Elwood Brehmer

Report concludes private-Medicaid doable, but costs uncertain

A Medicaid overhaul analysis commissioned by Gov. Michael J. Dunleavy’s administration concluded Alaska could see benefits from shifting a subset of its Medicaid population to private insurance, but the details of potential cost savings and whether or not the change can be implemented remains unclear. Boston-based Public Consulting Group Inc.’s 48-page Alaska Proof of Concept Analysis Medicaid report says the public policy firm believes there is “a plausible path to approval of a ‘Private Option’ waiver for Alaska” from the federal Centers for Medicare and Medicaid Services, or CMS, based on similar approvals for other states. While federal Medicaid officials could be amenable to such a plan, Alaska Department of Health and Social Services leaders would likely have to establish a new pricing system for services provided to Medicaid recipients on private insurance, according to the report. Additionally, the state would probably need to bring at least one other private insurer — and competition — into the individual health insurance market to gain CMS approval, it states. Currently, Premera Blue Cross Blue Shield of Alaska is the only private insurer in Alaska’s individual health insurance market. Under the private-Medicaid concept, a group of relatively low-utilization Medicaid recipients would be moved to private insurance plans and the state would subsidize the premiums and other out-of-pocket expenses paid by those individuals. A new “reference-based pricing” mechanism would be necessary to curb reimbursement costs for procedures paid for by the state through a private insurer that were previously paid at Medicaid rates. According to Public Consulting Group, which cited estimated figures from other recent reports on Alaska’s Medicaid program, Medicaid reimbursement rates in the state are approximately 126 percent of what Medicare pays for particular services. However, commercial insurers in the state pay providers on average 353 percent of Medicare, rates that would significantly increase Medicaid costs to the state. To counter that, state officials could implement reimbursement rates specific to the Medicaid population moved to private insurance, according to the report, but also not without potential consequences. “In selecting targeted (reference-based pricing) reimbursement rates, Alaska will need to consider trade-offs between cost savings and the impact those savings may have on provider network access,” the report states. A 2016 study, known as the Milliman report, and done when state lawmakers were debating a suite of Medicaid reforms, concluded that shifting low-income adults enrolled under expanded Medicaid coverage to the individual private insurance market would cost the state an additional $57 million per year growing to $97 million per year over the first five years of the plan. Milliman Inc., a Seattle-based actuarial and consulting firm, submitted a proposal for the latest study but was not chosen by DHSS officials. The contract for the Medicaid analysis was for up to $100,000. DHSS officials requested the report this past spring, which was obtained by the Journal Aug. 13 through a public records request, after the Dunleavy administration initially proposed cutting $225 million from the state’s Medicaid budget in February. Office of Management and Budget officials at the time acknowledged the $225 million proposed cut was an arbitrary figure needed to reach an overall balanced state budget and DHSS leaders said in March they could cut about $100 million from Medicaid this year largely through regulatory actions, such as cutting provider reimbursement rates. The Legislature ultimately cut the state’s Medicaid services appropriation by about $70 million to $493 million, and Dunleavy vetoed another $50 million before signing the budget. Many legislators were critical of the veto because short-funding the program on the front end without major changes to Medicaid will likely necessitate supplemental appropriations later in the fiscal year — a scenario that has played out in recent years. While overall Medicaid spending in Alaska continues to rise, the state’s part of that bill is shrinking. According to the Legislative Finance Division, overall spending on Medicaid in Alaska has increased from $1.7 billion to more than $2.3 billion since fiscal year 2015, but the state’s portion of that has actually gone down from $724 million in 2015 to $677 million in the just-ended fiscal year 2019, which includes other services such as behavioral health as well as a $15 million supplemental budget request. The Dunleavy administration has also suggested shifting the state’s federal Medicaid funding to block grants as a way to limit overall costs. Public Consulting Group recommended a “global cap” to self-impose spending limits while giving the state flexibility in how it would stay under the cost cap. Doing so could also help the state offset any extra costs from the private insurance option by using a portion of the expected federal savings to cover higher reimbursement rates, according to the report. Any such changes to Alaska’s Medicaid program would require CMS approval. Elwood Brehmer can be reached at [email protected]

International issues boost premium for Alaska oil

Sanctions against Iran and contaminated oil from Russia appear to be giving Alaska a small but much-needed financial boost. Alaska North Slope crude oil is bucking a longstanding trend and is now trading at a premium to Brent crude, a leading benchmark price followed closely by global oil traders. The Brent benchmark originates from London with oil largely sourced from North Sea fields. Alaska North Slope oil has sold for a premium to Brent in every month since last November except for May, when Brent averaged 1 cent more per barrel. Since May, the daily average Alaska price premium has gone from $1.28 per barrel in June to $1.96 per barrel so far in August, according to the Alaska Department of Revenue. The spread peaked on July 9 when Alaska oil sold for $3.25 per barrel more than Brent-priced crude. For years, Brent crude consistently sold for a higher price than Alaska oil. The Brent premium to Alaska oil has typically been in the $1 to $2 per barrel range, but hit a near-term peak in February 2015 when Brent oil sold on average for $4.80 per barrel more than Alaska North Slope crude. More recently, in August 2016 Brent sold for $2.99 per barrel more than Alaska, according to Alaska Department of Revenue data. At that time Alaska oil was also selling for slightly less than West Texas Intermediate — the benchmark for Lower 48 oil — which was also bucking tradition. Over the previous five years, Alaska North Slope crude has sold for a significant premium to West Texas Intermediate. The Alaska premium over WTI peaked at $10.04 per barrel last February and has been more than $5 per barrel for more than a year. Alaska oil is traded on its own price for a variety of reasons, but a major driver is that the vast majority of shipments from Valdez are sent to West Coast refineries. Transportation constraints limit the amount of oil produced east of the Rocky Mountains that can be sent west. That soft barrier has led to the development of ostensibly two oil markets in the U.S. Economist Ed King, who recently served as the lead economist in Gov. Michael J. Dunleavy’s administration, wrote on his firm’s website July 23 that a $3 premium to Brent — going from $2 less to $1 more — correlates to “an extra $100 million or so of financial gain” to the state through extra royalty value and tax collections. According to Alaska Tax Division Director Colleen Glover, every dollar change in the price of Alaska North Slope crude equates to roughly $42 million more, or less, to the state treasury over the fiscal year at the current price band of $60-$65 per barrel. Alaska oil sold for $62.82 per barrel on Aug. 13, according to the state Department of Revenue. Economists say it’s often difficult to pinpoint a specific reason as to why one oil price changes in relation to another, but according to American Petroleum Institute Chief Economist Dean Foreman, the new Alaska premium over Brent oil correlates to increased exports to South Korea from the Valdez oil terminal at the end of the Trans-Alaska Pipeline System. Foreman said in an interview that trade data compiled by the U.S. Census Bureau indicates South Korean oil buyers purchased 42 percent more oil in June than they did a year prior and Bloomberg reported July 23 that two 1 million-barrel capacity tankers —ConocoPhillips’ Polar Adventure and BP’s Alaskan Explorer — were delivering oil to Yeosu, South Korea, last month after being filled in Valdez. BP Alaska officials declined to comment on the exports; ConocoPhillips Alaska spokeswoman Natalie Lowman wrote via email that the company recently sold a cargo of Alaska oil to customers in Asia, its first export of Alaska oil this year. Longtime Alaska petroleum economist Roger Marks surmised that traditionally low North Slope production during the summer months could be straining the ability of West Coast refineries to find adequate supplies, which could contribute to the price premium as well. Foreman noted there is rarely a single explicit answer as to why oil is traded or priced as it is, but he said South Korea is likely buying more Alaska oil because the country’s typical supplies of light crude from Iran and Russia have been choked. President Donald Trump re-imposed economic sanctions on Iran last November that restricted its ability to export oil after his administration chose to withdraw from the Iranian nuclear deal the Obama administration agreed to in 2015. South Korea was one of a handful of countries that the Trump administration granted waivers to, allowing buyers to keep purchasing Iran oil without repercussions until those waivers expired at the end of April. Additionally, about 36 million barrels of Russian oil were contaminated in spring by organic chloride, which curbed Russia’s oil exports and further limited South Korea’s options, Foreman said. “If you increase by 40 percent the amount of crude that South Korea wants, if you have existing supply channels (of Alaska North Slope crude) going into California, it’s going to have to compete against that and that would be the process of bidding the price up,” Foreman explained of the Alaska oil premium over Brent. “We’re talking about 2,000 to 3,000 barrels a day; this is not huge volumes but it is enough on the margins that it would be one source of a possible premium leading to higher prices on the margins.” Glover, of the Tax Division, said via email that China is also purchasing Alaska oil and added that slumping production from Venezuala and output cuts by OPEC members — aimed at increasing oil prices globally — have likely boosted demand for Alaska oil domestically as well. According to Glover, approximatley 40 percent of oil processed in California refineries was sourced from OPEC members in 2018. "The story just boils down to ANS crude being worth more to the U.S. west Coast and Asian refineries," she wrote. Foreman noted that Alaska oil has a similar “weight,” or gravity, to Iranian and Russian crudes, making it a viable substitute for South Korea refineries designed to handle oil from those areas. “ANS was obviously an attractive and available source for (South Korea) to want to take more year-over-year,” Foreman said. Elwood Brehmer can be reached at [email protected]

Court fight over King Cove road enters third round

The battle over a proposed emergency access road through the Izembek National Wildlife refuge is headed back to the federal court system for a third time. A consortium of Alaska and national conservation groups again sued Interior Department leadership Aug. 7 over a land exchange agreement signed with King Cove Corp. that would allow the completion of a road through currently wilderness-designated Izembek lands. The lawsuit comes less than five months after the same group won a nearly identical suit when U.S. District Court of Alaska Judge Sharon Gleason threw out a January 2018 land exchange signed by former Interior Secretary Ryan Zinke. Gleason concluded Zinke didn’t sufficiently justify his rationale for approving the land swap, which went against numerous prior agency decisions on the longstanding issue. Most notably, in 2013 then-Interior Secretary Sally Jewell nixed a land swap between the federal government, the State of Alaska and King Cove Corp. approved by Congress in 2009 that would have cleared the way for a road through Izembek to link King Cove with the nearby village of Cold Bay and it’s all-weather airport. Jewell concluded — following a recommendation from U.S. Fish and Wildlife Service officials — that the road would have unacceptable impacts on the refuge and the world-renowned gatherings of migratory birds that use Izembek’s habitat each year. The conservation groups also argued Zinke did not follow a process for disposing of Alaska conservation unit lands prescribed in the 1980 Alaska National Interest Lands Conservation Act when he made the deal. Opponents of the road largely insist building it would set a terrible precedent of development on land previously designated by Congress as wilderness, one of the highest land preservation classes available. “This deal violates the same laws as the first one and we’re prepared to continue to fight to protect this irreplaceable wilderness. This is another Trump administration public land giveaway that breaks multiple laws and dishonors the public processes that go into protecting the health of the lands, waters and wildlife of the National Refuge and Wilderness System,” said Trustees for Alaska attorney Bridget Psarianos, who signed the 42-page Aug. 7 complaint. Led by Sen. Lisa Murkowski, advocates for the 11-mile segment that would complete an approximately 30-mile road, argue it would provide a safe and reliable way for residents of King Cove — a village shrouded by mountains with notoriously bad weather — to reach Cold Bay’s airport and its 10,100-foot runway. 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. This time, Interior Secretary David Bernhardt quietly signed a land swap deal with King Cove Corp. July 3 after company President Dean Gould sent a letter and draft agreement to him May 21. The land deal Bernhardt signed is strikingly similar to what Zinke approved less than a year-and-a-half prior 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. 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 also attached a 20-page memo to the latest agreement that details his rationale for the decision. In it, he asserts that there have been more than 70 medevacs out of King Cove to hospitals often in Anchorage or Seattle since Jewell made her decision in 2013 and 21 of those were conducted by the Coast Guard at a cost of roughly $50,000 per mission. Bernhardt also wrote that Jewell in 2014 committed that Interior would work to find alternative emergency transportation options, 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. Additionally, he wrote that the land exchange agreement is just that; any decision to build a road would be up to King Cove Corp., while state officials have expressed a willingness to fund the construction. “Secretary Jewell placed greater weight on protecting ‘the unique resources the Department administers for the entire Nation,’” Bernhardt’s memo concludes. “I choose to place greater weight on the welfare and well-being of the Alaska Native people who call King Cove home. I value the well-being of an entire community over the impacts derived from the change in ownership of these various parcels of property which are an incredibly small percentage of Alaska’s Wilderness. Although it is not a decision I take lightly, it is one that I believe best serves the public interest, my responsibilities and humanity.” The Agdaagux Tribe of King Cove sued Jewell in 2014 to get her decision to deny a land swap overturned. However, U.S. Alaska District Court Judge H. Russel Holland dismissed the lawsuit the following year, ostensibly ruling that although the tribe disagreed with Jewell, she made the decision within the bounds of applicable federal laws and regulations. Elwood Brehmer can be reached at [email protected]

Dunleavy signs second, funded capital budget with vetoes

Gov. Mike Dunleavy signed the capital budget Thursday afternoon during a brief and somber ceremony at the Associated General Contractors of Alaska headquarters in Anchorage. The bill signing came on the heels of the news that state Sen. Chris Birch, R-Anchorage, had died unexpectedly late Wednesday. “Today is cause for celebration but it’s a tempered celebration with the loss of Sen. Chris Birch yesterday. It was a shock to all Alaskans. It was certainly a shock to us,” Dunleavy said. In signing the capital budget, Senate Bill 2002, the governor restored roughly $115 million of funding from various state accounts for programs such as Power Cost Equalization, which subsidizes high power costs for rural residents, the Alaska Performance Scholarship and the University of Washington medical school partnership Alaska participates in with other western states known as WWAMI. “Today’s action represents only one part of the equation — a properly funded capital budget that we see as significant progress for fulfilling our commitments to Alaskans, encouraging growth within our economy, and working together on moving forward,” Dunleavy said in prepared remarks. The funding for those programs and others had been moved into the state’s $1.9 billion Constitutional Budget Reserve fund on July 1, as required by law, but lawmakers initially failed to muster the votes needed to perform what has been dubbed the “reverse sweep” to pull the money back out of the budget reserve so it can fund the various programs. While the reverse sweep vote historically has been a noncontroversial technicality, accessing the Constitutional Budget Reserve, or CBR, requires a three-fourths supermajority affirmative vote from both the House and the Senate. House minority Republicans at the time refused to approve the reverse sweep until lawmakers passed a $3,000 per person Permanent Fund dividend. Dunleavy first signed the $1.2 billion capital budget July 8, but that version of the key spending bill was only partially funded because it largely relied on funding from the CBR and lawmakers in the 40-member House couldn’t muster the 30 votes needed to access it. The capital budget primarily funds infrastructure projects for the 2020 state fiscal year that began July 1. There was also much concern amongst legislators that further delay in passing a fully funded capital budget could cause the state to miss out on roughly $1 billion in federal funds for numerous programs that require a state match if it was not passed by the end of July. For example, $73 million in state matching funds in the 2020 budget unlocks approximately $750 million in federal transportation money for road construction and airport improvement projects across the state. However, Sen. Dan Sullivan’s office indicated to the Anchorage Daily News after discussions with federal officials that the capital budget was not as time-sensitive a matter as once thought. Still, the Senate approved the second iteration of the capital budget July 20 on a 19-0 vote and by the House July 29 on a 31-7 vote. Dunleavy did not sign the first capital budget without vetoes to the tune of $10.6 million and the second go-round was no different. The governor vetoed more than $34.7 million from part or all of 26 line items in the budget bill, including $5 million for the Alaska Housing Finance Corp.’s popular home weatherization program. Dunleavy also vetoed $10 million in statewide addiction treatment facility matching grant funding, cut $3.6 million from AHFC’s Homeless Assistance program and $70,000 for cameras in Soldotna Police patrol cars, among other spending reductions. Dunleavy vetoed $444 million from the state operating budget June 28, a move intended to provide more money for PFDs that also drew sharp criticism from across the state. On the vetoes, he said during the capital budget signing that a sudden decline in oil prices — from about $85 per barrel before last year’s election to less than $60 today — necessitated significant reductions. “Had (oil) held at $85 we’d probably be having a very different conversation in Alaska, at least for a while,” Dunleavy said. The majority of legislators have pushed for modifying the PFD formula instead of significantly cutting state services, while Dunleavy has long championed the current PFD and it’s that disagreement that has led to the current, prolonged fiscal debate. Anchorage Democrat and Senate Minority Leader Tom Begich called the capital budget vetoes "truly antithetical" to the governor's priority to improve public safety in Alaska in a statement following the budget signing. "This was a bare-bones capital budget to bring in federal dollars and help alleviate some of Alaska's infrastructure needs and to keep Alaskans working. It was carefully crafted with the entire Legislature's input, which is why it passed with significant support — twice," Begich said. "I'm disappointed in Governor Dunleavy's acitons today, and they will only hurt our economy and make Alaskans less safe." Dunleavy stressed that his vetoes are not intended to harm Alaskans, as he said has been suggested. Rather, “What’s going to harm Alaskans is to pretend we have no budget deficit,” he said. Dunleavy did not take questions from reporters after making his comments. The $4.4 billion operating budget passed by the Legislature left the state with roughly a $600 million expected surplus at the time but did not appropriate funding for PFDs. Lawmakers officially sent House Bill to Dunleavy Wednesday to pay PFDs of approximately $1,600 per person and restore most of the funds he vetoed from the operating budget.  A statement issued Tuesday by Dunleavy’s spokesman Matt Shuckerow says the governor will “make a determination on a certain number of additions to the budget, but he largely considers a vast majority of the (fiscal year 2020) budget settled." It’s not known when or if he will sign HB 2001.   Elwood Brehmer can be reached at [email protected]

Data-driven minds descend on Anchorage

It's been hard to miss for anyone who spent time in Downtown Anchorage the past week, but others may not have noticed one of the premier computer science and artificial intelligence conferences in the world is in town. For the better part of five days a markedly young crowd of computer scientists and data analysts is streaming between presentations at the city’s Dena’ina and Egan event centers. The Association for Computing Machinery’s 25th Conference on Knowledge, Discovery and Data Mining has consumed virtually every square inch of both from Aug. 4-8. Conference co-chair Vipin Kumar acknowledged in an Aug. 6 interview that Anchorage is not a typical city to host discussions about high-technology innovation but also noted that the conference, known as KDD, was recently in Halifax, Nova Scotia, among meetings in Sydney, San Francisco and Beijing. His fellow co-chair Ankur Teredesai said it was a family trip to Alaska eight years ago — the first trip with his young daughter — that largely drove him to pitch for holding KDD here. As is often the case with first-time visitors, he was taken aback by the state’s natural features. Teredesai also noted that conference organizers wanted to move away from a solely business-driven agenda. “It was fascinating to me to see what would happen if 1,500 to 2,000 data scientists converged on this city and shared in that spirit of the importance of the environment and climate change,” he said. Kumar added that the computer and data science industry as a whole, not just the conference planners, has historically had a single commercial problem-solving focus that is just starting to change. “We thought Anchorage would be a really good place because — what’s a better way to get people to think about certain issues than to bring them to where they matter the most and you can see them the most?” said Kumar, who chairs the University of Minnesota Computer Science and Engineer Department. Anchorage’s Chief Innovation Officer Brendan Babb, the local KDD co-chair, said having individuals as influential in the data science industry as Kumar and Teredesai actively championing for Anchorage as a place to host the conference was an immense help. Still, Babb admitted to being “a little bit surprised and bewildered” when the choice was made nearly three years ago. “There’s some unique data to Alaska and its great to have some of the best minds in the world taking a look at it and sharing what they know. Everyone’s been incredibly generous and excited to be here. It’s been fantastic,” he said. Teredesai, a computer science professor at the University of Washington Tacoma and co-founder of the advanced health care analytics firm KenSci, also said the group received “tremendous support” from the folks at Visit Anchorage, who spend much of their time recruiting national and international trade shows and conferences to the city. Visit Anchorage spokesman Jack Bonney said the city is a practical place to hold an event with global participation, as Anchorage is within a nine-hour flight from the vast majority of the world’s population centers. “In the eye of a meeting planner we’re a very cost-conscious option,” Bonney said. According to Visit Anchorage, hosting the KDD conference will generate roughly $4 million in additional economic activity in the city. Babb said that city officials hope the exposure will encourage some KDD attendees to return north permanently. “We’d like to snag some as they visit here and have them relocate to Anchorage,” he remarked. Based on the response, he might be on to something. Kumar said KDD organizers generally expected to attract 1,500 to 2,000 attendees to Anchorage, but the actual response astounded them. “We had 3,200 people register and a couple hundred more knocking on the door asking, ‘can we get in?’” he said. Those 3,200 or so attendees came from 51 different countries, according to Babb. It’s believed to be the largest professional gathering the city has ever hosted. And while the North Slope oil fields or the fishing grounds of the Bering Sea seemingly share little with Silicon Valley, the men stressed that the research done in their industry is not only applicable, but essential, to the future of Alaska’s industries as well. Teredesai recalled that one of the first lessons in a primary textbook used by computer science graduate students, entitled, “Pattern Classification” could’ve been drafted on a fishing boat. “It’s quite fundamental and everybody uses it,” Teredesai said of the book. “If you open the first chapter the first example in that book to teach someone pattern recognition is actually to teach them to learn to classify the differences between a salmon and a sea bass.” More directly, there have been numerous presentations on the applicability of current data science in resource management; for example, how to use satellite imagery to combat illegal high seas fishing, Kumar said. The leaders of Alaska’s oil and gas industry have also long-discussed the need to advanced technology and data analysis to remain globally competitive in a traditionally high-cost operating regime. Teredesai noted further that the ability to process large amounts of data in highly compressed timeframes is paramount to the supply chain and logistics industry, which are important parts of the Alaska economy, whether it’s mobilizing for a remote construction project or part of the global cargo trade. Ted Stevens Anchorage International Airport is the fifth-busiest air cargo hub on the planet. “The entire Amazon supply chain is driven by the algorithms that are published and reported in this conference,” Teredesai said. Kumar added, “If you’re in industry and you’re not paying attention to this area you are losing out to your competitors. You can’t afford to ignore this technology.” Babb continued that the work done at firms like Teredesai’s KenSci is helping reduce the cost of health care and improve the effectiveness of telemedicine delivery, which has major benefits for rural Alaska communities lacking access to large health care facilities. Teredesai also said he thinks the exposure KDD will give Anchorage and Alaska will encourage more activity, and possibly investment, in the data science realm here. That is, if the city and state make the proper investments as well. He called investing in higher education “a no brainer.” “I understand balancing priorities but it is in these type of hard times that we have to make sure that our longer term goals and visions have to be protected. So, making sure that places of innovation, places to access education like universities are funded at the appropriate level,” Teredesai said. “Even high schools and elementary schools — taking money away from education and putting it to something else may solve the short-term problem but it creates more problems in the long run.” ^ Elwood Brehmer can be reached at [email protected]

Preliminary finding would allow oil exploration near Bering River

A small Nikiski-based company is close to getting exclusive oil and gas exploration rights to a large swath of state land at the edge of the Gulf of Alaska. Acting Division of Oil and Gas Director Jim Beckham signed a preliminary finding Aug. 2 that, if finalized, would give Cassandra Energy Corp. sole rights to exploring 65,773 acres at the mouth of the Bering River. The area of mostly tidelands and near shore state waters is adjacent to the Copper River Delta State Critical Habitat Area to the west. Much of the surrounding area is Chugach National Forest land. The Division of Oil and Gas issues broad exploration licenses to encourage companies to hunt for commercially viable hydrocarbons in areas outside of the state’s traditional North Slope and Cook Inlet basins. The 256-page draft decision would give Cassandra Energy exploration rights to the acreage for 10 years and includes a $1 million work commitment, a contingency established by Beckham based on work proposed by the company, it states. The division is soliciting public comments on the preliminary exploration license through Oct. 4. Division of Oil and Gas officials said Cassandra Energy leaders have outlined a general work plan to them but declined to relay that information out of commercial concerns. The company has not submitted formal exploration or operational plans to the state. The exploration license could eventually be transformed into more formal state oil and gas leases. Cassandra Energy initially planned to explore the nearby onshore historic Katalla oil field near the Bering River in the early 2000s by drilling from Chugach Alaska Corp. holdings inside the Chugach National Forest. The plan sparked a lawsuit over the U.S. Forest Service’s evaluation of Cassandra’s proposal, according to news reports at the time. Oil has been produced from areas near the exploration acreage in the past. According to the license finding, 44 wells were drilled in the Katalla field and surrounding areas in the early 1900s and approximately 154,000 barrels of oil were ultimately produced. A small refinery built in 1911 supplied fuel to the Kennecott mine located about 150 miles to the north. The refinery burned in 1933 and was never rebuilt, according to the license. The area is also known to have occurrences of coal. Division officials expect the area’s bedrock — fractured and disrupted by many large earthquakes — could make oil and gas recovery difficult. “Although there is no evidence of a viable conventional petroleum system, it is likely that the unconventional shale play still holds technically recoverable oil and gas resources,” the license states. Representatives for Cassandra Energy could not be reached in time for this story. The company first submitted an exploration license application for the area in April 2015. While adjudication of exploration license applications requires multiple rounds of public comment and subsequent evaluation, the process usually doesn’t take more than four years, which is how long it has taken to reach the preliminary decision for Cassandra Energy’s application. In this case, the Division of Oil and Gas was more deliberate in its evaluation of the proposal because of the ecological and economic importance of the nearby Copper River Delta, division officials said. The commercial fishery that occurs there each spring and summer is the first major salmon harvest in the state each year and in turn generates a very high per-pound value for the prized Copper River chinook and sockeye salmon taken. This year, Copper River District fishermen harvested more than 1.2 million sockeye salmon and nearly 18,000 chinook. The Copper River also supports a large upriver personal use salmon fishery. According to comments from the fishing group Cordova District Fishermen United summarized in the preliminary finding, Cordova ranks 14th among U.S. fishing ports in terms of landed value and volume, with much of that harvest coming from the Copper and Bering River areas. Then-Cordova District Fishermen Executive Director Alexis Cooper wrote during a 2015 comment period on the application that the group opposes oil and gas exploration in the area until technological advances in the industry eliminate a substantial risk to renewable resources in the region. Department of Natural Resources officials responded in written comments included in the preliminary finding that they understand the importance of the region’s commercial fisheries and therefore the license prohibits surface activity in the Copper River Delta State Critical Habitat Area, among other measures. Other Cordova residents and area conservation and fishing groups opposed an oil and gas exploration license for the western Gulf of Alaska, repeatedly citing the need to protect the region’s fisheries and other marine life. Several noted that Prince William Sound is still recovering from the 1989 Exxon Valdez oil spill. DNR officials responded, in part, that, “Spill response techniques and technology have improved since the time of the Exxon Valdez spill and other agencies including (the Alaska Department of Environmental Conservation) are responsible for review of spill prevention and response plans for any proposed activity associated with this exploration license.” Requirements in the draft license for mitigating environmental impacts from oil and gas activity prohibit facilities within 500 feet of fish-bearing waters and limit development within a half-mile of several rivers in the area. The license would also restrict offshore drilling to onshore directional drilling unless an environmentally preferable location is found. It also states that the Division of Oil and Gas would approve many development proposals would only after consulting with other resource agencies, such as Environmental Conservation and Fish and Game. Elwood Brehmer can be reached at [email protected]

AEDC outlook darkens over gridlock, spending cuts

Prolonged indecision in Juneau is stifling economic recovery in Anchorage, according to the Anchorage Economic Development Corp. CEO Bill Popp recalled that at the start of the year AEDC officials thought the city’s economy would finally be pulling out of what has been a three-plus year recession by midsummer; however, the data indicates that’s not the case, he said at the group’s three-year economic forecast presentation July 31. According to figures compiled by AEDC, Anchorage’s economy — which usually reflects what’s happening statewide — has lost roughly 100 jobs in the first half of 2019. Popp acknowledged the number is on the edge of the margin of error, but said other indicators support the belief that the economy has again turned for the worse. “We should’ve been in positive territory at this point by about a few hundred jobs, but we’ve seen the start of a significant decline that’s got us very, very concerned,” Popp said. While the long-struggling construction industry has added roughly 600 jobs in the first half of 2019, Popp attributed most of the growth to repairs from the November 2018 earthquake and much of that work will fade after next year, he said. The historically strong health care sector added just 100 jobs so far this year, the slowest growth in about 15 years and likely a response to cuts to the state’s Medicaid funding, according to Popp. On a positive note, companies in the professional and business services sector — engineering, architectural, financial, law firms and the like — are finally slowing their job reductions. The sector lost about 200 jobs in 2018 after shedding about 3,000 jobs since late 2014. According to AEDC, early data for this year shows the losses are continuing at a reduced rate. “To reach a point where they’re flattening out, that is great news for a sector that provides great jobs for our economy,” Popp said of professional and business services. “Hopefully, we will see this flat turn into growth with new investment in the oil patch and federal military spending in our state.” AEDC leaders have and other economists have previously said the recession that cost Anchorage more than 5,000 jobs and nearly 12,000 statewide started when North Slope oil companies responded to the oil price crash of late 2014 by cutting their labor force about a year later. But it was extended and deepened by the inability of state lawmakers to agree on a long-term fix for the state’s budget deficits that exceeded $3 billion annually in recent years, they contend. Popp said economic optimism generated a year ago by rebounding oil prices and the Legislature’s move to approve a long-debated annual endowment-style draw from the Permanent Fund to provide a new, steady source of revenue for government services has mostly evaporated in a new political climate. “We are on the precipice of taking a three-and-a-half-year recession that is now fully fledged as a policy-driven recession and we are talking about extending it another three years, maybe more, because this does not take into account potential cuts in next year’s budget cycle that have been talked about,” he said, noting the conclusions also assume the Legislature ultimately doesn’t override Gov. Michael J. Dunleavy’s $444 million of vetoes to the state operating budget. Dunleavy has repeatedly said the roughly $650 million in budget cuts this year — his vetoes combined with about $200 million in reductions passed by the Legislature — get the state roughly halfway towards closing its ongoing deficit while paying Permanent Fund dividends and via the traditional formula and he hopes to enact further cuts next year. The final tally indicates Anchorage lost about 900 jobs last year and AEDC expects the city will shed another 700 this year and about 1,000 next year as the budget cuts take full effect. Another 200 job losses could be seen in 2021 as the negative trend flattens, according to Popp. If AEDC’s forecast is correct, Anchorage would end up losing nearly 8,000 jobs, or about 5 percent off the city’s 2013 employment peak of 156,100 jobs. University of Alaska Anchorage economist Mouhcine Guettabi estimated in early July that the state budget cuts would cost Alaska’s economy as a whole more than 4,000 jobs over the coming years. Economist Ed King, who worked in the Dunleavy administration for a brief time, wrote July 10 that he believes the Alaska will add approximately 800 jobs over the coming year primarily due to growth in the oil and gas sector from new, large North Slope projects. If AEDC’s forecast proves true, the Anchorage economy would regress to 2007 job levels over the next three years. Dunleavy has stressed a belief that cutting government spending will spur growth in the private sector and paying larger PFDs will inject money into the Alaska economy as well. The “full,” statutorily calculated 2019 PFD of approximately $3,000 per person would transfer $1.9 billion from the Permanent Fund to Alaska residents. However, economists, including King, have said they cannot find a significant link between the size of the PFD and job growth in the state. Popp said the PFD provides a short-term boost to the retail sector each fall, but little more, a sentiment shared by UAA’s Guettabi. “The PFD has had little or no appreciable effect in terms of major employment bumps in our community,” he said. “From our view that proposition (of the PFD supporting job growth) is a canard; it is a false premise.” AEDC’s predicts the job losses will coincide with continued population loss for Alaska’s largest city as those searching for new job opportunities continue to migrate to the Lower 48. Popp said the long-term trend of Anchorageites seeking more affordable housing options in the Mat-Su Borough is starting to slow, but the city has experienced a net loss of approximately 4,000 residents to the Lower 48 each of the past five years. “We’ve got a pretty good sense that a substantial portion of that 20,000 is adult, working-age individuals. It’s a brain-drain for our city; it’s an absolute brain-drain,” he said. Births have largely offset the outmigration, leading to less population decline. The belief that many working-age adults are leaving Anchorage is supported by the fact that the city’s unemployment rate has stayed fairly steady in the 5 percent range throughout the recession. Those in need of jobs are often moving south rather than applying for unemployment benefits and looking for work locally. Further, many employers still cite a lack of qualified workers as an impediment to growth despite the mediocre to poor economic conditions, according to Popp. “We are not competing effectively to retain the workforce that we have or to attract the workforce that we need to fill the jobs that we need for our community,” he said. Overall, Anchorage’s population is likely to shrink back to less than 293,000 residents before in 2021 after peaking at more than 301,000 in 2013, according to AEDC. If the projection proves true, it would take the city back to a population level not seen since 2010. In addition to the hard numbers, Popp said AEDC leaders are also very concerned about consumer confidence in the Anchorage economy, given it is service-driven and therefore very sensitive to consumer spending. The group’s second quarter 2019 consumer optimism survey conducted by Alaska Survey Research in conjunction with Northern Economics indicates a sharp decline in residents’ confidence in the Anchorage economy, with respondents most concerned about the future as opposed to the immediate situation. “We’re now in what we believe is the ‘we’re not sure territory’ of 45-55 (on a scale of 0-100) but the trending is definitely towards the negative,” Popp said of consumer economic confidence, which is now measured at 53 compared to 59.3 a year ago. The “future expectations” response dipped to 49.3, a drop of more than 8 points compared to 57.7 in the third quarter of 2018. The turn towards the negative comes just a year after a near-term peak in the third quarter of last year when oil prices were higher and the state had just approved the structured use of Permanent Fund income to support government services, an action that drastically reduced the budget deficit. ^ Elwood Brehmer can be reached at [email protected]

Anchorage Assembly approves $42M contract for first new port dock

The Anchorage Assembly has approved funding to start a total rebuild to the docks at the city’s beleaguered port a decade after construction problems halted prior efforts to upgrade the essential infrastructure. An 8-3 Assembly vote at a July 30 special meeting allows city officials to award a $42.1 million contract to Seattle-based Pacific Pile and Marine to build the first phase of a new, roughly $220 million petroleum and cement terminal at the city-owned Port of Alaska. The Assembly had delayed the vote twice before at its regular bi-weekly meetings on the hope officials in Mayor Ethan Berkowitz’s administration could reach an agreement over the work with a consortium of eight Port of Alaska customers, who object to the plan, primarily because of its cost. The port user group is comprised of the general cargo shippers Tote Maritime and Matson Inc.; five fuel supplier and distribution companies; and Alaska Basic Industries, which is a primary cement distributor in the state. Representatives of the user companies have stressed at numerous Assembly committee meetings and work sessions over the past few months that city and port officials do not have a plan to finance the rest of the petroleum and cement terminal, or PCT, and cannot explain how the cost of the project went from $38 million in 2014 to more than $200 million today. Millions of dollars have already been spent on preconstruction dredging in front of the docks and other soil stabilization work. They have urged the city to stop work to advance the port modernization project and reexamine the whole scope of the project to replace all of the five cargo and fuel terminals at the port, which is now estimated to cost $1.9 billion, a price tag no one sees as viable. A significant portion of the $1.9 billion cost is for removing what’s left over from the original port expansion project, which stopped in 2010 after large sections of sheet piling meant to support the new docks were found to have been damaged during installation. Anchorage Municipal Manager Bill Falsey acknowledged during the July 30 meeting that the city is still about $100 million short of finishing the PCT, but said the city’s plan “is to responsibly make incremental progress” on port work while ways to bring down the cost of the rest of the dock replacement are examined. Falsey also noted the PCT needs to be built first, as it’s location south of the existing facilities will open up space for work on the rest of the docks while vessels continue to call on the port. He has long insisted that city officials recognize the $1.9 billion plan is wholly unaffordable, even though the PCT is the first part of that plan. However, ongoing examinations of the badly corroded steel piles that support the current docks — many of which are more than 50 years old — continue to reveal damage from the November 2018 earthquake, adding to the urgency of the matter, according to port officials. Their experts contend the port has less than 10 years before some of the docks will have to be de-rated for weight capacity or closed altogether if they are not rebuilt. The $42.1 million contract to build a PCT trestle and dock platform next year “begins to put petroleum and cement deliveries back on reliable footing,” Falsey said. Dave Karp, a senior vice president with Tote Maritime’s parent company Saltchuk, said before the vote that the user group and city officials met multiple times over the past week but were unable to reach a compromise path forward. He emphasized the users do not want to obstruct progress on rebuilding the port as they agree the work needs to be done; they just don’t believe it is so pressing that it needs to happen before a comprehensive look at the project costs is complete. “Do we really want to risk history repeating itself?” Karp asked Assembly members, in reference to the failed port expansion project that cost roughly $300 million and produced little viable infrastructure. Consultants hired by the Assembly to review the project for cost saving measures have said alignment between the city and the users will be critical to move the project forward successfully. Falsey said the city will “wring out the big costs from the rest of the project while making incremental progress” on the PCT. The users have suggested repairing one of the existing petroleum terminals but the viability of that is unclear at this point. Adding to the pressure, Pacific Pile and Marine representatives have said the contract needs to be approved by Aug. 1 in order to ensure the massive steel pilings can be ordered and fabricated in time for the 2020 construction season and to get the best price. Assemblyman John Weddleton, who voted against the contract, said it’s difficult to stop a major project once it is started and questioned when the current Assembly members — none of whom were a part of the body at the time — would’ve stopped the failed expansion project. “I don’t want to get stuck with something else we don’t need,” Weddleton said. “I’m ready to pause. I’m going to say, ‘let’s look.’” Assemblywoman Meg Zaletel said the city needs to move forward with the PCT, contending the debate over it has served as a catalyst to bring the city and users to the table for important discussions about the rest of the project despite the disagreement over how and when to move forward. “I understand there’s debate but I’m convinced there’s critical need for this infrastructure,” she said. The Assembly also approved the formation of a formal five-member port working group to facilitate better communication between the city, users, and the Assembly on major port reconstruction decisions. The group will have two members nominated by the users and approved by the Assembly, two city officials and one Assembly-selected member, likely the Assembly’s consultant hired earlier this year to examine the overall scope of the port work for cost savings. Assemblyman Fred Dyson, who voted against awarding the contract, said he doesn’t expect major savings will result from the meetings, but he commended the users and the city for making good-faith efforts to reach a compromise. Assemblywoman Crystal Kennedy was the third “no” vote. Karp reiterated after the vote that the users will continue to work with the city on ways to improve the final port project. Falsey also emphasized again that the administration is open to hearing from anyone who can help produce a better, less costly, port modernization plan.

Alaska Air Group rebounds to solid second quarter profit

Alaska Air Group Inc. executives said the company is returning to its core business principles following a strong second quarter that netted the company a $262 million profit. Seattle-based Alaska Air Group Inc. operates Alaska Airlines and regional carrier Horizon Air. Air Group leaders have long stressed fundamental business principles to achieve an investment-grade balance sheet with modest debt levels; ideals that led the company to seven consecutive years of record profits earlier this decade. The streak of profitability provided Alaska Airlines the financial wherewithal to purchase Virgin America, one of its primary West Coast competitors, in an April 2016 deal that cost the company roughly $4 billion. The complexities of merging two large airlines have since eaten into company profits, but the airline is poised to return to its strong moneymaking ways, CEO Brad Tilden said in a July 25 conference call with investors. “We are well set up to move towards our targeted annual growth and our targeted pretax margin of 13 to 15 percent over the business cycle,” Tilden said. “Our results for the first half of the year make us optimistic for the rest of 2019 and beyond.” Company officials generally said their focus in 2019 is on managing costs — which was done better than expected in the first half of the year — and the coming years will be about beginning to realize the benefits of the larger network the Virgin America acquisition can provide. Alaska Air Group produced a profit of just $4 million in the first quarter, but executives blamed the relatively small profit on unusually bad winter weather in the Pacific Northwest. The $262 million in second quarter earnings was a 26 percent improvement over its $193 million profit for the same period in 2018. The $262 million profit also translated into a net of $2.11 per share. Alaska Air Group stock closed trading July 25 at $63.83 per share. The company paid a dividend of 35 cents per share in the second quarter and repurchased approximately $25 million worth of shares in the first half of 2019, according to the quarterly report. “We set a plan to return $220 million to shareholders this year and we’ll hit it,” Chief Financial Officer Brandon Pedersen said during the earnings call. The $262 million profit was on the back of nearly $2.3 billion in operating revenue, which correlates to 6 percent year-over-year growth. Chief Commercial Officer Andrew Harrison said that the second quarter revenue growth of was the best year-over-year per unit improvement the company has seen in seven years. Pedersen noted the company also enjoyed its second consecutive year-over-year improvement in quarterly margins. “It’s evidence that our plan to improve revenues is working,” Pedersen said. Air Group ended the quarter holding more than $1.6 billion in cash and short-term investments. The company, which holds nearly $13 billion in assets, generated cash flow from operations totaling roughly $1.1 billion during the first half of the year. After $330 million in capital expenditures, Air Group was left with $735 million in free cash flow, which Pedersen said was nearly $400 million more than 2018 year-to-date. The extra available cash is the result of a calculated decision last year to reduce capital investments in order to have more money on-hand, he said. In Alaska, the company completed a new $50 million hangar at Ted Stevens Anchorage International Airport last November. The Anchorage maintenance facility was the largest of numerous new construction and renovation projects Alaska Airlines began across the state in 2016. It also spent $30 million to remodel and expand several of the terminals it owns at rural Alaska airports it serves. The airline also participated in several terminal upgrade projects at some of its West Coast hubs, such as Los Angeles International Airport, in recent years. The airline also finished launching three new cargo aircraft dedicated to serving the state of Alaska last year. Additionally, Pedersen said Air Group has repaid about $280 million in debt this year and is trying to refinance some of its outstanding obligations to fixed-rate debt to take advantage of currently low borrowing costs. He noted the company has repaid $1.2 billion of the roughly $2 billion it borrowed to purchase Virgin America and is on pace to reduce its debt balance by about $350 million this year. Including aircraft leases, Alaska Air Group’s debt-to-capitalization ratio currently sits at about 45 percent and is on track to be 42 percent by the end of the year. The company should return to its 40 percent debt-to-cap target next year, according to Pedersen. “A fortress balance sheet has been the hallmark of this company for many years and we’re moving quickly back to that position,” he said. On the operations side, Pedersen said Horizon Air’s productivity — measured as passengers per full-time equivalent employees — improved 3.3 percent in the second quarter and the regional carrier’s passenger traffic increases 17.4 percent on a 15.3 percent increase in capacity, according to the quarterly report. Chief Operating Officer Ben Minicucci added that Horizon, which for years had dealt with on-time performance issues related to an industry-wide pilot shortage, according to company leaders, is now among the top-performing regional carrier in the country. “I want to give a shout out to the people of Horizon for a complete turnaround in their performance over the past couple of years,” he said. During the quarter Alaska Airlines also reached a two-year contract extension with its mechanics represented by the Aircraft Mechanics Fraternal Association, which allows Alaska mechanics to work on all of the airline’s mainline aircraft, according to Tilden. Alaska Airlines historically flew Boeing 737 aircraft exclusively, while Virgin America operated Airbus planes. Alaska also reached a tentative five-year agreement with its roughly 5,200 office, passenger service and ramp employees represented by the International Association of Machinists, which Tilden said he hopes will be ratified by the union in the coming weeks. Alaska does not have any of the currently grounded Boeing 737 MAX series aircraft. The airline was scheduled to take three 737 MAX planes later this year, but those deliveries will likely be cut to one MAX this year, according to Pedersen, with two more coming early in 2020. The new labor deals will add about $50 million in wage and benefit costs annually, and about $40 million in the second half of this year due to $24 million in signing bonuses that will be paid in the third quarter, according to executives. Pedersen said even with the new labor costs the company expects to keep its cost growth at about 2 percent per unit for the year, excluding fuel, which is in line with earlier projections. “We’re delivering industry-leading performance and our customer service is award winning,” Pedersen said. “On the financial side we have revenue and cost momentum and our balance sheet is strong. If we continue to execute our plan we’ll be in the top quartile of the industry for profit margins, balance sheet and free cash flow generation.” Elwood Brehmer can be reached at [email protected]

ConocoPhillips posts seventh straight quarterly profit

Lower global LNG and natural gas prices took a small bite out of ConocoPhillips’ profits, but the major producer still generated a healthy profit of nearly $1.6 billion in the second quarter. Company executives released the quarterly earnings report July 30. Chairman and CEO Ryan Lance said in a statement accompanying the report that the period was the seventh consecutive quarter the company was able to generate free cash flow and pay for capital investments, share buybacks and dividends out of cash from operations while meeting its operational and financial targets. “ConocoPhillips has embraced an approach to our cyclical industry that we believe will deliver superior returns and create value across a range of commodity prices,” Lance said. “This quarter represents a continuation of strong performance on our business model that prioritizes financial returns, discipline, resilience with upside and shareholder distributions.” The companywide profit was generated from more than $8.3 billion in revenue and translated into earnings of $1.40 per share. ConocoPhillips stock closed trading July 30 at $59.56 per share, up 4.2 percent from the pre-earnings report start to the day. Lance added that company leaders will present a plan detailing their ability to continue the strong returns over the long term at a November investor meeting. ConocoPhillips had achieved profits greater than $1.8 billion for three quarters in a row before the $1.6 billion second quarter net. ConocoPhillips’ total realized price for all of the oil and natural gas it sold during the first half of the year was $50.55 per barrel of oil equivalent, compared to $52.37 in the first six months of 2018, according to the report. The company also continued to realize strong returns from its North Slope Alaska operations, which netted a $462 million profit during the period. However, several special item costs “predominately related to non-cash adjustments for certain state and federal tax adjustments” totaling $81 million resulted in $381 million in adjusted quarterly earnings for ConocoPhillips’ Alaska business segment, spokeswoman Natalie Lowman wrote in an email. ConocoPhillips paid $278 million in State of Alaska taxes and royalties during the quarter as well, according to Lowman. She added that the company has reinvested all of its adjusted Alaska earnings totaling $765 million so far in 2019 back into projects in the state. ConocoPhillips Alaska spent $370 million on capital investments during the quarter. The second quarter also marked the end to one of the company’s largest Alaska exploration seasons, in which eight exploration wells were drilled and tested, Lowman wrote via email. A slide presentation accompanying the earnings report states ConocoPhillips had “encouraging” results from the wells drilled at its North Slope Willow and Narwhal prospects, but the company has not released additional information on the exploration results. ConocoPhillips also announced a deal to purchase the mid-sized Nuna prospect on the North Slope from small independent Caelus Energy, but a purchase price has not yet been disclosed. The $462 million Alaska profit accounted for 29 percent of ConocoPhillips global earnings for the quarter, while the company’s production from the state — dominated by high-value oil — accounted for 16 percent of its total combined oil and gas production. Alaska has also accounted for 23 percent of the company’s overall year-to-date capital spend of $3.4 billion. Elwood Brehmer can be reached at [email protected]

EPA rescinds proposed action to stop Pebble mine

A July 30 announcement from the Environmental Protection Agency means it won’t stand in the way of Pebble Partnership receiving the key federal permit it needs to construct what has become one of the most controversial development projects in the country. EPA Region 10 Administrator Chris Hladick on July 30 signed a 28-page notice at the direction of agency leaders that formally removes the agency’s proposed “preemptive veto” that loomed over the Pebble mine project since it was initiated under former President Barack Obama’s administration in 2014. In an interview Pebble CEO Tom Collier said, “This is a good day for Pebble. It’s a day I wish had happened much sooner, but it’s a good day for Pebble.” The EPA retains its power to eventually prohibit the Pebble mine project under the Clean Water Act. Hladick also wrote that the EPA has other avenues to scrutinize the project such as the 404(q) process, which “elevates” the environmental analysis of projects the EPA believes could have significant environmental impacts through a longstanding agreement the EPA has with the Corps of Engineers. Traditionally, the 404(q) has been used before any final actions regarding a wetlands permit are made, according to Hladick. “EPA believes these processes should be exhausted prior to EPA deciding, based upon all information that has and will be further developed, to use its Section 404(c) authority,” he wrote. Collier added he doesn’t see why the EPA would use the 404(q) and potentially go back to a 404(c) veto in roughly a year — when the Pebble EIS is scheduled to be done — after rescinding it now. Formal statements from Pebble and its parent company, Vancouver-based Northern Dynasty Minerals Ltd., thanked Gov. Michael J. Dunleavy for pushing President Donald Trump’s administration to rescind the proposed restriction. Dunleavy has avoided taking a formal stance on the hotly contested project, but said the EPA’s unusual actions to preclude its development send a bad signal to prospective investors in other projects across Alaska. The Pebble deposit is on State of Alaska land. Hladick is a former commissioner of the Alaska Department of Commerce, Community and Economic Development under former Gov. Bill Walker, who opposed the Pebble mine, and has served as manager to several local governments across Alaska, including the City of Dillingham, a commercial fishing hub in the Bristol Bay region. Pebble’s opponents, which include conservation groups, area fishing lodges, Bristol Bay tribes and Bristol Bay Native Corp., said in statements that the EPA’s latest action disregards the agency’s namesake responsibility, insisting the mine would endanger the salmon area residents rely on for jobs and subsistence harvests. BBNC President Jason Metrokin stressed that the move is inconsistent with the comments EPA Region 10 officials sent to the U.S. Army Corps of Engineers July 1 on the Pebble draft environmental impact statement. Those lengthy written comments —signed by Hladick — stated the project as proposed could have significant adverse environmental impacts and the draft review document lacked important analysis of the project’s downstream impacts, among other things. “A large majority of BBNC shareholders, more than 80%, are concerned about the risks Pebble poses to the region and its fisheries and are opposed to the project. BBNC will always advocate for its shareholders’ best interests and will continue to oppose this inherently dangerous proposal,” Metrokin said. “One thing is certain: the people of Bristol Bay will not stand down. Bristol Bay’s commercial fishery is once again on pace for a record sockeye salmon harvest, but the people, the economy and a way of life that is dependent on these incredible fish are put at risk by today’s decision.” He also asserted that the EPA’s move comes just weeks after agency officials said they had no timeline for revisiting the proposed restriction. Pebble’s Collier said the concerns listed in EPA’s comments on the project review and those from other federal and state agencies were largely the result of overlooked information that is in fact in the roughly 1,400-page EIS. “For the most part the issues that have been raised aren’t of great surprise and aren’t of great significance. I think they’ll be dealt with by the Corps and the third party contractor (working on behalf of Pebble) and we’ll march ahead towards getting our permit,” Collier said. “There’s a reason they call it a ‘draft,’” he added. EPA General Counsel Matthew Leopold directed Hladick in a June 26 memo to reconsider the agency’s proposed 404(c) restriction. Hladick wrote in his 404(c) lifting notice that the Pebble EIS provides an analysis of Pebble’s actual plan, instead of relying on the 2014 Bristol Bay Watershed Assessment, which contemplated several hypothetical mine projects and Pebble claims was written to justify stopping the project. The allegation that the watershed assessment was biased formed the basis for Pebble’s lawsuit against the EPA but it was not invalidated in the 2017 settlement. A January 2016 EPA Inspector General report supported the validity of the assessment, but scolded the agency for months’ worth of missing emails and other procedural missteps related to evaluating the prospective Pebble project. Collier said he doesn’t see a need to invoke the more stringent but somewhat nebulous 404(q). “Sometimes a project just becomes one where decisions are being made at the highest levels of the agency in Washington, D.C.; I think that’s where we are,” Collier said. “So I’m not sure elevation would change a damn thing. You saw that the highest level person at EPA who has not rescued himself and that’s the general counsel (Leopold), was involved in this decision essentially in-lieu of the administrator.” EPA administrator Andrew Wheeler has rescued himself from anything relating to Pebble to prevent a potential conflict of interest stemming from business at a law firm where he previously worked. Leopold sent a letter to Army Corps of Engineers leadership July 25 asking for an extension to the deadline in the 1992 working agreement by which the EPA was supposed to request the 404(q) process be started. That deadline was July 26. Specifically, Leopold asked for EPA officials to have 30 days after the Corps drafts preliminary decision documents for Pebble’s permits before the EPA has to make its decisions regarding the project. That would likely be sometime next year. The EPA began the process to withdraw the proposed Section 404(c) veto — named for where it is found in the Clean Water Act — in July 2017 following the settlement of a lawsuit earlier that year by Pebble against the agency that directed EPA officials to take steps to lift the proposed development prohibition. The settlement, however, did not mandate the proposed veto be lifted, as the EPA has now done, but the action needed to happen before the U.S. Army Corps of Engineers could issue a final wetlands fill permit for the project. The Army Corps of Engineers adjudicates wetlands fill permits on behalf of the EPA for development projects across the country, but the Clean Water Act gives the EPA the authority to override wetlands fill permits the Army Corps issues if it determines the project would have unacceptable impacts to the environment. The EPA has used that authority very sparingly over the decades since the Clean Water Act was passed, but Pebble was the first instance in which it had been invoked prior to a wetlands fill permit being applied for. Pebble applied for its 404 wetlands fill permit in December 2017. In January 2018 in an unexpected move, former EPA Administrator Scott Pruitt suspended the 404(c) withdrawal process after the agency took public comments on the move citing “serious concerns” he had regarding the impacts the large Pebble mine and infrastructure project could have on the area’s salmon fisheries, which support an estimated 14,000 commercial fishing jobs in an otherwise economically depressed region. Pebble has long touted that it would provide roughly 2,000 jobs to Alaska, many of which would be high-paying opportunities in inland parts of the Bristol Bay region that see less benefit from the commercial fishing industry. Elwood Brehmer can be reached at [email protected]

AGDC president outlines path forward; China deal is dead

Interim Alaska Gasline Development Corp. Joe Dubler insists that Alaska is still making unprecedented progress towards a long-sought natural gas pipeline project despite the fact that the lead agency on the effort is downsizing significantly. “I think we’re closer now than we’ve ever been” to making a gasline project happen, Dubler told House Resource Committee members on July 19. AGDC officials informed the Journal July 10 that the quasi-state agency would be ending its work to secure customers and investors for the roughly $40 billion Alaska LNG Project, as well as closing its public and government relations department. The reductions are expected to take AGDC’s personnel count from about 20 to less than 10 over the coming weeks. The remaining eight or nine employees will focus on completing the ongoing Alaska LNG environmental impact statement process the Federal Energy Regulatory Commission. FERC published the project’s nearly 3,700-page draft EIS June 28. Dubler told the legislators the reductions are intended to make AGDC “more fit for purpose,” as it focuses on completing the crucial EIS process, which is scheduled to be completed next June. Staffing levels at the corporation have always been low considering the massive scope of the project it is working on and AGDC has relied on contractors and consultants to help complete major tasks. “We’re going to have just enough people to get this thing done and at the end of next (fiscal) year in June, then we take a look and say, ‘where do we go from here?’” he said. It’s at that point that AGDC will reexamine and determine the state’s participation, if there will be any, in the project going forward, according to Dubler. He said it’s tough to forecast where the project will go in a year, but stressed the state will no longer be leading it through AGDC. Dubler confirmed that he had the authority to make personnel decisions, which was delegated to him by the corporation’s seven-member board of directors. Sources within AGDC said the staffing changes followed a detailed review of the project and corporation by Gov. Michael J. Dunleavy’s administration. Dunleavy has consistently said he wants the state to back away from leading the complex project and instead focus on bringing in partners, such as large oil companies, to again take it over. By getting a favorable decision on the EIS, AGDC can reduce the regulatory risk to Alaska LNG and make the project more enticing to potential partners, according to Dubler. He said the state still wants to monetize the roughly 35 trillion cubic feet of known natural gas on the North Slope. “This isn’t a change in what we’re doing; it’s a change in how we’re going about it,” Dubler said. He highlighted that FERC largely agreed in the draft EIS that AGDC’s plan for the 807-mile pipeline and a 20 million tons per year LNG plant at Nikiski is the least environmentally damaging option available. China deal is dead He also confirmed that AGDC did not renew the nonbinding joint development agreement, or JDA, it had with three large, nationalized Chinese firms to buy up to 75 percent of the project’s LNG in exchange for an equal share of the needed financing. Signed in front of President Donald Trump and China President Xi Jinping in November 2017, the JDA was touted as a signature achievement in former Gov. Bill Walker’s effort to secure partners for a state-led Alaska LNG Project. The agreement was extended multiple times under Walker and former AGDC President Keith Meyer. Dubler said the project envisioned in the JDA “frankly doesn’t exist anymore” given that the Dunleavy administration is not comfortable with the risk the state would have to assume to lead the project to fruition. “What we told them is moving forward we will work with the producers and them to see what their role would be, if any, moving forward,” he said of a recent teleconference with representatives from Sinopec, China Investment Corp. and the Bank of China, the three other JDA parties. Dubler acknowledged that the commercial work AGDC had done since taking over the project in late 2016 was beneficial in that it proved there is international interest in the Alaska LNG Project, but he said much more work needs to be done before major LNG purchase and investment agreements can be finalized. AGDC officials have said they signed about 15 nonbinding agreements with potential partners — mostly in East Asia — but the content of those agreements has been kept confidential. “(Those agreements) really didn’t do anything as far as progressing the project and they didn’t do anything for the other side as well because they had no commitments there either so what we said is we don’t need to do those anymore until we have something we can commit to,” Dubler said. “In another two or three years, whoever’s going to be building this project would again go to the market and look for off takers.” The overall cost of Alaska LNG — last estimated at $43 billion by AGDC in 2017 — is currently a major impediment to developing it, according to Dubler. That cost translates to LNG delivered to Asian customers at $11 to $12 per million British thermal units, which is nearly three times the going rate for spot market LNG purchases today. “That’s so far out of the market now nobody would return your phone call. I mean, they wouldn’t even talk to you,” he said. Dubler’s predecessor Meyer regularly stressed that spot LNG prices are deceptive in that contracted LNG prices are often significantly higher because they come with long-term commitments to deliver scheduled cargoes and that reliability is something large utility buyers covet. Role of producers Rep. Chris Tuck, D-Anchorage, said the refocusing of AGDC’s work appears to be taking the project back to early 2016 when BP, ConocoPhillips and ExxonMobil were partners with the state in Alaska LNG but determined that depressed global energy markets challenged the economic viability of the project at the time. The producers’ Alaska leaders then said they would either shelve or slow down the project until market conditions improved or allow the state to examine ways to make it more economic, and the state enthusiastically chose the latter under Walker. BP and ExxonMobil, which collectively hold rights to a lion’s share of the gas in the Prudhoe Bay and Point Thomson fields, agreed to general terms including prices for gas sales into the project in 2018. They also agreed to fund up to $10 million each towards completing the Alaska LNG EIS, which state officials have said could cost close to $30 million. An economic analysis of the Alaska LNG Project conducted during the producer-state transition by the international energy consulting firm Wood Mackenzie concluded that a project led by the producers would likely not be viable because of the comparably high investment returns large oil companies require, among other considerations. However, a state-led project could be profitable because of the state’s exemptions to federal taxes and lower return requirements, according to Wood Mackenzie. “It seems like the light is dimming on a potential gas pipeline,” Tuck said. “It just seems less and less hopeful as we either lose interest from other entities or we are no longer interested in those entities.” Dubler responded that AGDC has done a detailed review of the project’s costs and potential economics using Department of Revenue economic models and has received assistance from BP and ExxonMobil on how to reduce the overall cost. Those cost reduction workshops have led state officials to believe the project is “in the ballpark” of being economically competitive, Dubler said. However, he declined to provide a new cost estimate, saying that disclosing those figures could harm a project proponent’s position in future LNG sales negotiations. “Instead of pulling everybody behind us we’re going to be behind them helping them set up whatever the state can do to help them be successful,” Dubler said of AGDC’s new role while also acknowledging that it’s unclear who “them” is at this point. He added, though, that major participation from a major oil company, as the administration envisions, would likely require “fiscal certainty” for the project, a term commonly used when the producers were leading Alaska LNG. Fiscal certainty is the concept that the producers would need the state to agree to set firm tax rates for natural gas — and possibly oil — before they would agree to multibillion-dollar investments in Alaska LNG. Clauses in the Alaska Constitution prohibit the Legislature from contracting away its taxing authority, so achieving fiscal certainty for Alaska LNG would likely necessitate a potentially highly controversial constitutional amendment. ^ Elwood Brehmer can be reached at [email protected]

Murkowski still pushing energy policy overhaul featuring nuclear power

Expect to hear more from Sen. Lisa Murkowski on her plan to overhaul the nation’s complex energy policy. Alaska’s senior senator said during a July 19 speech to the nonprofit policy study group Commonwealth North in Anchorage that its been 12 years since Congress last did a full-scale update to federal laws covering energy development, security, reliability and innovation. Murkowski has said technology has made many of those policies outdated. She chairs the Senate Energy and Natural Resources Committee. “There are things that you’d imagine coming from an Alaskan senator but there’s also a few things that you look at and you say, ‘well, where’d that come from?’” she said in reference to her proposed energy reform legislation. Both the House and Senate passed versions of an energy reform package Murkowski championed in 2016. However, the bill died when conference committee negotiations stalled. At the time, Murkowski blamed House Republican leaders for opting to leave Washington, D.C. for December holiday parties elsewhere instead of working out minor differences in the detailed legislation. This go-round Murkowski is particularly highlighting the prospects of advanced nuclear power, which is something she said Alaskans should be very interested in for what it could to in rural communities to lower the cost of energy with zero emissions. “Just imagine a system that’s the size of a connex and provides continuous power and needs to be refueled once every 25 to 30 years,” she said of potential small-scale nuclear power generation. On July 16 the Energy and Natural Resources Committee passed the Nuclear Energy Leadership Act with broad bipartisan support. The bill directs the Energy Department to establish advanced nuclear development goals, support nuclear research and work to make low-enriched uranium — nuclear power “fuel” — available for research and demonstration projects. Murkowski has long touted Alaska’s capability to be on the forefront of energy technology development with its high energy costs and ranging climate and geography. “We are leading as a state when it comes to microgrids and how we’re piecing these smaller energy solutions together,” she said. “We’re getting not only the attention of the nation, but of the world for what we’re doing.” On health care, Murkowski, who was one of three Republican senators to vote against the party’s “skinny” repeal of the Affordable Care Act in 2017, said lawmakers and the public often get caught up in the cost and availability of health insurance, without addressing the underlying cost of care. She also serves on the Health, Education, Labor and Pensions Committee, which sent the Lower Health Care Cost Act to the full Senate for consideration in early July. According to the Congressional Budget Office, the bill would have a net cost of about $9.4 billion over five years primarily through cuts to federal health insurance subsidies countered with increased spending for community health centers and other programs. Murkowski said the Lower Health Care Cost Act attempts to curb some of the fundamental cost drivers for patients. “It’s the first time that we’ve really drilled down on efforts to lower the actual cost of care through greater (billing) transparency, addressing prescription drug pricing and ending this surprise medical bill issue,” she said. It would also change the minimum age to buy tobacco from 18 to 21. And while members of Alaska’s congressional delegation rarely weigh in on issues before the state government, the severity of the budget-related impasse between legislators and the governor have tested that precedent. Sen. Dan Sullivan has urged state lawmakers to capture as much federal revenue as possible by appropriating the necessary state funds to match federal program contributions. Murkowski echoed that sentiment. She said part of the delegation’s job is to stabilize and enhance the state’s economy, noting the $286 million in Defense spending Congress approved on projects at Interior Alaska military installations for this year. The ongoing work to update infrastructure and expand operations at Eielson Air Force Base, Clear Air Force Station and Fort Greely has largely been credited with supporting the state’s construction industry while the state’s capital spending has been cut drastically amid years of budget deficits exceeding $1 billion. Murkowski said the delegation is collectively working to determine exactly what the many deadlines are for the state to match funds for various federal programs. “The thing with the federal side is they really don’t care what are problems are up here; they really don’t care whether we’re in Wasilla or Juneau, there’s a date and if they don’t hear from us by that date they assume that they’ve got access to something that was going to be in the Alaska pot, so they’re moving on to something else,” she described. The largest single pool of money the state is at risk of losing because of the inability to pass funded capital budget is more than $910 million of federal highway and aviation infrastructure funds, which requires a state match of less than $100 million. On July 23, the Anchorage Daily News reported that the Federal Highway Administration’s chief congressional liaison confirmed that Alaska has until 2020 to come up with matching funds for hundreds of millions of dollars in federal aid following an inquiry from the office of U.S. Sen. Dan Sullivan. The federal government’s fiscal year starts Oct. 1, explained liaison Tim Arnade, and the state becomes eligible for its federal highway aid at that point. As long as the state comes up with its matching funds before August 2020, it receives the full amount of federal highway aid. If it doesn’t come up with the money in time, the federal aid is redistributed to other states. The inability of the Legislature and Gov. Michael J. Dunleavy to resolve their differences over the budget just adds to the air of economic uncertainty in the state, Murkowski said. “Not everything’s perfect up here, but it never, ever, ever has been so let’s not get so focused on some of the challenges that are just gripping us and bringing us down. We’ve got to remember that we’ve got some challenges in front of us but we’ve got more opportunity than anybody out there. We still have still have $65 billion, with a ‘B,’ in the bank,” she said referring to the Permanent Fund. “We are not so broke we can’t figure our way out of this. We know how to do this we just have to come together as Alaskans and do it.” Elwood Brehmer can be reached at [email protected]

Anchorage Assembly delays vote on port repair contract

Caught between potential disasters, the Anchorage Assembly again delayed a vote on July 23 to decide whether the city should start rebuilding its aging port that is badly in need of repair or wait to determine if more cost-effective solutions exist. Anchorage Mayor Ethan Berkowitz’s administration insists the Assembly should approve a $42.1 million contract with the marine construction firm Pacific Pile and Marine to build the first phase of a new petroleum and cement terminal, or PCT, at the municipal-owned Port of Alaska. While port officials and members of the administration acknowledge the contract, which is for the 2020 construction season, would leave the city about $100 million short of finishing the PCT, they stress that it would give the port one very basic but seismically resilient dock structure that could be used in an emergency while the rest of the years-long construction on the rest of the port is underway. Municipal Manager Bill Falsey also noted at the Assembly meeting that part of the reason the administration is pushing the PCT plan is the need to move fuel and cement offloading away from the rest of the docks to free up space for the logistical juggling that is rebuilding the port at the same time ships continue to regularly call on it. The new PCT would be well to the south of the current petroleum and cargo terminals. “The PCT is the key to unlocking the whole project,” Falsey said during the July 23 meeting. Port officials also continue to discover new earthquake damage to the already badly corroded steel piles that support the docks and are largely past their intended useful life. At the same time, the port’s primary user companies are urging the Assembly to suspend the port construction plan because the users fear the PCT is the first step towards another port project that will turn into a financial nightmare, particularly because the city does not have a firm plan to finance the rest of the work. “We don’t doubt there are problems, but what other options are there and what do they cost?” asked Ryan Zins, a vice president for Alaska Basic Industries, the primary cement importer at the port. The overall price for the current port reconstruction plan has escalated from roughly $500 million in 2014 to $1.9 billion today because of a myriad of factors that include federal steel tariffs and stringent seismic design criteria, among other reasons. Falsey and port officials have repeatedly said they do not plan to build the $1.9 billion project — even though the PCT is the first part of it — and will look for major savings in constructing the larger cargo terminals and other aspects of the project. Their experts contend the port has less than 10 years before some of the docks will have to be de-rated for weight capacity or closed altogether if they are not rebuilt. The users have suggested repairing one of the existing petroleum terminals but the viability of that is unclear at this point. Consultants hired by the Assembly to review the project for cost saving measures have said alignment between the city and the users will be critical to move the project forward successfully. The Assembly ultimately voted 8-3 to push the contract vote back about a week, likely to a July 30 special meeting, to give the city and the users time to discuss their options and see if a compromise can be reached. The users pledged to work diligently and in good faith with the administration in the coming days, and Falsey highlighted that the administration is doing its best to provide as much information as possible on the complex project to anyone who wants it. Pacific Pile and Marine representatives have said the contract needs to be approved by Aug. 1 in order to ensure the massive steel pilings can be ordered and fabricated in time for the 2020 construction season and to get the best price. Assemblyman John Weddleton, who owns Bosco’s Comics in Anchorage, said the city needs to listen to its customers at the port and do a more diligent review of the project’s costs. “Ignore your customers at your peril,” Weddleton said. His comments were echoed by several other Assembly members. Assemblywoman Meg Zaletel said she’s worried Gov. Michael J. Dunleavy’s administration might claw back the $49 million in uncommitted state grants the city has received for the project in recent years if the money is not spent soon. “I’m unwilling to wait for an emergency and worse yet a catastrophe,” Zaletel said, partly responding to assertions from the users and other opponents to the PCT plan that the docks are not truly in dire need of immediate repair. Assemblyman Fred Dyson of Eagle River wants to slow the project for a more detailed cost review. “I believe the administration is acting in good faith. I believe they got off-track because they didn’t have the best information,” he said. Falsey asked Assembly members to send the administration every question they have about the PCT plan and the overall project in the coming days so they have absolutely all the information they need to make a decision on the PCT at the special meeting. It’s unclear at this point how the Assembly will vote then. Major construction at the port has been on hold since 2010 after major damage to the sheet pile then being installed to support new docks was discovered. The original port expansion project cost upwards of $300 million but resulted in little usable infrastructure. The Municipality of Anchorage is currently engaged in a lawsuit against the federal Maritime Administration, or MARAD, which oversaw the failed work. The Federal Claims Court judge presiding over the lawsuit is scheduled to visit the port Aug. 1-2. In February, city officials released a concept analysis that indicated the port’s import charges on fuels and cement would have to be increased five-fold or more if the municipality needed to sell $200 million worth of revenue bonds to pay for the new PCT. That caught the attention of the users, who also fear the lack of a firm financing plan for the overall project could lead to steep tariff increases, even though city officials have repeatedly pledged to not levy tariffs to fund construction that would drive away business or otherwise harm the Anchorage or state economy. The ongoing lawsuit with MARAD has made it difficult for the city to secure large chunks of financing for the port since it’s unclear what the suit could potentially yield. ^ Elwood Brehmer can be reached at [email protected]

Marathon acquires Interior fuel assets

Marathon Petroleum Corp. has purchased the site of the now-demolished North Pole oil refinery formerly owned by Flint Hills Resources. Marathon Alaska spokesman Casey Sullivan confirmed the refining and fuel transportation company purchased the 233-acre industrial site, which it now uses for fuel storage, in a deal that closed July 1. Sullivan wrote via email that owning the Interior Alaska fuel storage terminal will help the company optimize its operations across the state. “We are excited about the opportunities that this will bring for the company and for the community alike,” he said. “We believe this facility is a natural extension of our long-standing operations in Alaska and will enhance our ability to efficiently and reliably serve customers in the Interior and strengthen the integration from our Nikiski refinery to our customers.” Marathon had been leasing the 285,000-barrel North Pole terminal to store fuels it imports or produces at its Nikiski refinery on the Kenai Peninsula and then ships north on the Alaska Railroad for eventual distribution to Interior customers. The company took over the state’s largest oil refinery in Nikiski — long operated by Tesoro Corp. — late last year after finalizing a $23 billion deal to buy Andeavor, which ran the refinery briefly after purchasing Tesoro in 2017. In late 2015, Tesoro purchased a 580,000-barrel capacity fuel terminal in Anchorage and a 22,500-barrel jet fuel storage facility at the Fairbanks International Airport as well as wholesale fuel contracts in the state from Flint Hills; all that is now owned by Marathon. Flint Hills Resources closed its North Pole oil refinery — the site of historic soil and groundwater contamination — in May 2014 citing in part the high operating costs in the state. It began demolishing the oil refining facilities in December 2016 but kept the fuel storage terminal. The Flint Hills refinery was a primary supplier of jet fuel to Eielson Air Force Base. Fairbanks North Star Borough property records indicate that the former refinery-turned fuel terminal parcel has an assessed value of $24 million, down from $35.8 million in 2017 due to a decline in the value of on-site facilities. The land value has held steady at $2.5 million, according to borough records. Marathon also took ownership of the former ConocoPhillips LNG plant in Nikiski when it purchased Andeavor. The company is seeking approval from the Federal Energy Regulatory Commission to use the idled plant to import LNG that could be used to fuel part of the operations at its nearby refinery. Sullivan said Marathon has not ruled out selling imported LNG that has been regasified into the Southcentral market, but the company is focused on getting the requisite federal permits for importing LNG at this point. Elwood Brehmer can be reached at [email protected]

Concept scrapped for unified Railbelt utility

Alaska’s Railbelt electric utility leaders are headed back to the drawing board after five years of work now that efforts to jointly manage the region’s transmission infrastructure have failed, at least for the time being. The utilities behind Alaska Railbelt Transmission LLC withdrew the startup transmission company’s application for a certificate of public convenience and necessity, or CPCN, from the Regulatory Commission of Alaska on June 20. An RCA-approved CPCN is required for any regulated electric utility to operate in the state. A transmission company, or transco, has long been seen as a way for the five large Railbelt utilities, plus the City of Seward, to coordinate construction of new power generation facilities and pool resources for expensive transmission infrastructure projects that a single utility might not be able to afford but would benefit the customers on the broader system. Such a joint transmission-only utility would be a first for Alaska but they are more common in the Lower 48. When the transco CPCN application was sent to the RCA in February, Homer Electric Association, Anchorage-owned Municipal Light and Power, Golden Valley Electric Association, the City of Seward and Wisconsin-based American Transmission Co. were signatories to the 750-page document. American Transmission Co. operates as a transco in the Upper Midwest and company representatives coordinated transco development in Alaska since 2015, though the concept was being discussed prior to that. Work to formally integrate Railbelt utility operations became more urgent following a sternly worded June 2015 letter from the RCA to the Legislature in which the commission characterized the Railbelt electric system at the time as “fragmented” and “balkanized.” The RCA also insisted that if the utilities would not voluntarily work together for the betterment of their customers, the commission would do what it could to mandate better cooperation, either through its own regulations or by seeking statutory help from the Legislature. In May, the early drafts of in-depth legislation clarifying the RCA’s authority to oversee a transco or other joint utility organizations was introduced in both the state House and Senate. 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. Renewable energy advocates, in particular, stress that an open-access transmission system with a flat wheeling tariff would allow independent power producers to compete on a level playing field with current power plants for power sales and would incentivize more investment renewable projects in the region. Alaska Railbelt Transmission was challenged from the outset by not having participation from two of the larger utilities in the region, Chugach Electric and Matanuska Electric associations. Golden Valley CEO Cory Borgeson said when the group learned that ML&P was withdrawing its support for the transco it was scrapped. Chugach officials have said in filings to the RCA that the Anchorage-area utility wants to resolve its pending $1 billion purchase of ML&P from the Municipality of Anchorage, which is also under review by the commission, before entering into any binding agreements. ML&P officials did not respond to questions in time for this story. Seward Utility Manager John Foutz said Seward supports a transco because it would give the city “a buyer’s market.” “Right now we’re attached directly to Chugach’s transmission lines so any power we that we purchase has to go through Chugach’s system. If there was a transco that covered all of the transmission system then we would have the opportunity to basically shop around for the lowest price for our ratepayers and pay one unified transmission price to get it to us,” Foutz said. Seward currently buys the vast majority of its power from Chugach; it also has rights to a small portion of power from the state-owned Bradley Lake hydro plant near Homer, according to Foutz. MEA General Manager Tony Izzo said his utility hired outside consultants to evaluate the transco application and business plan and who concluded MEA should not get involved in the company. “We are convinced from the analysis that the transco as filed did not do what even the cover letter of the filing said it would do,” he said in an interview. Last November, prior to the transco application being filed, Izzo wrote in a letter to the RCA that MEA was “in full support of the formation of a transco,” but the utility wanted to see a sister cooperative organization formed to address transmission system reliability standards and perform economic power dispatch — consistently running the most efficient generators for the demand — across the Railbelt. Izzo insists the transco, as envisioned in the application, would not lessen the cost of wheeling tariff pancaking on the system, but would largely combine the existing tariffs into “one big pancake,” he said. Izzo has also questioned the ultimate motivation of a for-profit transco, which Alaska Railbelt Transmission would have been with ATC’s involvement, saying he would worry about costly and unnecessary transmission projects. The Alaska Railbelt Transmission application requested a 10 percent return on equity investments in its projects. Izzo said he believes the conceptual Railbelt Reliability Council cooperative can perform the functions of a transco while also implementing a single set of operating reliability standards in the Railbelt and coordinating the most efficient dispatch in the region. Chugach Electric CEO Lee Thibert similarly said the transco application gave Alaska Railbelt Transmission the authority to dictate long-term system planning and power dispatch; functions he said would be best performed by the reliability council. “Before you had two parallel paths and it was very difficult when you had two things going to the commission and competing against each other. At least with the transco pulled back maybe we can all agree on how we can move forward with the RRC and try to resolve our transmission issues at the same time,” Thibert said in an interview. “I’m hoping it opens the door to try to solve some of those things.” Borgeson noted that significant progress has been made with the utilities agreeing to a single set of reliability standards across the system, which Thibert said was a big deal for protecting their IT networks. “Probably the biggest focus (with reliability) is making sure we all have the same cyber security standards because we’re all interconnected,” Thibert said. There is no definitive timeline for the utilities to settle on the final structure of an RRC, but utility leaders said it would likely have a 13-member governing board with seats for each utility, the Alaska Energy Authority as a transmission asset owner, independent power producers, public experts and an RCA delegate. While they acknowledge the RRC does not inherently solve the issues with wheeling tariffs, its believed the organization would be able to work through those challenges. “Part of the RRC is to make sure we have a common way of dealing with interconnection guidelines (for independent power producers) and then it’s not a burden to move power from one side of the system to the other,” Thibert said. Despite the challenges, the utility leaders insist their relationships — which have been blamed for slowing reform in the past — are still very good. “A couple steps forward and one step back,” Borgeson said, adding that the utilities are already working continuously to provide the lowest cost power. GVEA purchases roughly 30 percent of its power from Southcentral utilities that have access to natural gas-fired generation versus the typically higher cost fuel oil plants the Fairbanks utility operates, according to Borgeson. “We’ll pick up the ball on the transco and we’ll keep moving the ball on the RRC,” he said. ^ Elwood Brehmer can be reached at [email protected]

More quake damage adds to troubles at Port of Alaska

The primary users of Anchorage’s beleaguered port want city officials to delay the first major rehabilitation work at the port in years while port leaders continue to discover earthquake damage to critical infrastructure. The eight companies that make up the informal “Port of Alaska Users Group” sent similar letters to Anchorage Mayor Ethan Berkowitz June 28 and members of the Anchorage Assembly July 12 urging them to stop advancing work to build a new petroleum and cement terminal. They contend the municipality’s plan to start building the roughly $220 million petroleum and cement import terminal, or PCT, without having a way to pay for all of it would leave the city with a “trestle to nowhere,” according to the July 12 letter to the Assembly, and could invite tariff increases that would impact business at Anchorage’s other logistics hub. “Fuel is a highly sensitive commodity and as the 5th busiest air cargo hub in the world, it seems imprudent not to conduct this type of analysis before proceeding down any path that might produce negative fiscal impacts to our fragile Alaskan economy. Ultimately, without knowing what the final cost of the project will be, it is impossible to determine what the appropriate tariff should be to underwrite the project, and by extension, whether the increased tariff is even feasible for the airport customers,” the July 12 letter to the Assembly states. The port user group is comprised of the general cargo shippers Tote Maritime and Matson Inc.; five fuel supplier and distribution companies; and Alaska Basic Industries, which is primarily a cement distributor. The Anchorage Assembly officially changed the name of the city-owned port in 2017 from the Port of Anchorage to the Port of Alaska in an attempt to highlight its importance statewide and possibly drum up support for funding the rebuild. Some sections of the pile-supported docks have been in place since 1961 and have far exceeded their initial 35-year design life. Studies indicate the pile maintenance program can keep the docks open for about another nine years before pervasive corrosion from seawater will start forcing closures. Major construction at the port has been on hold since 2010 after major damage to the sheet pile then being installed to support new docks was discovered. The original port expansion project cost upwards of $300 million but resulted in little usable infrastructure. The Municipality of Anchorage is currently engaged in a lawsuit against the federal Maritime Administration, or MARAD, which oversaw the failed work. The Federal Claims Court judge presiding over the lawsuit is scheduled to visit the port Aug. 1-2. Additional quake damage discovered Port officials stress rebuilding the docks is becoming more and more a time sensitive issue. While the port survived the 7.1 magnitude Nov. 30 earthquake, it didn’t come out of the shaking unscathed, according to port spokesman Jim Jager. He said in an interview that post-earthquake inspections of the already corroded pilings supporting the docks conducted since breakup have shown the port’s two current fuel docks are the facilities most at-risk of failure in another earthquake. This month, port engineers de-rated the load capacity of the Terminal 1 dock adjacent to petroleum, oil and lubricant dock No. 1 because of earthquake damage, according to Jager. Additionally, roughly 20 percent of the pilings under petroleum dock No. 2 have failed, he said, and most of the damage is likely due to the earthquake. “Engineers say that dock is vulnerable to progressive collapse…consequently, the dock is likely to function normally, until it doesn’t. Individual pile failures may not cause the overall dock to fail…until they create a failure that moves from one pile to adjacent piling (think of dominos falling),” Jager added via email. In February, city officials released a concept analysis that indicated the port’s import charges on fuels and cement would have to be increased five-fold or more if the municipality needed to sell $200 million worth of revenue bonds to pay for the new PCT. At the time, Anchorage Municipal Manager Bill Falsey said the city was trying to spread the $60 million it has for the port modernization effort to support preconstruction work on other portions of the project; however, officials have since decided to put that $60 million towards a new PCT. Airport cargo concerns Port users immediately responded to the concept tariffs by stressing the cost increases would certainly have major negative consequences on their business and could also drive air cargo traffic away from Ted Stevens Anchorage International Airport. The Anchorage airport is the fifth-busiest cargo hub in the world mainly because of its position between manufacturers in East Asia and consumers in North America, and that cargo business is a large reason the airport supports 10 percent of the jobs in the city, according to the Anchorage Economic Development Corp. Refueling in Anchorage allows carriers to fill aircraft with more cargo instead of carrying the added fuel that would be needed to reach refueling hubs or destinations to the south and east. However, the economics of the cargo business model rely on a difference of pennies per gallon between hauling more fuel or hauling more cargo, industry experts note. As a result, any tariff change at the port could impact international business at the airport, according to fuel company representatives. The PCT tariff analysis was largely an exercise to elevate the discussion about how the work most everyone agrees needs to happen should be paid for and less a step towards actually implementing large tariff hikes, city officials have said. “We talked to people and we agree, a tariff of that rate would have negative impacts on cargo operations at the airport,” Falsey said during a July 12 Assembly work session on the matter, adding the city will won’t do anything to drive business away from the airport or port, which could end up reducing the tariff revenue to fund port improvements. Still, he noted that some tariff increases on most cargo crossing the Anchorage docks are likely unavoidable as the overall port rehabilitation project continues. Port managers received a $42 million bid last month from Seattle-based Pacific Pile and Marine to build the PCT access trestle and platform next year with cathodic corrosion protection. The bid would leave the city about $100 million short of finishing the PCT, which would still need piping, utilities and mooring dolphins to secure offloading vessels, Falsey said. City officials initially expected the “phase one” PCT work to cost closer to $60 million, and delaying the work would likely push the cost back up, Falsey added. While not ideal, building part of the PCT would give the port a new, seismically resilient “dock” that could be used to offload fuel and cargo if an emergency — such as another major earthquake — rendered the three existing cargo terminals unusable before they are rebuilt, according to Falsey. The Assembly is scheduled to vote on funding the contract July 23. Marathon Petroleum spokesman Casey Sullivan urged the Assembly to reject the PCT construction contract and other major port work until the city has an overall financing plan. Moving ahead without full funding and a more detailed economic impact analysis of tariff increases is a signal of uncertainty to the port’s customers who would still have to plan for the most severe tariff increases possible, he and other representatives of port user companies said. “That (PCT) trestle is good but that trestle doesn’t ultimately fix the port,” said Lev Yampolsky of Petro Star, an Alaska fuel refining company. However, Falsey said in a brief interview that city and port officials have not been able to get specific information from fuel companies engaged in a highly competitive industry as to what level of tariff increases they would be able to absorb. Other Anchorage economic experts have similarly said getting detailed information on what would deter air cargo companies from stopping here is virtually impossible. The municipality is also concerned delaying the work could also hurt future logistics business prospects in Anchorage as companies could see slowing the work at the port as a signal the city has no plan to rebuild the docks before they deteriorate to the point of needing to be closed, he said. According to Falsey, the Assembly needs to approve the contract by about Aug. 1 if the city is going to have the work done next summer to allow Pacific Pile and Marine to order long lead time items such as the steel piles that would support the PCT trestle and platform. Building the PCT to the south of the current docks will also free up port frontage needed when the larger cargo docks are replaced, port officials emphasize. Sullivan and Yampolsky said the user companies have ideas on how to substantially lessen the $1.9 billion cost estimate for the overall port modernization project, and taking the time to develop a new, comprehensive plan would help gain the support of all the stakeholders in the project. That support will be needed to obtain large sums of federal grants or other funding for the work, they said. Falsey and port officials have stressed they will not build a $1.9 billion port; it’s simply unaffordable, and the Assembly has hired a consultant to review the high cost estimate and suggest lower-cost alternatives. That report is due in September and the port users encouraged the Assembly to hold off on any major decisions on the port at least until then. Elwood Brehmer can be reached at [email protected]

Gasline agency laying off 60 percent of staff

The Alaska Gasline Development Corp. is drastically cutting its staffing while it is in the midst of permitting the $43 billion Alaska LNG Project. The state-owned corporation issued a statement to the Journal Wednesday afternoon from Interim President Joe Dubler that reads: “AGDC is restructuring to reflect our primary focus on completing the FERC permitting process to advance the Alaska LNG Project. AGDC will continue to pursue (Federal Energy Regulatory Commission) authorization, expected in June 2020, with an eight-person technical staff plus contract support as needed, and reduce employee headcount by twelve. Completing the permitting process will substantially de-risk Alaska LNG and open the door to a wider range of potential project parties with the broad expertise required to unlock the value and manage the risks associated with a project of this magnitude.” Spokesman Tim Fitzpatrick said Dubler is responsible for staffing at the corporation and the decision was made under his authority. Most of the changes are expected to be complete by the end of July, according to Fitzpatrick. FERC released a draft version of the Alaska LNG Project environmental impact statement June 28. A final EIS is expected next March. Sources within AGDC said Dubler — who took the job in January on an interim basis and has no long-term plans to stay — and Vice President of Program Management Frank Richards will be the only executive-level employees that will be retained full-time. Vice President Fritz Krusen, who briefly served as acting AGDC president in early 2016, will be retained on a contract basis. Cutting back to a staff of eight means the group leading what has the potential to be one of the largest infrastructure projects in the world will be nearly as small as its board of directors, which is comprised of seven individuals. Staffing levels at the corporation have always been low considering the massive scope of the project it is working on and AGDC has relied on contractors and consultants to help complete major tasks. Still, the layoffs mark a complete shift in the state’s pursuit of a gasline project from former Gov. Bill Walker to current Gov. Michael J. Dunleavy. Under Walker, who for decades has touted the economic benefits exporting North Slope natural gas could bring to the state, AGDC accepted control of the Alaska LNG Project from the North Slope producers and worked to find investors and customers while also attempting to expedite the complex pre-construction work for the project. Walker and former AGDC President Keith Meyer regularly stressed a need to have the project start producing LNG in the mid-2020s to meet a global LNG market window of unmet demand in that timeframe. Dunleavy insists the project is too large and complex for the state to manage and has said repeatedly he wants private sector companies — whether the North Slope producers of BP, ConocoPhillips and ExxonMobil or other companies — to partner with the state. AGDC under Walker also signed approximately 15 early-stage agreements with potential Alaska LNG investors and customers, most notably the November 2017 joint development agreement with three large nationalized Chinese corporations. That signing was conducted at a trade ceremony in Beijing in front of President Donald Trump and China President Xi Jinping and at the time seemed to indicate Alaska’s long-awaited gasline was gaining significant momentum. Fitzpatrick said AGDC has a number of confidential agreements with potential customers that remain in effect and some other agreements have been allowed to expire. He would not disclose what entities AGDC still has agreements with or how many preliminary agreements are still active. The cutbacks are not being driven by near-term state financial considerations, according to sources. The timing of the decision was not linked to the governor’s $444 million of budget vetoes to dozens of state programs. AGDC’s roughly $10 million annual operating budget was not subject to a veto from the governor. Fitzpatrick could not provide what the budget savings would be at this point. Sources said the decision to shrink AGDC was made by officials in the governor’s office after significant time was spent reviewing the project. A spokesman for the governor did not immediately respond to questions regarding the layoffs. On May 29, Lt. Gov. Kevin Meyer announced BP and ExxonMobil are contributing $10 million apiece to help the state finish the FERC process. 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 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. Spokespersons for BP Alaska and ExxonMobil could not immediately be reached. AGDC is scheduled to hold its next board of directors meeting Aug. 8 in Anchorage. Elwood Brehmer can be reached at [email protected]

Legislature breaks up over special session location

As legislators continue to posture in Wasilla and Juneau, a small group of them continues analyzing the history, and future, of the Permanent Fund dividend program. Members of the Bicameral Permanent Fund Working Group discussed the pros and cons of varying levels of PFD payments July 8, the result of a “homework assignment” given them shortly after the committee was formed near the end of the first special session. An impasse over the size of this year’s dividend payment has stalled progress on all other outstanding issues this year. Gov. Michael J. Dunleavy and the group of 22 legislators meeting in Wasilla, mostly House Republicans, are demanding the PFD be paid according to the statutory formula — equating to roughly $3,000 per Alaskan — while the majority of the Senate and House in Juneau favors smaller budget cuts that would result in a smaller PFD. While the governor’s $410 million of vetoes to General Fund spending increase the amount of surplus revenue available for dividends when combined with the Legislature’s approximately $280 million of budget reductions, the $1 billion available for PFDs from the Earnings Reserve Account of the $65 billion Permanent Fund is still only sufficient to pay dividends in the $1,600 per person range. Getting to “full,” $3,000 PFDs would still require drawing about $900 million in excess of the 5.25 percent of market value, or POMV, draw cap the Legislature put on appropriations from the fund just last year. As of this writing, the Legislature was scheduled to hold a joint session in Juneau July 10 to vote on overriding some or all of Dunleavy’s 182 line-item budget vetoes. However, with a high supermajority override threshold of 45 of 60 legislators needed to override budget vetoes and roughly a third of legislators committed to staying in Wasilla — where Dunleavy called the special session — it appears the vetoes will stand, at least for now. Republican House Minority Leader Lance Pruitt, R-Anchorage, has said members of his caucus could be open to backfilling some of the vetoed appropriations in the still unfinished capital budget, but that would only happen after the PFD is settled. Rep. Jonathan Kreiss-Tomkins, D-Sitka, who was paired with Sen. Shelley Hughes, R-Palmer, in the Permanent Fund Working Group to examine the consequences of a $3,000 PFD, said other issues aside, being able to put $3,000 in Alaskans’ pockets is “generally a good thing,” but noted in reality there is a “basic tension” between the size of the budget and the PFD that the state continues to struggle with. Kreiss-Tomkins supports more modest budget cuts and a corresponding smaller PFD, while Hughes has consistently supported cutting the budget to free up enough funds to pay full dividends. Still, he said they concur on one important principle. “Of all the available options in looking for fund sources for a $3,000 statutory PFD, we agree that overdrawing or overspending the Permanent Fund itself in excess of the POMV is least desirable or the worst option,” Kreiss-Tomkins said. With that as a backdrop, Hughes said even after the governor’s reductions the state still has an “unsustainable budget at this point” and that’s why she feels the Earnings Reserve has sufficient funds to pay full PFDs. The House Finance Committee also introduced a bill July 8 to pay $1,600 PFDs, but it would likely overdraw from the Earnings Reserve by a relatively small amount — less than $100 million depending on exactly how many recipients are eligible this year. The special Permanent Fund committee is expected to draft a new PFD formula sometime this summer near the end of its work; however, whether that could gain enough support in the Legislature as well as the governor’s blessing remains to be seen. Hughes said if the formula is changed the eligibility requirements should be examined along with the calculation because paying fewer dividends would mean larger per person amounts for those who are eligible. Finance co-chair Sen. Bert Stedman, R-Sitka, who for years has stressed the need to limit spending from the fund to preserve its value for future generations, was tasked with examining the value of a “surplus” PFD with Rep. Kelly Merrick, R-Eagle River. Stedman said paying dividends based on whether or not the state has surplus funds available in a given year is a good place to start working, but he acknowledged that could lead to years without a dividend, something he doesn’t think the Legislature as a whole is interested in. “A little bit of tension, I guess, has some value between the dividend and the operating budget, but I’m personally more inclined to have and more comfortable with a predictable and robotic structure where the dividend is paid out regardless of our current fiscal situation that given year and I guess that would be created when we restructure the formula,” he said. Stedman has supported recalculating the PFD while also saying the current formula — appropriating half of a five-year average of fund income — worked well for more than 30 years but it also was established under very different circumstances; the Permanent Fund was new and had only about $1 billion and there were far fewer Alaskans to receive dividends. Merrick insisted that while the state has a spending cap, it is ineffective and any move towards a surplus PFD would also require drastically lowering that limit. “Unless (the spending cap) is changed somehow government will slowly eat away at those funds and there will be nothing left over,” she said. The Legislature’s budget sent to Dunleavy this year would have allowed for a “surplus PFD” of roughly $900 per person. Finally, Rep. Adam Wool, D-Fairbanks, said in examining a $1,600 PFD, which is what was paid last year, said injecting additional money into the state economy through the dividend is undoubtedly a positive, but the actual economic benefits are mostly anecdotal, as it’s understood that many Alaskans save much of their dividends or spend it in ways that send the money out of Alaska. Instead, he suggested the Legislature might consider linking the PFD in part to the state’s oil revenue in a given year to better tie it to the fiscal reality of the day. Wool said drawing from 20 percent of the state’s oil revenue and 20 percent of the $2.9 billion POMV appropriation would provide for roughly $1,600 PFDs this year. “The Permanent Fund is independent from oil revenue but the State of Alaska isn’t,” he said. Elwood Brehmer can be reached at [email protected]

Agriculture Division grapples with managing vetoes

Decision makers in the Department of Natural Resources are in the same boat as Alaska farmers when it comes to making sense of what Gov. Michael J. Dunleavy’s budget vetoes mean for the state’s agriculture development programs. Nobody seems to know. Division of Agriculture Director David Schade referred questions about how the agency will revamp its operations to Deputy DNR Commissioner Brent Goodrum, who oversees Agriculture and other arms of the department. “We’re in a state of flux,” Schade said, presuming the vetoes are not overridden by the Legislature. DNR spokesman Dan Saddler said department officials are working to implement the reductions and would be able to talk about the changes at a later time. Department commissioners and other agency leaders have mostly been excluded from the budgeting process in the Dunleavy administration. Dunleavy cut the Division of Agriculture budget by more than 60 percent, from approximately $5.1 million to $2 million, on June 28 as part of his $444 million of vetoes to enable the state to pay larger Permanent Fund dividends. The governor’s vetoes followed roughly $280 million in operating budget reductions passed by the Legislature. He chose to eliminate “lower priority programs” in the Division of Agriculture including the Marketing, Agricultural Veterinarian, Farm to Institution, Agriculture Inspections, seed production and pest research programs. Budget documents indicate lower priority programs in the North Latitude Plant Material Center in Palmer will also be cut by more than $1.1 million and $319,000 to administer the state’s active Agriculture Revolving Loan Fund was removed as well. DNR officials told the House Resources Committee in February that the state had 55 loans totaling $7 million in the Agriculture Loan Fund. How the state will oversee what many feel could become a highly successful new crop in Alaska, hemp, is also unclear. The governor vetoed $375,000 of receipt authority, or the ability to accept fee revenue, from the division’s budget; he also struck through the state’s ability to accept $559,000 in federal agriculture development grants and matching funds. Office of Management and Budget documents detailing the reductions explain that “The State’s fiscal reality dictates a reduction in expenditures across all agencies.” Former Gov. Bill Walker signed Senate Bill 6 last year, authorizing the state to develop a pilot project for industrial hemp growers. Since, the state has been working to develop regulations and plans to allow farmers to start growing industrial hemp. The receipt authority in the budget was intended to be for fees the department collected from prospective hemp farmers to get approved for the crop. SB 6 was championed by Palmer Republican Sen. Shelley Hughes, who has largely supported the governor’s plan to drastically cut the budget and state services. Alaska Farm Bureau Executive Director Amy Seitz said she is also trying figure out how the state and its growing agriculture industry will adjust while noting that much of the blocked federal money was for pass-thru federal specialty crop block grants the Division of Agriculture accepts on behalf of Alaska farmers and then distributes. The specialty crop grants are available in some form for “almost everything that’s not livestock,” Seitz said, and they are often used to support value-added crop endeavors. There have already been awardees assigned for this year,” she said of the grants. “My understanding is right now they’re saying those grants are going to have to be sent back to the feds so those projects won’t have funding.” Seitz added that the prospect of an industrial hemp industry was of interest to many farmers. She also wondered how the popular Alaska Grown program will be handled as the $1.5 million marketing section of the division’s budget was reduced by approximately 80 percent. Alaska is one of few states to have a growing agriculture industry. As of 2017, Alaska had 990 farms and had added more than 300 in the previous decade, according to the U.S. Department of Agriculture’s Census of Agriculture. Alaska’s farm product sales brought in $70 million in 2017 as well, according to USDA figures. In June, the Division of Agriculture hosted its first round of business-to-business international trade meetings between Alaska farmers and local food manufacturers and Canadian brokers in conjunction with the Western U.S. Agriculture Trade Association. The state’s membership in the organization helped connect the Canadian buyers with the Alaska producers, participants said. According to Seitz, it’s also unknown whether the state will continue to provide Good Agriculture Practices and Good Handling Practices audits that are a prerequisite for farmers to get their products into many grocery chains. “Are the grocery stores going to be able to buy local products — or who’s going to take that on?” she wondered. She added that the Northern Latitude Plant Material Center has long been the primary location for a wide range of research, such as what species perform best in Alaska in addition to seed cleaning and other services. “I think it’s going to be harder than people realize,” Seitz said. “I’m really concerned that it’s going to hurt.” ^ Elwood Brehmer can be reached at [email protected]

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