Elwood Brehmer

RCA: state needs major power transmission improvements

Alaska has an adequate power supply but an insufficient transmission system, which together could be strained by new Environmental Protection Agency requirements, according to Regulatory Commission of Alaska members. RCA Chair Bob Pickett told a legislative energy roundtable Sept. 5 that utilities have invested about $1.2 billion in new power generation infrastructure in recent years. However the state still needs roughly $900 million in upgrades to its transmission lines to fully realize the benefit of that new generation. The generation investment includes projects that are recently online such as the Chugach Electric Association-operated $360 million Southcentral Power Project, as well as facilities in the works — Municipal Light and Power’s $275 million, 120-megawatt George Sullivan Plant 2 and Matanuska Electric Association’s 171-megawatt Eklutna plant, among others. North Pole Rep. Doug Isaacson and other Fairbanks-area legislators led the discussion held in Anchorage. Pickett said the utilities and the commission are working to resolve what impact the massive generation investments will ultimately have on electrical rates, particularly in the Railbelt. The $160 million bill for the Cook Inlet Natural Gas Storage Alaska facility completed in November 2013, known as CINGSA, can be tacked on to the overall total sum of plant projects, Pickett noted. If reliable service is going to trump price when utilities develop their business models, their customers will have to pay for the new plants, he said. “The public will not stand for any kind of extended rolling blackouts and unnecessary outages,” Pickett said. “This generation is much better than the legacy generation (the utilities) were working with.” While some customers may not like increased bills to finance new power plants, there is little the RCA can do. The commission works under the directive of the Legislature, which has not explicitly given it “siting authority” Pickett said, or the expressed power to rule over which power projects are necessary. As a result, the RCA can only try to mitigate the impact of a project’s cost to ratepayers while meeting the owner’s revenue requirements as the utilities — which have their own, often public processes for making capital decisions — make the final decisions on what money gets spent. “We respond to the filings from the utilities at the point and time when they’re trying to put a new capital expenditure into the rate base,” he said. There have been exceptions to that process, however. Chugach Electric, which is majority owner along with ML&P of the Southcentral Power Project, asked the commission for preapproval of the project, which likely helped it refinance other debt and present the best plan possible when looking to finance the plant itself, Pickett said. The RCA has withheld from ruling on utilities’ capital plans to keep itself out of the business of regulatory overreach, he added. Isaacson said the Legislature needs to understand its role as the ultimate regulator, given that it has oversight of the commission, and give clear guidance to it. While the latest round of natural gas-fired power plants are often more than 30 percent more efficient than their predecessors, those benefits won’t be fully realized without better Railbelt transmission infrastructure, according to Pickett. For most of the state’s history, Chugach Electric has acted as the de facto ISO, or independent service operator, of Southcentral transmission lines because it is the largest power producer, commissioner Norman Rokeberg said. As a result, it is difficult to calculate how transmission rates exactly impact power cost for each utility because the buying and selling of power and subsequent transmission cost is in flux. If the state were to form an ISO it would set the tariff rates and could manage transmission rebuilds. The state-owned Bradley Lake hydro project near Homer, is managed under contract thus it is very inexpensive to transmit its power, Rokeberg noted. He said total transmission cost from Bradley Lake in state fiscal year 2013 was about $895,000. Since 1995 the project has averaged a power output of about 380,00 megawatt hours per year. The Railbelt power grid limits the ability of utilities to sell power between them because it lacks carrying capacity in several “neck down” areas. In some remote places the grid is connected by a single set of power lines. Rokeberg said the state is limited as to the amount of Bradley Lake power it can sell to points north because of transmission constraints near Soldotna. Similarly, the scope of Chugach Electric’s Cooper Lake hydro near Cooper Landing is essentially capped because of transmission limitations between Kenai Lake and Anchorage. “Homer (Electric Association) has a lot of power they could be selling,” Rokeberg said. Improved transmission could help the state’s utilities meet the EPA’s latest carbon pollution guidelines released in June if lower-emission power generated from Southcentral natural gas could be sold to Golden Valley Electric Association in Fairbanks, which uses coal and naphtha. Rokeberg said the Obama administration’s goal to ultimately eliminate coal-fired power plants has created a cap and trade system. “What the administration has done is create a national energy policy and by default a state energy policy,” he said. The Alaska Department of Environmental Conservation could be backdoored into administering the federal rules by regulating the nature of the state’s power generating facilities, he said. Rokeberg is the RCA’s designated lead on a state interagency task force responsible for submitting the state’s recommendation to the EPA on how it will meet the new Clean Air Act Section 111 guidelines. Along with the RCA, the task force includes representatives from Gov. Sean Parnell’s office, the Alaska Energy Authority and the Department of Environmental Conservation. “The strangest thing about this regulation is you can’t go in and build a natural gas combined cycle plant in Fairbanks, were we to have a new pipeline,” Rokeberg described. “We couldn’t build a new natural gas plant there and have it fit the parameters of (subsection) 111(d).” That stems from more restrictive regulations on new power plants as opposed to existing facilities, he explained. State recommendations are due by October, he said, but Alaska will likely request for a 60-day extension — more time to muddle through the finer points of the regulations. From there, the EPA will issue its final rulemaking sometime next year and Alaska will have a year to come up with a plan to comply with the carbon emission restrictions. This is all happening as Golden Valley works to bring online a 50-megawatt clean coal power plant in Healy, an attempt to lower its power costs that are double what some of the Southcentral utilities can charge. Rokeberg said states that have grids connected to one another will have the option of a second year extension to work out complexities between each other. He added that he has been in touch with regulatory officials in Hawaii and along with Alaska, the “grid island” states might ask for their own regulatory extensions to deal with their unique isolation challenges. Elwood Brehmer can be reached at [email protected]

Buccaneer bankruptcy leaves millions in unpaid Alaska bills

Buccaneer Energy Ltd. and its family of subsidiaries filed for bankruptcy in May, leaving millions worth of unpaid bills in Alaska. The Australia-based independent’s debt in the state is more than $2.1 million, according a list of Buccaneer’s 30 largest creditors filed with the U.S. Bankruptcy Court for the Southern District of Texas, located in Houston. The Alaska Department of Revenue is listed as Buccaneer’s ninth-largest creditor and the second-largest in the state, with a bill of $605,116. Department of Natural Resources spokeswoman Elizabeth Bluemink said the money is actually owed to DNR for a combination of Cook Inlet oil and gas lease payments and production royalty payments. Once paid it would almost immediately be transferred to the treasury, and subsequently the Revenue Department. Overall, Buccaneer owes about $33 million to its 30 largest creditors. One of the businesses it owes is Mayflower Remote Services, a catering and housekeeping company in Kenai, which has seen its work dry up since Buccaneer pulled out of Alaska this spring. Mayflower was one of the first companies to contract with Buccaneer when it began exploring Cook Inlet late in 2012, owner Edgar Duero said. “I’m just a small business owner. The bankruptcy has really devastated my company,” Duero said. “They owe me $96,000 and that’s a lot. I’m just trying to get legally what I can.” Buccaneer owes Duero $96,800 to be exact. He understands that some other businesses are owed many times more, but Mayflower was under contract exclusively with Buccaneer, he said, meaning he has had to lay off all of his employees. “The life of my business is pretty much gone,” he said. Duero and his 16 employees fed drilling crews on Buccaneer’s Endeavor jack-up rig and onshore West Eagle from late 2012 through mid-February of this year, when Buccaneer’s tenuous financial situation began to catch up with it. The nearly $100,000 bill is for about 10 weeks of work last winter, ending when Buccaneer shut operations down, according to Duero. Any money he ends up seeing from Buccaneer will not be pocketed. Duero said he owes $30,000 for food consumed on the Endeavor and at the West Eagle site east of Homer. Additionally, he owes about another $30,000 in federal taxes, which he said he doesn’t know how he’ll pay at this point. Duero used a personal loan to pay his now laid off employees. “Even though I got burned I cannot burn my people,” he said. When operational, Buccaneer was almost always late with payments by about a month, Duero said, but the money eventually came through. Working with Buccaneer was supposed to be a way to grow Mayflower Remote Services. He said he was optimistic when the state — through the Alaska Industrial Development and Export Authority — partnered with Buccaneer to bring the offshore jack-up rig to Cook Inlet. “In the beginning I thought I could trust them because I heard the State of Alaska was part of this Endeavor rig and that was encouragement for a little guy,” Duero said. Following the bankruptcy proceedings in Texas has been difficult and making sense of the stacks of court filings he gets from the creditor committee, which sends updates several times a week, has been equally as challenging for Duero. “Of all the paperwork in my office I have more from the bankruptcy than my own paperwork,” he said. “All of this wording you have to be an attorney to understand.” He has been told more should be known by the end of the month, and payments could come by the end of the year, he said. However, being an unsecured creditor he likely won’t get it everything he is due, Duero said. “They’re not going to get you 100 percent; they’ll probably get you like 30 cents on the dollar,” he remarked. Until then, Duero and his one remaining employee are operating Mayflower Catering in Anchorage. City of Kenai Manager Rick Koch said the city had an amicable working relationship with Buccaneer while the company was in town. “We never had any issues with them, but we never had much money in play either,” he said. Buccaneer has kept current on its lease payments for three Kenai Loop wells located in the city through the bankruptcy, which total about $25,000 per year, according to Koch. The other parties looking for payments related to the Kenai Loop production, namely Cook Inlet Region Inc., which claims it is owed gas royalties, will likely resume their case in Alaska Oil and Gas Conservation Commission hearings later this year. That case has been on hold while Buccaneer attempts to resolve its other known debts in bankruptcy court. Koch added that Buccaneer adhered to its permits and followed protocol when doing seismic work on city property. Koch said three or four local businesses testified at public meetings about work with Buccaneer that the city should’ve ended its relationship with the company based on the fact that they were not paid on time. Several Peninsula companies ultimately demanded up-front payments from Buccaneer, he said. Back in the South Texas court, Buccaneer filed to have five office leases and IT contracts vacated Sept. 9. Buccaneer’s attorneys filed for immediate relief from a $6,118 per month office lease in Anchorage that is set to expire Aug. 31, 2015. In Nikiski, the company wants to vacate a $7,815 per month lease for 6,000 square feet of warehouse space that was used to house spare parts and equipment for the Endeavor. Buccaneer no longer operates the Endeavor so it has no use for the warehouse and the money could be better allocated somewhere else, its attorneys reasoned in the court motion. Having paid through July, the lease would be retroactively rejected effective July 31. According to Buccaneer the property owner holds a $7,800 security deposit and Buccaneer has vacated both the Anchorage and Nikiski properties. A hearing regarding the lease motion is scheduled for Sept. 23, at noon, Alaska Standard Time. Elwood Brehmer can be reached at [email protected]

New Alaska FAA chief focused on safety

As the new head of the Federal Aviation Administration in Alaska, Kerry Long is focused on one word: safety. The fact that other topics sometimes overshadow the agency’s core mission of promoting safe flying is a testament to how effective the FAA is and should not be forgotten, he said. “I’m pleased that we can focus on issues of efficiency, on issues of getting somewhere late, where we don’t have to worry about if we’re going to get there,” he said. “I think that gets lost in translation. Aviation is still by far the safest mode of transportation.” Long took over as the FAA Alaska Region Administrator July 28. Since then, he has immersed himself in the unique needs of the state’s aviators and how the federal agency with oversight of those needs can best meet them.  First and foremost is making sure new and existing users of the skies can operate side by side, as well as advancing how they are monitored. “My priorities here are NextGen and the UAS test site,” Long said. The UAS, or Unmanned Aerial System, test site sponsored by the University of Alaska Fairbanks Long referred to is one of six nationwide chosen by the FAA to help the agency meet its congressional mandate to develop regulations to integrate unmanned aircraft into the national airspace by the Sept. 30, 2015. The Pan-Pacific UAS Test Range Complex, headquartered in Fairbanks, includes not only the vast tracts of airspace above Alaska, but also areas of Hawaii and Oregon that afford industry the option to test technology in the Arctic, tropics, or somewhere in between. Long said the uniqueness of the Alaska test site, combined with the support, financially and otherwise, it has received from the state, has helped push it to the front of the group. The Legislature appropriated $5 million to UAF’s Geophysical Institute in fiscal year 2012 to advance UAS testing. With continued state support, he wants to do whatever the FAA’s regional office can to help keep Alaska at the forefront of UAS testing, Long said. “We can, I think, significantly support UAF and the test site, to be specific, in how we think they ought to be staffed to be able to effectively run this dispersed program they have in Hawaii and Oregon and here,” he said. It will be a challenge for the FAA to do much more because the federal regulation mandate did not come with money. “Our goal at the FAA is to support these test sites the best we can, but unfortunately we have a mandate but no funding, which is a tough combination,” Long noted. FAA test site evaluators that visited Fairbanks in August were impressed with the safe and efficient operations going on there, Long said from his Anchorage office Aug 29. While the UAS test site evaluation group was in Fairbanks, the test site staff was able to show first-hand the capability of small unmanned aircraft in a practical setting, he said. “There was a traffic accident and we happened to have the evaluation team that has been going from test site to test site making sure that everybody is following best practices and that sort of thing,” Long described. “One of the folks was the gentlemen responsible for approving any emergency requests for a (certificate of authorization) and he was able to approve the use of a UAS to demonstrate to the team how it would be used with a traffic accident and how much more efficient it is to use a UAS to do the photography work.” Prior to taking the regional administrator position, Long served as the FAA’s chief counsel under President George W. Bush from 2007-09. More recently, he was a lead ethics official with the National Transportation Safety Board. Before his public service began, Long was a large aircraft transaction attorney, working primarily for Boeing and Rolls Royce, he said. He emphasized that communication is key in his new position. Long met with Rep. Don Young, Sen. Lisa Murkowski, state Transportation Department Deputy Commissioner of Aviation John Binder and private industry representatives to gain perspective about what the state needs from the FAA in his first weeks in Alaska. Long said he assured the congressional delegation members that, “I will be as candid as we can be as an agency with what’s going on.” His experience in other parts of the federal government will help him bridge the gap that all-too-often exists between Alaska and Washington, D.C., he said. “Not only do you need an effective advocate for the FAA in Alaska, you need an effective advocate for Alaska at the FAA in Washington,” Long remarked. “I’ve been to Washington; I’ve spent my time there and I’ve cut my teeth there on many of the issues we face up here. “I’ve learned what fights can be won.” He plans on hosting as many Outside federal officials as will travel to Alaska so they can better understand what the state’s aviation industry needs, he said. A visit from FAA Deputy Administrator Michael Whitaker, who is leading implementation of the agency’s NextGen air traffic monitoring program, was scheduled for early this month. NextGen, the “next generation” of aircraft tracking, is a satellite-based system that is designed to update aircraft location quicker than radar, allowing for more efficient flight paths and safer operations at crowded airports. Within five to 10 years, the FAA hopes NextGen will be installed across the country. “The bottom line is we are all counting on NextGen into the future to be the answer to the inefficiencies of dealing with ground-based navigation,” Long said. “It’s one of the most massive programs undertaken by the government, certainly ever by the FAA. Beyond engaging with other federal officials, Long said he is happy to talk about the agency’s mission in Alaska, whether that’s a group of school children or state leaders. It’s a vital part of the job he enjoys, and best of all, it hardly costs anything, he said. “I’m free. I’ll go anywhere and I’ll talk to anyone about aviation safety and the role of the agency and there’s lots of people around here that will do that with me,” Long said. “As far as I’m concerned no group is to small as long as they’re interested and can help us promote aviation safety.” Elwood Brehmer can be reached at [email protected]

Flint Hills refinery closure makes for higher-priced asphalt

As paving season peaks, getting asphalt to construction sites across Alaska has become more complicated and expensive since Flint Hills Resources closed its North Pole oil refinery. The real price of asphalt oil has spiked about 20 percent over last year — about $150 per ton — for construction projects in Fairbanks and more remote locations, Exclusive Paving General Manager Travis Cline said. The reason for the cost increase is asphalt oil used for state Transportation Department Northern Region projects must now be trucked up from Tesoro’s Nikiski refinery. Tracked bi-weekly by DOT, the base, or “rack” price of asphalt oil is actually less than last year. Through Sept. 4 the rack price was $600 per ton and had been steady since June 20, as opposed to $619 per ton for the 2013 paving season. While work on road projects occurs all summer long, most paving is done in late summer and early fall. “Those numbers, that they use for that index, that is what they get direct from the manufacturer,” Cline said. “That price doesn’t take into account the trucking. That’s why when it finally gets to our jobs here in Northern Region it’s quite a bit more expensive.” DOT Northern Region Construction Engineer Frank Ganley said the state was initially hearing that asphalt was running about $100 more per ton than was projected in many of the contracts it has with construction companies, but added that the $150 figure is reasonable as well. “A lot of that information we just don’t have yet from our contractors,” Ganley said. Contracts for this summer’s projects were bid and awarded last winter and early spring, prior to when Flint Hills announced it would close its North Pole refinery, which happened June 1. He estimated Northern Region work would use about 25,000 tons of asphalt oil this year, meaning it could cost the state and its contractors combined up to $3.75 million more than projected. Asphalt oil typically makes up about 6 percent of the final product that is laid on the road surface. The rest is mostly sand and gravel aggregates. DOT road construction contracts include a price adjustment clause that requires contractors to share in the added cost, up to 7.5 percent, Ganley said. “That cause was put in there to deal with the volatility of oil prices seven and eight years ago,” he said. Cline said Exclusive Paving happened to get two of the largest resurfacing jobs in Fairbanks — Airport Way and the Johansen Expressway — at the wrong time. “What a year to get have the big paving jobs when the price of (asphalt) oil goes up like that,” he said. Bids for future work in the region will include the new, added cost of transporting asphalt oil from the Kenai Peninsula, rather than from an Interior source, he said. Preseason fears about Tesoro being able to meet the asphalt needs of the entire mainland of Alaska have been quelled, according to state officials and paving companies. This spring, a Tesoro spokesman said the company would not have a problem meeting the demand. Southeast paving projects are supplied with asphalt that is shipped up from Seattle. While supply from Tesoro has not been an issue, Lane Keator, Carlile Transportation System’s Fairbanks terminal manager, said the logistics of the trucking operation from Nikiski have contributed to the cost. “The biggest challenge is probably maintaining the heat,” Keator said. “It’s loaded hot in Nikiski and it’s a 12-hour, one-way trip minimum from Nikiski to Fairbanks.” Highly viscous asphalt oil is heated to 300 degrees Fahrenheit or more keep it liquid. Keator said Carlile and other companies that haul asphalt oil to the Interior now have to pump it into heated tanks once they get to Fairbanks or North Pole, allow it to reheat and then pump it back into the tanker trucks before it is sent to its final destination, which could be as far away as Deadhorse or Eagle. Luckily, the State of Alaska allows truckers to drive 15 hours per day, as opposed to the 12-hour limit many other states have, he added. However, drivers hauling asphalt north must “start fresh” in Nikiski, he said. Tesoro has the ability to load about one truck per hour with asphalt oil, and the added demand has required cooperation between dispatch centers to make sure nobody is stuck in line at the refinery, Keator said. “The trucking companies have worked well together to make sure we don’t step on each others’ toes — to make sure nobody has to wait” at the asphalt rack, he said. Elwood Brehmer can be reached at [email protected]

Mat-Su officials to meet with feds over $12.3M ferry bill

Matanuska-Susitna Borough officials are prepping for negotiations with the U.S. Transportation Department to resolve $12.3 million the borough owes the feds for its failed ferry plan. In all, the Mat-Su Borough received $21.2 million from the Federal Transit Administration from three grants awarded between 2002 and 2009 to jumpstart ferry service across Knik Arm between Port MacKenzie and Anchorage. Mat-Su Manager John Moosey said at a special Aug. 21 assembly meeting that he discussed the bind the borough is in with Transportation Secretary Anthony Foxx in person when Foxx visited Alaska in early August. He said Foxx invited borough officials to meet with DOT leadership in Washington, D.C., in the coming weeks to negotiate a settlement. Of the $12.3 million the borough spent on the project, $3.6 million was on a passenger terminal at Port MacKenzie and other funds were used to help pay for construction and outfitting of the 195-foot Susitna, which was turned over to the borough shortly after construction. The U.S. Navy footed most of the $78 million bill for the Susitna, a prototype military landing craft. Assemblyman Jim Sykes said in an interview that borough leaders discussed possible legal solutions to try and force a settlement during an executive session Aug. 12, but largely figured challenging the federal government would be a losing battle. Mat-Su attorney Nicholas Spiropoulos said the current Sept. 5 deadline for payment stands in the way of negotiations. “One of the first things we’re going to address (with FTA) is we need an extension to have a dialogue,” Spiropoulos said. If the borough ends up paying an interest penalty, it would likely be between 1 percent and 3 percent, depending on applicable market rates. Multiple borough officials have reiterated that they are hopeful a settlement without a penalty can be agreed upon. In the past, some Mat-Su officials said the project fell apart because it was determined the Susitna’s several hundred thousand dollar per month operating bill was unsustainable. Recently, the Municipality of Anchorage’s reluctance to commit to a ferry terminal has been blamed for killing the plan. Mat-Su Assemblyman Steve Colligan said at the Aug. 21 meeting that when Anchorage pulled out of the ferry development under then mayor-turned Sen. Mark Begich, “We had one hand clapping in that relationship.” On Aug. 5, acting FTA Administrator Therese McMillan sent a letter to Moosey demanding payback of the money within 30 days or the borough would face penalties, including possible garnishment of other federal appropriations. McMillan wrote that she regrets the fact that the borough has not been able to find a use for the Susitna or a qualified public entity to take the vessel, which could absolve the borough of its debt. However, “FTA has no legal authority to unilaterally waive the debt and is required to begin the collection process,” she wrote. Colligan noted that he and other Mat-Su officials traveled to Washington, D.C., last year and requested the demand letter — necessary for a resolution to be reached, he said. If the borough were to find a private buyer for the Susitna, it would have to repay at least a portion of the $12.3 million it spent. The borough has rejected private bids of up to $2 million. The Philippine Navy was scheduled to inspect the Susitna — docked in Ketchikan — Aug. 27-28, according to a borough release. Assemblyman Darcie Salmon said representatives of the Knik Tribal Council approached him Aug. 20 with interest in the Susitna. Knik Tribal Council leadership could not be reached for comment regarding the ferry. Elwood Brehmer can be reached at [email protected]

Financing plan OK'd for Interior Energy Project gas plant

The Alaska Industrial Development and Export Authority board of directors unanimously approved a key deal with its Interior Energy Project partner at its Aug. 25 meeting in Anchorage. The North Slope LNG Concession Agreement, as it is known, between AIDEA and Northern Lights Energy LLC, a subsidiary of MWH Global Inc., puts a legal framework in place as the AIDEA-MWH team works towards a financing plan for the North Slope liquefied natural gas plant — the foundation of the plan to truck LNG down the Dalton Highway to customers in and around Fairbanks. The Interior Energy Project is the state’s solution to alleviate the burden of high fuel oil prices and poor winter air quality on Fairbanks-area residents by making lower cost natural gas available. AIDEA’s retail price target of about $15 per thousand cubic feet, or mcf, of gas would be about half the cost of fuel oil at $4 per gallon. MWH officials have said financial close should come sometime in late October or early November. “Once you go to financial close then the concession agreement becomes a way for them to operate the plant as a concession for AIDEA,” said Mark Davis, authority deputy director. Under the terms of the agreement MWH would operate the plant for up to 30 years as Northern Lights Energy. It allows for a maximum nominal return on investment of 12.5 percent for MWH’s investors in the plant. Northleaf Capital Partners, a Toronto-based firm, is the project’s silent private investor. Exactly how much Northleaf and subsequently AIDEA contribute to the up to $200 million plant remains unclear. MWH has agreed to put up at least $20 million and up to $85 million towards the LNG plant, meaning AIDEA could be on the hook for between $75 million to $180 million depending on the cost of the plant and the final private investment amount. Board member and former Fairbanks state Sen. Gary Wilken has expressed concern at recent board meetings about whether or not MWH will ultimately come through on claims it made when AIDEA chose the engineering consultants as a partner in January. A North Slope plant financing term sheet sent to AIDEA by MWH in November outlines private investment of $50 million to $85 million, with the range accounting for variations in plant cost. Based on those conditions, AIDEA would contribute the $125 million Sustainable Energy Transmission and Supply fund, or SETS loan approved by the Legislature for the Interior Energy Project. The more private investment the LNG plant receives, the more of the $332.5 million of state financing devoted to the project AIDEA can put towards distribution infrastructure in the Fairbanks area. Wilken said Aug. 25 that each party’s final contribution “is still very much up in the air.” MWH has said Northleaf wants to invest as much as possible while still achieving a reasonable return. AIDEA’s Davis said Kiewit Corp., chosen to construct the North Slope plant, is working to finalize construction cost in the coming weeks. In Fairbanks, work continues to build out a gas distribution network so residents can hook up to gas if it becomes available in early 2016 — AIDEA’s delivery goal. Interior Gas Utility chair Bob Shefchik told the board that his utility is using the $8.1 million loan AIDEA approved for it in April towards planning buildout of the 877 miles of distribution pipe it will need to serve North Pole and the outlying areas of Fairbanks. Shefchik said the miles of pipe IGU will likely install has grown from about 670 miles to 877 miles because individual service lines are now included in that figure. Adding service lines, which utilities often subsidize, to the network increased the estimated overall network cost by about $95 million, to a total of $251 million. However, partnering with Golden Valley Electric Association for gas storage cut those projected costs from $46 million to $30 million, he said. For IGU customers, distribution costs will make up about 25 percent of final, “burner tip” gas cost if AIDEA can finance the pipeline network construction with its Interior Energy Project-approved bonds or loans — the latter of which are capped at 3 percent interest. If private financing must be sought because AIDEA ends up using most of its funds for North Slope plant construction, distribution costs could end up being more than 40 percent of the burner tip price and push that price well beyond $15 per mcf, Shefchik said. Fairbanks Natural Gas has been adding to its gas pipeline network throughout the summer. FNG President and CEO Dan Britton said the company has hired about 35 seasonal construction workers to work on the expansion. When combined with about 40 contracted workers, the FNG construction team had installed about 19 miles of pipe as of the Aug. 25 meeting, according to Britton. The company plans on installing 33 miles of pipe in the core of Fairbanks if the weather allows for work into October. About another 30 miles are planned for 2015 as well. This year’s work will add nearly 2,400 residential and 277 commercial customers to FNG’s network, he said. The work is being paid for with a $15 million AIDEA loan contingent on purchasing gas from the North Slope plant when it becomes available. “Ultimately our system requires about 100 miles of more expansion before it is fully built out,” Britton said. He added that FNG will be looking to AIDEA for future expansion financing. Elwood Brehmer can be reached at [email protected]

Anchorage kicks off new port work; $300M needed to finish

The Municipality of Anchorage officially hit the reset button on its port project Aug. 18 with the kickoff of a weeklong design work session. Anchorage Mayor Dan Sullivan told a group of nearly 50 stakeholders gathered at the Port of Anchorage offices that he is confident in their ability to jumpstart the stalled construction project. “We’re certainly at a very important stage in moving the project forward,” Sullivan said. “It’s been, as we all know, a challenging last four to five years watching a project that’s spent a significant amount of money not be viable and having to reverse course — not only undoing construction, as we know will have to happen in the future, but going a new direction in design and construction.” More than $300 million of public money has been spent on the project since its inception in 2003, and the city has little more than a barge dock to show for it. Work at the port has been virtually stagnant since 2010 after major construction problems were discovered. Sullivan said completing the original sheet pile design, which included relocating the port’s main users, Totem Ocean Trailer Express, or TOTE, and Horizon Lines, to a new north dock, would have cost an additional $600 million or more. The scaled-back, pile-supported concepts drafted by project manager CH2M Hill that the city supports would likely cost less than $400 million, he said. The city has about $130 million in reserve for future work. Securing funding for the project will be the biggest challenge it faces, Sullivan said. Getting the Port of Anchorage construction project “back on track” before he leaves office has been his top priority and will continue to be, he said. Sullivan is running for lieutenant governor in the November election. “I’m going to continue to be a strong advocate for this project whether I’m in the private sector or still in the public sector,” he said. “Other than a gas pipeline, I’m not sure there is a more important project that the state will be considering in the next decade.” Other projects, which could include a prospective gasline, will mean more activity at the port, he said. Roughly 85 percent of goods entering Alaska go through the Port of Anchorage. Opened for business in 1961 and having survived the 1964 earthquake, the current port infrastructure is living on borrowed time. Port officials spent $1.3 million in 2013 to maintain the corroding dock piling, according to the port’s financial statements. Retired Port Director Rich Wilson has said fixing the pilings is an annual expense that will continue until they are replaced. Port operators, the U.S. Army Corps of Engineers, port staff and CH2M Hill representatives were involved in the work session known as a charrette, which was closed to the public because no elected officials participated, according to municipal spokeswoman Lindsey Whitt. The meeting is to determine technical criteria for a new port design and the public’s interests were represented in the charrette by Municipal Manager George Vakalis, who has been the lead on the port work during his administration, Sullivan said. Vakalis said the municipal Enterprise Oversight Committee, which watches over port operations and is made up of Anchorage Assembly members not allowed in the charrette, is briefed regularly on the project. “I guarantee you there will be a wide public process once some of the technical decisions have been made,” Sullivan said. Meanwhile, the municipality continues to battle in court with the prior port project designers, managers and consultants in an effort to recoup money lost over prior work. Original port design lead PND Engineers Inc. has long said problems at Anchorage were caused by faulty installation, not the design, of its Open Cell Sheet Pile, which has been used at ports across Alaska. To complete the transition, the latest installment of the port project comes with a new name as well. What was once the Port of Anchorage Intermodal Expansion Project is now the Anchorage Port Modernization Project. The four dock concepts now being considered are similar in that they all keep TOTE and Horizon on the existing dock — moving their operations up and down the face during construction. Pushing the dock out from a current mean water depth of about 35 feet to 45 feet satisfies the military’s request for the future infrastructure, Vakalis said. Both Sullivan and Vakalis said the municipality wants to impact TOTE and Horizon as little as possible during construction. The two companies provide regular transport service to Anchorage. Sullivan said the city wants a port with a 75-year working life to reduce long-term maintenance costs. The original sheet pile plan was for 50 years. After the planning charrette, CH2M Hill will be tasked with developing three designs to a 15 percent completion level based on the stakeholders’ desires. Vakalis said a concept plan would then be presented to the municipality in November. The goal is to have a design in place by next spring, according to Sullivan. “Quite possibly by this time next year, fall 2015, we could see some work commencing,” Sullivan said. Elwood Brehmer can be reached at [email protected]

Court says CIRI can push for Kenai gas royalties

A federal South Texas Bankruptcy Court has ruled that Cook Inlet Region Inc. can continue its quest through the Alaska Oil and Gas Conservation Commission for natural gas royalties from the state and Buccaneer Energy. Judge David Jones signed an agreement between CIRI, Buccaneer and creditors Aug. 18 to lift a stay the court had put in place on the Alaska commission proceedings while Buccaneer, its creditors and the court attempted to sort out the Houston-based independent’s bankruptcy. The agreement was filed in U.S. Bankruptcy Court for the Southern District of Texas Aug. 14. CIRI has been trying to get royalty payments from Buccaneer and the Alaska Mental Health Trust Land Office through the AOGCC since early this year. Buccaneer filed for Chapter 11 bankruptcy on May 31, a move that has slowed the AOGCC process, along with a parallel lawsuit CIRI filed in state court to recover its purported damages. A stay on the state lawsuit is still in place. CIRI Vice President of Land and Energy Development Ethan Schutt said the Southcentral region Alaska Native corporation owns 20 percent of the Kenai Loop gas field geologically that Buccaneer is producing from via an operating lease it has with the Mental Health Trust Land Office. CIRI owns property adjacent to the Mental Health Trust Land Office parcel. Buccaneer has two producing wells on its Kenai Loop pad, KL 1-1 and KL 1-3, that CIRI says are draining gas from its portion of the field. At one time Buccaneer and CIRI had a lease in place for the CIRI property, but that was terminated by the Native corporation for undisclosed violations. Buccaneer has admitted to knowing the gas is being drained, but has not been able to reach an agreement with CIRI. Schutt said the Mental Health Trust Land Office continued to accept royalty payments after it was aware of the gas being pulled. “That’s not acting in good faith,” he said. Since Buccaneer became aware of the drainage situation in October 2013, more than 2 billion cubic feet, or bcf, of gas has been produced from the two wells, Schutt said, with a gross market value of about $15 million. Overall, the wells have produced more than 6.7 bcf of gas since January 2012, according to AOGCC production records. Schutt said Buccaneer’s gas contract is for approximately $7 per thousand cubic feet, or mcf, of gas. At $7 per mcf, the value of the gas produced from KL 1-1 and KL 1-3 would be about $47.1 million — 20 percent of that is $9.42 million. Buccaneer has remained publicly quiet during the entire process. Mental Health Trust Land Office Executive Director Marcie Menefee said Buccaneer had set up an escrow account, as ordered by the AOGCC, to hold funds while the royalty dispute remains unsettled. “As I understand it funds are being segregated,” she said. With the stay lifted, the next step is for a party, likely CIRI, to request another hearing before the AOGCC. It is usually 60 days between when a commission hearing is sought and when it takes place. As of early Aug. 19 CIRI had not requested a hearing, Schutt said. In the meantime the parties — CIRI, the Trust Land Office, Buccaneer and the Alaska Department of Natural Resources, which oversees the Division of Oil and Gas and the Trust Land Office — could still conceivably reach a settlement, but Schutt said he doesn’t see that happening. The AOGCC has encouraged negotiations outside of the commission, saying it would defer to settlement terms if possible, rather than hand down a ruling. Menefee said the Trust Land Office would be interested in continuing negotiations. Prior negotiations between the landowners “continued to fall apart” over six to eight months, he said, and CIRI never pulled their offer off the table. Elwood Brehmer can be reached at [email protected]

Anchorage commercial real estate market going strong

Commercial real estate in Anchorage remains in high demand, according to Reliant Advisory Services founder Per Bjorn-Roli. He addressed the Anchorage Building Owners and Managers Association, or BOMA, Aug. 8. “The new construction market continues to be very attractive,” Bjorn-Roli said. New commercial Class A vacancy declined from 7.4 percent to 4.8 percent over the year beginning in June 2013, he said. Over the same time, existing Class A vacancy grew slightly, from 4.4 percent to 4.6 percent in Anchorage. Overall citywide, Class A vacancy fell 1.7 percent over the past year, from 5.3 percent to 4.6 percent, Bjorn-Roli told BOMA members. In Downtown Anchorage, the market relaxed slightly but remains extremely tight, he reported. Class A vacancy there went from 2.7 percent to 3.6 percent over the past year. In Midtown, blended available Class A space diminished a little, from 6.3 percent vacancy down to an even 6 percent. On the east side of Anchorage vacancy fell from 9.7 percent all the way to an extremely tight 1.7 percent. The 2013 vacancy spike was related to the Alaska Native Tribal Health Consortium office relocation, he said. The Class B market bucked the larger trend in declining vacancies, going from 6.6 percent to 7.2 percent, Bjorn-Roli said. This was due mostly to the popularity of the new Class A space available in Anchorage, he said. Recent deliveries to the Anchorage market are filling up, according to Bjorn-Roli. The 14-story JL Tower, developed by Anchorage-based JL Properties Inc., between Tudor Road and 36th Avenue in the city’s Midtown is at 94 percent occupancy, he said. JL Properties’ nearby 200,000 square-foot Centerpoint West building, completed in 2010, is now fully occupied, Bjorn-Roli said, and the 120,000 square-foot 188 West Northern Lights building is 70 percent occupied. Also in Midtown, the Three Cedars building near Northern Lights Boulevard and the Seward Highway is available for lease. JL Properties’ 100,000 square-foot office building under construction at International Airport Road and C Street will be open in October, according to the developer. That building will help continue a two-year cycle for commercial deliveries, Bjorn-Roli said. The city has seen an average of just more than 150,000 square feet of office space delivered annually over the past 10 years, he said. In 2011, less than 50,000 square feet of new space became available; a year later deliveries jumped to more than 250,000 square feet; and in 2013 there were no significant deliveries, according to Reliant Advisory’s figures. Actual deliveries this year are expected to be about 250,000 square feet again, Bjorn-Roli said. An increase in the average asking price for office space of 15 cents per square foot over the past year has led to a “mixed story” for rental rates, he said. The increase in advertised rates is according to the Multiple Listing Service, or MLS. “When you look at the actual closed transactions, what you see is basically stable,” Bjorn-Roli said. Newly constructed Class A space is averaging $3.14 per square foot, he said, with the highest rates at $3.65 and the lowest at $2.90 per square foot. Existing Class A is renting for between $2.30 and $3.10 per square foot, with an average price of $2.64. Class B office space in Anchorage is averaging just less than $2 per square foot, ranging from a low of $1.55 to a high of $2.25 per square foot, he said. Elwood Brehmer can be reached at [email protected]

Eielson named preferred location for F-35s

The U.S. Air Force announced Eielson Air Force Base is its preferred location for two new squadrons of F-35 fighters Aug. 7, less than a year after the base avoided losing an F-16 squadron. “Today, Alaska is a huge winner in this, but so is the nation because there is no question about our military readiness in Alaska,” Sen. Mark Begich said at a press conference held in Anchorage immediately following the announcement. A total of 48 of the fifth-generation fighters from Lockheed Martin, which can run up to about $120 million apiece, are likely headed to the Interior. Begich said several hundred military and civilian support positions will follow the squadrons, and projections are for about 2,000 new residents to the region when family members are included. Begich, Sen. Lisa Murkowski and Rep. Don Young received the news while on a conference call with the Secretary of the Air Force Deborah Lee James, he said. “In Alaska, it’s always been about the mission. From the interceptors at Greely to the combat-coded F-22s at JBER, the U.S. military truly understands Alaska strategic position. I am pleased to say today that the Air Force continues this understanding by placing the world’s most premiere fighter aircraft at Eielson,” Young said in a release from his office. Up next is an expedited environmental impact statement; a formal record of decision should be ready by November 2015, Begich said. From there, he said upwards of $170 million will be poured into construction and other projects to prepare Eielson for the fighters’ arrival in 2019. “Basing the F-35s at Eielson will allow the Air Force the capability of using the Joint Pacific Alaska Range Complex for large force exercises using a multitude of ranges and maneuver areas in Alaska,” James said in a formal statement. “This, combined with the largest airspace in the Air Force, ensures realistic combat training for the (Department of Defense).” Sen. Murkowski largely echoed the sentiment of the other Alaska congressional delegation members in a statement from her office. “The potential one-two punch of F-35s with our F-22 fighters at (Joint Base Elmendorf-Richardson) creates tremendous synergy for high-end training at the Joint Pacific Alaska Range Complex, and would ensure Air Force pilots and joint force operators are the most capable and ready forces in the world,” she said. “I am pleased that our military leaders see clearly Alaska’s role in our national defense. Today, Alaskans are one step closer to hearing welcoming lightening in the Alaska air.” Eielson beat out JBER for the F-35s. The Alaska bases were on the Pentagon’s short list released in February of five potential Pacific locations to get the fighters. The preliminary decision comes on the heels of a win for the delegation when it encouraged the Air Force to keep the 18th Aggressor Squadron F-16 fighters at Eielson last October rather than move them to JBER, as the Pentagon had initially said it would do. Such a move would have crippled the Fairbanks economy and further stressed Anchorage’s already overburdened housing market, state leaders alleged. Begich said the community involvement in the fight to keep the F-16s at Eielson demonstrated to Air Force leaders how much the military means to the region. “I’ve got to give a lot, a lot of credit to the Fairbanks Interior region,” he said. “They came out in droves; they had information; they had data; they went to every public hearing; they made sure the Department of Defense heard from Alaskans firsthand why a base location decision in Alaska was the right decision, especially at Eielson.” Equipped with the absolute latest radar-evading and secure communications technologies, every F-35 is a major investment. Cost overruns by Lockheed Martin and its contractors, have pushed the acquisition cost of the nearly 2,500 F-35s the Pentagon ultimately hopes to have in its fleet up $7.4 billion to just less than $400 billion, according to a Defense Department report released in April. At the same time, the report estimates a savings of nearly $100 billion over the life of the $1.01 trillion F-35 program due in part to revised fuel maintenance cost projections. An engine failure on an Air Force F-35 at a Florida air base June 23 prompted a grounding of the roughly 100 aircraft across the country. The grounding has since been lifted but flight restrictions are in place on Air Force and Navy planes, according to the Pentagon. Begich attributed the purchase price hike to “cost plus” contracts with Lockheed Martin and its contractors, which allowed for higher costs to be passed on to the Department of Defense. Pressure from Congress pushed the involved parties to go to fixed cost contracts, he said. Begich also acknowledged that the new technology in the F-35s is inherently expensive. “As you design a new platform — F-35 — you’re going to have a lot of new technologies that are being developed literally as you’re designing it that are unknown at the time you started the planning process,” he said. Lockheed Martin has said it is partnering with other contractors working on the fighters to put $170 million towards affordability measures over the next two years. “This is a significant change in business approach within the F-35 program,” F-35 Program Executive Lt. Gen. Chris Bogdan said in a statement from Lockheed Martin. “Industry partners will make an upfront investment into cost cutting measures that the government and taxpayers will reap benefits from by buying F-35s at a lower cost. By 2019, we expect that the F-35 with its unprecedented 5th generation capability will be nearly equal in cost to any other fighter on the market, but with far more advanced capability.” Going forward, Begich said it is the responsibility of Congress to make sure contract terms for the project are adhered to. Elwood Brehmer can be reached at [email protected]

With budget cuts a reality, added fees likely in UA system

Officials at the University of Alaska are trying to cope with nearly $17 million in budget cuts. The university system’s budget struggle is a casualty of the state’s larger budget problems. On the surface, the $924.8 million system-wide total budget for the 2015 fiscal year is $12.5 million more than last fiscal year. However, with a budget that is generated from four major sources of revenue, the story is more complicated than that. The Alaska Legislature appropriated $375.8 million to the system for the current year in the form of general funds, vocational program allocations and state Mental Health Trust funds — overall a 0.2 percent cut from the $376.6 million fiscal 2014 appropriation. The remaining $549 million in the budget comes from the system’s receipt authority, derived mainly from federal receipts, tuition and student fees. While the overall state portion of the system budget is virtually flat, UA Associate Vice President for Budget and Planning Michelle Rizk said a chunk of that money is tied to new expenses. Cuts of $15.9 million to the system’s unallocated general fund appropriation and about $1 million to the travel budget are being pro-rated to the Anchorage, Fairbanks and Southeast campuses, Rizk said. “President (Pat Gamble) left it up to each chancellor to work within their university about what they would do to meet that budget reduction,” she said. The hit to unallocated funds at the University of Alaska Fairbanks was the largest of the three at more than $7.5 million. At the University of Alaska Anchorage the cut was $5.8 million, and the University of Alaska Southeast absorbed a $1.2 million cut. State operating budget funds declined from fiscal year 2014 from between 1.6 percent at UAA to 2.7 percent at UAF. Those processes are ongoing at the three schools and each has or is conducting a program review to determine where to prioritize funding during the state’s lean budget years that are forecasted for the foreseeable future. Last November, the board of regents approved a budget request for $393.9 million, which if granted would have been a 4.6 percent increase over fiscal year 2014. The request included $13.2 million for fixed cost increases, Rizk said, which the Legislature put $8.3 million toward. With new labor contracts, compensation increases of $5.1 million needed to be funded, and were. The board estimated new facilities operations at $3.2 million — including for the UAA’s new $109 million Alaska Airlines Center — and got $2.1 million. Increased utility costs projected at $3.4 million were left unfunded by the Legislature, but a “fuel trigger mechanism” in House Bill 266, the state’s operating budget legislation, authorizes the governor to move up to $4.9 million from the general fund to pay for the universities’ higher heat and electric bills. The fuel trigger is how the state pays for utility increases at many of its facilities, but is not included in the fixed cost requirements after the fact. The Legislature dedicated $7 million to pay for debt service for the first work on UAF’s $245 million, 17-megawatt combined heat and power plant — just now under construction. The $7 million is another chunk of cash that adds to the $375.8 million overall appropriation, but cannot be used for anything else. That means the $7 million was sacrificed in other places, Rizk said. UAF was given $24.5 million in the capital budget to replace its 50-year old heat and power plant and the Legislature committed the state to bonding for another $157.5 million. New, more fuel-efficient coal-fired boilers will allow UAF to finance the remaining $50 million of the project through fuel cost savings, according to university officials. A plan to meet a broad legislative directive to the board of regents to add a fee or increase tuition to generate $2 million annually for servicing the plant’s bond debt was recently approved by UA President Gamble. An Aug. 7 memo from Gamble to the Coalition of Student Leaders, a system-wide student government group, details a facilities fee that will be phased in over three semesters to ultimately generate more than $3.6 million per year for the UA system. “After careful consideration, and following legislative intent put forward in the (fiscal year 2015) budget, I have endorsed a proposal from the three chancellors to implement a $2 per credit UA Facilities Fee starting in spring 2015. In fall 2015 this fee will increase to $4 per credit, and in spring 2016 the fee will increase to $6 per credit,” Gamble wrote. An average full-time student taking 15 credits would pay a $90 fee per semester at $6 per credit. Revenue generated from the fee will stay at the university where it was collected, according to Gamble. “For UAF, this revenue will be used to assist with bond payments for the new heat and power plant, per the intent language specified by the 2014 Alaska Legislature. For UAS and UAA, the fee revenue will assist in reinvestments for classrooms, laboratories, residence halls and other buildings and academic equipment specific to those main campuses and their associated community campuses,” he wrote. The fee, and a 4 percent tuition increase proposal, will likely be taken up at the November board of regents meeting in Fairbanks. Tuition makes up about 15 percent of the overall system budget. System spokeswoman Kate Ripley said tuition increases are “a part of the complex mix when it comes to budgeting.” At between about $2,500 and $3,200 for per semester tuition, the University of Alaska campuses have some of the lowest in-state tuition rates among public institutions in the country. Elwood Brehmer can be reached at [email protected]

Enstar workers strike after rejecting contract

Enstar Natural Gas Co.’s Alaska operations employees went on strike at 6 a.m. Aug. 11. The striking workers are at Enstar’s Anchorage, Kenai Peninsula and Matanuska-Susitna area branches, according to a release from the United Association of Plumbers and Steamfitters Union Local 367 that represents the Enstar employees. The union and the natural gas utility have not been able to settle differences over retirement benefits, and Enstar has not negotiated fairly, the union claims. “Enstar has refused to provide information to the union, it has intimidated witnesses for reporting Enstar misconduct, it has lied about the funding level of the pension plan, it has denied leave cash in requests of union employees, and it has threatened employees with the loss of health benefits,” UA 367 alleges in an official statement. The union says it has filed four unfair labor practice complaints regarding Enstar’s conduct and it expects to file more. About 150 full-time employees are represented by the union, including both clerical and operations workers. Enstar spokesman John Sims said he could not comment on the strike as of the morning of Aug. 11. “We will continue to focus on delivering safe and reliable service to our customers,” Sims wrote in official statement. Enstar has nearly 140,000 natural gas customers in Southcentral. The company has also taken heat recently for rate hikes related to lower demand for gas because of this year’s warm spring in the region. Union representatives claim Enstar is demanding reduced benefits to new hires. They would get a 5 percent company contribution to a 401(k) retirement plan. The guaranteed monthly benefits and a 2 percent profit sharing portion of the pension plan for current employees would remain in place. The clerical workers narrowly approved a contract with the revised retirement benefits, while the operations group “strongly and emotionally rejected it,” the union reports. Emergency operations crews were instructed by union leadership to remain on the job Aug. 11 until work sites and equipment could be secured. Elwood Brehmer can be reached at [email protected]

EPA holds first public hearing on proposal to veto Pebble

Two minutes at a time, the Environmental Protection Agency heard directly from Alaskans how they feel about the agency’s proposal to block Pebble mine development. At an Aug. 12 public hearing in Anchorage, 133 attendees testified before EPA Region 10 Administrator Dennis McLerran and Bristol Bay Management Lead Richard Parkin about the unprecedented use of the agency’s Clean Water Act Section 404(c) authority to ban a project before permit applications are filed if it determines there would be an adverse affect on fish and wildlife habitat. Meeting attendees were greeted by opponents of the proposed Southwest Alaska copper and gold mine at the Egan Center doorways who offered them cutouts of sockeye salmon in spawning colors and anti-Pebble stickers. The stickers far outnumbered the smattering of “Pro Process” buttons and “Hands off Alaska” labels. Inside, state officials, Bristol Bay residents and Pebble executives mingled while they waited for the meeting to begin. McLerran began the five-hour hearing with a prepared statement that outlined EPA’s 404(c) goal. “The information our scientists gathered and analyzed in the watershed assessment made clear that the extraction, storage and treatment activities necessary to profitably mine the Pebble deposit pose significant risks to the fragile, unparalleled ecosystem that produces the greatest salmon fishery in the world,” he said. McLerran continued: “Our proposed determination would restrict all discharge of dredged or fill material related to mining the Pebble deposit on mining claims surrounding the deposit owned or controlled by Northern Dynasty Minerals and the Pebble Partnership.” EPA’s restrictions would apply only to development of the Pebble, he said. The Anchorage public hearing kicked off a series of seven such meetings the EPA scheduled through Aug. 15, with the other six to be held in Bristol Bay communities. The entire public comment period, which runs through Sept. 19, is the second major step in the 404(c) process, which was started in February and should take about a year, EPA officials have said. On July 18, the EPA issued its specific site proposal to ban any mine project that would have an estimated impact on salmon rearing habitat in the area near the Pebble deposits northwest of Iliamna equivalent to one-eighth the size of what the agency projects a Pebble mine would be. The projection is a result of the fact Pebble Limited Partnership has yet to release a mine plan — a source of contention for opponents who say the group has not been up front about its proposal for a large surface mine. Mike Heatwole, a spokesman for Pebble said in an interview the group was “very close” to issuing a mine plan when 50 percent investor London-based Anglo American Plc backed out of the project last September. At the time Pebble leaders said they would not issue a formal plan until another investor was secured. Heatwole said Pebble is still attracting interest from prospective investors despite the EPA actions. Pebble CEO Tom Collier and Alaska Attorney General Michael Geraghty were given five minutes to speak before McLerran and Parkin at the outset of testimony. The state and Pebble have joined in a lawsuit against the EPA claiming the agency is denying the state its right to develop its resources on state-owned land. “I think this hearing is much more about show than substance,” Collier said. He called it “ludicrous” that they agency would hold public hearings on the Pebble 404(c) Proposed Determination roughly three weeks after releasing the 214-page document. The interim period was not nearly enough time for adequate review, he said. In addition to the pending litigation and 404(c) process, a preliminary review of the crafting of the Bristol Bay Watershed Assessment — the document that is the basis for the mine ban — is being done by the EPA Inspector General’s office. With more than 30 years of experience dealing with environmental issues, McLerran said in an interview the Bristol Bay work “is probably the most open, transparent process I’ve been a part of.” While Collier said it is “misleading” to say the proposed mine ban applies only to Pebble, Geraghty said the state’s voice is being wrongfully excluded from the Pebble discussion. “Our state is legally entitled to be a part of (the review) process,” he said. He added that the state hopes some type of mine can be safely developed on the Pebble deposits to provide year-round employment to a region with thousands of seasonal fishing jobs. Trout Unlimited Alaska Director Tim Bristol said in an interview that the EPA is completely within the law. “Collier is wrong and we’re going to find that out,” Bristol said. Sen. Cathy Giessel, R-Anchorage, claimed that EPA Administrator Gina McCarthy has prioritized “the animals and not the people of Alaska.” Roughly 60 percent of the Bristol Bay commercial drift fleet permits are held by Outsiders, she said, which means a large chunk of the hundreds of millions of dollars generated by the commercial fishing is not benefiting the region. “If your goal is to make our state a park, it’s working,” Giessel said to Parkin and McLerran. Sue Aspelund, executive director of the Bristol Bay Regional Seafood Development Association said that the region is a “model” for sustainable fisheries worldwide — without a mine. The 404(c) process is the only definitive way to protect the upwards of 30 million or more sockeye salmon that return to Bristol Bay each summer and the way of life that revolves around the fish, she said. The EPA shouldn’t stop with Pebble either, according to Aspelund. “We expect that EPA would take similar actions should similar mines (in the region) be proposed,” she said. Pebble’s Heatwole said in an interview that “Alaskans ought to be asking which project is next.” Elwood Brehmer can be reached at [email protected]

Mat-Su pondering how to pay $12.3M ferry bill

The Federal Transit Administration wants $12.3 million back from the Matanuska-Susitna Borough for the borough’s failed Knik Arm ferry plan. Acting FTA Administrator Therese McMillan sent a letter to Mat-Su Borough Manager John Moosey Aug. 5 demanding repayment of the grant money. The $12.3 million is the portion of approximately $21.2 million in grants approved for the project that the borough has spent. The letter states that the borough has 30 days to repay the Transportation Department agency before FTA begins collections through administrative offset. Moosey said in an official statement on the borough’s website that he was not surprised by the letter. “I expected this (ferry crossing) to be done much easier but this was a challenge,” he said. “We’ve been working diligently looking for solutions to this issue for the last 2.5 years. If we had ferry landings, I’m confident we would not be here today.” McMillan wrote that the FTA is required to begin debt collection per the terms of the grants and does not have the legal authority to waive the debt despite the bind the borough is in. The Mat-Su Assembly held a special meeting Aug. 12 that left the issue unresolved. After a nearly hour-long executive session during which the borough’s legal options were discussed the assembly and borough officials decided to continue the meeting Aug.  21 at 3 p.m. Assemblyman Jim Sykes said he hopes details about the payment requirements and options can be made public at the Aug. 21 meeting. “I hope we can work our way out of this and not pay any of it,” he said. Assemblyman Matthew Beck said the borough is in the situation largely because the Municipality of Anchorage would not cooperate in building a landing site on the Anchorage side of Knik Arm. “I think it will work out,” Beck said. The ferry vessel, the M/V Susitna, was built as a half-scale naval prototype landing craft vessel, with an agreement that the borough would take ownership and put it to use as a shuttle between Port MacKenzie and Anchorage when the U.S. Navy was through with it. The Navy paid for the lion’s share of the $78 million construction bill. The borough has been looking to sell or give away the ferry for more than a year since plans to build a terminal dock in Anchorage fell through. If the Susitna is sold to a private entity, the borough would have to pay back much of the FTA grant money. However, if it can be donated to an eligible domestic government, the Mat-Su Borough might be able to seek grant forgiveness, a borough release states. The borough has approached the Alaska Marine Highway System and the National Oceanic and Atmospheric Administration about donating the Susitna, but an agreement couldn’t be reached. Private groups have made offers to purchase the Susitna, but none would have covered the cost to repay the grants. The Philippine Navy and an oilfield service company are expected to inspect the Susitna, docked at Ward Cove near Ketchikan, later this month. Dock fees, insurance and general upkeep have cost the borough several hundred thousand dollars per month while the Susitna has gone unused, Mat-Su officials have stated. The $3.6 million ferry terminal at Port MacKenzie is part of the $12.3 million FTA debt, according to the borough. Despite being unwanted, the 195-foot Susitna is a vessel with remarkable capabilities. The catamaran ferry has the space to hold up to 129 passengers, 20 vehicles and has a 35-ton overall freight capacity. It has a main deck that can be lowered to offload equipment and can land on beaches in as little as four feet of water.  Elwood Brehmer can be reached at [email protected]

Enstar employees go on strike

Enstar Natural Gas Co.’s Alaska operations employees went on strike Monday morning. The striking workers are at Enstar’s Anchorage, Kenai Peninsula and Matanuska-Susitna area branches, according to a release from the United Association of Plumbers and Steamfitters Union Local 367 that represents the Enstar employees. The union and the natural gas utility have not been able to settle differences over retirement benefits, and Enstar has not negotiated fairly, the union claims. “Enstar has refused to provide information to the union, it has intimidated witnesses for reporting Enstar misconduct, it has lied about the funding level of the pension plan, it has denied leave cash in requests of union employees, and it has threatened employees with the loss of health benefits,” UA 367 alleges in an official statement. The union says it has filed four unfair labor practice complaints regarding Enstar’s conduct and it expects to file more. About 150 employees are involved in the strike, union counsel Chuck Dunnagan said. The union represents both Enstar’s clerical and operations workers. Enstar spokesman John Sims said he could not comment on the strike as of Monday morning. “We will continue to focus on delivering safe and reliable service to our customers,” Sims wrote in official statement. Enstar has nearly 140,000 natural gas customers in Southcentral. The company has taken heat recently for rate hikes related to lower demand for gas because of this year’s warm spring in the region. Union representatives claim Enstar is demanding reduced benefits to new hires. They would get a 5 percent company contribution to a 401(k) retirement plan. The guaranteed monthly benefits and a 2 percent profit sharing portion of the pension plan for current employees would remain in place. The clerical workers narrowly approved a contract with the revised retirement benefits, while the operations group “strongly and emotionally rejected it,” the union reports. “The short takeaway is that we are not asking for any increase in pension benefits,” Dunnagan said. Both contract offers were for three years, a period that began March 31, he said. As for further negotiations, Dunnagan said none are scheduled. There was miscommunication between union and company leadership regarding a meeting set for Aug. 9, which ultimately didn’t happen, he said. Emergency operations crews were instructed by union leadership to remain on the job Monday until work sites and equipment could be secured. Elwood Brehmer can be reached at [email protected]

Health, safety 'overkill' is the norm on Slope

POINT THOMSON — North Slope work is big business representing thousands of workers and billions of dollars, and nothing is taken for granted to keep the oil and gas machine running safely and efficiently. ExxonMobil’s Point Thomson Construction Site Manager Carlos Rivera said each first-timer to the natural gas field is initiated with 90 minutes of safety training and proper health protocol. Hand sanitizer stations are visible from nearly everywhere in the Point Thomson camp buildings, and at mealtime, the requirement to wear disposable plastic gloves extends to everyone in the chow line, not just the cooks. The gloves go on immediately after a round of sanitizer. Electronic devices  — grimy phones and smudged iPods — are prohibited in the cafeteria. “It may be what some people think is overkill, but it works,” Point Thomson Construction Lead Randy Greenway said. Isolated from the rest of the North Slope infrastructure about 60 miles east of Prudhoe Bay and Deadhorse, Point Thomson is the $4 billion mega-gas field operated by ExxonMobil that’s been under construction for the past two years. Jeff Kolean, a former Occupational Safety and Health Administration consultant and current health, safety and environment manager for the drilling company Nordic-Calista Services, said the procedures at Point Thomson are common practice in Slope camps. Preventing illness is the most effective way to keep people working, he said. “We treat it like it’s a home away from home; but it’s not, and in the background we don’t treat it like a home away from home,” Kolean said. In the six camps Nordic-Calista operates, housekeepers disinfect every handrail and doorknob at least once daily, he said, and more frequently if a cold or more significant bug is suspected to be in camp. Bed linens at a Nordic-Calista camp are shipped back to Anchorage for every wash so they can subject to water that is at least 185 degrees Fahrenheit. “When you go to a camp and go to sleep, your sheets have been sanitized rather than just washed in the commercial washer and dryer on site,” Kolean said. Noting the infamous horror outbreak stories some vacationers have experienced, he said, “We don’t want what happens on cruise ships happening on the North Slope or in one of our camps.” Greenway recalled an instance while he was working at a remote mine when there was an outbreak of the violent gastrointestinal illness norovirus. Out of 160 workers at the mine, all but five got sick, he said. According to Kolean, education is the best form of prevention. His health, safety and environment, or HSE, team is trained to spot and handle illness in event the most minor form, he said. Crew leaders inquire about the health of their teams every morning before the day’s work is every discussed. Kolean said any concerns are immediately passed on to the HSE director on site. Workers with a slight cough, for example, are sent to the camp clinic for treatment, which, while it may only be cough drops, is often enough to keep someone’s health from deteriorating. If someone tests positive for strep throat or the flu they are quarantined in their room until they can be flown home. Ill workers at a Nordic-Calista camp flying home from the Slope must wear a surgical mask on site until they land, Kolean said. “You have to be fit for duty and it doesn’t matter if it’s occupational or personal, it has the same effect on your work and your crew,” he said. When illness is not an issue, standard operating procedure at Point Thomson and other Slope work sites prohibits cell phones outside of the camp buildings — absolutely anywhere. “It’s not so much that you’re trying to restrict communication,” Kolean said. “It’s just that when you’re out there on the job that cell phone is a dangerous tool.” Even when in camp, someone talking on a phone while walking down a hall will likely be reminded that they are walking distracted, he noted. ExxonMobil Pipeline and Infrastructure Manager Sofia Wong said the company emphasizes simple, firm, and positive support at all its work sites. “People are more likely to change their behavior if you reinforce it in a positive way,” she said. ExxonMobil has integrated technology into its safety program. Every hard hat in use at Point Thomson is outfitted with four RFID strips, or radio frequency identification. The paper-thin metal transmitters are adhered to the underside of the hard hat and relay a signal to sensors installed in every piece of heavy equipment on site. If a worker is too close to operating equipment the in-cab sensor begins to beep and notify the operator of a potential danger. ExxonMobil’s Rivera said the RFID equipment was installed last November and Point Thomson is one of the only sites on the Slope where it is currently being used. “The bottom line is that we’re flying people up there and spending a lot of money and paying them well to make sure they can safely and efficiently do their work,” Kolean said. Elwood Brehmer can be reached at [email protected]

No. 2 trade partner South Korea eager for more Alaska ties

The South Korean ambassador to the United States said the bond connecting the countries is strong and Alaska that remains a key trading partner with the East Asian country. “I can say without any blush on my face that the relationship between Korea and the United States has never been better,” Ambassador Ahn Ho-Young said to Anchorage Chamber of Commerce members Aug. 4. This year marks the 60th anniversary of formal relations between South Korea and the U.S. following the end of the Korean War, Ahn said. Hosting the ambassador on a tour of Alaska, Sen. Mark Begich said Alaska’s military installations and personnel are critical for the security of both countries when dealing with North Korea. The Senator added that the ties between Alaska and South Korea go beyond security interests. “Korea is a vital commercial partner for Alaska,” Begich said. South Korea was the state’s second-largest international export market last year. The total value of Alaska exports to the country topped $705 million in 2013, up from $477 million in 2010, according to the U.S. Department of Commerce. China has been the largest foreign market for Alaska goods since 2011, with more than $1.2 billion worth of commodities sent to the country last year. Begich remarked to Ahn that energy could be added to the major exports to South Korea of seafood, minerals and forest products in the near future. “We do want to sell you natural gas; we just need to build a little pipeline, but we’re working on it,” he said to the ambassador. Alaska Department of Commerce, Community and Economic Development Deputy Commissioner Jon Bittner said the South Korea market provides benefits to Alaska beyond the final export totals. Those benefits are exemplified in seafood, he said, which makes up roughly half of Alaska’s total exports to the country. Logistical hubs throughout Alaska benefit when seafood is shipped overseas, he said, and the long-term, healthy relationship Alaska businesses have with Korean buyers helps generate further trade activity. He called South Korea the state’s “gateway to Asia.” “Korea serves as a facilitator for Alaska good going to tertiary markets,” Bittner said. Using South Korea as a pass-through for Alaska’s raw commodities headed elsewhere allows for value-added processing to be done in the country, he said. Ambassador Ahn said nationally the U.S. offers the best service industries in the world, something South Koreans take advantage of. American service exports to South Korea have grown by about 20 percent each of the past two years, he said, and the U.S. enjoyed a $3 billion service trade surplus with the country last year. For their part, South Korea businesses invested more than $2 billion in the U.S. in 2013, Ahn said, with Samsung expanding in Texas and California and Kia working in Georgia. The addition of South Korea to the U.S. Visa Waiver Program in 2008 has made it much easier for tourists from the country to get to Alaska, he said. A South Korea-U.S. free-trade agreement went into effect in early 2012, which will help further business activity between the countries as its benefits are fully realized, Ahn said. Nearly 95 percent of commodities will be exempt from tariffs by 2017 under the agreement, according to the Office of the United States Trade Representative. One of those commodities is liquefied natural gas. Free-trade means there is no need to obtain an export license to ship LNG, Ahn said, and his country hopes to start buying shale-sourced LNG in 2017. The last remaining barrier is a work visa, the ambassador said. “We need professionals to move around freely between Korea and the U.S.,” he said. Introduced in the House last year the Partner with Korea Act would eliminate the need for temporary work visas for up to 15,000 South Korean skilled workers each year. Rep. Don Young is one of 103 cosponsors of the bill. Sens. Begich and Roy Blunt, R-Mo., introduced similar legislation in the Senate July 24. Elwood Brehmer can be reached at [email protected]

AEDC: economic outlook good despite gov't spending cuts

Continued good days are ahead for the Anchorage economy, at least according to the Anchorage Economic Development Corp. AEDC President and CEO Bill Popp said the group is optimistic about the coming years and expects about annual growth of 1 percent or more in the number of jobs in Anchorage through 2017. “We continue to set records on an annual basis in terms of the total number of jobs available in Anchorage,” he said. Popp made his remarks July 30 at AEDC’s annual three-year forecast presentation. Alaska-based research firm McDowell Group compiled the forecast. So far in 2014, the city has added about 570 positions across all employment sectors, nearly 0.4 percent growth. The opening of national sporting goods giants Cabela’s and Bass Pro Shops helped spur 550 new retail jobs over the first half of the year, Popp said. “Retail is our rock star so far in the first six months,” he remarked. For nearly a decade the number of available positions in the city’s retail industry has been virtually flat. A repeat of 2013 seems to be in the works so far in 2014 with cuts to 600 government positions split nearly evenly between federal and local employment. “If we didn’t have this decline in employment we would be at our number right now in terms of net new jobs (predicted) in Anchorage,” Popp said. In January AEDC forecasted 1,200 new jobs for the year. The transportation sector has grown by about 450 positions this year and health care has rebounded from a slower than average 2013 to add 320 jobs to date. Business and professional services remains strong with 220 new jobs and a busy cruise season has contributed to 170 new leisure and hospitality jobs. The loss of 870 government positions last year offset significant private sector gains. Ultimately, Anchorage ended 2013 with 315 more jobs than at the beginning of the year — 0.2 percent growth. That decline in government jobs will need to moderate if the forecasted 1 percent overall growth is going to materialize. Still, Popp said the ongoing challenge faced by Anchorage businesses of finding the right employees is becoming a “big headwind” for employers wishing to expand. “We think the private sector job growth could be substantially stronger if we had more qualified candidates in the local market, but the labor pool, as I’ve said before, is a labor puddle,” he said. While AEDC is predicting population growth of about 1 percent annually through 2017 — from 304,100 this year, to more than 313,000 in three years — Popp said most of that growth would be from within. There is a net outflow of adults from Anchorage, he said, likely because other cities across the country have a lower cost of living. “There are other communities in the United States that can offer a better deal,” he said. “We do not have a significant influx of people moving to Anchorage and that is something we need to pay attention to.” As a result, a recent but slight uptick in the city’s unemployment rate is probably going to be short-lived, Popp predicted. In June, Anchorage’s unemployment rate was 5.6 percent, up from 4.8 percent in May, but flat year-over-year, according to the state Labor Department. “By later this summer into the fall we could see unemployment back down in the mid-4 percent range, perhaps even as low as 4.4 (percent),” he said. Ted Stevens Anchorage International Airport is expected to remain busy, which is particularly beneficial to the Anchorage economy because it provides nearly 10 percent of city jobs. Passenger traffic growth is forecasted at about 2 percent annually through 2017, Popp said, meaning more people than ever before will likely be passing through the airport in the coming years. By 2017, AEDC projects more than 5.5 million passengers will use the Anchorage airport. Traffic at the airport rebounded in 2013 to nearly 5.1 million passengers after falling 2.6 percent in 2012. Air freight volumes at the Anchorage airport  — volatile over the last 10 years — will stabilize in the years ahead, AEDC predicts. Popp said global supply chains are shifting slightly away from air freight transport and are using more efficient craft that don’t need to stop in Anchorage to refuel. Personal income is expected to continue growing at between 4.5 percent and 4.7 percent annually, Popp said. The overall total for Anchorage income could surpass $20 billion in 2017, according to AEDC; it was $17 billion last year. Contributing to the income of not only Anchorage residents, but all Alaskans, could be larger Permanent Fund Dividend, or PFD, checks. Popp said 2009, the last poor year for the stock markets, is coming off the books for the investment fund average this year, and 2014’s PFD checks could surpass $1,500. Without specifying sources, he said some experts are predicting future dividends as high as $2,500 or more if the markets remain strong. Such cash influxes would have a “leavening effect” on fourth quarter business in the years ahead, he said. AEDC against Ballot Measure 1 “The AEDC board urges all Alaskans to vote ‘No’ on Ballot Measure 1,” Popp said after his economic forecast presentation. AEDC’s 31-member board of directors passed a resolution opposing the ballot referendum that would repeal the current oil production tax structure known as Senate Bill 21 at a May 21 meeting. While AEDC is not an advocacy organization, Popp said the board felt it necessary to take a stand on this political issue because of the ramifications it feels repealing SB 21 would have on the Alaska. “The reasons the board took this position are many but boil down to a simple view — the measure would have a chilling effect on North Slope oil and gas industry investment and employment, threatening the future and economic health of Alaska and Anchorage,” he said. Groups advocating to repeal SB 21 contend the legislation does nothing to guarantee new investment in Alaska’s oil and gas industry by producers and it doesn’t allow the state to maximize its take of profits during times of high oil prices. “Billions in investments in existing infrastructure over the past decade before the passage of SB 21 are more about risk reduction and cost efficiency than producing new barrels,” he said. Years of production decline from North Slope oil fields have begun to significantly impact the state’s budget, Popp said, and recent investments aimed at producing new oil have materialized only since SB 21 was passed just more than a year ago. He said the multiple tax regimes the state experimented with prior to the current flat tax system did nothing to stem production decline and a fourth change in production taxes will stymie investment. Elwood Brehmer can be reached at [email protected]

Feds ask Mat-Su for ferry grants back

The Federal Transit Administration wants $12.3 million back from the Matanuska-Susitna Borough for the borough’s failed Knik Arm ferry plan. Acting FTA Administrator Therese McMillan sent a letter to Mat-Su Borough Manager John Moosey Aug. 5 demanding repayment of the grant money. The $12.3 million is the portion of approximately $21.2 million in grants approved for the project that the borough has spent. The letter states that the borough has 30 days to repay the Transportation Department agency before FTA begins collections through administrative offset. Moosey said in an official statement on the borough’s website that he was not surprised by the letter. “I expected this (ferry crossing) to be done much easier but this was a challenge,” he said. “We’ve been working diligently looking for solutions to this issue for the last 2.5 years. If we had ferry landings, I’m confident we would not be here today.” McMillan wrote that the FTA is required to begin debt collection per the terms of the grants and does not have the legal authority to waive the debt despite the bind the borough is in. The Mat-Su Borough Assembly has scheduled a special meeting Aug. 12 to address the issue. The ferry vessel, the M/V Susitna, was built as a half-scale naval prototype landing craft vessel, with an agreement that the borough would take ownership and put it to use as a shuttle between Port MacKenzie and Anchorage when the U.S. Navy was through with it. The Navy paid for the lion share of the $78 million construction bill. The borough has been looking to sell or give away the ferry for more than a year since plans to build a terminal dock in Anchorage fell through. If the Susitna is sold to a private entity the borough would have to pay back much of the FTA grant money. However, if it can be donated to an eligible domestic government, the Mat-Su Borough might be able to seek grant forgiveness, a borough release states. The borough has approached the Alaska Marine Highway System and the National Oceanic and Atmospheric Administration about donating the Susitna, but an agreement couldn’t be reached. Private groups have made offers to purchase the Susitna, but none would have covered the cost to repay the grants. The Philippine Navy and an oilfield service company are expected to inspect the Susitna, docked at Ward Cove near Ketchikan, later this month. Dock fees, insurance and general upkeep have cost the borough several hundred thousand dollars per month while the Susitna has gone unused, Mat-Su officials have stated. The $3.6 million ferry terminal at Port MacKenzie is part of the $12.3 million FTA debt, according to the borough. Despite being unwanted, the 195-foot Susitna is a vessel with remarkable capabilities. The catamaran ferry has the space to hold up to 129 passengers, 20 vehicles and has a 35-ton overall freight capacity. It has a main deck that can be lowered to offload equipment and can land on beaches in as little as four feet of water. Elwood Brehmer can be reached at [email protected]

Alaska Air reports another record quarter

At Alaska Air Group Inc. records are indeed made to be broken. Leaders of the parent to Alaska Airlines reported a record second quarter net income of $157 million. The results reported July 24 are a 50 percent increase in profits versus the $105 million second quarter of 2013 and mark the company’s eighth record net income in the last nine quarters. It was also Alaska Air Group’s 21st consecutive profitable quarter. Operationally, President and CEO Brad Tilden said Alaska Airlines had the highest on-time performance among the eight major domestic carriers at 88 percent. “With the continued commitment of our people across the system, we expect to deliver another year of exceptional financial and operational performance in 2014,” Tilden said during an earnings call with investors. The adjusted earnings broke down to $1.13 per share, up 53 percent from the second quarter of 2013. Air Group stock was trading at $46.47 near the end of trading July 29. The company executed a two-for-one stock split July 9. Operating revenue was up 8.7 percent year-over-year at $974 million. Pre-tax margin grew 18.3 percent and adjusted pre-tax earnings were $252 million. Air Group Chief Financial Officer Brandon Pedersen said the phasing out of older aircraft helped improve Alaska Airlines’ fuel efficiency by 2.5 percent in the second quarter. That, combined with hedging lower fuel hedging costs that saw the economic fuel price drop 2.4 percent year-over-year, contributed to the positive results, according to Pedersen. He said there is a target of returning $350 million to the company’s shareholders by the end of the year. It is currently issuing a quarterly dividend of 25 cents per share. “When viewed as a percentage of either free cash flow or net income, Air Group’s distributions will likely lead the industry, underscoring our long-term commitment to ensuring that our owners get an appropriate return,” Pedersen said. The dividends totaled $34 million in payouts over the first half of the year. Through June, the company had repurchased 1.8 million shares totaling $83 million, he said. In May, a new, multi-year $650 million stock repurchase plan was announced on the back of a just-completed $250 million repurchase program. Its 12-month running return on invested capital, or ROIC, was 16.1 percent, up from 13 percent during the previous 12 months. Alaska Air Group finished the quarter with an adjusted debt-to-capital ratio of 32 percent. Pedersen said it was 81 percent at the end of 2008. With its credit rating of BBB- by Fitch Ratings, Alaska Air Group is one of only two major domestic carriers to have an investment-grade credit rating. The other is Southwest Airlines. “This important recognition validates the work we’ve been doing to position Air Group as a high-quality industrial company,” Pederson said. Aside from the financials, Alaska Air Group became a Fortune 500 company for the first time in its history during the quarter.  “Our pensions are fully-funded and we own 73 of our airplanes free and clear,” he said. “Our balance sheet puts us in an excellent position to defend the franchise we’ve created here in the Pacific Northwest.” Air Group Senior Vice President Andrew Harrison said passenger revenue was up 8 percent on a 5.2 percent increase in capacity for the quarter. In recent months Delta Air Lines has increased its schedule out of Seattle, Alaska Airlines’ main hub, a trend Harrison said Alaska Air Group expects will continue. He said Delta’s Seattle flights will likely overlap with half of Alaska Airlines’ available seat miles by next summer. The increased competition has hurt unit revenues for several quarters and will continue to, Harrison said. Delta and Alaska Airlines have been partners in many ventures including mileage plans for many years, a relationship that has been strained by Delta’s increased presence in the Pacific Northwest. Tilden said the revenue gained from feeding Delta’s flights as well as the “natural end-to-end connection opportunities” with the industry giant could make working through the relationship challenges worthwhile. By next spring, Alaska Airlines’  Seattle departures are expected to grow by 11 percent, he said. For the remainder of the year Alaska Airlines will look to wrap up a $100 million investment in new seats for its 94 Boeing 737-800 and 737-900 aircraft. The seats each have a power outlet and USB input for electronics and will grow capacity by 2.4 percent without sacrificing legroom, company officials have said. Along with the seat upgrade, Alaska Airlines will be the first airline to install Boeing’s new larger overhead compartments, allowing passengers to have larger carry-on items, Tilden said. Elwood Brehmer can be reached at [email protected]

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