LNG exports slammed amid US-China trade battle

China’s increased tariff on U.S. liquefied natural gas is making it harder for project developers to negotiate sales into Asia’s largest economy, though it’s uncertain whether the trade fight will inflict long-term damage on the country’s growing gas export industry. “Chinese investment in U.S. LNG export projects will remain at a standstill, in our view, with Chinese offtakers likely waiting on a trade deal,” analysts at Barclays said just a couple of days after China announced it would boost its tariff on U.S. LNG to 25 percent from 10 percent on June 1. “This is going in the wrong direction,” said Charles Riedl, of the industry group Center for Liquefied Natural Gas in Washington, D.C. “Increasing tariffs … could have real long-term impacts on the pace of U.S. LNG export project development.” U.S. gas exports to China went into a steep decline after the Chinese government retaliated with a 10 percent tariff in September 2018, following on President Donald Trump’s decision to impose tariffs on Chinese goods. After sending an average of almost three cargoes per month to China in 2017 and the first half of 2018, U.S. LNG deliveries fell to one per month in the second half of 2018 and only three ships so far in the first five months of 2019. “I expect they will have a hard time landing a tanker carrying U.S. LNG in China,” Jack Weixel, senior director at IHS Markit’s PointLogic analytics arm, was quoted by Reuters the day after China ordered the 25 percent tariff. As if it wasn’t already hard enough. Low spot-market prices in Asia of around $5 per million Btu “already killed most of the commercial reasoning for U.S. sales to China,” said Ira Joseph, head of global gas and power analytics at S&P Global Platts. “The tariff is the knockout blow.” Weak demand and new supplies coming online this year have brought down prices. Feed gas flowed into six U.S. LNG terminals on May 15, a little more than three years after the first Gulf Coast terminal started operations in Sabine Pass, La. At $5, a cargo of U.S. LNG falls about $2 or $3 below recovering its full costs. But carriers still load up at U.S. terminals. The liquefaction fee, generally around $2.50 to $3 per million Btu, is a fixed cost that contracted offtakers must pay regardless of market prices — even if they don’t want to take the gas. They might as well sell the LNG and get what they can. And some of the LNG is delivered at higher prices under long-term sales-and-purchase agreements. Not for lack of trying, but U.S. project developers have not had a lot of success in getting Chinese buyers to sign long-term contracts — even before the dueling tariffs. Spot-market sales and third-party deliveries have been the main source of U.S. LNG supplies to China, though project developers would prefer long-term contracts to lock in the revenue stream needed to finance new capacity. That’s especially true for the maybe 10 or so additional LNG terminals proposed along the U.S. Gulf Coast, at various stages of permitting and trying to line up customers and investors. “Most of these projects need to secure long-term contracts in order to get financing,” said Sindre Knutsson, senior analyst on the gas market team at Rystad Energy, a Norwegian-based energy consultancy. “China will be one of the biggest contributors in sponsoring new LNG projects over the coming years, and there will be reluctance to signing new deals with U.S. projects as long as this trade war persists,” Knutsson said. Long-term contracts are essential for most project developers, which want to show investors and lenders they can cover debt and make money. “Such 10- to 20-year contracts require stability of terms for both sides,” said Edward Chow, of the Center for Strategic and International Studies in Washington, D.C. Even worse for U.S. developers, Knutsson said, “China’s decision to impose tariffs on U.S. LNG will make projects outside of the U.S. more attractive.” Just in the past few weeks, China National Offshore Oil Corp., or CNOOC, signed a long-term offtake deal for the Anadarko-led Mozambique LNG project, while CNOOC and China National Petroleum Corp. — two of the big three national oil companies — each took a 10 percent equity stake in Russia’s next multibillion-dollar gas project, Arctic LNG-2. Deliveries from Arctic LNG-2 are four years away, but a more immediate supply of Russian gas to China is scheduled to start flowing in December through the “Power of Siberia” pipeline. At full capacity in 2023, the line should be able to deliver 3.6 billion cubic feet of gas per day, equal to almost 15 percent of the country’s total gas consumption in 2017. In the first quarter of this year, China’s gas imports broke down as about 60 percent from LNG deliveries and 40 percent by pipeline, mostly from Central Asia. “The longer the tariff war continues, the more the United States will hand advantages to new rival producers in countries such as Russia and Mozambique, and help make the business case for existing major producers such as Qatar and Australia,” Reuters energy columnist Clyde Russell wrote the day China announced the higher tariff. “Projects that are under development that cannot sell LNG to China are at a competitive disadvantage — there is no doubt about that,” Nikos Tsafos, a senior fellow at the Center for Strategic and International Studies wrote May 14. But that statement comes with asterisks, Tsafos explained. “For one, Chinese buyers have never been major customers for U.S. LNG — the tariffs merely solidify an unfavorable reality.” Regardless of the trade fight and lack of Chinese offtakers, success for U.S. LNG project developers “still depends on finding a diverse customer base.” And there is a longer-lasting concern than any temporary tariff fight, he said. “It signals the extent to which energy relations and trade are becoming politicized … undermining confidence in an open market for energy and LNG.” Larry Persily is a former Alaska journalist, state and federal official who has long tracked oil and gas markets and projects worldwide. He is the incoming Atwood Chair of Journalism at the University of Alaska Anchorage School of Journalism and Public Communication.

Movers and Shakers for May 26

Tanya Kaquatosh has been named the new senior vice president of administration for Doyon Ltd., the regional Native corporation for Interior Alaska. Kaquatosh has worked for the Doyon family of companies for the last 10 years. Kaquatosh comes to Doyon from Doyon Utilities, where she served as the director of regulatory affairs. She has her bachelor’s degree in economics from Stanford University, and her MBA from Arizona State University. She is also a graduate of the 2014 Doyon Leadership Training Program. The Alaska Association of Secondary School Principals announced that Frank Hauser has been named as Alaska’s 2019 Principal of the Year. Hauser has been the school principal of Robert Service High School in Anchorage for three years and a school administrator for 15. He is a graduate of the University of Alaska and received his master’s degree from the University of Alaska Fairbanks. As Alaska’s Principal of the Year, Hauser will be representing Alaska at the national level. All state Principals of the Year will be recognized at the Principals Institute from Sept. 30-Oct. 3 in Washington, D.C. One of Hauser’s proudest accomplishments at Service was the recent recognition by Special Olympics and ESPN as one of 30 Unified Champion Schools for inclusive practices in the nation and the first banner school in the state of Alaska. Bering Straits Native Corp. announced several key appointments within the company’s subsidiary management team. Jørg Jensen has been named vice president of Global Precision Systems LLC, a wholly-owned BSNC subsidiary. Jensen joined BSNC in 2015 and has more than 20 years of operational and management experience managing multi-million dollar programs in government and corporate sectors within the United States and abroad. Jensen was born and raised in Alaska and after graduating from the United States Military Academy, he served in Southwest Asia as an Army officer. Jensen formerly served as Program Manager and Engineer for Raytheon, for whom he led international teams in Saudi Arabia, Iraq and South Korea. He earned an MBA degree from the University of Liverpool and a bachelor’s degree in management and system engineering from the United States Military Academy West Point. Jacob Gum has been named vice president of Eagle Eye Electric LLC, a wholly-owned BSNC subsidiary. His passion for leadership management in the niche market of high-value contract acquisition and administration has led him to devote 19 years of experience to the design/build construction industry, including 13 years of experience in the healthcare design and construction industry. This includes multiple projects in Alaska, Hawaii, Europe and other U.S. and international endeavors. In the last five years, Gum has successfully managed more than 30 projects valued at over $140 million in both the federal and private construction markets. Gum holds a bachelor’s degree in technical management as well as an associate’s degree in electrical theory. Bill Pate has been named vice president of Bering Straits Logistics Services LLC, a wholly-owned BSNC subsidiary. Pate has been with BSNC since 2010 in various positions. Previously responsible for construction, he now oversees contracts including facilities maintenance/support and labor services. DCI Engineers, a civil and structural engineering firm, announced a promotion in its Anchorage office. Jeff Sizemore has been promoted to CAD manager in DCI’s Anchorage office. Some of his most notable projects include the Hyatt House, located just south of Downtown Anchorage, and 100 East Ocean Boulevard, a 30-story concrete tower in Long Beach, Calif. Although he initially enrolled in video production at the Art Institutes in Los Angeles and Seattle, Sizemore decided to pursue a different career path, leading to more than 20 years in residential framing, modular construction, truss design and wall panel design. Nearly 15 of those years he’s dedicated to drafting, which have included a variety of project types and markets. Karen Hoeft has been appointed as First National Bank Alaska’s Glennallen Branch manager. She will be responsible for business development, closing loans, branch operations and customer service at the Glennallen Branch. A financial expert with more than eight years of experience at the bank, Hoeft originally retired in 2013, only to come back in 2018 as the Operations supervisor at FNBA’s Valdez Branch. Hoeft also held the Glennallen Branch manager position from 2007 until 2013.

Marathon files permit to import LNG at Nikiski plant

After buying a mothballed liquefied natural gas export plant in Nikiski, Marathon Petroleum is planning to flip it around to become an import terminal. Marathon Petroleum, the newly-merged oil and gas giant formerly known as Tesoro and then Andeavor, owns the former ConocoPhillips LNG terminal on Cook Inlet and the refinery directly across the Kenai Spur Highway from it. In March, Marathon subsidiary Trans-Foreland Pipeline Co. filed an application with the Federal Energy Regulatory Commission to operate an import terminal at the LNG plant. The plant is about a half-mile from the proposed site of the liquefaction plant for the Alaska LNG Project, a megaproject proposed to bring stranded natural gas from the North Slope to Nikiski for export to Asia. The Alaska Gasline Development Corp., the project lead, and producer stakeholders ExxonMobil Alaska and BP Alaska have all filed motions to intervene in Trans-Foreland’s application, citing their interest in the Alaska LNG Project as justification. “AGDC may be affected by the modifications to, and ultimate use of, the Kenai LNG Plant for which authority is sought in this docket,” AGDC’s motion states. “AGDC is an interested party that may be affected by Commission action on this application. AGDC’s interests are not adequately represented by any other party, and its intervention is in the public interest.” AGDC spokesman Jesse Carlstrom referred back to the language on the motion when asked to clarify how the project would be affected by Trans-Foreland’s proposal. He said AGDC’s motion to intervene was made independently of other parties. ExxonMobil did not respond to a request for comment. BP spokeswoman Megan Baldino said the language used in the motion to intervene is standard practice. “BP filed the intervention basically to reserve our right to comment in the FERC process,” he said. “Interventions like this are fairly common.” Trans-Foreland’s application states that it wants to import LNG to use in a cool down project for the terminal. The facility is currently in a warm idle status and the LNG would be used to bring parts of it back into active status — the liquefaction side would remain in warm idle status. The modifications wouldn’t require any expansions of the existing footprint of approximately 161 acres, according to the application. In addition, the boil-off-gas — a byproduct of re-gasifying LNG — could be delivered to the nearby refinery to power its operations, according to the application. “After completion of the Project, the Kenai LNG Plant will be able to deliver up to 7,000 MMBtus (million British thermal units per day), with the average delivery of approximately 5,000 MMBtus/d to the Refinery,” the application states. One million British thermal units are roughly equal to a thousand cubic feet, or mcf, or natural gas. Delivering the gas to the nearby refinery would reduce Marathon’s need to buy gas from the local utilities, Homer Electric Association and Enstar Natural Gas Co., to run its operations. The refinery is one of the area’s biggest industrial consumers of natural gas. HEA declined to comment on Trans-Foreland’s application. Currently, the main natural gas producer in the Cook Inlet area is Hilcorp, which owns many of the offshore oil and gas producing assets in Cook Inlet and a number of onshore pads. HEA’s only firm contract for natural gas is with Furie Operating Alaska — which operates the offshore Kitchen Lights Unit in central Cook Inlet — but Furie has had production issues and failed to deliver on its gas contract obligations for months this spring. The utilities covered the lapse with spot market purchases and stored gas in the joint Cook Inlet Natural Gas Storage Alaska facility known as CINGSA. Gas production in Cook Inlet declined sharply from 2005 to 2012, prompting the state to pass tax credits aimed at revitalizing oil and gas development in the inlet. Utilities in the area, concerned about gas shortages, began to look for options to import LNG or compressed natural gas in 2012, according to a Northern Economics report on the Cook Inlet oil and gas industry published in 2014. Generally, oil and gas is more expensive to develop in Alaska than elsewhere. A March 2018 report from the Alaska Department of Natural Resources noted that there are significant gas reserves remaining in Cook Inlet, but they would only be economic to develop at prices of around $6 to $8 per mcf or more. Recent Hilcorp supply contracts have been in the neighborhood of $7 per mcf. The estimated volumes identified in the Inlet could supply demand through 2030, according to the report, but costs to develop it will also likely rise. Worldwide, natural gas prices have been falling as more production comes online. The U.S. Energy Information Administration projects production to continue growing both domestically and internationally through 2019 and 2020, putting downward pressure on prices. Marathon wouldn’t be able to purchase LNG from U.S. Gulf Coast suppliers because there are no U.S.-flagged LNG tankers in operation, and the Jones Act requires ships traveling between U.S. ports to be built, crewed and flagged here. LNG export terminals are planned but not currently in operation on Canada’s west coast. Trans-Foreland has not yet filed the request to import LNG but plans to do so by the end of the third quarter of 2019, aiming for a first delivery of natural gas by August 2020, according to its application. The existing application does not identify a specific amount of gas the company is seeking to import. Marathon had not responded to a request for comment by deadline. Elizabeth Earl can be reached at [email protected]

Interior housing on track to meet demand from F-35 arrivals

Interior Alaska leaders believe early concerns have been quelled over the ability of communities around the Eielson Air Force Base to comfortably absorb the pending influx of thousands of personnel to the region linked to the arrival of two F-35 fighter squadrons. Fairbanks North Star Borough Mayor Bryce Ward said in an interview that an analysis of the housing market around the Fairbanks-area base combined with the building activity he’s observed give him confidence that finding homes for the roughly 3,300 people about to move to the area won’t be a problem. Ward was formerly the mayor of North Pole, the closest city to Eielson, and also has his own general contracting business there. He noted that the Eielson Air Force Base Regional Growth Plan commissioned by the borough and published last fall concluded there would be a need for 532 new housing units around North Pole by 2022 to meet normal growth as well as the F-35 driven demand. The federal government’s study of the impacts of locating two squadrons of F-35s — 54 in total — at Eielson found there would be a need for 974 units to house F-35-related personnel and their families. The first F-35 is scheduled to arrive at Eielson in April 2020 with the rest following over about two years, according to a spokesman for the base. Eielson Public Affairs Officer 1st Lt. Kitsana Dounglomchan wrote via email that a small number of personnel dedicated to the F-35s have already started arriving and the number of new personnel and their families will keep ramping up in preparation for the first aircraft in less than a year. While the Air Force is spending approximately $550 million to prepare the base for the hi-tech, fifth-generation fighters, new base housing is not being built. Dounglomchan said the Air Force is relying on the homes currently on the base as well as the local communities to support the new personnel. “To build the numbers that they were talking about would’ve been a huge undertaking,” Ward said. However, the Air Force’s study presented raw figures and did not account for the specific conditions of the borough’s housing market. State budget cuts and the related three-year statewide recession have led some folks to leave the borough, which has led to more available housing, Ward said. The area also went through about 10 years of a depressed housing market — the combination of the Great Recession and multiple rounds of discussions about shrinking Eielson drastically or outright closing the base. The new stability in the market has encouraged builders, he said. There were more than 100 housing units built in the borough last year beyond what is normally built during a summer construction season, according to Ward, who added there has been increased activity by developers from outside the area, mostly in the multi-family realm. “We exceeded the number of units that we needed to build last year in order to meet our objective and I think we’re on target again for this year to be a very productive year for housing,” he said. Fairbanks Economic Development Corp. CEO Jim Dodson thinks the community will be able to absorb the new residents without a problem, “but it might not be in the North Pole area,” Dodson said. Upwards of 80 percent of current Eielson personnel that live off base reside in the North Pole area and its presumed the new arrivals will similarly want to live close to work. Dodson and Ward both said most new home construction, particularly around North Pole, has been small developments. “Guys that normally build one house (per year) are maybe building two or three a year. We’ve got lots of mom-and-pop type outfits,” Ward said. Because there is now little worry of a housing shortage, borough officials are focused on making sure the new homes are built to a standard that people want to live in, Ward said, adding that it’s a perpetual issue across much of Alaska. “A lot of our efforts have been driven to address the issues of quality and efficiency and to really make sure that the market is able to address those concerns,” he said. The quality of the construction is of particular importance because many of the new active-duty personnel will be coming from warm-weather bases that already have F-35s such as Luke Air Force Base in Arizona, and they likely won’t be prepared to deal with an Interior Alaska winter in a poorly constructed home, Ward emphasized. He stressed further that he’s actually more worried about too much building once all the new members of the community are settled given the early talk about needing nearly 1,000 new housing units to meet the demand. “A couple hundred homes is a big number for us but for some of these larger contractors they could throw up 100 houses in a summer pretty easy; that could be detrimental to the overall economy and the housing market if you overbuild,” Ward said. Elwood Brehmer can be reached at [email protected]

FISH FACTOR: Young renews push to restrict salmon farms from U.S. waters

In his 46 years as Alaska’s lone representative in Congress, Don Young helped toss out foreign fishing fleets from Alaska’s waters with the onset of the Magnuson-Stevens Fishery Conservation and Management Act in 1976, and today he is intent on doing the same with offshore fish farms. The MSA established an “exclusive economic zone,” or EEZ, for U.S. fleets fishing from three to 200 miles from shore. Now, a bill introduced by Young aims to stop the Trump Administration’s push to use those waters for industrialized fish farming operations. The fish farms are being touted as a silver bullet to boost seafood production, provide jobs and reduce the $15 billion seafood trade deficit that comes from the nation importing more than 85 percent of its seafood. Earlier this month, Young filed the Keep Fin Fish Free Act that would stop officials from allowing fish farms in U.S. offshore waters unless specifically authorized by Congress. “The biggest selling power we have in Alaska is wild caught salmon and other fish products and I don’t want that hurt,” Young said in a phone interview. “If we put in a commercial operation offshore, outside of State jurisdiction, we’d have a big problem in selling our wild Alaskan salmon.” Young’s effort follows a push begun a year ago by over 120 aquaculture and food-related industries to have lawmakers introduce an Advancing the Quality and Understanding of American Aquaculture Act, which failed to get any traction. The campaign is organized under a new trade group called Stronger America Through Seafood and includes Cargill, Red Lobster, Pacific Seafoods and Seattle Fish Company. “I was assured they were not going to grow salmon but they will have to feed all the fish. And that pollution factor can get into the water and contaminate our salmon. And I don’t know who’s going to be involved in it,” Young said. “I’m very supportive of the state waters production of shellfish and kelp, but I’m trying to keep all fish farms off the Alaskan shores, that’s the big thing.” Young, who is in his 24th term, said he believes most other coastal states are opposed to the idea of large fish feed lot operations off their shores. He added that no one likes the idea of so much fish being imported to the U.S. but said, “we shouldn’t weaken our natural system to try to feed our appetite. We should try to increase our natural system and make sure we have more finfish and I’m confident we can do that.” Young’s bill was immediately hailed by numerous environmental organizations. “Raising fish in massive cages in federal waters is completely against the public interest and will not solve our food system crisis,” said Shannon Eldredge of the Northwest Atlantic Marine Alliance. “This is what I’m doing this for,” Young said. “To keep our fish safe and make sure that the best product gets to the market.” He added that the AQUAA Act has not yet been re-introduced to Congress and he does not believe there is much interest in advancing it. Sen. Roger Wicker, R-Miss., the bill’s sponsor, is reviewing the legislation and working to find a Democratic co-sponsor before re-filing it. Pebble suit gets tossed A lawsuit by the Pebble Partnership and six fishermen against the Bristol Bay Regional Seafood Development Association was dismissed on May 17 by an Anchorage Superior Court. The plaintiffs argued that the association was overstepping state statutes in aligning itself with Tribal and other groups to speak out against the threats posed by the proposed mine and should instead restrict its messages to marketing. The lawsuit was supported by the State of Alaska, a stance contrary to two previous governors, Parnell and Walker, who both acknowledged the association’s authority to spend its own funds at its own discretion. In dismissing the case, Judge Yvonne Lamoureux said the association had the right to not only promote Bristol Bay salmon, but to take steps necessary to protect the integrity of that brand. “Interpreting the statute as restricting RSDAs’ abilities to devote efforts regarding environmental concerns in their regions has the potential to produce some absurd results. For example, a RSDA could advertise and market its salmon as wild, pristine, and sustainable but would not be able to spend funds in a way to keep those brand identities authentic in its view or spend funds to signal to its consumers its efforts to maintain that brand identity,” Lamoureux wrote. She also ordered the Pebble Partnership to pay the defendants’ attorney fees and costs. In an email correspondence, I asked Gov. Michael J. Dunleavy what he would say to a room full of Bristol Bay salmon fishermen, Native groups and others about his support of the Pebble lawsuit. Spokesman Matt Shuckerow responded: “Governor Dunleavey has said that like all natural resource development projects, he would like to see the Pebble project follow the established permitting process. He says the outcome of that process will ultimately determine if the project meets the standards set forward in law and regulation. “More broadly, the governor’s position on resource development continues to be that we should take care of our environment while responsibly seizing opportunities here in Alaska. Rather than developing minerals across the globe in locations with little to no environmental safeguards, we should be doing our part here to allow Alaska resources to move safely to market.” Dunleavy also did not support expanding the public comment period on the Pebble Mine permit, which was extended to July 1. Salmon starts! Alaska’s 2019 salmon season officially got underway on May 16 with catches of sockeyes and kings at Copper River. A total of 2,237 king salmon and 20,474 sockeyes were taken during the 12-hour opener. “It looks like we might be back to normal,” said Bill Webber, a 52-year fishing veteran at Copper River, referring to last year when the total sockeye salmon harvest of 44,000 was the lowest in 120 years. Starting prices also were reported as the highest ever with sockeyes paying out at $10 per pound and $14 for chinook. “Fish and Game takes three data points to create a trend and establish how the fishery is going and Mother Nature might throw a curve ball but I feel optimistic,” Webber added. For 16 years, Webber’s Paradigm Seafoods has sold much of his salmon directly to customers and he is renowned for the equipment he has created to enhance fish quality. All of the salmon are immediately processed onboard the Paradigm Shift using an automated intravenous pressure bleeding system, which as of this season can be regulated via a cell phone. ^ Laine Welch lives in Kodiak. Visit www.alaskafishradio.com or contact [email protected] for information.

Battle over purse power ensnares education

Gov. Michael J. Dunleavy’s administration is in a constitutional battle with three-quarters of the Legislature over education funding and the start of the special session has shown just how entrenched both sides are. The administration insists the Legislature’s means of forward funding education last year for the upcoming state fiscal year is unconstitutional and therefore invalid. The Office of Management and Budget has indicated a belief that there will not be money to give to school districts in the 2020 fiscal year, which starts July 1, if the issue is not resolved. Most lawmakers — other than the 15 in the minority House Republican caucus — contend the administration is trying to infringe on the Legislature’s appropriating authority. House minority members have said they want to fund education at current levels, but have called on the rest of the Legislature to follow Dunleavy’s request. The governor has asked for language in the 2020 budget to fund education for the upcoming fiscal year so, in his opinion, there can be money to disperse starting July 1. Last year the Legislature passed and former Gov. Bill Walker signed House Bill 287, which funded K-12 education at approximately $1.2 billion for 2019 and 2020 with $20 million and $30 million lump supplemental payments to school districts for the respective years. The bill directs the Revenue Department to transfer the money from the General Fund to the Public Education Fund in two tranches, the first on July 1, 2018, and the second July 1, 2019. The 2020 budget passed by the House and Senate contains a similar forward appropriation for 2021. The administration raised the issue when the House Finance Committee released its version of the budget without language to fill the Public Education Fund for 2020. Attorney General Kevin Clarkson sent a letter to House and Senate leaders April 9 outlining the administration’s position that the particular approach lawmakers took to forward fund public schools in HB 287 is unconstitutional because it dedicates future revenues, which the Legislature cannot do, and nullifies the governor’s line item veto authority. Legislators and their attorneys argue that HB 287 passes muster because while it was passed last year by the 30th Legislature, the 31st Legislature this year had the opportunity to repeal the law but chose not to. Dunleavy originally proposed cutting the K-12 budget by roughly $300 million — to strong public opposition — but he has since promised not to veto education money in the budget as long as the Legislature agrees to add the desired funding language to the 2020 budget. Lawmakers have ignored that request; for them, it is a separation of powers issue. Clarkson reiterated his stance in greater detail when he issued a formal seven-page opinion on the matter May 8. “It is the Department of Law’s opinion that appropriations by the Legislature of future revenues for future years at the end of one governor’s administration in order to side-step the next governor’s line item veto authority violate the Alaska Constitution by improperly circumscribing the governor’s veto power,” Clarkson wrote in his May 8 opinion. “Otherwise, in anticipation of a new governor, an outgoing Legislature could appropriate future revenues for specific purposes for the next four years and negate the incoming governor’s line item veto power over those funds altogether for the entirety of his or her term. “This type of end-run around the strong executive contravenes the clearly-expressed intent of the (constitutional) delegates and the structure of the constitution they created.” The minutiae of the debate was fully fleshed out in May 20 and 21 hearings to consider the administration’s bills to repeal HB 287 and fund education for 2020 through their desired mechanism. An emphatic Sen. Natasha von Imhof, R-Anchorage, said during a Senate Finance Committee hearing that the administration is actually asking the Legislature to do what Clarkson insists is unconstitutional in the governor’s bills to repay the forgone portions of past Permanent Fund Dividend payments. Von Imhof co-chairs the Finance Committee. While those bills are unlikely to pass, they ask this Legislature to appropriate money from the Permanent Fund’s Earnings Reserve Account for dispersal over several years through 2022. For the administration, it comes down to the specific source of the money chosen to fill the Public Education Fund in HB 287: the General Fund. Assistant Attorney General Cori Mills said that because the PFD repayment proposal would pull from the Earnings Reserve, which has roughly $18 billion, it spends existing revenue and could also be changed or repealed by future Legislatures. However, HB 287 “earmarks” revenue that is anticipated to be in the General Fund during the 2020 fiscal year. Von Imhof retorted that every budget anticipates future revenue and the PFD bills just assume the money will be in the Earnings Reserve three years from now. “There’s a lot of money in there now,” she said. “If the markets tank there will not be a lot of money. If this body decides to move a good portion of the funds into the principal there will not be a lot of money. So there’s a lot of unknowns at any given time whether it’s this body or your assumptions of where the money is going to come from,” she said, adding the state had the money to fund HB 287 when it passed. Mills said the department doesn’t believe the PFD repayment plan requires annual budget language because it pulls money already in the Earnings Reserve; but it would need appropriations from a new source if the Earnings Reserve were unexpectedly dry when the draws were to be made. The stalemate is likely to be decided by the Supreme Court. Legal experts note that the governor cannot sue the Legislature, so it would take a suit by the Legislature or a third party to spur the resolution. Administration officials say if HB 287 had similarly been funded from the Earnings Reserve or a savings account the issue would be moot. Mills noted that the Legislature historically forward funded education by overfilling the Public Education Fund and then drawing on that money in subsequent years. She added that the administration’s education funding bills repeal HB 287 simply for “good drafting” purposes. “We have our opinion, we think (HB 287) is invalid but just as when statutes are struck down or found invalid we prefer that they get cleaned up and you don’t have an existing law on the books that’s unconstitutional,” Mills explained. Finance co-chair Sen. Bert Stedman, R-Sitka, asked why the potential problems with HB 287 weren’t raised when it was first reviewed by Law last year; Mills responded that it wasn’t scrutinized in that context. She also said in response to Sen. Bill Wielechowski, D-Anchorage, that HB 287 would also be legal if it directed the money to be moved on June 30, the last day of the 2019 fiscal year, instead of July 1. Legislative Legal Services Director Meg Wallace contended in a House Finance hearing that last year’s action does not dedicate a specific stream of tax revenue, for example, but simply appropriates from the General Fund, which comingles much of the state’s money. “All budgeting is prospective, so in my opinion, if we strictly construed the opinion of the Attorney General we wouldn’t be able to prospectively budget even a fiscal year ahead if we had to wait for all of that revenue to be received by the state before we were able to appropriate those funds,” Wallace said, adding that it’s an open question as to how far out the Legislature can forward fund before it becomes a continuing appropriation. She also noted that HB 287 was subject to a veto last year. That veto power is an authority delegated to the Governor’s Office, she said, but not a particular governor. Association of Alaska School Boards Executive Director Norm Wooten said in an interview that he isn’t worried about a court fight preventing schools from getting the money they need for next fall after. Legislators have told him they would fund schools with stopgap measures if need be, according to Wooten. “It may be month-by-month funding,” he said. School administrators in public testimony mostly avoided taking sides in the legal fight, but stressed the importance of forward funding education for certainty in school district budgets. Elwood Brehmer can be reached at [email protected]

Bids sought for 2020 work at Port of Alaska

Anchorage officials are moving ahead with a plan to build part of a new berth at the city’s beleaguered port while they look for ways to pay for the rest of it. Municipal Manager Bill Falsey said during a May 16 meeting of the Anchorage Assembly’s Enterprise and Utility Oversight Committee that administration leaders want to use the $60 million they have on hand for port work to fund the first year of construction of a new petroleum and cement terminal. Port officials in February released a financial analysis that indicated tariffs levied on fuel and cement imported to the state across the Port of Alaska docks would have to be increased at least five-fold in order for the port to fund revenue bonds to pay for the construction of a new terminal, which has been estimated at $223 million. That caught the attention of both the shippers who call on the port and their customers who expressed fears that sharp tariff hikes could dramatically impact their business, which, because it is in basic commodities, could in turn have significant broader impacts on the overall state economy. For one, Ted Stevens Anchorage International Airport’s flagship cargo business — Anchorage is among the busiest cargo hubs in the world — relies on geography that makes it economically advantageous for cargo planes flying between Asia and North America to stop and refuel in Anchorage. Representatives from companies that handle fuel for the airlines have said any change in the tariffs would force the cargo companies to reexamine the business model. Higher fuel and cement tariffs would also be felt by consumers across Alaska, as the Anchorage port is the primary point of entry for the vast majority of goods sold in the state. The Assembly in 2017 changed the official name of the facility to the Port of Alaska as a means of emphasizing that point, which has also been used to make the case for state funding of the port rebuild. However, officials say some level of tariff increases will be likely to pay for the needed work. Large portions of the docks are nearing 60 years old and are close to doubling their 35-year design life. Port maintenance crews for years have been patching the most badly corroded steel pilings that support the docks. Using the $60 million — a mix of internal port funds, a $20 million state grant and remnants from the first failed expansion plan — to fund a year of construction on the petroleum and cement terminal, or PCT, gives city officials and the Assembly time to reevaluate the scope of the entire port modernization project. The cost estimate has gone from less than $500 million in 2014 to about $1.9 billion today and there is a general belief that the current price tag is prohibitively expensive. Falsey said municipal officials have determined that there is no issue with building a portion of the PCT even if it isn’t immediately completed other than a little initial corrosion before it is put into service. “If we build half the PCT we are one year closer to replacing that facility,” he said. City officials on April 16 released an invitation to bid on the work for the 2020 construction season; the bids are due by June 7. Deputy Port Director and engineer Sharen Walsh said the $60 million should enough to drive the pilings and put decking on the terminal trestles. “It will be a standing unit,” Walsh said. Soliciting bids now should give port officials time to select a contractor before the Assembly approves or rejects the spending, likely in July. Port spokesman Jim Jager said in a brief interview that the PCT plan provides time to order the major steel components that come with long-lead times in preparation for construction next year. The partial-build approach is also recognizes that building the entire PCT in one summer was going to be a time crunch, according to Jager, who noted the $223 million estimate contains significant contingency considerations if construction were delayed. Most in-water work at the port must stop if endangered Cook Inlet beluga whales or other marine mammals are spotted near the port; it’s a work limitation that’s hard to account for. “Risk is expensive,” he said. The PCT development would be the first major actual construction to rehabilitate the port since the prior Port of Anchorage Expansion Project was halted in 2010 when flawed construction techniques and possible design issues resulted in major damage to segments of sheet pile that were being installed at the time to support new dock facilities. Jager added that port officials are “cautiously optimistic” about their chances to get a multimillion-dollar grant from the Federal Emergency Management Agency to fund design components that would make the PCT a super-seismic structure. Those features account for about 5 percent of the cost, he said, but the possible total of the prospective grant isn’t settled. Meanwhile, city and port project leaders will be holding formal meetings with port users to get a better sense of what they truly need in a new, rebuilt port. A two-day “charette,” or design meeting involving stakeholders, is scheduled for June 13-14 and another will likely follow later in the summer, according to Falsey. Many of the design choices now seen as possibly too expensive were selected during charettes in 2013 and 2014 led by former Mayor Dan Sullivan’s administration, Falsey said. “We know that there are a lot of costs that got rolled into the program in the design choice that somebody else was going to pay for and I suspect that we can pull a lot of those things off,” he said. The charettes will also help flesh out what features, such as crane and dock size, that the users are willing to pay for. “We all have to be rowing in the same direction if this is going to work,” Falsey said. ^ Elwood Brehmer can be reached at [email protected]

Legislature passes bill repealing most telecom regulations

One of the handful of bills that passed through the Legislature this year updates many of the state’s regulations on telecommunications companies. Senate Bill 83, sponsored by Sen. Chris Birch, R-Anchorage, successfully passed the House and the Senate May 14, the day before the regular session ended and the Legislature moved into a special session; it now awaits the governor’s signature. The bill repeals a number of statutes regulating telecom providers, including ratemaking authority, standards for equipment and services and Carrier of Last Resort, or COLR, regulations, which are designed to protect rural communities in the event that all telecom providers want to stop serving an area. Telecommunications companies in Alaska broadly backed the bill, saying it would free up resources for them in an increasingly competitive environment. The Regulatory Commission of Alaska supported it as well, with the sole opposing vote coming from chairman Stephen McAlpine. RCA staff, however, raised a number of concerns about the future for telecom service across Alaska if the bill becomes law. The members of the Alaska Telecom Association, who range from statewide providers like Alaska Communications to small local telephone companies, argued that economic regulation of telecommunications providers is outdated, clumsy and consumes resources that could be better put toward operations. Christine O’Connor, the executive director of the ATA, noted that the statutes have not been fully updated in about three decades. “We tried to tackle that starting in 2014 with a petition to the Regulatory Commission,” she said. “They made some minor changes, but it didn’t end up relieving the burden. Some companies ended up with more complexity, not less. They had those petitions in 2014, and five years later we said let’s just do a full cleanup of these statutes.” The telecom market has become more competitive in Alaska in recent years, with consumers increasingly preferring mobile and web-based communication services as opposed to traditional landlines. Landlines are still important, though; O’Connor said approximately 4 percent of Alaskans depend solely on landlines, while 48 percent still maintain one in addition to another service. As the market shifts, the traditional monopoly-style regulation of telecoms becomes outdated for everyone, she said. Under the new regulations, telecommunications providers would no longer have to file informational tariff reports with the RCA. The filings are to inform the RCA of intended changes rather than to request rate increases, and the companies argued that the filings are time-consuming and unnecessary. GCI, one of the largest carriers in the state, spends significant time on filing the tariffs with the RCA, said Heather Handyside, vice president of corporate communications and community engagement for GCI. The company, which began as a landline provider about 40 years ago, has a dedicated team that sinks significant time into producing the reports, she said. “We all can understand here in Alaska how dramatically telecommunications have changed in the last 40 years,” she said. “The regulatory environment hasn’t changed in 30 years, and we’re still operating today with regulatory guidance from 30 years ago. That’s really a part of what SB 83 does: eliminate the onerous and unnecessary paperwork that our company does.” The bill does not mean the telecom providers will disengage entirely from the RCA, Handyside said, but it will “streamline” the process for everyone. It would also eliminate statutes requiring utilities to charge “just and reasonable” prices, removing RCA oversight over rates, and repeal the ability of the RCA to designate a Carrier of Last Resort. Companies argued in their letters and presentations that the Federal Communications Commission will still hold requirements for companies seeking to leave an area to justify it, but the RCA staff raised concerns about the potential for loss of service in rural areas. In documents submitted to the Legislature, ATA argued that COLR creates uncertainty for carriers because the RCA can change it at any time. In a memo to the RCA, Common Carrier staff member David Parrish outlined concerns about many of the items in the ATA’s proposed bill, highlighting particularly the elimination of economic regulation, the elimination of COLR regulations and how the changes would impact RCA’s ongoing review of its subsidy program, known as the Alaska Universal Service Fund. In letters and presentations to the Legislature, telecom providers mentioned how a number of states in the Lower 48 have taken similar actions to deregulate their telecommunications providers. The RCA staff memo contested that the situations in the Lower 48 and Alaska are the same. “What has not been clear is whether those states have taken the approach of completely deregulating even the least competitive markets within their respective jurisdictions,” the memo states. “ATA has not indicated that other states have so limited the enforcement tools available to their utility commissions for whatever jurisdiction those commissions retain to render that jurisdiction de facto unenforceable.” In the event the Legislature passed the bill, the staff memo recommends the RCA immediately open rulemaking processes to reinstate some of the provisions eliminated from statute. In a House Labor and Commerce hearing on May 1, McAlpine told legislators that his primary motivation for opposing the bill was concern about service in rural Alaska. In a May 13 hearing, Rep. Jonathan Kreiss-Tomkins, D-Sitka, shared similar concern with the House Judiciary Committee, saying the bill was moving quickly and could have impacts on residents like those in the rural areas of Southeast. “These communities for the main part don’t have cell phone service,” he said. “Landlines are the only means of communication these communities have. So therefore, it becomes a life and safety issue, as well as a commerce issue.” The House Labor and Commerce Committee added an amendment to allow the RCA more flexibility to hire on a telecommunications industry expert, which it does not currently have. Rep. Adam Wool, R-Fairbanks, co-chair of the committee, said a number of people had approached him about a “brain drain” at the RCA because of more attractive jobs in the private sector. O’Connor said the bill will result in immediate time and cost savings, especially for small providers that may have to bring in consultants to complete the filings required by the RCA. The RCA staff memo referred to the bill as deregulation, and O’Connor said the industry and ultimately the commissioners disagreed with that analysis. “I would say it’s just a difference of philosophy,” she said. “I’m on the record at the RCA saying that we felt it was time to update these statutes. This one staffer said he felt like it’s a go in another direction. Naturally since our goal was to become more efficient and we were responding to a lot of comments over time … saying we’re doing a lot of work here on telecommunications here that’s outdated and needs to be stripped away.” The amended bill passed the Legislature on May 14 and awaits transmittal to Gov. Michael J. Dunleavy for his signature. Elizabeth Earl can be reached at [email protected]


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