kevin Clarkson, they improperly dedicate state revenue and attempt to usurp the governor’s line-item veto authority over budget matters. Based on those conclusions there is no K-12 funding for the administration to legally disperse, administration officials stress. Dunleavy — who has repeatedly mentioned the prospect of vetoing portions of the budget the Legislature passes — has also vowed not to veto any education funding as long as it is added to the budget for the coming year. Members of the minority House Republican caucus have sided with the governor on the issue and collectively voted against allowing the Legislative Council to consider a lawsuit. The governor cannot sue the Legislature in this instance, according to legal experts. The current iterations of the state operating budget being settled in a conference committee similarly forward fund education for the 2021 fiscal year. Legislative leaders are adamant last year’s forward funding is legal; it’s something lawmakers did for 10 years before declining oil revenues led them to stop the practice in 2015. For them, it’s a separation of powers issue. The issue has largely united Democrat and Republican leaders in the Legislature who for years have been at odds over how to fix the state’s large structural budget deficits. “We have stood firmly on the forward funding that we appropriated last year for this coming year and we are hoping very much that no lawsuit will be necessary,” Senate President Cathy Giessel, R-Anchorage, said during the briefing. “Education funding has been a political football over these past years when we haven’t forward funded. We want to take that football, put it on the ground and settle this issue.” Legislators last sued the governor as a group in 2015, when former Gov. Bill Walker accepted federal Medicaid expansion funds without the Legislature’s approval. That lawsuit was dismissed by a state Superior Court judge in early 2016. In an impromptu May 28 counter-press briefing Dunleavy said he has talked extensively with legislative leaders about the stalemate. He suggested the Legislature could add the 2020 education money to the budget and the administration could distribute the nearly $1.2 billion meant for the base student allocation, or BSA, payments to districts while withholding the $30 million, one-time supplemental payment also approved in HB 287 to spur “almost a friendly suit just so we can get clarification on things moving forward,” Dunleavy said. “I’d ask the House and Senate to fund education and we can agree on an amount that can be withheld that would initiate a suit so we can get clarification; that way the school districts are certain that they’ve got funding,” the governor added. The administration also submitted bills during the special session to make the BSA and $30 million supplemental appropriations outside the budget. While they seem to have little chance of passing, school administrators from across the state testified during Finance Committee hearings that forward funding education is very important as it allows them to make longer term plans and keeps districts from having to issue layoff notices to teachers each year lawmakers struggle to agree on a budget. Districts are expected to issue “pink slips” if the current situation is not resolved by mid-July, and the year-to-year job uncertainty can make it difficult to retain teachers in a state where teacher turnover is already a pervasive issue, according to school district officials. “Stable and predictable — that’s what our industries ask for. It seems reasonable to assure that to our education system as well,” Giessel said. At the heart of the administration’s claim is the fact that forward funding of education in prior years was done with surplus existing revenue, while HB 287 draws anticipated revenue from the General Fund. Legislators contend all budgeting — particularly for the State of Alaska where income streams are based on volatile oil and financial markets — is anticipatory. The administration’s bills to repay forgone Permanent Fund dividend amounts over multiple years rely on the expectation that money currently in the roughly $19 billion Permanent Fund Earnings Reserve Account will be available when the draws would be made up to three years away, many have noted. However, those funds could dissipate if markets falter. Sen. Bill Wielechowski, D-Anchorage, said during floor debate on the Legislative Council authorization that he believes the administration’s argument could apply to most appropriations the Legislature makes, but this situation is unique since the Supreme Court has determined lawmakers have a constitutional obligation to fund public education. On other issues, the Legislature sent the omnibus criminal justice reform rollback legislation, House Bill 49, to the governor for his signature May 28, which Dunleavy thanked them for. That leaves budget issues and the PFD outstanding in the 30-day special session that is quickly approaching its halfway point. Legislators are close to finishing a budget as the House and Senate versions of the operating budget were similar to start the conference committee — with overall cuts in the $200 million-plus range — but a final version has yet to be released. The House is considering the capital budget that passed the Senate and will likely be minimal again this year, which leaves the PFD as the big hurdle for the Legislature. House Finance co-chair Rep. Tammie Wilson has proposed legislation to pay a full, roughly $3,000 per person PFD this year according to the statutory formula with additional draws of roughly $1.4 billion from the Earnings Reserve and $500 million from the Constitutional Budget Reserve, while halving the PFD formula for future years. The idea was roundly dismissed during public testimony. With the Senate approving a $3,000 PFD — but in an unbalanced budget — the House without a dividend appropriation and Dunleavy firm in his demand for a full payment, it remains unclear as to how the situation will be resolved before the June 15 end of the special session. ^ Elwood Brehmer can be reached at [email protected]

Permanent Fund gains 6.48 percent in Q3

The Permanent Fund rebounded from a tough finish to 2018 with a 6.48 percent quarter that put the $65 billion fund back in positive territory for the year. The gains in the quarter that ended March 31 — the third quarter of the Alaska Permanent Fund Corp.’s fiscal year — gave the fund a 3.07 percent investment return for the 2019 fiscal year so far, according to a May 23 APFC release. Permanent Fund investments lost 3.19 percent of their value in the first half of the state fiscal year. The fund held $65.8 billion of assets under management with approximately $1.6 billion of liabilities as of March 31. It ended the 2018 fiscal year last June 30 with a balance of $64.8 billion, from which the state appropriated roughly $2.7 billion to pay out Permanent Fund dividends and support government services. Most recently, the fund had a net balance of $65.3 billion with slightly more than $19 billion in the Earnings Reserve Account, which is the portion of the fund state lawmakers can appropriate from. Calculated as 5.25 percent of the fund’s five-year average value, the fiscal 2020 percent of market value, or POMV, appropriation is expected to be roughly $2.9 billion. Legislators are currently debating whether or not to make an additional draw from the Earnings Reserve that would be outside of the POMV appropriation — despite warnings from financial advisors about the long-term impacts of such ad-hoc draws — in order to pay the larger Permanent Fund dividends that Gov. Michael J. Dunleavy demands. The latest 6.48 percent quarterly return was driven by “an outstanding” 12.36 percent return on the fund’s public equities or stocks, portfolio, which comprises about 40 percent of fund investments, the APFC release states. For comparison, the Dow Jones Industrial Average gained 10.1 percent over the period. The fund’s $15.5 billion fixed income portfolio generated a 5.77 percent return during the quarter. The public market investments slightly outperformed the corporation’s return benchmarks for the given categories, according to fund managers. However, the fund’s private investments did not fare so well “due to the nature of quarterly appraisals and valuations,” the release states, but still outperformed comparable benchmarks. The $8.5 billion private equity portfolio returned 1.25 percent, compared to a Cambridge Private Equity Index return of -0.53 percent during the quarter. APFC leaders note the fund’s five-year private equity return is 24.3 percent. The fund’s infrastructure and private real estate investments similarly netted quarterly returns in of about 0.2 percent but have proved much more fruitful over the long haul. “These negative short-term distortions are not reflective of the generally strong underlying fundamentals, occupancy and cash flows of the properties,” the APFC release states regarding real estate investments. Real estate has generated a 7.97 percent annual return over the previous five years, according to fund managers. Elwood Brehmer can be reached at [email protected]

Solar energy lighting up more of land of Midnight Sun

A new industry is lighting up Alaska. Anchorage residents in particular have seen solar panels going up on buildings in their communities in the past five years. But across the state, more Alaskans are turning to the sun to power their homes and businesses. Over the last four years, Arctic Solar Ventures in Anchorage has seen 200 percent year-over-year growth, according to owner Stephen Trimble. This year, the business will mark its first megawatt, or 1,000 kilowatts, of installed solar power. “That’s a big achievement,” he said. “We have systems operating from Homer to Talkeetna.” Despite common conceptions about Alaska being too dark and snowy to be practical for solar, the technology has a long history in the state, particularly in rural Alaska. The first Solar Design Manual for Alaska was published in 1981, with a revised fifth edition published in May 2018 by the Alaska Center for Energy and Power and the Cooperative Extension Service. Off-grid cabins, fish camps and rural communities have long looked to alternative sources of energy as the cost of power in Alaska remains high. However, even Railbelt homeowners and businesses have been moving toward solar power. There are a number of motivations for that, but a major one is likely the plummeting cost of solar installations. Between 1980 and 2012, module costs fell about 97 percent, according to a November 2018 study published in the journal Energy Policy. “I would say in rural Alaska it’s become quite popular because it’s quite cheap,” said Erin Whitney, the manager for the solar technology program at the Alaska Center for Energy and Power, or ACEP. “It’s easy to install. Kits are pretty much turnkey. A wind turbine requires a massive foundation, which requires heavy equipment. If you’re in a rural village, it’s expensive, whereas a solar panel setup — that can be installed in a day.” Trimble said installers in Alaska have become somewhat innovative with methods to maximize the solar energy available, even during the winter. For instance, some buildings have solar panels installed vertically on their walls to prevent snow buildup, even though Anchorage gets far less snow than it used to as the climate warms, he said. “Between March and October, you actually have more than 12 hours of daylight per day, even down in Anchorage,” he said. “We’ve done probably 20 or more homes that are 100 percent net solar for the year. At the end of the year, they net out having received 100 percent of their power from solar. For a lot of folks, that’s really surprising; it’s that peak season of March to October that we have so much that it makes up for the dark months of winter.” The primary increase in solar power installations in the past decade or so has been on the Railbelt, Whitney said. The Anchorage metropolitan area, with approximately half the state’s residents, is pivoting toward solar in a number of areas. The Solarize Anchorage campaign is blazing forward this summer in the Turnagain, South Addition, Spenard and Rogers Park neighborhoods, helping residents band together to hire a solar energy contractor for their homes. ACEP and the Alaska Center have helped the residents with the logistics of the campaign, Whitney said. The installations aren’t cheap — a ballpark figure comes out to about $5,000 to $10,000 for a single homeowner, with larger installations costing more — but the discount comes from bulk purchasing and installations. “Solarize is a concept that’s been done all over the Lower 48,” she said. Multiple utility companies in the state have either installed solar or are seriously considering it. Golden Valley Electric Association installed a 563-kilowatt solar farm last year for about $850,000 after a $225,000 U.S. Department of Agriculture’s grant program incentivizing rural energy development. Chugach Electric Association is currently planning to install an approximately 500-kilowatt solar farm in Anchorage for an estimated $2 million, while Homer Electric Association’s board of directors proposed a community solar project to its members but didn’t get sufficient commitment to move forward with one, according to HEA’s 2018 annual report. There’s appetite for solar outside the Anchorage area. In Soldotna, local business River City Books is moving to a new building with a system of approximately 15 kilowatts on its roof installed by Anchorage Solar. Part of the project takes advantage of federal programs — one being the USDA rural energy development program and the other through federal tax credits for qualifying solar energy programs. Five projects through the USDA were authorized for funds on the Railbelt outside of Anchorage and Fairbanks in 2018 alone, according to the USDA’s Energy Investment Map. A number of Arctic Solar Venture’s systems have gone into communities along the Railbelt outside Anchorage. This year is the last year for programs to qualify for the full 30 percent tax credit, Trimble said. Next year, the credit will begin decreasing and will ultimately fall to a 10 percent tax credit for installed solar systems. “Whether you’re politically conservative or politically liberal, it doesn’t matter, because if you’re assessing solar as a potential customer, there’s the environmental benefits, there’s the immediate electric bill savings on a daily, weekly, monthly basis that are very substantial,” he said. “Most of our solar installations produce power at about a third of the cost of what they pay.” In addition to the decreasing cost of installation, utilities began allowing net metering in Alaska in 2010. Through net metering, homeowners or business owners can produce power from small energy systems and offset their energy bill through a utility company. Net metering in Alaska is currently capped at 1.5 percent of total retail demand. Beyond that, it’s up to the individual utility to decide whether to allow more, Whitney said. The future growth of individual solar installations could be inhibited there. “There’s certainly some discussions being had right now on whether it makes sense to change that limit,” she said. “Once you’re above that limit, it’s up to the goodwill of the utilities to continue allowing it.” Raising that limit would reduce uncertainty for residents and certainly for installers. Trimble and a number of other solar installers recently banded together and formed their own trade association: the Alaska Solar Energy Industry Association, or AKSEIA. The continuation of the net metering program is on the group’s list of issue interests, as well as regulatory certainty from the state, he said. But the members are also able to share information and communicate about projects, as well as keep to an ethical code that will protect consumers from bad actors as the solar industry grows, he said. “As any new industry tries to take shape, there can be people who come along when they see economic opportunity … and you get unqualified people doing work that can cause damage to homes, potentially produce injuries; at minimum, giving solar a bad name,” he said. “So we came up with this industry code of ethics to start introducing consumer protections from our side. We very much want to self-police and self-govern the industry, and everyone’s been very receptive.” Elizabeth Earl can be reached at [email protected]

Fishery observer survey seeks answers for high turnover

Many of Alaska’s commercial fisheries depend on observers having a place on board, but fewer than a fifth of them feel appreciated by the industry, according to a new survey. Fishery observers sail on vessels with fishermen in federal waters and keep track of catch and bycatch and take biological samples throughout trips. Managers use this information to evaluate stocks and manage fisheries. The job can be tough, requiring up to a month at a time on the water in rough conditions, and turnover can be high. The survey, conducted by the National Marine Fishery Service in 2016, asked 553 observers why they did the job and what their experiences have been like. Although three-quarters of them thought the job helped them in their careers and about 69 percent said the days at sea matched their expectations, nearly half them reported being harassed. Only 20 percent said they felt valued by the fishing community, and many said they were disappointed by a lack of opportunity to learn more about science and management, according to the survey findings, published in May. The original intent of the survey was to help improve retention. Most observers quit after a few years — the West Coast, with about 5½ years, has the longest average tenure. Alaska’s average tenure is about 4.8 years, according to the survey data. Although observers have to have some training or education before taking the job, there’s a lot they learn through experience. “Because the technical skills observers possess take time to hone and are essential to good data collection, retaining knowledgeable and hardworking observers is important to NOAA Fisheries,” the report states. “It is widely recognized that an observer’s job requires field skills and scientific knowledge that may require many deployments before gaining proficiency.” Many of the observers start their careers young, between the ages of 20 to 29, and leave the job as they get older. Most cite a chance for fieldwork as a major motivation for taking the job, but relatively low pay, lack of a predictable schedule and distance from home leads them to leave later. About 46 percent reported being harassed on the job, though, with only about a third reporting it every time. About 40 percent reported it some of the time and 27 percent never reported, according to the survey. “This survey also did not specify what type of harassment observers may have experienced or reported during their careers,” the survey states. “Incidents reported in this survey could include anything from a glare, to interfering with a workstation, to physical or sexual assault.” Observers cited different reasons for not reporting: disappointment with how the report was handled, a chance to resolve the issue at sea, worry about work reputation or choosing to let the issue go. Connected to the reports of harassment, the NOAA Office of Law Enforcement is conducting a followup anonymous survey specific to the North Pacific region. Preliminary data was presented to the North Pacific Fishery Management Council in 2018, with final data included in a report to the council in December 2018. Only 25 percent of observers responded, according to the Office of Law Enforcement report. Responses indicated that incidents of harassment fell between 2016 and 2017, though 45 percent of female observers still said they experienced verbal sexual harassment in 2017 though few reported it. The national observing program is massive. Alaska alone had about 413 observers, and about 4,423 trips were either observed by a person or an electronic system in 2018, according to the 2018 annual report on the observer program in the North Pacific from NMFS. Some of Alaska’s vessels require full coverage, such as catcher-processors, meaning all of the catch is recorded on every trip, while others only require partial observation, such as catcher vessels fishing for halibut or sablefish, meaning only some of the fishing trips are observed. About 53 percent of the respondents worked in Alaska, with the majority in halibut or groundfish fisheries. One of the common problems is a shortage of certified observers for fisheries in the region; not enough observers have been certified in fixed-gear lead level 2, or LL2, fisheries. Survey respondents cited too much work with low salaries as the reason for not seeking further certification, or a lack of flexibility in choosing deployments. Alaska-based observers responded that they were happy with the variety of deployment types, according to the survey. Changes are on the horizon for fishery observer coverage, though; vessel owners are beginning to install electronic monitoring devices or use electronic reporting systems. Most survey respondents said they supported electronic monitoring and reporting, though electronic systems can’t collect the biological samples that observers do. Last year was the first year that Alaska commercial fishing vessels were allowed to use electronic monitoring systems, and according to NMFS reports, it went off without a single violation on the 145 vessels that used those systems. The agency planned to open up an additional 20 spots to vessels for electronic monitoring in 2019. EM is particularly attractive for smaller vessels, where it’s hard to fit an additional person on board without leaving a crewmember behind. It may also pencil out to be cheaper; the 2018 annual report from NMFS cites an average daily cost for EM of between $956 and $1,527, while the average observer cost per sea day on a partial-coverage vessel was $1,380. The survey findings noted that the program will communicate better that electronic report and monitoring may have practical applications but that EM “is unable to replace observer coverage in all circumstances.” Elizabeth Earl can be reached at [email protected]


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