Elwood Brehmer

Without Downtown office, Legislature lacks space for Anchorage special session

With the Legislature at a continued impasse over one of his top priorities, Gov. Michael J. Dunleavy has suggested calling a second special session outside of Juneau to deal with the PFD. The Legislature last held a special session outside of Juneau in 2015 at the former Downtown Anchorage Legislative Information Office building. The $44 million, six-story LIO custom-built for the Legislature in 2014 had adequate space and other amenities to hold floor sessions and committee meetings, said Legislative Affairs Agency Executive Director Jessica Geary, but there were significant sound issues at the time. “(Legislators’) main concerns there were sound quality. The walls were not soundproof and they had some problems with recordings,” Geary said. “If you go back and listen to the floor sessions the record is really lacking — so that was one of the biggest concerns and complaints that came up.” The Legislature eventually abandoned that space in 2016 in response to public pressure over spending to cover the $3.3 million annual lease payments the space required, eventually leading EverBank to foreclose on the owners. Legislators also had an opportunity to purchase the building outright for about $30 million, but former Gov. Bill Walker said he would veto the appropriation if they tried. The building is now occupied by the Anchorage Police Department. As an alternative Anchorage LIO space, lawmakers subsequently purchased a Midtown Anchorage office building from Wells Fargo bank for nearly $11.9 million in 2016. Remodeling the building to better suit lawmakers’ needs has brought the cumulative price for the building to approximately $24 million, according to LAA records. Geary said work on the building is ongoing this summer and should be done in August. While the new Anchorage LIO has three committee meeting rooms, it lacks space for the full House and Senate to meet and therefore still won’t be suitable for a special session, according to Geary. “It’s just office space; that’s all it is,” she said. The governor, who hosted a “Restore the PFD” rally June 6 at a Wasilla resort, specifically proposed holding a session at the Wasilla Middle School, where it’s presumed legislators would hear from more Alaskans who support full PFD payments and the governor’s plan for steep spending cuts. However, officials in the Legislative Affairs Agency, which handles business and behind-the-scenes operations for the Legislature, drafted a list at the behest of legislative leaders outlining the complicating issues with holding the session in the school. The agency cited concerns with security, IT networks, a lack of audio and video recording capabilities for committee meetings and floor sessions, and the fact that the governor’s office would control the camera system in the school, which LAA officials concluded “is not appropriate.” “The governor should not have access to security cameras over Legislative space,” the LAA paper states. The most workable places for a special session in Southcentral would be Anchorage’s Egan or Dena’ina convention centers, Geary said. “We could hold floor sessions there. It would take work to get that set up but it is doable because legislators will have their offices and then committee rooms at the LIO,” she added.

Southwest village prepares to harness river in harmony with salmon

A small Southwest Alaska village is trying to integrate the power of an iconic Alaska river into its electric grid without interfering with the millions of salmon that rely on the same water. The Village of Igiugig and Maine-based Ocean Renewable Power Co. are in the midst of a years-long partnership to refine and eventually utilize the company’s RivGen Power System generator in the Kvichak River. The village of about 70 residents sits at the outlet of Iliamna Lake — Alaska’s largest — which feeds the Kvichak that flows another 50 or so miles before emptying into Bristol Bay. The clear waters of the system support some of the largest salmon runs on Earth. Somewhere between 3 million and 7 million sockeye and countless numbers of other salmon pass by Igiugig each year on their way upriver to spawning grounds in Iliamna’s myriad of tributaries. However, the remote location that affords residents the opportunity to live in such a unique ecosystem also comes at a cost that many rural Alaskans are familiar with. Diesel fuel, which is the primary fuel source for power generation, averaged $5.85 cents per gallon last year in Igiugig, according figures compiled by the Alaska Energy Authority. Acting Igiugig Administrator Karl Hill said that fuel is flown into the village in batches of about 3,000 gallons. Those costs translate into residential electrical rates regularly in excess of 90 cents per kilowatt-hour, according to AEA, which the state then subsidizes through the Power Cost Equalization Program to a more manageable effective household rate of around 30 cents per kilowatt-hour. For comparison, recent electric rates in Anchorage were 18 to 20 cents per kilowatt-hour. Power for businesses and most public buildings is not eligible for the PCE funding, which makes the cost of power a major impediment to economic growth across much of Alaska. “We’re looking for any way we can to be more self-sufficient. To have the means to produce our own energy gives us that much more autonomy,” Hill said of the RivGen System. A 35-kilowatt RivGen system, which is 12 feet tall and about 40 feet wide, landed in Igiugig June 6 after being barged across Cook Inlet from Homer to Williamsport, trucked 15 miles up the Williamsport Road to Pile Bay at the east end of Iliamna and finally loaded on a second barge for the final leg of the journey across the length of the massive lake. That followed a May 23 order from the Federal Energy Regulatory Commission that approved a license for a pilot project to run two RivGen units in the Kvichak for 10 years. Sen. Lisa Murkowski, who chairs the Senate Energy and Natural Resources Committee, has supported federal research and grant programs to advance small-scale renewable energy production and integration into small, isolated power grids. According to her office, the Igiugig Village Council is the first Tribal entity in the country to gain federal approval for an in-river power project. “I am so pleased this project will be able to move forward, reducing local diesel consumption and energy prices. Igiugig’s efforts are blazing a trail for marine renewable energy and microgrid solutions around the world — when we prove these technologies can work in rural Alaska, we are proving they can work just about anywhere else on the planet,” Murkowski said in a June 5 statement. According to the FERC license, the single RivGen can produce power at an average annual cost of 78 cents per kilowatt-hour. Company and village officials plan to install the RivGen soon and operate it for up to a year, ORPC project manager Monty Worthington said in an interview from Anchorage just a couple days before he was to leave the city for a summer of working on the system. The lengthy test should prove whether the system can handle its two biggest remaining challenges: big chunks of ice and tiny salmon. Prior late-summer tests of a prototype bottom-dwelling generator indicated through five monitoring cameras that it can coexist with adult salmon and other fish, according to Worthington. “A million-and-a-half sockeye went past the turbines and we saw no adverse impact,” he said. Juvenile salmon, known as smolt, however, also pour out of Iliamna by the tens of millions each spring on their way to the ocean. The sheer numbers of them and the fact that they aren’t as adept as adults at avoiding hazards when in the strong main river current means how the smolt interact with the RivGen unit must be studied closely. As it’s currently designed there is nothing to block fish or other objects from interacting with the RivGen. A large grate to deflect drifting wood or ice could be added, Worthington said, but a screen small enough to deflect smolt would almost certainly disrupt water flow and in-turn the efficiency of the unit. The National Marine Fisheries Service recommended in comments to FERC that the twin-turbine generator be shut down for two weeks during the late May-early June peak of the smolt outmigration. FERC officials are not requiring such a stipulation, but stressed in their order that the interaction be watched closely. Worthington noted that like adult sockeye, the smolt usually stick closer to shore and the surface of the river when on the move. He also compared the leading edge of the five-foot diameter open turbine to a baseball bat, meaning any little fish that swim through it wont get cut by the unit. “They’re better at avoiding than we assume they are and also they just get pushed out of the way by the pressure wave on the front of these (turbines),” Worthington said. Still, a biologist will be on-site continuously during the smolt season to monitor any impacts the RivGen might have on them. “Certainly, if we find out that smolt are getting injured by our device we won’t be operating at that time of year; it’s a no-brainer,” he added. ORPC officials also feel that they will be able to work around ice flows emitting from Iliamna Lake each spring, though the upcoming winter will be the first that the RivGen is in the water. The Kvichak itself is a fairly quick, deep river near the outlet of the lake so it rarely freezes over and the large lake provides unusually stable flows when compared against other large Alaska rivers. Additionally, the chosen installation site is about 15 feet deep, Worthington said, so ice sheets should drift harmlessly over the 12-foot tall RivGen. The site is also immediately downriver from a large shoal that should deflect large chunks of ice. Still, ever more common mid-winter thaws can send ice downriver at unpredictable times and ice jams in a shallow, braided section below the RivGen site could complicate matters, he acknowledged. Keeping the unit in the water and operating year-round is paramount to maximizing the project’s efficiency and driving down its per-kilowatt cost. “It’s a big experiment and we recognize (ice) is probably one of the riskier aspects of the project, but it’s also such an important one,” Worthington said. If it is damaged ORPC will need to devise ways to protect it or pull it from the water easier, he said. If the yearlong test proves successful, the plan is to install a second unit; combined, the two could produce up to 70 kilowatts of electricity and mostly get Igiugig off of diesel-fired power. The village’s powerhouse has 40 kilowatts of generation capacity, according to the FERC license. Village Administrator Hill said the village has plans to purchase large batteries for power storage and is also working with micro-grid developers to better integrate existing small wind turbines into their power system as well. Completely shutting off diesel generation is rarely feasible, as it is needed to mitigate fluctuations in power from variable renewable sources and make up for sudden spikes in demand that — particularly in small isolated communities — can come from a single residence. ORPC believes two fully operable RivGens with the requisite grid upgrades should allow Igiugig to limit its cumulative diesel generation to about four weeks per year, Worthington said. The first unit and several years of shipping, testing and monitoring has been paid in part by federal Department of Energy grants totaling $2.3 million. Those grants required equal private matches for a total project cost of $4.6 million, according to Worthington, who acknowledged it’s a high price for a small village endeavor. “I think they key is this is all a first-build,” he said. “A lot of our construction costs are easily double what even a second unit would be because to build the turbines we had to build molds for them and everything’s sort of like that.” He estimated a second RivGen would cost about $1 million, with costs gradually shrinking for subsequent units. The technology could also eventually be scaled and applied to other river villages and is very applicable to shallow tidal sites near costal communities, he added. Even with another year or two of refinement, Igiugig’s hydrokinetic power project has already been years in the making. ORPC officials first visited the village in 2011 after initially investigating the prospect of testing their technology at the community of Nenana on the banks of the Tanana River south of Fairbanks. Worthington said the appeal of Nenana was that it’s right on the Parks Highway, which would’ve allowed the company to avoid all of the logistical challenges inherent to working in remote Alaska. However, the glacially muddied Tanana didn’t prove cooperative, he said. The dark water made it difficult to monitor fish, debris and even confirm the composition of the river bottom. Meanwhile, Igiugig leaders were starting to seek renewable energy prospects of their own through Alaska Energy Authority programs. “It was clear they really wanted to partner with technology providers to try to do this,” Worthington recalled. “It was an accepting community.” Prototype tests in subsequent years led to development of the latest commercial RivGen model. Hill said the work with ORPC has indeed been a long process, but one that’s necessary to pioneer new technology. “We have a very active village and council — very progressive,” Hill said. “Living next to this wonderful source of power that flows past us 24 hours a day…it’s pretty obvious that if we can harness some of that energy and not harm the salmon and some of the other fish in our area it’s definitely something worthwhile.” Elwood Brehmer can be reached at [email protected]

Southeast metal prospect has major potential

A Southeast Alaska multi-metal prospect has the potential to produce a big payback if developed into a mine largely due to its proximity to established infrastructure, according to an early evaluation of the project. Constantine Metal Resources’ underground Palmer copper-zinc-precious metals prospect north of Haines could generate $266 million in after-tax cash flow despite a projected mine life of just 11 years based on the results of a preliminary economic assessment, or PEA, released by the company June 3. The Palmer project is a joint venture between Vancouver-based Constantine as the majority and Dowa Holdings, a Japanese metal manufacturer. The deposit is adjacent to the Alaska-Canada border and near the Haines Highway about 40 miles northwest of Haines along the Klehani River, which flows into the Chilkat River. It is on a mix of federal mining claims surrounded by land owned by the Alaska Mental Health Trust Authority, which is open for development. If developed as currently envisioned, the Palmer project would be an underground mine that would process up to 3,500 metric tonnes of ore per day, or approximately 12.5 million metric tonnes over the life of the mine. From that, the mine would produce more than 1 billion pounds of zinc, 196 million pounds of copper, 18 million ounces of silver, 91,000 ounces of gold and nearly 2.9 million tonnes of barite, a common industrial mineral, according to Constantine. The mine would cost $278 million to develop and require another $140 million for sustaining capital and reclamation costs for an estimated all-in cost of $418 million. Those costs translate to an operating-capital cost of approximately $65 per tonne with operating income of $92 per tonne of ore, according to the PEA figures. Constantine CEO Garfield MacVeigh said in a corporate release that the PEA is a major milestone for the Palmer project and demonstrates “a high-quality project with strong economics and a progressive, environmentally conscious mine design.” Advanced zinc-copper projects such as Palmer with favorable economics are scarce in North America, MacVeigh said. “What sets the Palmer project apart from its peers is excellent access by paved all-season highway and secondary roads, close proximity to an existing Pacific port ore terminal, reasonable and manageable capital costs, significant district-scale upside for additional mineral resources, and a joint venture that includes a global leader in the zinc smelting business,” he said further. Constantine expects the project would support about 260 full-time jobs during operation. Constantine plans to truck copper and zinc concentrates to the Haines port, where the material would be barged about 15 miles to the deepwater ore terminal in nearby Skagway, which is owned by the Alaska Industrial Development and Export Authority. The barite concentrate would be barged separately from Haines to a rail terminal in Prince Rupert, British Columbia, just south of Ketchikan. Barite is an important industrial mineral in drilling mud for oil and gas wells and has other applications in the medical field. Barite from Palmer would be ready for use and not require additional refinement, according to Constantine. The Palmer deposit currently consists of indicated resources of 539 million pounds of zinc at an average grade of 5.3 percent; 154 million pounds of copper at a 1.5 percent average grade; and 1.1 million tonnes of barite along with gold and silver resources. Inferred resources include more than 1 billion pounds of zinc; 124 million pounds of copper; more than 2.6 million tonnes of barite. According to the PEA, zinc would account for 48 percent of the total value of all the concentrates produced from the Palmer project. Constantine touts Palmer as an environmentally sound project largely due to a design that would eventually store potentially acid-generating rock underground — backfilling mined ore — preventing exposure to rainwater and potential acid leaching. Constantine estimates that 78 percent of the mine tailings would be used as backfill. A portion of the potentially acid-generating waste rock would need to be stored above ground early in the mine’s life until space was available to begin the backfilling underground. “Desulfurized tailings,” accounting for about 15 percent of the total processed material, would permanently be stored above ground, according to the company. However, the Palmer project has detractors. The Chilkat Indian Village of Klukwan and several local conservation groups sued the Bureau of Land Management in December 2017 for not adequately considering the potential impacts of future mine development when approving exploration permits for the project. Alaska U.S. District Court Judge Timothy Burgess rejected the claims in a March 15 ruling that has since been appealed to the U.S. 9th Circuit Court of Appeals. Southeast Alaska Conservation Council staff scientist Guy Archibald said in an interview that the group and others oppose the project because of its location — in the upper reaches of a salmon-bearing watershed — and the omnipresent potential for acid leaching from massive sulfide deposits such as Palmer. Archibald said Constantine’s overall plan to permanently store potentially acid-generating tailings underground is a better plan “on paper” than other traditional mine operations, but he also noted “that even the best laid plans quite often go awry.” Elwood Brehmer can be reached at [email protected]

Legislature passes budget, punts PFD to second special session

Legislators have done their part to at least end the threat of a government shutdown by passing a state operating budget, but what Gov. Michael J. Dunleavy will do in response remains to be seen. The House-Senate budget conference committee resumed meetings June 8 after a three-week hiatus when it became clear the issue holding up everything else — the size of this year’s Permanent Fund dividend checks — could not be resolved in the Senate. The House proceeded to quickly pass the nearly $4.4 billion unrestricted general fund operating budget along caucus lines. In the Senate the budget passed unanimously, with minority Democrats approving the budget with $189 million in cuts in lieu of the governor’s plan for more than $1 billion in reductions. While Senate Republicans touted it as the smallest adjusted operating budget the state has had in 15 years, resulting in a $600 million surplus, House minority Republicans called it “bloated” in a caucus statement. House Minority Leader Lance Pruitt, R-Anchorage, was sharply critical of the fact that the budget does not contain a PFD appropriation. “At this point, it is clear that the House Majority is completely unwilling to have the tough, voter-mandated conversations, and plans to dictate to the people what will happen with the PFD, regardless of what the law says,” Pruitt said. The budget also does not settle the stalemate between legislative leadership and the Dunleavy administration over forward funding of K-12 education, which appears headed for the courts. How exactly that issue will impact school districts preparing for the upcoming year is an open question as well. The House Finance Committee also picked the roughly $200 million unrestricted general fund and mostly non-controversial capital budget back up June 11 and readied it for a subsequent floor vote. Legislation to pay full, roughly $3,000 PFDs according to the statutory calculation died 10-10 in the Senate, exemplifying the split over the issue that crosses party lines. That pushed lawmakers to change course and pass a budget without resolving the PFD to avoid a government shutdown July 1, which is the start of the 2020 state fiscal year. Combined with the operating and capital budgets, paying full PFDs would require a draw on the Permanent Fund Earnings Reserve Account of about $1.5 billion beyond what is allowed by the 5.25 percent of market value, or POMV, structure lawmakers passed just last year. The fiscal 2020 POMV draw is approximately $2.9 billion and House and Senate leaders have been resistant to make additional cash calls on the fund; they contend doing so would set a dangerous precedent and put the long-term value of the $65 billion Permanent Fund at risk. Instead, the Legislature’s budget moves $10.5 billion from the $19 billion Earnings Reserve Account — which is spendable through simple majority votes — into the constitutionally protected corpus of the fund to cover inflation-proofing payments for the next nine years. The Dunleavy administration had proposed a nearly $1 billion inflation-proofing payment for 2020, but the additional transfer could make it more challenging to pay the full dividends, and three years of forgone PFD amounts from 2016-18, that the governor has demanded from legislators. Dunleavy did not issue a customary statement from his office after the Legislature passed the operating budget, but instead tweeted that he would “review and scrutinize” the budget and noted he could veto portions or all of it. “I am absolutely determined to address the budget issues that have haunted #Alaska for years,” Dunleavy tweeted. In an attempt to solve the PFD debacle, legislators approved a House resolution establishing an eight-member Bicameral Permanent Fund Working Group to examine the best path forward for the state in regards not only to PFDs but also the broader fund structure. The working group, which was scheduled to meet for the first time June 12, consists on the House side of majority caucus Reps. Jennifer Johnston, R-Anchorage; Adam Wool, D-Fairbanks; Jonathan Kreiss-Tomkins, D-Sitka; and minority Republican Rep. Kelly Merrick of Eagle River. In the Senate, it is Republican majority Sens. Bert Stedman, R-Sitka; Click Bishop, R-Fairbanks; Shelley Hughes, R-Palmer; and minority Democrat Donny Olson of Golovin. As of this writing, the Permanent Fund Working Group was scheduled to have two meetings to conclude the special session, which ends June 14. Elwood Brehmer can be reached at [email protected]

State awards contract for Medicaid block grant study

Gov. Michael J. Dunleavy’s administration is looking into making Alaska the first state to transform its Medicaid program into a block grant system, but opponents in the Legislature contend it’s an attempt to justify a predetermined outcome. The Department of Health and Social Services on May 29 issued an intent to award a $100,000 contract to Boston-based Public Consulting Group Inc. to analyze the prospect of implementing block grants for federal Medicaid payments, work requirements for Medicaid enrollees, and shifting some Alaska Medicaid recipients to private insurance. The tentative contract calls for Public Consulting to draft a paper by June 30 studying whether or not the initiatives will save the state money, according to the request for proposals for the work. On March 1 Dunleavy sent a letter to President Donald Trump about a number of Alaska-specific policy issues, including Medicaid block grants. “Your Medicaid Administrator, Seema Verma, has urged us to be the first state to receive Medicaid dollars as a block grant. We are eager to do this, but your support of her on this ‘first’ will keep the proper focus and speed on the application,” Dunleavy wrote. The letter followed a meeting the governor and president had while Trump was briefly at Joint Base Elmendorf-Richardson during a refueling stop. State House Democrats wholly denounced the ideas in a letter sent to DHSS Commissioner Adam Crum last month. In it, they argue that a lengthy report done for the state in early 2016 “found that costs of private coverage would be prohibitively high compared to Medicaid coverage,” among other objections. Medicaid would pay insurance costs such as premiums and other out-of-pocket expenses that are typically paid by the insurance recipient. That 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. “Although DHSS’s administrative role and, thus, costs are reduced under this option, DHSS would be responsible for ensuring that the enrollee does not experience costs beyond the allowed Medicaid limits, paying for services not covered by the private coverage benefit plan, and paying co-payments for services paid by the insurer,” the Milliman report states. Milliman Inc., a Seattle-based actuarial and consulting firm, submitted a proposal for the latest study but was not chosen by DHSS officials. DHSS spokesman Clinton Bennett wrote in response to questions about the department’s plans that Public Consulting Group will analyze whether enrolling Medicaid recipients in private insurance is feasible and could lead to overall savings for the state. He noted that “only those with modest health care needs (healthier population) will be eligible for placement in the private market” and the study will identify the parameters of that population. House State Affairs Committee co-chair Rep. Zack Fields, D-Anchorage, said in an interview that Alaska is probably the least likely state for the concepts to work because of the state’s struggling private health insurance market. Premiums in the individual private market are among the highest in the country at hundreds of dollars per month and Alaska is generally regarded as having the highest health care costs in the country; both issues can in part be attributed to the state’s isolation and small population. Also, Premera Blue Cross Blue Shield of Alaska has been the only company offering health insurance on the individual private market in the state since 2017. “The idea that we’d make half-baked decisions with our largest federal stream of investment, which, by the way, is life or death for 215,000 Alaskans that rely on Medicaid health insurance — it’s just crazy,” Fields said. Premera officials declined to comment for this story. The Dunleavy administration initially proposed cutting $225 million to $270 million from the state’s Medicaid program; it’s estimated those state cuts would result in a roughly $480 million corresponding cut to federal Medicaid funds. DHSS officials later said they could achieve approximately $100 million in cuts in the 2020 fiscal year through administrative and regulatory changes, such as cutting provider payments by 5 percent, without legislative action. They also acknowledged the larger cuts first proposed were targets driven by the Office of Management and Budget and not the result of specific policy reforms. Economic analyses done for provider groups found that such cuts would likely result in at least 8,000 job losses in the state. Health care — buoyed by federal Medicaid spending — is the one major industry that has continued to grow through Alaska’s three-plus year recession, according to state economists. 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. The state savings is largely attributable to Senate Bill 74 passed in 2016, which started long-term efforts to reduce overall Medicaid costs and utilization, but also shifted as many eligible costs as legislators could find to the federal government. Fields said the Medicaid reform found in SB 74 is an example of “prudent” policymaking. “When there were studies in the past the administrations and the Legislature did it right and they took the time to make sure they understood the implications of different policy decisions and if the new administration wants to go in a different direction in terms of Medicaid they need to base it on actual information and legitimate studies and not just kind of create an excuse for them to do something they’ve predetermined to do,” Fields said. Block grants for Medicaid have long been a policy favored by many Republicans in Congress as a way to rein in spending, but there has never been enough broad support to make the change. Under the concept, the federal Centers for Medicare and Medicaid Services, or CMS, would issue a lump sum for Medicaid to Alaska each year, and it would be up to the state to keep spending within that amount or cover additional expenses. DHSS spokesman Bennett said via email that the department would need a Section 1115 demonstration waiver from CMS to shift enrollees to private insurance and it’s unclear whether Congress would need to change federal Medicaid laws to allow for block grants. “CMS will need to provide official guidance on (block grants) before state are fully able to consider this approach to funding for state Medicaid programs,” Bennett wrote. Fields said limiting health care for Medicaid recipients — which he sees as a likely outcome of instituting a block grants — would simply push more people back to receiving more care through costly and inefficient emergency room visits that are generally seen as an overall cost driver in the health care system. He also pointed to a May 1 Legislative Legal Services opinion that concludes block grants for the purpose of cost savings would likely be illegal if done through a 1115 demonstration waiver. Legislative attorney Marie Marx wrote while citing prior cases in Arkansas and Kentucky that a cost-focused waiver would likely be invalidated by federal courts because it wouldn’t further the primary mission of Medicaid laws, which is to provide medical coverage to needy populations. “I think it’s critical to look at every opportunity to make the health care system more efficient and the Legislature and previous administration’s have been doing that,” Fields said. “My objection is actually to abandoning reform, which is what this effort represents.” Elwood Brehmer can be reached at [email protected]

Sullivan wants new icebreaker focused on Arctic, not McMurdo

The U.S. Coast Guard is on track to have another icebreaker in five years, but how much time the vessel will spend in the Arctic is open question. Currently, the country’s only heavy icebreaker — the 43 year-old Polar Star — does its work on the other end of the world, returning to its homeport of Seattle each summer for maintenance and repairs. It breaks ice and escorts supply vessels to access the National Science Foundation’s McMurdo Station research center in Antarctica. NSF spokesman Peter West said via email that the 399-foot Polar Star typically starts the trip south shortly after Thanksgiving each year and returns around mid-March from the roughly 11,000-mile roundtrip voyage. NSF officials anticipate the new 460-foot Polar-class icebreaker will take over the Polar Star’s Antarctic research duties once it is ready, according to West. “By Presidential Memorandum, the NSF is empowered to reach out to other agencies for cost reimbursable services in support of the (U.S. Antarctic Program, or USAP),” he wrote. “The USGS has the responsibility for the nation’s icebreaking and is committed to the McMurdo Station breakout mission on an annual basis for the foreseeable future.” Sen. Dan Sullivan said in a meeting with the Journal and Anchorage Daily News on May 28 that the Antarctic policy will likely shift the future icebreaker away from the Arctic-focused missions it should be utilized for. “I think we’re too focused on Antarctica and not focused on our own sovereign interests here,” Sullivan said. The policies directing Antarctic support from the Coast Guard are ones he hopes to change, Sullivan said. “I write the Coast Guard bill. I chair that subcommittee; we’ll see,” he said. Sullivan chairs the Security Subcommittee of the Senate Commerce, Science and Transportation panel. Coast Guard spokesman NyxoLyno Cangemi wrote in response to questions that the Polar Star escorted one cargo ship to the McMurdo Station last year and in 2020 there will be two cargo vessels and one tanker for the icebreaker to escort. The Polar Star does not currently conduct Arctic missions. Presidential Memorandum 6646 issued in 1982 by former President Ronald Reagan directs agencies to support the U.S. Antarctic Program, either directly or through logistics and transportation support. The budget bill passed in February appropriated $655 million to fully-fund one Polar security cutter, or heavy icebreaker, and $20 million for long-lead item items to prepare for building a second. On April 23 the Department of the Navy awarded a contract to Mississippi shipyard VT Halter Marine for building the vessels. The first is expected to be ready in 2024, and, if funded, the second coming a year later and a third to be delivered in 2027. The 2018 National Defense Authorization Act approved construction of up to six heavy icebreakers, but Congress still has to appropriate the funding for building most of them. Alaska’s congressional delegation and numerous Arctic policy experts have stressed the need for the U.S. to upgrade its icebreaking capability to keep up with many other countries — notably Russia and China — that are preparing to have a large presence in Arctic waters as sea ice continues to shrink each year. Cangemi noted other laws compel the Coast Guard to generally support scientific research and the agency “is fully committed to supporting the USAP mission until directed otherwise. Diverting USCG resources, specifically, Polar Star, away from the Antarctic mission would require an order from the White House,” he wrote. This year, the NSF reimbursed the Coast Guard $49,311 per day for use of the Polar Star. The Coast Guard was reimbursed nearly $33,000 per day for use of the medium-duty icebreaker Healy, which supports Arctic research, according to Cangemi. The Polar Star had a fire in its garbage incinerator while on the McMurdo support mission in February; the incident was contained and it is now back in Seattle for repairs. The icebreakers are part of a larger nationwide effort to recapitalize the Coast Guard with new vessels and aircraft. Sullivan noted that the Coast Guard is in the process of adding four medium-sized fast response cutters to Alaska bases — two in Kodiak, one in Seward and one in Sitka — in addition to the two already based in Ketchikan. Additional patrol vessels will be stationed in Petersburg and Juneau as well, according to an April 2018 letter to Sullivan from former Coast Guard Commandant Adm. Paul Zukunft. Elwood Brehmer can be reached at [email protected]

Senate stalls over PFD amount

The clock is ticking towards important deadlines but legislators remain stalled over the size of this year’s Permanent Fund dividend checks. Senators rejected the latest attempt to break the logjam with a compromise amount June 4 with just 10 days remaining in the special session; they also failed to pass a full, roughly $3,000 per person PFD. Finance Committee co-chair Sen. Bert Stedman, R-Sitka, presented the Rules Committee with a proposal on June 3 to pay $1,600 dividends — equal to last year — with a mix of money totaling just more than $1 billion from the General Fund, Statutory Budget Reserve and the Higher Education Investment Fund. The bill was quickly advanced to the Senate floor despite facing clear bipartisan opposition. Sen. Shelley Hughes, R-Palmer, immediately introduced an amendment to increase the PFD amount to equal the statutorily calculated amount of more than $1.9 billion, or about $3,000 per Alaskan, coming from the Permanent Fund’s Earnings Reserve Account, which holds about $19 billion of the roughly $64 billion fund value and is accessible by a simply majority vote. Hughes and others said Stedman’s proposal fundamentally changed the PFD by drawing it from sources other than the fund. Stedman and fellow Finance co-chair Sen. Natasha von Imhof, R-Anchorage, have been among the most ardent opponents to appropriating from the fund in excess of the 5.25 percent of market value, or POMV, draw passed just last year. Doing so would set the dangerous precedent of spending above a sustainable annual amount and could very well lead to the long-term degradation of the fund’s value, they stress. “We need to get away from the ‘me-me’ generation attitude and look to the future,” Stedman said on the Senate floor. “I think protecting the corpus of the Permanent Fund exceeds the benefit in any year of a dividend.” Hughes said her amendment, which passed 10-8, would not have to overdraw the Permanent Fund if the Finance co-chairs would agree to adjust the funding sources in the budget to make it jive with paying a collective $1.9 billion PFD from the Earnings Reserve as residents expect. “I get the math but right now trust is more important,” said Hughes, referring to the belief that the public does not trust lawmakers to make the appropriate decisions after three years of deviating from the PFD formula set in law amid large and ongoing state budget deficits. Former Gov. Bill Walker vetoed half of the PFD appropriation in 2016 in an action that was eventually upheld by the Supreme Court, and the Legislature followed that precedent in 2017 and 2018 to ignore the statutory formula by setting the dividend amount at $1,100 and $1,600, respectively. Stedman noted that a formula-funded PFD would mean violating the POMV statute, a fact many legislators gloss over. “Frankly, we’re running out of liquidity and room to maneuver so something’s got to give,” he said. The fiscal year 2020 POMV draw will be roughly $2.9 billion. Anchorage Republican Sen. Chris Birch, who unsuccessfully proposed an amendment to pay the roughly $900 per person PFDs that would be available with a balanced budget under the POMV draw, called Hughes’ proposal “the height of big spending.” He emphasized that Alaskans receive the benefits of their collectively owned resources through government services provided without personal taxes, not just the PFD. “This ($3,000) dividend erodes public confidence in our ability to protect the Permanent Fund,” Birch said. Von Imhof insisted that making continued draws on the Fund equal to what Hughes proposed would drain the Earnings Reserve — the spendable portion of the Permanent Fund that proponents of a full PFD note currently has nearly $19 billion — by 2025. Gov. Dunleavy issued a statement June 3 in response to Stedman’s proposal in which he promised to veto the bill and said, “it would kill the Permanent Fund Dividend as we know it.” The governor has said any change to the PFD should only be made after a public vote on the plan. While there were enough votes to amend Stedman’s bill on the Floor, which requires a majority of the senators present, there were not enough votes to pass it to the House, which requires 11 votes, or a majority of the full body. That’s because Sens. Tom Begich, D-Anchorage, and Mike Shower, R-Wasilla, were excused from voting. Shower, who Walker appointed in early 2018 to replace then-senator, now Gov. Michael J. Dunleavy in the Senate and was elected to a full term last fall, said via social June 1 media that he has used up all of his personal leave at his primary job and would have to be excused from much of the remainder of the special session, which ends June 14. Shower is a pilot for FedEx. The June 4 floor debate exemplified the split in Senate leadership over the PFD, as Senate President Cathy Giessel and the co-chairs of the Finance Committee voted against Hughes’ amendment while current Senate Majority Leader Mia Costello, R-Anchorage, supported it. “The dividend was created to protect greedy politicians from spending the people’s fund,” Costello said, adding she is open to discussing a new PFD formula, but the historical formula should be followed until it is changed. Bills to change the formula in both the House and Senate were soundly rejected by the public during testimony earlier in the year. Where lawmakers go from here is unclear. The House Majority coalition has agreed to a less-than-full PFD to avoid overdrawing the Permanent Fund or again dipping into savings accounts, but the Senate is split on the issue while Dunleavy continues to demand a full PFD with the threat of budget vetoes looming if the Legislature doesn’t send him one. House Speaker Bryce Edgmon, I-Dillingham, said in a statement after the Senate happenings that the Legislature needs to pass the operating budget that is largely agreed upon to avoid a government shutdown July 1. Layoff notices are also expected to go out to state employees June 14 if the Legislature doesn’t pass the budget by then. “Today’s vote in the Senate perfectly illustrates why an operating budget has not yet been enacted: debate over the amount of this year’s Permanent Fund Dividend is consuming the Legislature,” Edgmon said June 4. “This is why we believe the Legislature should first pass a responsible budget to provide students, elders, and business leaders certainty in the critical services they rely on. Then we can focus on the many important questions surrounding the future of the Permanent Fund.” The House also has yet to pass the capital budget, but that could be done after July 1, as has been done in recent years. Elwood Brehmer can be reached at [email protected]

BP, ExxonMobil commit $10M apiece to Alaska LNG

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

Legislature preps for lawsuit against Dunleavy

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

Permanent Fund gains 6.48 percent in Q3

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

Oil Search gets federal approval for Nanushuk project

The company working on one of Alaska’s largest oil prospects in decades now has the key federal authorization to develop the project. Oil Search Ltd. announced Thursday that it has received a favorable record of decision from the U.S. Army Corps of Engineers on the environmental impact statement, or EIS, for its Nanushuk oil project in the Pikka Unit on the central North Slope. The record of decision, signed May 14, marks the end of nearly four years of study on the roughly $5 billion project, which has the potential to produce upwards of 120,000 barrels of oil per day at its peak. Peter Botten, managing director of the Papua New Guinea-based producer said in a formal statement that two appraisal wells the company drilled last winter into the southern portion of Pikka reinforce earlier expectations that the oil available for the project should allow for peak production of at least the long-held estimate of 120,000 barrels per day. The trans-Alaska Pipeline System, commonly known as TAPS, is handling about 500,000 barrels of oil per day this year. North Slope production peaked in the late 1980s at approximately 2 million barrels per day. The project is also expected to support more than 1,000 drilling and operations jobs and “several thousand direct construction jobs,” said Oil Search Alaska President Keiran Wulff, who added in a formal statement that the company “will make every effort to work with companies located within the state of Alaska to maximize local hire.” Oil Search is planning a busy 2019-20 winter season with additional drilling work and the start of laying gravel for the project’s future roads and pads, according to Botten. “We remain very excited about the opportunities for Oil Search in Alaska and are looking forward to making material contributions to the state and the local communities, while also delivering value for Oil Search shareholders,” he said. The company reached a deal with Armstrong Energy in October 2017 to buy into Pikka and take over as the project operator for $400 million. Wulff said last fall it planned to exercise a $450 million option to fully buy out Armstrong from the project this year. An Oil Search Alaska spokeswoman said the buy out is on schedule to be completed by the June 30 deadline set as part of the initial deal. Spanish oil major Repsol is also a 49 percent owner in Pikka. While official estimates are more conservative, Armstrong Energy CEO Bill Armstrong has consistently said he believes more than 1 billion barrels can be produced from the Pikka Unit. First oil production is expected in late 2023, Wulff has said. Most of the oil would come from the shallow, conventional Nanushuk formation. It has been the source for smaller nearby discoveries by ConocoPhillips as well as Conoco’s Willow project in the National Petroleum Reserve-Alaska, which is similar in scale to Pikka but a couple years behind in the development process. The Corps of Engineers ultimately chose Oil Search’s preferred development option, which differed from the plan Armstrong initially submitted for its Clean Water Act wetlands fill permit. Wulff noted in a company release that Oil Search changed the plan at the behest of residents of the nearby Native Village of Nuiqsut, who use the Colville River Delta where the project is located for subsistence harvests. The approved plan moves a drill site near the Colville further from the river; realigns some north-south roads to interfere less with east-west migrating caribou; and narrows roads from up to 38 feet wide to 32 feet among other revisions. The changes will also result in a 22-acre reduction to impacted wetlands compared to the original plan, according to the corps. Overall, the project will fill 266 acres of wetlands, the EIS states. “We are committed to close collaboration with the people and organizations of Nuiqsut and neighboring communities to ensure our activities in the field are conducted in a sensitive and respectful manner,” Wulff said. Elwood Brehmer can be reached at [email protected]

State still working with BP, ExxonMobil to refine AK LNG economics

New conclusions regarding the viability of the $43 billion Alaska LNG Project are still several weeks away from being made public, according to officials from the state agency leading the work. Interim Alaska Gasline Development Corp. President Joe Dubler said the state, BP and ExxonMobil have “preliminary answers” to the competitive assessment they are doing of the Alaska LNG Project and those initial results are being further vetted and analyzed before final conclusions are released. AGDC announced March 8 it had signed a memorandum of understanding with BP and ExxonMobil to assist the state corporation in finding ways to bring project costs down and get it through the federal regulatory process as smoothly as possible. Brett Huber, a senior advisor to Gov. Michael J. Dunleavy, said March 14 that AGDC, in consultation with the producer companies and the state Revenue Department would be conducting a 60-day review of the project to determine the state’s path forward. “We’ve agreed on inputs; we’ve agreed on the mechanics. So we’re using that model to finalize the future of Alaska LNG and what we think the competitive prospects are for the project,” Dubler said during AGDC’s May 22 board of directors meeting. Dunleavy has long been critical of former Gov. Bill Walker’s plan for a state-led Alaska LNG Project. He made it clear soon after being elected last fall that his administration would slow the pace of the project and try to bring the major oil companies back into the fold. In 2016, the international energy consulting firm Wood Mackenzie concluded the Alaska LNG Project likely wasn’t economic if developed by Alaska’s major producers, as first envisioned, in part because of the high internal return requirements oil companies typically have. However, a state-led project with federal tax exemptions could be viable, Wood Mackenzie said at the time. BP and ExxonMobil have major interests in seeing a successful Alaska LNG Project come to fruition. They combined to invest upwards of $4 billion between 2012 and 2016 to develop the North Slope Point Thomson natural gas field, which would be one of the main sources of gas for the project; Prudhoe Bay is the other. They also hold collective rights to approximately 70 percent — not counting the state’s royalty stake — of the 35 trillion cubic feet of gas expected to be available for sale through the project. The companies also signed separate and confidential gas sales precedent agreements with AGDC last year that outline the terms — including price — under which they would sell gas into the project. AGDC and the companies are also revisiting the $43 billion cost estimate, which is about three years old, to see if technological advancements and market conditions could bring it down. Spokesman Jesse Carlstrom said via email that potential cost savings have been identified primarily in the construction of the facilities for the project. Approximately $9 billion of the total project estimate is a contingency for cost overruns. Dubler added that corporation leaders who attended the LNG2019 in Shanghai in early April met with LNG shippers, investors, builders and customers that could be involved in Alaska LNG. He said the prospective participants were comfortable with the state’s new plan to slow the project and not start construction as soon as the Alaska LNG environmental impact statement is finished, likely in mid-2020. “We’re trying to find potential partners to get the state out of the driver’s seat and get other people in,” Dubler said. Officials from the governor’s office along with Natural Resources Commissioner Corri Feige and Revenue Commissioner Bruce Tangeman are planning a trip to China next month to discuss the future of the state’s role in the project with officials from Sinopec, the Bank of China and China Investment Corp., according to Dubler. The state-owned oil giant and financial companies signed a nonbinding joint development agreement with AGDC in November 2017 to advance the prospect of financing up to 75 percent of the project in exchange up to 75 percent of the LNG it produces. LNG exports to China have declined dramatically this year after retaliatory tariffs were imposed and are now scheduled to increase from 10 percent to 25 percent on June 1. Dubler reiterated that the administration feels a 75 percent stake in the project is too much for one investor and wants to spread potential investment more broadly. “We think that once we get the (Federal Energy Regulatory Commission) permitting completed it will open up the door for a lot more different types of firms and industries looking to invest in this project,” he said. FERC is scheduled to release the draft Alaska LNG environmental impact statement, or EIS, next month. AGDC Program Management Vice President said during the meeting that the corporation is anticipating a 90-day public comment period for the draft document, that will distill the roughly 150,000 pages of environmental, socioeconomic, and engineering data AGDC has submitted to FERC into a roughly 4,000-page EIS. Elwood Brehmer can be reached at [email protected]

Hilcorp lone Cook Inlet bidder for third straight year

Hilcorp Energy was the lone bidder in the State of Alaska’s annual Cook Inlet basin oil and gas lease sale for the third consecutive year. The Houston-based independent spent $190,350 on three lease tracts totaling 10,286 acres in the sale held Wednesday morning in Anchorage, according to the Division of Oil and Gas. Hilcorp has been the predominant oil and natural gas producer in Cook Inlet since purchasing significant assets from Marathon Oil in 2012. “We are pleased to see bid activity in the Cook Inlet lease sale,” Deputy Natural Resources Commissioner Sara Longan said in a prepared statement. “We recognize the focus of investment has been on the North Slope in recent years. Nevertheless, significant investment is made to sustain current Cook Inlet production, while exploration activities continue to inform and support future development.” The Cook Inlet sales have been quiet for several years. In 2016 the state received no lease bids for its original oil basin for the first time and industry representatives at the time largely blamed the state’s plans to curtail its tax credit program for exploration and development work. State officials note most of the leases covering the prospective areas in and around the Inlet are already leased. As Longan highlighted the recent North Slope sales, held each fall, have been some of the most lucrative in terms of dollars bid in the history of the state’s regular oil and gas lease sale program, with companies cumulatively spending upwards of $35 million in a single sale to acquire exploration acreage. Two of the leases Hilcorp acquired Wednesday are onshore tracts on the southern Kenai Peninsula near Anchor Point and BlueCrest Energy’s Cosmopolitan oil field; the third is near Trading Bay in the central portion of the Inlet where most of the offshore development has occurred.   Elwood Brehmer can be reached at [email protected]

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

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

Battle over purse power ensnares education

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

Bids sought for 2020 work at Port of Alaska

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

Cook Inlet independent develops new drilling to reach oil

BlueCrest Energy is drilling from the bottom up to reach oil offshore in Cook Inlet. Benjamin Johnson, CEO of the small Texas-based independent, told members of the state House Resources Committee May 1 that the company has developed new long-range drilling techniques with lower costs to access the oil. BlueCrest is developing the Cosmopolitan oil and gas field near Anchor Point on the southern Kenai Peninsula. The Cosmo field has long been known to hold significant resources but development of Cosmo has been a slow process. A prior owner drilled the first exploration well in 2001. “We know for a fact that we have about half a billion barrels of oil in the ground in the field, but what we don’t know is how much of that oil we’re going to get out of the ground,” Johnson said to legislators. The Cosmo oil reservoir is relatively shallow — down to about 7,000 feet — and about three miles offshore so drilling is being done from an onshore pad. The long, angled wells have been drilled to upwards of 30,000 feet, according to Johnson, using what he often notes is currently the most powerful drill rig in Alaska. BlueCrest began producing small amounts of oil from the original well in 2016 and since has drilled another 11 wells into the field, he said. Company leaders initially planned to tap Cosmo with a series of wells drilled about 800 feet apart. Each of those wells were to be fractured once at the end to encourage oil to flow through the multiple layers of the reservoir and into the wellbore, which is a common practice to produce oil from thick, layered fields, Johnson said in an interview. However, fracking is expensive and inexact, as it’s difficult to control the fractures at the end of the well. That led the company’s drilling experts and consultants to theorize about new ways to drill into Cosmo by fully utilizing the capabilities of BlueCrest’s rig. Johnson said the drillers were very successful at steering the rig to drill pretty much wherever they wanted and it occurred to BlueCrest leaders that they could probably drill through the layers of the reservoir from underneath the oil. The technique utilizes the now common practice of drilling multiple sidetrack wells off of a main wellbore; but those sidetrack wells are usually horizontal wells targeting a specific layer in a reservoir. “We weren’t sure how it would work, how successful it would be but it turned out that it has been successful. We’ve got good wells and we were able to replicate it over and over,” he said. The Cosmo field also has a significant natural gas cap above the oil. It’s believed developing the gas would require an offshore drilling platform. The “fishbone” wells allow BlueCrest to punch numerous holes into Cosmo with fewer main wellbores and without fracking. By drilling up through the layers the company is “drilling the fractures,” Johnson described. The technique provides the same penetration as if the wells were being drilled from the surface every 800 feet. “To our knowledge we’ve never seen anybody drill vertically but we’ve been able to do it ourselves,” he said. While company leaders and state regulators stressed the fracking company officials originally planned to conduct was environmentally safe, many residents of the area expressed concerns when BlueCrest was seeking drilling permits that it could impact marine life and possibly groundwater. “The rock is very good; that’s the other thing that makes this work is our rock doesn’t cave in,” Johnson added. “Other places, if the rock is not consolidated enough the formation would cave in and that would be a problem.” The fishbone wells have increased oil production at Cosmo from a few hundred barrels per day in 2016 to between 1,800 to 2,000 barrels per day now. Now BlueCrest leaders are looking to expand on the bottom up fishbone technique in up to 20 more wells by splitting the main well into three spines, each with its own fishbone ribs for what they are calling a “trident fishbone,” according to Johnson. “It makes it faster, more efficient, less cost and it improves the economics to try to pay for these wells,” he said. Over the next year Johnson said oil production could reach the 3,000 to 4,000 barrels per day range. BlueCrest is also likely to eventually add injection wells to maintain pressure in the oil reservoir. Elwood Brehmer can be reached at [email protected]

PIP Printing marks 40 years with SBA award

Some people don’t find a lifelong career because of an intense calling to a specific field. They pursue happiness instead by avoiding what they don’t want to do: work for somebody else. That was the case for John Tatham, who, along with his wife Jan and her sister Shelley Bramstedt started Anchorage’s PIP Printing of Alaska nearly 40 years ago. The trio was recognized earlier this month as the Alaska Small Business Persons of the Year by the U.S. Small Business Administration. “I didn’t have printer’s ink in my veins or anything,” John Tatham said. “I just wanted to be in business for myself. I didn’t have any money, so I just starting casting around for something to do.” A college friend of John’s knew the owner of the PIP corporate franchise at the time and connected him with John, who inquired in the 1970s about opening a store in Anchorage. However, they were told Anchorage was too remote to justify a store, Jan recalled. That lasted for about nine months until John got a call from company officials asking if they were still interested. They said yes and proceeded to grow their printing shop from the three of them to a total of 38 employees today. “We started with just copy machines and one press,” Jan said. Today, PIP offers traditional printing services, vehicle wrapping, design and virtually every type of sign imaginable. John acknowledged during a tour of the Third Avenue complex they’ve been in for 30 years that the printing portion of the business is contracting. He expects the future of the business is in its sign shop. “Nothing ever really goes away but it does shrink and force you to change your business model,” he said. Early on, the trio managed three stores at the behest of corporate leaders who felt more storefronts was the best way to grow the business. They felt that was inefficient and instead consolidated to their current location and developed an outside sales staff to expand. Jan said the freedom to make their own business decisions was a primary reason for wanting to start a PIP franchise. John noted that PIP corporate liked the idea of outside sales personnel so much they adopted it into the company’s business plan. “We’ve done a couple innovative things like that that put us on the map with the franchise,” he added. PIP President Richard Lowe said in a release recognizing the three that he’s not surprised they earned the award from the SBA. “They invest heavily in technology to support their customers. They have an excellent team and over 40 years of experience in the marketing, signs and print industry. We are very proud of their accomplishment,” Lowe said. Jan said their success started with a $100,000 loan underwritten by the SBA that allowed them to open the business. She said they couldn’t get financed through a private bank because they simply didn’t have a track record in business. “When you don’t have it and you need it, it is huge and the SBA was there for us when we needed them,” John added. SBA Alaska economic development advisor Kimberlee Hayward wrote via email that the PIP group was selected because they are downright great business owners. PIP offers retirement benefits, health insurance and bonuses not provided by many small businesses, Hayward said. Additionally, a large portion of their workforce has been with them for up to 30 years and the company has a great reputation amongst its customers. They are also celebrating their 40th year in a challenging line of work, Hayward noted. “This is a huge feat as the industry they are in has seen huge changes due to technology. They have successfully reinvented themselves and rolled with the times,” Hayward said. SBA Regional Administrator Jeremy Field said after a tour of PIP that what’s particularly impressive about the operation is how responsive they have been to their clients’ needs, which he emphasized is common among successful entrepreneurs. Honoring people who have made the most of the help the SBA was able to offer them — whether loans or counseling or something else — and be a positive force in their community is a highlight of his job, Field said. “It’s not like we’re in the Constitution; we’re not here to defend the country from invaders, but the value that the SBA brings…you can’t quantify it because it gives opportunities to business people that might not otherwise have it,” he said. Elwood Brehmer can be reached at [email protected]

Resource potential expands at Alaska graphite prospect

The potential of a unique Western Alaska mineral deposit keeps growing as its developers inch closer to making it a mine. Stan Foo, chief operating officer of Graphite One Inc., told a gathering of the Alaska Support Industry Alliance on May 9 in Anchorage that infill drilling done last year at the company’s Graphite Creek prospect on the Seward Peninsula helped significantly increase the resource estimates for the deposit. “We’re very excited about the improvements we made. We increased the resource by about 14 percent last year,” Foo said. Located on the northern face of the Kigluaik Mountains about 40 miles north of Nome, the Graphite Creek deposit holds measured and indicated resources estimated at nearly 11 million metric tons of ore at an average grade of about 8 percent graphite. The inferred resource is now at approximately 92 million metric tons of ore at 8 percent graphite, a 29 percent increase from figures released in a June 2017 preliminary economic assessment of the project. Overall, Graphite One now believes the deposit could hold more than 7.3 million metric tons of graphite, according to company filings. Foo said some areas of the deposit are more than 20 percent graphite and chunks of the mineral are scattered on the ground in the exploration area. “Some of this graphite is so continuous it looks like an oversized pencil lead when you see the core box (drilling samples),” he said. “It’s a very prominent mineral in the area.” Formerly Graphite One Resources Inc., the company recently dropped “Resources” so its name would better reflect plans to become an integrated graphite producer and manufacturer, instead of being solely a mine operator, according to Foo. Small-scale mining took place in the early 1900s but the area has mostly gone undeveloped since. Graphite One leaders envision a mine that would be much larger than what was done in the area previously, but would still be fairly small by today’s standards, Foo said. Current plans are for mining about 1 million tonnes of ore per year, which would be distilled at an on-site processing plant into about 60,000 tonnes of 95 percent graphite concentrate. The rough concentrate would then be shipped to a purification plant the company hopes to develop somewhere in the Pacific Northwest, where it would be refined into several types of more than 99 percent pure graphite concentrate. Graphite One partnered with the Alaska Industrial Development and Export Authority in 2017 to analyze the prospect of siting the purification plant in Alaska; however, access to lower-cost power in the Pacific Northwest drove the decision to site the plant further south, according to Foo. Overall development cost for the mine and processing plant was pegged at $233 million in a 2017 preliminary economic analysis of the project. The purification-manufacturing plant would cost another $130 million. Full development would also require about 270 employees at the mine, according to the PEA. The mine itself would be a relatively small open-pit operation, Foo said, and the ore would be processed using basic flotation methods. Other Graphite One officials have characterized the prospective mine as an “oversized gravel pit,” as there is no need for the chemical leaching processes commonly found at metal mines. The Graphite Creek deposit contains four types of graphite — a rarity — which led Graphite One to coin the term “STAX” graphite for its spherical, thin flake, aggregate flake, and expanded flake graphite structures, Foo said. The various types of graphite each have characteristics that make them suitable for different applications, but demand for the mineral these days mostly comes from lithium ion battery makers for use in electric vehicles and other high-stress battery applications. “These are all naturally occurring qualities of this deposit, which makes it very unique and the (U.S. Geological Survey) will be studying our deposit this year to determine exactly why this occurrence has these qualities and can we find others in the United States,” he said. He also noted that lithium ion batteries have 10 to 30 times more graphite than lithium. “We like to think they should be called graphite ion batteries. You talk to the cobalt guys; they’d like them to be called cobalt ion,” Foo quipped. In addition to being a primary component for modern energy storage, graphite has long been a popular dry mechanical lubricant. Its resistance to heat also makes it useful in high-temperature applications and its strength and flexibility make it the go-to material for fishing rods and many other uses — in addition to pencils. If developed, Graphite Creek would be the sole domestic source of graphite. China currently controls most of the world’s supply and graphite is on the U.S. Geological Survey’s critical minerals list as a strategically important material for which the country relies on imports. This year, the company will continue its resource evaluation and environmental baseline data collection work while also conducting a pre-feasibility study to evaluate the viability of the project in more detail, Foo said. He added that environmental permitting could be “very straightforward” and suggested the project could warrant a simpler environmental assessment — avoiding the rigorous environmental impact statement process — depending on the U.S. Army Corps of Engineers’ determination on the likely impacts to wetlands. If it all goes as planned, Foo said Graphite One could be turning ground in about four years. Elwood Brehmer can be reached at [email protected]

Legislature, RCA press utilities to coordinate as talks stall

The legislative session is winding down but work continues on efforts to compel the six Railbelt electric utilities to act more as one. The House Energy Committee introduced legislation May 3 to give the Regulatory Commission of Alaska the authority to enforce the standards of an electric reliability organization and jurisdiction over some utilities’ large capital decisions. House Bill 151 comes just as the RCA is preparing to send lawmakers a progress report on the utilities’ current voluntary efforts to pool generation capacity for fuel efficiency and cost savings to ratepayers, which the five-member commission says have stalled. The RCA issued a series of recommendations in a June 2015 letter to the Legislature that outlined ways the electric utilities operating from Fairbanks to Homer could work together, such as combining their generation and transmission assets, as a means to ultimately achieve a more efficient and reliable system. The Legislature requested insight into Railbelt utility operations the year prior. In the letter, the commission characterized the Railbelt electric system at the time as “fragmented” and “balkanized.” It 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. Some critical observers of the Railbelt electric system contend the six utilities — spread over a large area but with collective demand less than many single 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. Utility leaders spent much of the interim period investigating the viability of establishing a transmission company, or transco, that would make large capital decisions based on the system-wide need for an investment. Concurrently, they also looked at establishing a unified, or independent system operator structure, which at a basic level would act as a system-wide power dispatch organization. When properly combined, proponents say the transco and system operator groups would reform the Railbelt grid to resemble more integrated Lower 48 electric utility operations. 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. The Alaska Energy Authority released a study in early 2014 estimating that a $900 million overhaul to the transmission system would provide additional power moving capacity that could save Railbelt ratepayers up to $240 million per year by maximizing transmission efficiency and economies of scale in the system. Utility leaders have largely questioned the conclusions of that study, contending the need for investment and corresponding benefit figures are overblown. AEA commissioned a revised Railbelt transmission study in 2017 that reached mostly similar conclusions. In January 2017, Matanuska Electric Association, Anchorage Municipal Light and Power and Chugach Electric Association announced a power pooling and joint dispatch agreement that had accompanying estimated savings in fuel costs — primarily through burning less natural gas — totaling up to $16 million per year collectively. Since early 2013, each of the utilities in the pooling partnership has built new, higher efficiency natural gas-fired power plants. While the plants are individually more efficient than the generation they replaced, jointly orchestrating how they are used can take that efficiency further, according to utility officials. Utility leaders said at the time that the short-term agreement was a step towards a firm 20-year pooling partnership. But during a May 8 meeting, Commissioner Bob Pickett, who has led the RCA’s review of the Railbelt utility operations, said that progress towards the long-term arrangement has stopped. He said it is time for the commission and the Legislature to move toward mandating the utilities work closer together as their voluntary efforts have not been wholly successful. “This does not mean, however, that no value has resulted from the utilities’ efforts over the past four years,” Pickett said. “There has been increased interaction between the dispatch centers and a better understanding between the electric utilities of each other’s generation units and heat rates, operation and maintenance costs. This has provided a better foundation for discussions about pricing and development of transactions.” He continued to note that it’s unlikely the voluntary efforts will resume until 2021, when Chugach’s proposed $1 billion purchase of MLP is likely to be formally completed. Chugach spokeswoman Julie Hasquet wrote via email that efforts to achieve a firm, or tight power pool are continuing. The three Anchorage-area utilities in October notified the RCA that they would pause the three-party negotiations to focus on the utility merger, Hasquet said, adding that Chugach’s acquisition of MLP will realize most of the savings from a tight power pool. “Chugach has committed to MEA that we will continue to negotiate the tight pool following the RCA process on acquisition. The processes developed to operate as a tight power pool can easily be expanded throughout the Railbelt,” she said, “and we welcome the other utilities to join in.” In late February, four of the six Railbelt utilities — minus Chugach and MEA — applied with Wisconsin-based ATC Development Company LLC to the RCA to form Alaska Railbelt Transmission LLC, a transmission-only utility based on the transco model. MEA leaders have long said they believe a complex transco is unnecessary to realize efficiencies in the system and could force utilities into making investments that are ultimately detrimental to their operations, which would be counter to their obligations to their own ratepayers. MEA officials contended in comments on the transco application that it does not demonstrate how the transmission utility’s proposed activities would serve the public interest. MEA also questioned the ability of the startup utility to provide the touted benefits. Lee Thibert, CEO of Chugach, which did not join Alaska Railbelt Transmission, said in comments to the RCA that the utility has concerns about how being a member the for-profit transmission utility would impact the cooperative’s tax-exempt status and how its formation could impact Chugach’s potential purchase of MLP, among other issues. ^ Elwood Brehmer can be reached at [email protected]

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