Elwood Brehmer

Fairbanks legislator suggests Interior gas pilot project

A Fairbanks legislator is pushing state officials to market the benefits of converting home heating systems away from fuel oil to Interior residents. Rep. David Guttenberg said representatives from the Alaska Industrial Development and Export Authority and its sister group the Alaska Energy Authority involved in the Interior Energy Project have expressed concerns over the prospect of a market for North Slope gas in the Fairbanks area at recent meetings. The Interior Energy Project is the state’s plan to truck liquefied North Slope natural gas to Fairbanks and North Pole as a way to relieve high energy costs and poor winter air quality caused by the region’s dependence on home heating oil. “It’s the same old dialogue about there’s no gas because there’s no market — no market because there’s no gas,” Guttenberg said in an interview with the Journal. Fairbanks Natural Gas, which already supplies more than 1,100 customers in the core of Fairbanks with natural gas, and the Interior Gas Utility, or IGU, estimate they will combine to make gas available to about 13,600 new residential customers by 2024. With a much larger distribution build out plan, IGU will be able to supply less than 2,000 residences when first gas is available in late 2016, according to presentations by the utility. The utilities and the state agencies have said that voluntary residential conversion from fuel oil to natural gas home heating is critical for the project to create demand and a market for gas to hit AIDEA’s stated goal of a final “burner tip” price of $15 per thousand cubic, or mcf, of gas. Conversion is expected to be slow in the first years of the project and increase as gas becomes available to more homes. Depending on the type of boiler system a home has, conversion could cost anywhere from $2,300 to more than $10,000, according to a January 2014 study conducted by the environmental consulting firm Cardno Entrix for the Interior Energy Project. “I proposed that (AIDEA) simply start a pilot program to create enthusiasm for the market,” Guttenberg said. While his plan would leave the details to the experts, Guttenberg said, for example, the IEP team could choose 100 Fairbanks homes to retrofit and subsidize the changeover. It would be a way to assure people the state is not “spending hundreds of millions towards more studies, more projects that are never going to happen,” he said. Doing so would also create an anticipation and enthusiasm amongst Interior residents for a cheaper energy supply when gas finally starts rolling down the Dalton Highway, Guttenberg said. “Get gas to them, make it a very visible project and get people motivated (and asking) ‘Why don’t I have gas?’” he said. AIDEA and AEA have responded that they are discussing ways to encourage conversion, according to Guttenberg. The Cardno Entrix study projects 10 percent of residential customers will convert in the first year of each build out phase. In year two, another 40 percent will make the change to natural gas and by the fifth year gas is available 90 percent of eligible homes will be hooked up to the gas distribution system, the study claims. Another key to the project is what kind of large commercial or industrial demand there is for gas. Golden Valley Electric Association President and CEO Cory Borgeson has said the utility would purchase up to 2.5 billion cubic feet of gas annually as soon as it is available for power generation. That commitment has shrunk since Golden Valley’s Healy clean coal power plant has become a reality. The likelihood of finding other large customers to make the project viable is unknown, but AIDEA’s team says it is something they are continually working on. While a plan like the Interior Energy Project has been discussed for years, it came together at the end of the 2013 session when the Legislature passed $332.5 million in bonds, loans and grants to get North Slope gas to the region in Senate Bill 23. If Guttenberg’s suggestion of a marketing plan with the easiest gas available, likely trucked Cook Inlet gas, takes shape, another funding source would probably be needed as SB 23 specifies all the funds from the legislation must be used to get North Slope gas south. A Democrat, Guttenberg said Gov. Sean Parnell could make subsidized conversions a reality if he wanted. Spending up front to market a product is something done successfully in the private sector every day, he said. “Act like a normal entity. Act like someone who is trying to create a market for your product,” he said. “Get the enthusiasm going; that’s basically it.” The fact that Interior’s energy crisis hasn’t yet been solved should be blamed on Alaska’s recent leadership, he said, and is one of the “failings” of the Parnell administration. “When oil hits $100 and above and you’re in that neighborhood and you’re getting billions of dollars of extra revenue as far as I’m concerned you have an obligation to build an economy,” Guttenberg said. “You hear from the (Fairbanks) Chamber of Commerce and everybody the one thing holding down development is the cost of energy.” Elwood Brehmer can be reached at [email protected]

Industry offers avgas alternatives, FAA targets 2018 use

The Federal Aviation Administration announced July 10 it has received proposals for alternatives to leaded fuels for piston-fired engines. FAA officials have said their goal is to have an unleaded aviation fuel option available by 2018. “We’re committed to getting harmful lead out of general aviation fuel. This work will benefit the environment and provide a safe and available fuel for our general aviation community,” Transportation Secretary Anthony Foxx said in a formal statement. Aviation gasoline, commonly referred to as avgas, is the only commonly used fuel in the country that still has lead added to it. The most widely distributed avgas is a 100-octane fuel known as 100 low-lead. The toxic element is added to avgas to achieve a higher octane level in the fuel, which improves engine performance, and lubricate parts in highly stressed piston aircraft engines. Federal regulations ended the addition of lead in vehicle fuels nearly 40 years ago. Jet fuels do not contain lead. According to the FAA, there are approximately 167,000 general aviation aircraft in the United States that use leaded fuel. There are more than 10,000 piston-engine aircraft registered in Alaska, meaning the state has nearly 16 times the aircraft per capita as the national average, the state Transportation Department reports. The FAA requested the 10 alternative fuel proposals it received in June 2013 as part of the agency’s Piston Aviation Fuels Initiative, or PAFI, aimed at helping the general aviation industry make a smooth transition to unleaded gasoline. The proposals came from fuel producers Afton Chemical Co., Avgas LLC, Swift Fuels and a group including BP, Total USA and Hjelmco. The fuel initiative will play a “key role” in deployment of unleaded fuel across the nation’s existing general aviation fleet, an FAA release states. Congress appropriated $6 million in the current budget to fund the PAFI tests at the FAA Technical Center in New Jersey. Testing will analyze how common engines in the existing fleet respond to the fuels, associated costs, the possibility of their production and distribution and potential environmental impacts. Jane Dale, the government affairs coordinator for the Alaska Air Carriers Association, said more money needs to be put towards fuel research if significant steps to eliminate leaded avgas are going to be taken. FAA Administrator Michael Huerta said in a release that the agency would collaborate with industry partners and the Environmental Protection Agency to find a viable solution to leaded avgas. Restricting avgas consumption would only work in Alaska if a substitute fuel performs like its leaded predecessor, Dale said. If substitute fuels do not have the same characteristics of avgas, they would have to be implemented over decades, up to 30 years, she said, to allow for the industry to transition its fleet. Nearly 96 percent of the commercial aircraft fleet in Alaska is piston-engine aircraft that burn leaded fuel, Dale said, meaning new fuel requirements would have an immediate and lasting impact on the state’s economy. According to the federal bureau of transportation statistics, avgas accounts for 0.15 percent of the fuel consumed nationwide, but that figure jumps to 3.38 percent in Alaska. “The federal government should commit to a substantial research and development program for aviation fuel and produce a viable fuel alternative prior to any regulatory changes,” Dale said. The EPA estimates about 14.6 billion gallons of avgas consumed between 1970 and 2007 emitted approximately 34,000 tons of airborne lead. Avgas is the single largest contributor to airborne lead particulates in the country, according to the agency. The aviation industry has come under fire from environmental groups for purported impacts of using leaded fuels in populated areas. Friends of the Earth has led a petition since 2006 to the EPA calling for tighter regulations regarding lead emissions from agvas. In April of this year Friends of the Earth filed a motion requesting the EPA reconsider a 2012 denial of its petition. The motion claims the EPA has all of the information it needs to make a finding that avgas lead emissions “may reasonably be anticipated to endanger public health or welfare.” EPA has said it intends to make a final endangerment determination in mid-to late 2015, after studies of the issue are complete. Elwood Brehmer can be reached at [email protected]

Alaskans take up oil debate before Aug. vote

The public was encouraged to participate in the oil tax discussion July 14 during a debate between current and former state government officials broadcast across Alaska. Voters will have the final say on the issue August 19 when they either vote “yes” on Ballot Measure 1 to repeal the current oil tax structure known as Senate Bill 21, or “no” to keep SB 21 in place. Rep. Les Gara, D-Anchorage, who has been at the forefront of the “Repeal the Giveaway” movement against Gov. Sean Parnell’s SB 21, and Juneau natural resources attorney Lisa Weissler sat on the “yes” side of the table at Juneau’s Mendenhall Valley Public Library. Opposing them was Jim Clark, former chief of staff to Gov. Frank Murkowski and Murkowski’s former Revenue Commissioner and Alaska Electric Light and Power Co. chief Bill Corbus. Alaskans from Craig, Dillingham, Bethel, Anchorage and Kenai were encouraged to question the four-person panel via videoconference. Juneau Votes, a non-partisan group aimed at increasing voter turnout, coordinated the debate. Gara opened his remarks by calling SB 21, which lowered the state’s take of oil profits at high prices, a “pathway to poverty” for Alaska. He said repealing SB 21 and going back to ACES, the progressive oil tax structure that increases the state production tax as market prices rise, is in line with the state constitution’s mandate to maximize the use of Alaska’s resources for the benefit of all Alaskans. “(The constitution) requires us to get the maximum benefit possible because we own the oil,” Gara said. “It’s how we fund our schools, our construction jobs, our roads, our infrastructure, our energy progress.” Corbus said nearly half of the state’s jobs are tied to the oil industry in some way and that SB 21 encourages short and long term investment that will secure those jobs as opposed to taking as much money as possible through high taxes. Roughly 90 percent of the state’s revenue comes from the oil and gas industry in the form of lease sales and production and corporate income taxes. Clark and Gara dominated the discussion. Seated at opposite ends of the table, the two revisited a disagreement over SB 21’s actual production tax rate. Clark insisted it sets a 35 percent rate for existing production, a figure Parnell’s administration has used. Gara claimed the rate is 27 percent for existing fields and 13 percent for “new oil” produced from fields that came online after 2003. Over time the less-taxed new oil will overtake traditional production and cripple state revenue, Gara and Weissler said. Gara pointed to Department of Revenue projections that the state will have a budget shortfall of approximately $2 billion over the next five years at oil prices of $100 per barrel as proof that SB 21 is a “giveaway.” Clark called it “disingenuous” to attribute those losses to the new tax — that they would’ve occurred under either tax system because ACES and SB 21 generate about the same revenue for the state with oil prices at or just above $100 per barrel. At lower prices, SB 21 draws more tax dollars, according to the Revenue Department. Increasing production in the existing fields by 2 to 4 percent would help blend the lower taxes of new oil into the state’s take and offset potential revenue declines, according to Clark. He said Gara’s cohorts in the “Repeal the Giveaway” campaign agree ACES was not the correct tax system because production decline continued at an average of about 6 percent per year during the six years it was in place. He noted that the total government take — the combination of local, state and federal taxes on net oil revenue — under ACES averaged about 72 percent. “That’s quite a bit higher than our competitors,” Clark said. The oil producing states edging the Gulf of Mexico have total take rates near 50 percent, he said, and to be in the middle of the pack Alaska’s needs to be from 60 to 65 percent. Gara dismissed Clark’s claim. “The tax rate is not what attracts new investment,” Gara said. “I know it has an impact, but it’s not what attracts new investment.” He backed that statement by highlighting the fact that North Slope oil production has declined steadily since 1989 under numerous tax regimes. When dealing with large corporations that do business in a global market lower taxes or tax credits must be tied to in-state investment, Gara said, and the “flaw of SB 21” is that there are no such requirements in the law. Even Parnell’s own Revenue Department forecasted a 45 percent decline in production by 2024 under SB 21, Gara contended. Corbus said those figures are based on prior investment projections by producers and do not account for future projects encouraged by the newer tax. Clark said the recently announced stem in production decline — production in fiscal year 2014 was just 700 barrels per day less than fiscal 2013, the Revenue Department announced — proves SB 21 is working. Gara offered his view on how the state should deal with oil taxes if SB 21 is repealed and ACES is reinstated. “We should rewrite a law that takes some of what was in ACES, a lot of what was in ACES, that says you get tax breaks if you invest in Alaska — you can buy your tax rate down if you invest in Alaska,” he said. Clark countered that a 2010 reduction in taxes for Cook Inlet producers helped spark what is now considered a rebirth of activity in the Inlet that has quelled fears of a natural gas shortage for Southcentral. Oil industry investment is spurred by a combination of oil price, ease of production and taxes, Clark said. He emphasized often during the two-hour back-and-forth that Alaska must find the “sweet spot” between state tax, oil price and production to maximize state revenue. Additionally, Clark predicted that if ACES is reinstated, legislators will be hesitant to change it, as Gara says would happen. “I think a vote of the people that turns down SB 21 and goes back to ACES is going to live with ACES, which even the ‘yes’ proponents agree is a broken system,” Clark said. Gara said he plans on reintroducing a bill in the upcoming session that would provide state-funded, low-interest loans to independent producers for processing facilities and other production infrastructure as a way of encouraging investment. The one point both sides could agree on is that projecting oil prices, which play a dominant role in which tax structure garners the state the most money, is a losing game. “I’ve rooted for different oil prices for different reasons and I’ve been wrong every time,” Gara said. Corbus said oil prices are unpredictable because they are subject to an “emotional business” that has much to do with international politics. Clark said because the state relies so heavily on oil taxes for its revenue Alaska has created a “de facto” partnership with the producers and is “at the mercy” of the oil and gas markets, like it or not. “(Oil companies) are not in Alaska because they love us; they’re in Alaska to make money,” he said. Elwood Brehmer can be reached at [email protected]

Strong, early sockeye returns highlight salmon season

The Bristol Bay sockeye run continues to exceed expectations. Prior to the season, the Alaska Department Fish and Game forecast was for a sockeye run of 26.6 million fish. A run of that size would have allowed a commercial harvest of 17.9 million fish, leaving about 8.7 million fish for escapement. All of those numbers have already been surpassed. Through July 7, ADFG counted a total salmon run of 30.88 million in the region. The commercial harvest through that day was 21.14 million fish. The run has also well surpassed the 2013 run of 23 million fish. The 20-year average run is approximately 36 million sockeyes for Bristol Bay. Strong red returns in the Wood River drainage pushed ADFG to increase the sport fish limit from five to 10 reds per day on July 4. The Wood River run was more than 1.9 million through July 2, far greater than the upper escapement goal of 1.5 million fish. An early and now waning king salmon run on the Nushagak River forced the department to halve the daily bag limit — from two to one — for sport caught kings in the large Bristol Bay watershed July 7. As of that day, 59,539 kings had passed the Portage Creek sonar on the Nushagak, well off last year’s total of 86,054 kings for the same day. The total Nushagak king run in 2013 was 113,743 fish. According to a July 3 ADFG release, the run is expected to fall within the escapement goal range of 70,000 to 90,000 kings. Southcentral Upper Cook Inlet sockeye returns continue to outpace historical averages as well. Through July 8, 42,273 early-run sockeyes had passed the Russian River weir, exceeding the runs upper-end escapement goal of 42,000 fish with six days of counts to come. The traditionally larger late run officially begins July 15. Those late-run reds are on their way up the Kenai River, too. Nearly 127,000 fish had passed the sonar at Mile 19 of the Kenai by July 8. By comparison, 50,100 late-run reds had passed the counter in the same period last year. The Kenai River personal use dipnet fishery begins July 10. King salmon caught in the fishery must be released. Sport king fishing opened July 1 on the Kenai below a regulatory marker near Skilok Creek, downstream of Soldotna. The first week of the run is ahead of the previous two years with 1,524 fish counted through July 7. Single-hook and no-bait restrictions are in place for the fishery. With more than a month to go in the Kasilof River red run and already surpassing its minimum escapement goal of 160,000 fish, ADFG increased the daily bag limit from three to six sockeyes on the Kasilof July 4. Through July 8 the Sterling Highway sonar on the river had counted 201,469 sockeyes. Additionally, ADFG expanded the personal use red fishery on the Kasilof through Aug. 7, opening the river to dipnets up to the Sterling Highway bridge. Upper Inlet commercial fishers have harvested 520,000 salmon, ADFG reported July 9. Of those, 452,210 were Upper Cook Inlet Central District sockeyes. The department also reported 2,481 kings had been taken commercially in the Upper Inlet. To the south, the Lower Inlet commercial fleet had harvested 122,683 salmon, a catch dominated by 117,848 sockeyes as of July 9. Elsewhere in Southcentral, more than 17.8 million salmon have been harvested commercially in Prince William Sound fisheries, according to ADFG numbers available July 9. The eastern purse seine fishery pinks accounted for more than 10 million of those fish, with another 2.8 million pinks harvested in the Montague District. Copper River gillnet fishers had taken 1.8 million sockeyes and 9,541 kings, according to the Sound report. Through July 8, nearly 960,000 sockeyes had passed the Miles Lake counter on the Copper. The upper escapement goal for the fishery, which is counted through July 27, is 750,000 sockeyes. As a result of the high sockeye returns, ADFG is opening the Chitina dipnet fishery July 14 to July 20 with a supplemental harvest of 10 fish per household allowed above the annual limit. The yearly limit is 15 for household of one and 30 salmon for households of two or more. Commercial harvest of Kodiak sockeyes neared 789,000 fish as of July 7, with the total salmon catch eclipsing 1 million fish. A majority of the sockeyes came from the Karluk River area with 423,521 fish harvested there. More than half — 41,870 — of the 91,664 pinks harvested in Kodiak fisheries came from Karluk as well. Chum harvest around the island totaled 106,094 fish through the first week of July, with the Karluk, northeast and Duck bay areas dominating the catch. Southeast The summer king troll fishery opened July 1 in Southeast. ADFG’s total king harvest target, with Alaska hatchery fish, is 171,300 fish. Harvest statistics will not be available until later in the month, according to the department. In the spring troll fishery about 43,000 kings were taken. That was the highest number since 2007. Only 7,000 chums were harvested by 43 Icy Strait spring troll fishers, down from a harvest of 280,000 chums by 185 permit holders in the same area in 2013, ADFG reported. The region’s purse seine fishery opened in traditional areas June 15. ADFG is projecting a harvest of 22 million pinks, well below the 10-year average of 34.5 million of the small salmon. Total chum returns, which are primarily hatchery fish, are expected to be 9.9 million salmon. Elwood Brehmer can be reached at [email protected]

Nearing 30 years, state power program keeps going and going

About to turn 30 years old, a state power assistance program is more important than ever to life in rural Alaska. The Power Cost Equalization Program, known as PCE, helps mitigate the financial burden of electric bills that can be downright exorbitant with just modest power use in some parts of the state. Designed to bring power costs for rural residents in line with the rates their urban counterparts pay, Alaska Village Electric Cooperative President and CEO Meera Kohler said PCE takes what is often a rate of 60 cents per kilowatt-hour or more and reduces it to a more manageable rate of about 20 cents per kilowatt-hour, or kwh. “PCE is probably the number one issue in terms of importance to us,” Kohler said. Rising diesel prices — the fuel behind power generation in almost all PCE participating communities — particularly in the last five years, has pushed the program to provide roughly $40 million in annual assistance of late to the 81,000 Alaskans that lived in the 190 communities eligible in fiscal year 2013, according to data provided by the Alaska Energy Authority, which administers the program. Eligible utilities turn in monthly reports to the authority and are then reimbursed for the qualifying power their customers used. The base PCE rate is the weighted average of Railbelt and Juneau utility rates. Because Chugach Electric Association in Anchorage provides more than half of the residential sales used to calculate the base rate, its rate accounts for more than half of the equation. That rate is expected to be 14.8 cents per kwh for state fiscal year 2015, up 0.8 cents from 2014, and is very near current Chugach rates. AEA Executive Director Sara Fisher-Goad told the authority’s board June 26 that not all of Golden Valley Electric Association’s residential sales, at by far the highest rates among Railbelt utilites, factor in to the base PCE rate. “Although Golden Valley has the higher rates, the percentage of their impact to those rates is less because it’s just the City of Fairbanks that is included, not the entire (Fairbanks) North Star Borough,” she said. As a result, sales to about 35,000 residents are calculated into the formula, not 90,000. Golden Valley was calculated into the latest PCE base with a rate of 23 cents per kwh. The maximum PCE rate for each community is equal to 95 percent of the local utility’s operating costs, up to $1 per kwh, minus the base rate. For this fiscal year, the PCE assistance cap is 80 cents per kwh. The most recent average cost after assistance is 21 cents per kwh, according to AEA. Fisher-Goad said only utilities participating in the program at its inception in October 1984 are eligible for assistance today. Any utility with costs below the urban average, primarily those utilizing natural gas or hydropower, is not eligible. That includes the “Four Dam Pool” communities of Ketchikan, Wrangell, Petersburg, Kodiak and the Copper River valley. To qualifying utilities, PCE offsets about 30 percent of all of the power they sell, according to AEA. Assistance is offered to residential customers, with a cap of 500 kilowatt hours per month, and community facilities, with a cap of 70 kilowatt hours per resident per month. The local qualifying local services include sewer and water, community buildings and public lighting. Without PCE, average rural customers would see their bills triple from about $100 per month to $300 per month, Kohler said. That is particularly significant when the customers often have limited incomes that go almost exclusively towards energy bills, food and clothing, she said. “Most of the protein on their tables comes from subsistence (harvest) so thank goodness for that,” Kohler said. Commercial customers, eligible for assistance in the early years of the program, no longer qualify; neither do state facilities. Kohler said the local facility assistance is essential to keeping some rural towns alive. “The cities are able to operate their facilities because their cost of power is a third of what it would otherwise be and if PCE were to go away I think there would be a lot of communities that would basically close their doors,” Kohler said. “The local governments would not be able to pay the electric bill. They’re already struggling with the heating bill.” As it stands, a lot of rural communities have cut all full-time employees to save money, she said. Along with eliminating commercial customers, PCE has seen its use cap lowered from 700 kwh per month to the current 500 kwh, a reduction that cut program costs by 40 percent, but also put a seasonal strain on some customers, Kohler said. A vast majority of rural residents don’t hit the 500 kwh cap during summer, she said, but exceed it in winter. Kohler said she has supported bills that have stalled in the Legislature in recent years that would raise the cap to 600 kwh per month. “I would very much support PCE going to support commercial customers, especially if the limit is the same as residential and for some small businesses it might make a very material difference,” she said. “But the political realities — you choose your battles and my battle is to preserve PCE for residential customers.” Fisher-Goad said ways to improve the program are always being investigated, but in recent years it has been healthy and self-sustaining. The Power Cost Equalization Endowment Fund was capitalized in 2000 with Constitutional Budget Reserve money and sale proceeds from the Four Dam Pool projects, she said. The fund has about $943 million in it today and was supplemented in 2006 and 2011 with capital appropriations totaling $582 million. Managed by the Department of Revenue, AEA is authorized to take up to 7 percent of its three-year market average from the endowment to pay for the program. Fisher-Goad said the authority uses about $300,000 to cover administrative costs and another “very small” amount to train utility operators on how to comply with the program to achieve maximum efficiency every year. AEA anticipates investments by the Revenue Department will be relied upon as the sole funding source for the endowment for the foreseeable future, Fisher-Goad said. Revenue has a legislative mandate to achieve 7 percent returns on the endowment in order to keep it solvent. Along with the legislation to raise the kilowatt-hour ceiling, legislation to eliminate the return mandate and cap AEA’s draw at 5 percent stalled last session. While the department has done “a fabulous job on meeting the investment mandate,” and then some the last several years as Fisher-Goad said, Deputy Revenue Commissioner Mike Pawlowski said discussions came up in the department during the last session about how to reduce the stress of hitting such a high return. “PCE is one of the only funds that Revenue manages that has statutory direction to achieve that type of a rate of return and internally we’ve raised that there are risks that come along with chasing that type of return,” Pawlowski said. Regardless of how the program may change in the future, Kohler said she wants all Alaskans to understand it is not an entitlement program, particularly during years of leaner state budgets. “(PCE) makes a very, very modest amount of electricity affordable for Alaskans who want to live in the places they’ve lived for thousands and thousands of years,” she said. “I feel that all the wealth of Alaska has come from rural Alaska and the very least we can do is sustain rural Alaska because in my opinion, that’s what makes Alaska, Alaska — rural Alaska.” Elwood Brehmer can be reached at [email protected]

MARAD seeks dismissal of port suit

The U.S. Maritime Administration asked a federal court to throw out the Municipality of Anchorage’s suit against the agency over its involvement in the city’s port expansion debacle. In its motion for dismissal submitted June 27 to U.S. Court of Federal Claims Judge Edward Damich, the Maritime Administration, or MARAD, asserts the memorandums of understanding it worked under on the Port of Anchorage construction project were cooperative agreements and do not hold it liable for the money lost on the currently stalled project. MARAD and Anchorage entered into the first memorandum, or MOU, in 2003 to comply with a congressional requirement that federal funds for the project be doled out by the Department of Transportation agency. In 2011, after widespread construction problems were discovered, MARAD and the city signed another MOU that expanded MARAD’s role to be a part of the Port Oversight and Management Organization. As a member of that group, along with city and port officials, MARAD was to help provide “overall executive leadership vision, policy, strategic objectives, and priorities for the project,” the MOU states. No substantial construction has occurred at the port since damaged sheet pile dock facing was discovered in 2010. Anchorage sued MARAD at the end of February claiming the agency owes it unspecified damages for the port construction project that has little to show for the $439 million of public money poured into it. Early designs estimated to cost less than $300 million added an all-but earthquake proof north dock to the port and replaced the aging pile dock that is now 50 years old. MARAD’s attorneys point out that Anchorage has already tried to recoup damages for similar claims from other parties involved in the construction drama. The suit against MARAD pulled the last significant player in the port project into litigation with Anchorage. The city sued the project management, dock design and consultant companies in March 2013. That case is ongoing in Alaska U.S. District Court. Anchorage’s claim alleges MARAD failed to live up to the MOUs because it failed to provide “promised expertise to design, construct, and oversee the design and construction of the project.” The city also says it has virtually lost the $139 million of federal money appropriated to the project because of MARAD’s mismanagement and will likely not have the benefit of federal funds going forward. On the original 10-year timeline, the Port of Anchorage expansion was supposed to be completed in 2013. Anchorage Mayor Dan Sullivan has said it now will likely be at least 2019 before a scaled down version of the port is finished. Finally, Anchorage claims MARAD “recklessly” settled a contract dispute with Integrated Concepts and Research Corp., the project management firm, by paying out $11.3 million to ICRC without the city’s consent or knowledge. To the first set of allegations, MARAD’s attorneys note that the agency had no experience or technical expertise in designing or managing a complex construction project before the Anchorage work, a fact the city was well aware of. According to MARAD, the listed terms of the 2003 agreement require it to handle the project financials and little more. MARAD’s attorneys noted in the 45-page motion that the first MOU requires Anchorage — the municipality and the port — to “provide overall program requirements and direction of port expansion to MARAD.” Further, city officials were to “review all plans, specifications, and status reports submitted by the primary contractor and its subcontractors before submission to MARAD,” the 2003 MOU states. Because it was tasked mainly with money — a role it claims was directed by Congress — MARAD had the authority to settle its contract argument with ICRC and Anchorage blends the distinctly different 2003 and 2011 MOUs in its complaint, the agency contends. “The 2003 agreement, which was in place until after discovery of construction and design problems in 2010, placed the risk of failure (as between Anchorage and MARAD) primarily on Anchorage by assigning Anchorage greater management responsibility,” MARAD’s motion asserts. MARAD also cites the meeting minutes from the June 24, 2003, Anchorage Assembly meeting when the first MOU was formally approved as proof the city was aware of its own and MARAD’s roles in the project. Then-Port of Anchorage director and former Gov. Bill Sheffield “was satisfied that Anchorage retained sufficient program control of what improvements would go into the port, where they would be located, and what they would do. Under the arrangement with the federal government, MARAD would be responsible for handling and paying construction claims,” according to an excerpt from a report Sheffield gave to the assembly in support of an amendment to the 2003 MOU, cited in MARAD’s dismissal motion. The agency’s limited role in the Port of Anchorage project was criticized in a Transportation Department Inspector General audit of the agency’s work in Alaska, as well as its involvement in port projects in Hawaii and Guam. The IG report blames the construction issues on the fact that MARAD delegated its technical and program authority to Anchorage through the MOUs, according to the motion. MARAD states that Congress did not give it the directive to begin obtaining technical and construction expertise until 2009, after it was involved in Anchorage, as a reason for its purported role as a money-handling agency in the project. Elwood Brehmer can be reached at [email protected]  

AIDEA advances Interior gas project despite unknowns

The Alaska Industrial Development and Export Authority board of directors approved the framework of an agreement for the construction and operation of a North Slope natural gas liquefaction plant June 26 without yet knowing exactly what its financial contribution to the plant will be. The concession agreement, as it is known, lays out how AIDEA’s project partner MWH Global Inc. will incorporate the private investment it secures with the state funds dedicated to the Interior Energy Project through Senate Bill 23. How much state money will need to go into the plant will depend on the final cost of the gas to Interior residents, which is dependent upon multiple unknown costs at this point. Prior to entering an executive session, the board had a tense discussion with staff from AIDEA and MWH about the possibility of the state fronting nearly all of the money for the plant — up to $182.5 million — under the terms of the concession agreement. The state money would come from $125 million of Sustainable Energy Transmission and Supply, or SETS, fund loans and a $57.5 grant appropriated to AIDEA in SB 23 to pay down the cost of gas from the project. Board member and former state senator from Fairbanks Gary Wilken said the prospect of the state paying for the bulk of a North Slope LNG plant expected to cost between roughly $160 million to $200 million is a diversion from what the board was told in January when it selected MWH to participate in the Interior Energy Project. Based on MWH’s term sheet at the time, AIDEA was told portions of the SETS and grant money totaling $79.5 million would still be available for funding gas distribution systems after the plant was paid for, Wilken said. AIDEA Executive Director Ted Leonard said that was not the case. “We’ve always said a majority of the SETS funds would go into the plant and also the capital appropriation. That’s been in all of the presentations that I’m aware of,” Leonard told the board. “We are looking into having as much owner or investor money in the plant as we can where it still makes the (gas) price out of the plant viable.” After an executive session the board unanimously approved the concession agreement. According to the final MWH term sheet, MWH would contribute a minimum of $20 million and up to $85 million to the plant through its investor, Toronto-based Northleaf Capital Partners. AIDEA would then be on the hook for the remainder, between roughly $75 million to $180 million depending on a combination of the cost of the plant and private investment. MWH Vice President and Managing Director Rick Adcock said that Northleaf wants to invest as much as possible while keeping the final cost of gas for Interior residents down. AIDEA has continuously said its goal is to provide a “burner tip” gas price to consumers of about $15 per thousand cubic feet of gas, or mcf. That would be about half the cost of fuel oil, which many area residents currently use for heat. How much private investment the authority secures will depend on the cost to construct and operate the plant. AIDEA Deputy Director Mark Davis said an “indicative” plant price should be known by the middle of July.  Similar prices for transportation down the Dalton Highway and gas storage in Fairbanks and North Pole should be available by July 25, according to MWH’s Chris Brown. The indicative prices are closer to the final price than the feasibility estimates used earlier, but are still variable. Ultimately, the costs that will make up the final gas price should be known by Oct. 1, Davis said. By the end of October all costs and investments should be set and gas purchase agreements should be in place, MWH has said. Another point of contention at the meeting was the unveiling to the board that AIDEA will likely use a gas supply contract that Interior utility Golden Valley Electric Association has with BP to feed the plant. Board chair Dana Pruhs called the use of Golden Valley’s contract “a cardinal change” in the project. Pruhs asked AIDEA staff if Golden Valley would be able to set its own gas price that could inflate the final cost. Golden Valley President and CEO Cory Borgeson said in an interview that the utility would act as a “pass through” for other utilities — Fairbanks Natural Gas and the Interior Gas Utility — buying gas from the project and would not mark up the cost. The 20-year supply contract is for up to 23 billion cubic feet, or bcf, of gas per year, much more than the total estimated residential demand of 7.5 bcf. “I believe that BP provided us this gas contract thinking that this contract would be used for this project because at the time we got this contract Golden Valley was pursuing (to lead) this project,” Borgeson said. He said he believed AIDEA has worked hard to get its own contract but that securing a supply contract from a producer is “very hard.” Borgeson said he could not disclose the contract price. AIDEA’s cost models for the project have put the wholesale cost of gas at between $3 and $4 per mcf. Always viewed as an anchor tenant, Golden Valley can commit to an off-take of 2 bcf per year for electrical generation, Borgeson said. That gas would offset power currently produced by burning diesel. As a large Interior Energy Project customer, the more gas Golden Valley purchases the lower the cost of gas would likely be for everyone involved. He added that Golden Valley was recently notified by Fort Knox mine, a major customer, that the gold producer would be cutting back its annual power demand in 2017 from 33 megawatts to about 12 megawatts to 17 megawatts, a fact that could affect how much gas Golden Valley needs. Borgeson has said the utility has a responsibility to its ratepayers to provide the lowest-priced electricity it can and if that comes from fuels other than natural gas it must go in another direction. “Golden Valley really wants this project to succeed,” he said. “We believe this is extremely important. We’ll do everything we can to help facilitate this but we’ve made it clear that there are certain risks we are not willing to take that make this project all the more complicated.” For the birds While prices are being hashed out in offices to the south, AIDEA’s Davis said the authority is trying to get to work on the North Slope pad that will eventually support the LNG plant. Earlier this year, AIDEA purchased a parcel from Spectrum LNG for $1.8 million to use for the 17-acre pad site. Davis said AIDEA is working with the Department of Natural Resources to get the occupancy date for the site moved up from mid-August so the construction team can get to work as soon as possible. When much of that work begins will depend on ducks in the area, he said. “They have to wait for a bird window on the Slope,” Davis said. “Construction can’t begin until about Aug. 1 to Aug. 15, that depends on when the eider ducks leave, but we will have observers out there watching and when they leave we’ll start” building the gravel pad. Elwood Brehmer can be reached at [email protected]  

Haida Energy and AEA agree on loan for Prince of Wales hydro

It took a few tries, but the Alaska Energy Authority approved a loan June 26 that everyone involved could support to get Prince of Wales Island off diesel power. The $20 million loan to Haida Energy Inc., a joint venture between the village corporation of Haida Corp. and Alaska Power and Telephone, will be used to construct the Reynolds Creek hydro project about 10 miles east of the village of Hydaburg on Price of Wales Island in Southeast Alaska. When completed, the five-megawatt Reynolds Creek power plant will supplement the roughly 6.8 megawatts of hydropower currently available on the island and, with the needed interties, allow nearly all of the island’s residents to use exclusively hydro power. Alaska Power and Telephone President and Haida Energy board member Bob Grimm said in an interview that diesel-generated power on Prince of Wales costs about 32 cents per kilowatt. Projections are for first Reynolds Creek power to cost 14 cents per kilowatt. The loan comes just in time for Haida Energy, Grimm said, and is the end of a long negotiating process. AEA’s Power Project Fund team and Haida Energy agreed to a 3.78 percent interest rate with a seven-year interest-free grace period for the $20 million, 50-year loan. Those financial terms are contingent upon Haida Energy securing approval of a power sales agreement from the Regulatory Commission of Alaska for the sale of Reynolds Creek power, and in turn, a revenue stream from the plant to begin repayment. To get Reynolds Creek on line by June 2016 and fall within the window provided by its Federal Energy Regulatory Commission, or FERC, license, Grimm said Haida Energy will ask the RCA to speed up its normal process. “The RCA statutory requirement is to (make a decision) within six months,” Grimm said. “However, we’re going to ask for expedited treatment in an effort to comply with FERC requirements. If they are unable to do that we will be requesting a waiver and requesting a schedule modification from FERC.” If the RCA continues on its normal timeline, with the loan commitment in place, Haida Energy is hopeful FERC will grant a waiver to extend the construction window, he said. Haida Energy rejected loan terms approved by the AEA board at its April 24 meeting because they would have forced the company to charge more for its power, Grimm said at the time. AEA’s original loan terms were for a 4.6 percent interest rate and a two-year grace period with no payments on the $20 million. That repayment structure would have forced Haida Energy to charge a price close to that of diesel power and the project likely would not have been approved by the RCA, the company contended. Under the revised terms, the price of power will jump for a short time near the cost of diesel power when the repayment schedule kicks in, according to AEA’s projections. However, that cost will quickly stabilize and gradually decline rather than escalate, as is predicted to happen with diesel. Haida Energy’s original loan proposal in early 2013 was for a variable interest rate depending on the amount of power produced from Reynolds Creek. It called for no interest until the project produced 7,300 megawatt hours of power annually, with interest ramping up to 4.84 percent at maximum capacity production of 20,000 megawatt hours per year. That loan was tentatively agreed to by AEA staff but did not receive board approval. With Reynolds Creek projected to run at about 25 percent capacity in its first years of operation, Grimm said Haida Energy has been in contact with prospective mine developers in search of more affordable power — Niblack and Bokan — on Prince of Wales Island. Even if a mine doesn’t come to fruition, he hopes the extra power will be used by local businesses to reinvigorate an economy damaged by a dwindling timber industry in the region, Grimm said. “The lower the (power) rates the more competitive you are,” he said. AEA board member and former state senator from Fairbanks Gary Wilken said, “I’ve never met a hydro project that I didn’t like,” but that he was concerned with the way Haida Energy was able to simply reject AEA’s loan terms to get something they liked better. “I don’t want the action of this board to set a precedent that we are going to live with and will become the de facto loan that we have and then we’ll just ratchet it down as other folks have the same issues,” he said during board discussion. Ultimately, Wilken was the only board member to vote no on the loan resolution, which was approved. Board chair Russell Dick recused himself from voting. AEA Executive Director Sara Fisher-Goad said each project is looked at in three ways: its financial feasibility, economic viability, and technical feasibility. “We look at each application separately on that part,” she told the board. AEA does not agree to a lower interest rate unless it is needed to make a project viable, Fisher Goad said. She noted that the Reynolds Creek project loan is the largest and most complicated loan approved for the Power Project Fund. The Power Project Fund statutory interest rate is a 12-month running average of the municipal bond rate. AEA has the authority to lower that rate to zero percent if the authority sees fit. Board member and Revenue Deputy Commissioner Mike Pawlowski, representing Revenue Commissioner Angela Rodell on the board, said he hopes the approval of future loans can be tied to the approval of a power sales agreement, as the Reynolds Creek loan is. Fisher-Goad said AEA would work to put more responsibility on the loan applicant to prove why they need a lower interest rate and make the application process more rigorous in the future. Elwood Brehmer can be reached at [email protected]

State asks to join King Cove's lawsuit over road access

Alaska is again looking for a fight with the feds, this time over the King Cove access road. Assistant Attorney General Thomas Lenhart filed a motion June 30 to intervene on behalf of the tribes of King Cove in the tribe’s federal District Court lawsuit against Interior Secretary Sally Jewell over Jewell’s rejection of a proposed emergency access road between the communities of King Cove and Cold Bay. Also listed as plaintiffs in the case is the Aleutians East Borough and King Cove Corp., the Native village corporation. At the heart of the case is a land exchange that would shift approximately 43,000 acres of state land in the region and 13,000 acres of King Cove Corp. land to the federal government in exchange for 206 acres of the Izembek National Wildlife Refuge — land that would be used as the right-of-way for the road. “After years of putting birds over the well-being of Alaskans, it’s time for the Obama administration to agree to this exchange,” Gov. Sean Parnell said in a release from his office. On April 7 Parnell announced in a statement from his office the state’s intent to sue the Interior Department to get the road built on a separate claim — a right-of-way claim under the federal Mining Act of 1866. The disputed 11-mile section of road would connect segments of current road on state land. At the time, Attorney General Michael Geraghty sent a letter to Jewell that served as notice to the state’s intent to sue the department. According to federal statute, the state must wait 180 days after issuing the notice before it can take the feds to court on the right-of-way claim, making the earliest date it could sue Oct. 4. Supporters of the road effort claim the one-lane link is essential for the safety of residents of King Cove, as it would provide them reliable access to the all-weather airport with a 10,000-foot runway in Cold Bay. The villages on the western tip of the Alaska Peninsula sit across the water of Cold Bay from each other and are terrestrially separated by the Izembek Refuge. In an official statement from her office, Jewell said in December that she would uphold the no action alternative preferred by the U.S. Fish and Wildlife Service as part of the environmental impact statement, or EIS, process required for the land swap. At the time Jewell said critical waterfowl habitat would be disrupted by the road and said Interior would work with King Cove residents to find a safe travel alternative. Currently, people in King Cove that are in need of extensive medical attention must be flown out by U.S. Coast Guard medevacs to receive treatment in Anchorage during bad weather. The State of Alaska claims it should be allowed to intervene in the suit because Jewell is preventing the state from managing its lands and ignores its role as a cooperating agency in the EIS process. The state cannot fulfill its duty to keep its residents safe without the land swap. Also, the state is prevented from managing its land in the best interest of its residents if it is not allowed to make such deals, according to the court filing. “Finally, the state has an interest in ensuring that its citizens and communities are provided reasonable access across the vast federal land holdings in the state. In this case, the health and safety purposes of such access over the Izembek Refuge are literally of life and death importance,” the motion states. Sen. Lisa Murkowski has ranted at length over Jewell’s decision, calling it “offensive” and “insulting” on multiple occasions. Congress and the state in a 2009 omnibus land management bill approved the land exchange, but is contingent upon the Interior secretary’s approval based on the EIS. The road, estimated to cost about $21 million, would be paid for by the state. Opponents have said the road would not only harm wildlife, but could be used by fish processors in the area, would not always be passable during hazardous weather conditions and would set a precedent of development in federally protected wild areas. As of June 30, the Department of the Interior had not responded in court to the original lawsuit. Elwood Brehmer can be reached at [email protected]  

State asks to join King Cove suit

Alaska is again looking for a fight with the feds, this time over the King Cove access road. State Assistant Attorney General Thomas Lenhart filed a motion June 30 to intervene on behalf of the tribes of King Cove in the tribe’s federal District Court lawsuit against Interior Secretary Sally Jewell over Jewell’s rejection of a proposed emergency access road between the communities of King Cove and Cold Bay. Also listed as plaintiffs in the case is the Aleutians East Borough and King Cove Corp., the Native village corporation. At the heart of the case is a land exchange that would shift approximately 43,000 acres of state land in the region and 13,000 acres of King Cove Corp. land to the federal government in exchange for 206 acres of the Izembek National Wildlife Refuge — land that would be used as the right-of-way for the road. “After years of putting birds over the well-being of Alaskans, it’s time for the Obama administration to agree to this exchange,” Gov. Sean Parnell said in a release from his office. The state is also at odds with the federal government over the Environmental Protection Agency’s procedure in its ongoing attempt to block the Pebble copper-gold mine on state land near Iliamna and lost a case in 2013 to overturn strict emissions laws for ships traveling along the U.S. coast. Supporters of the road effort claim the one-lane link is essential for the safety of residents of King Cove, as it would provide them reliable access to the all-weather airport with a 10,000-foot runway in Cold Bay. The villages on the western tip of the Alaska Peninsula sit across the water of Cold Bay from each other and are terrestrially separated by the Izembek Refuge. In an official statement from her office, Jewell said in December that she would uphold the no action alternative preferred by the U.S. Fish and Wildlife Service as part of the environmental impact statement, or EIS, process required for the land swap. At the time Jewell said critical waterfowl habitat would be disrupted by the road and said Interior would work with King Cove residents to find a safe travel alternative. Currently, people in King Cove that are in need of extensive medical attention must be flown out by U.S. Coast Guard medevacs to receive treatment in Anchorage during bad weather. The State of Alaska claims it should be allowed to intervene in the suit because Jewell is preventing the state from managing its lands ignores its role as a cooperating agency in the EIS process. The state cannot fulfill its duty to keep its residents safe without the land swap. Also, the state is prevented from managing its land in the best interest of its residents if it is not allowed to make such deals, according to the court filing. “Finally, the state has an interest in ensuring that its citizens and communities are provided reasonable access across the vast federal land holdings in the state. In this case, the health and safety purposes of such access over the Izembek Refuge are literally of life and death importance,” the motion states. Sen. Lisa Murkowski has ranted at-length over Jewell’s decision, calling it “offensive” and “insulting” on multiple occasions. Congress and the state in a 2009 omnibus land management bill approved the land exchange, but is contingent upon the Interior secretary’s approval based on the EIS. The road, estimated to cost about $21 million, would be paid for by the state. Opponents have said the road would not only harm wildlife, but could be used by fish processors in the area, would not always be passable during hazardous weather conditions and would set a precedent of development in federally protected wild areas. As of June 30, the Department of the Interior had not responded in court to the original lawsuit. Elwood Brehmer can be reached at [email protected]

Building sector maintains gains from 2013

Crews are busy across Alaska as the summer building season is in full swing. With the exception of Fairbanks, year-to-date building activity in the state’s largest cities has been comparable to the first months of 2013, a rebound year for construction in much of Alaska when employment returned to its pre-recession peak. In the Municipality of Anchorage, more than $301.6 million worth of residential, commercial and government property building permits were applied for through May 31, nearly identical to the $302.8 million in permits through May of last year. Of that, roughly $160 million was commercial permit applications, compared to $187.8 million for the same period of 2013. While the value of commercial applications in Anchorage declined so far this year, the number of permits has increased by 11 percent from 457 to 508 for new construction and existing alterations or additions combined. The municipality received building permit applications valued at about $240 million through the first five months of 2012, making the last two years a 25 percent improvement. Activity bottomed out in recent years in 2010 when permits totaling $144 million were applied for through the spring. One of the bigger projects in Anchorage, Cook Inlet Region Inc.’s new home, the Fireweed Business Center, is ahead of schedule, CIRI real estate project director Chad Nugent said. “We took advantage of last year’s Indian fall,” to get early digging work done, he said. The eight-story, 110,000 square-foot glass-encased office complex valued at $23.8 million according to its building permit should be move-in ready by early spring 2015, according to Nugent. CIRI will occupy about 40 percent of the building at the intersection of Fireweed Lane and the Seward Highway, leaving about 60,000 square feet of class A office space available for lease, he said. The CIRI office development, along with other office construction in Anchorage — namely JL Properties’ 100,000 square-foot office building at C Street and International Airport Road — could help alleviate a tight commercial real estate market in the city. The class A vacancy rate in Anchorage was at 4.3 percent at the end of 2013 and expected to remain that way until the new developments are on the market, according to commercial brokers in the city. Mat-Su Elsewhere in Southcentral, 18 commercial permits valued at $8.23 million were applied for in Palmer through May 31. The largest application was for a $4 million Matanuska-Susitna Borough project. Through May, 45 building permits were sought in the City of Palmer totaling about $11 million. In 2013, the same period had 24 applications for just less than $6 million. The Matanuska-Susitna Borough and the City of Wasilla do not track building permit valuations. Kenai Peninsula A slow start to the year in Kenai has put permit activity well off the pace of 2013. As of June 7, there had been 31 combined residential and commercial permits applied for totaling $2.25 million. The commercial portion of that was 12 permits for $786,000 worth of construction. In 2013, Kenai had accepted 44 total permits valued at more than $4.57 million, of which 20 were commercial work for an estimated $1.71 million. A single $600,000 project at the Homer Electric Association headquarters in Kenai contributed to the valuation spike last year. Just down the road in Soldotna, city building official Ralph Linn wrote in a report that 2014 so far has been a steady building year for the City of Soldotna. By June 23, a total of 41 permits valued at $24.27 million had been applied for. Comparatively, $9.47 million worth of permits were sought in all of 2013. Expansion at the Kenai Peninsula College and the city library in 2012 pushed permit values beyond $25 million that year, up from just more than $9 million in 2011. This year, planned expansion at the borough’s Central Peninsula Hospital, remodels of the Kenai Peninsula College library and nursing buildings, and a remodel of Soldotna’s city hall are driving permit values, according to Linn. Fairbanks Permit activity in Fairbanks was down for the first five months of 2014 when compared to 2013. There were 36 commercial permit applications valued at $11.38 million in the Golden Heart City through May 31, less than half of the estimated permit value of $24.8 million applied for last year. Residential construction in Fairbanks continued to slow, a trend that has established itself in recent years due in part to high home heating costs, local real estate agents have said. Through May 31, residential building permits valued at $862,000 had been applied for among 31 permits. For the full year of 2007, the near-term peak of residential construction in Fairbanks, 981 residential construction permits were sought. Juneau Bigger budget projects in Juneau have pushed the value of commercial work to nearly $39 million on 97 permit applications as of June 23, up from $26.7 million on 98 permits for the same time in 2013. Combined residential and commercial construction has remained fairly steady in the capital city since a low of 385 permits for $26.4 million of work in 2011 year-to-date. In 2012, those figures rebounded to 398 permits valued at $56.5 million; last year it was 402 permits for $40.8 million, and so far in 2014 it has been 414 permits for an estimated value of $51.3 million. Elwood Brehmer can be reached at [email protected]

Bill to simplify vehicle registrations signed into law

WASILLA — Gov. Sean Parnell signed legislation June 20 aimed at simplifying vehicle registration for Alaskans with older cars. House Bill 19 gives individuals the option to permanently register their personal vehicles that are at least eight years old. It also gives personal trailer owners the option to permanently register their trailers. Stoltze, R-Chugiak, the bill’s sponsor, said HB 19 would encourage compliance with state vehicle registration laws. “This is just a simple government bill that makes it easier — less trips to the DMV,” Stoltze said. “It was an expression of, OK, after so many years you’ve paid enough in taxes on the vehicle and it was a value judgment.” When HB 19 takes effect Jan. 1 2015, Alaskans with qualifying vehicles can choose to pay the $100 biennial state registration fee plus a $25 permanent registration fee, which will cover registration for as long as the vehicle remains under the same ownership. The permanent registration is non-transferable. Similarly, trailer owners can pay the $30 fee plus a $25 permanent surcharge to register their trailers for as long as they own them. As a compromise with local governments that draw revenue from motor vehicle registration taxes, Stoltze said boroughs and municipalities can choose to opt in to the plan. The state’s tiered tax plan calls for most personal vehicles owners that qualify for permanent registration to be levied a one-time $16 tax. Those that don’t opt in can continue with current vehicle tax systems. Many local governments across the state, such as the Municipality of Anchorage, tax such vehicles at a higher rate. In Anchorage and the Matanuska-Susitna Borough a qualifying vehicle owner is taxed $70 for every registration. The Fairbanks North Star Borough and the City of Fairbanks do not tax vehicle registration. HB 19 also provides registration fee exemptions for those who are disabled or least 65 years of age on one vehicle. “(HB 19) is what good government is about,” Parnell remarked before making it law. “It’s about removing barriers and just getting out of your way so you don’t have to worry about paperwork. That’s one of the reasons we’re here to serve you.” Elwood Brehmer can be reached at [email protected]

Parnell signs state-led plan to advance Knik Arm Crossing

WASILLA — Gov. Sean Parnell officially approved a state-led financing plan for the Knik Arm Crossing June 20 when he signed House Bill 23 into law. A day prior, there was a sentimental feel at the Knik Arm Bridge and Toll Authority board meeting. With HB 23 becoming law July 1 at the beginning of the state fiscal year, the bridge project bantered about for decades is closer to becoming reality than ever before. “Everything my administration has worked to pursue has been about creating a climate of economic growth, a place where we can have a future together as Alaskans; a place where our families can be strengthened. The Knik Arm Crossing, that bridge is one sure way to assure a future of opportunity. It is a bridge of opportunity; it is a bridge to our future,” Parnell remarked prior to signing the bill at a MatSu Business Alliance luncheon. Parnell reiterated a stance taken by nearly all bridge supporters — that it will help alleviate an extremely tight and pricey housing market in Anchorage that is “punishing” families in the city, he said. The prospect of thousands of acres of developable land across Knik Arm from Anchorage has helped swell support for the bridge “across the pond,” Parnell said while in Wasilla. HB 23 sponsor Rep. Mark Neuman, R-Big Lake, said the bridge has “tremendous support” throughout the Matanuska-Susitna Borough and that it would be critical as a corridor to transport supplies and workers north from Anchorage if a prospective large trans-Alaska natural gas pipeline is built. He estimated future development made feasible by the bridge could bring $4 billion to $5 billion of economic development to the borough. “I worked closely with (Department of Natural Resources) Commissioner (Joe) Balash and Rep. (Bill) Stoltze in House Finance to get an amendment in Senate Bill 138 that would allow for the roads that are being built to build the pipeline to also be designed by DOT for a new transportation corridor to move north,” Neuman said June 20. The bridge would also be a first step towards accessing prospective coal and mineral resources in the West Susitna basin, he said. How the 1.7-mile bridge from northeast Anchorage to Point MacKenzie and associated connections will be paid for has been a topic of much debate in recent months. The proposed two-lane toll bridge was viewed for years as a prime candidate for a public-private partnership, or P3, financing scheme, with the state chipping in bond money and private investors counting on toll revenue for their returns. In December of last year, Parnell’s administration deemed the private markets had soured to the point where the P3 option wasn’t feasible, and the Department of Revenue unveiled a public financing plan broken into thirds. With a contingency cap on the project of $894 million in HB 23, the governor’s financing plan calls for a roughly $300 million contribution from federal highway dollars appropriated to the state, revenue bonds and the remainder coming from Transportation Infrastructure Finance and Innovation Act loans, or TIFIA, issued by the Federal Highway Administration. Toll revenue would be used to pay first the federal loans and then the state bonds. HB 23 as a P3 plan had been approved by the House in its 2013 session and was awaiting Senate approval when it got its financial overhaul. The other major change to the project came in the last days of the most recent session. When it left the Senate, HB 23 shifted the onus of delivering the bridge to the Alaska Department of Transportation and left the Knik Arm Bridge and Toll Authority, or KABATA, as the toll operator once DOT completes the bridge. At the June 19 KABATA board meeting, authority chair Mike Foster downplayed the about-faces the mega-infrastructure proposal has endured. “It has evolved like any major project should evolve,” Foster said. KABATA spokeswoman Shannon McCarthy said the multiple changes could slow some of the ongoing processes, such as applying for the TIFIA loan, but that overall the authority and DOT still plan on beginning construction in 2015, with the bridge opening in 2020. Since the session ended in late April, KABATA and DOT have been collaborating on how to best transfer the 10 years worth of “intellectual property” — environmental permits, engineering and design — the authority has gathered since its inception in 2003, KABATA Executive Director Judy Dougherty told the board. “We’ve met several times and it’s been like blasts from a fire hose for DOT,” she said. To keep on track, KABATA has drafted a letter of interest to the Federal Highway Administration, the first step in a TIFIA loan application, with DOT as the borrower, according to Dougherty. “All environmental permits are either in hand or awaiting issuance of the letter of authorization from (the National Marine Fisheries Service),” she said. An agency under the National Oceanic and Atmospheric Administration, NMFS must approve the project’s construction plan, which cannot adversely impact the endangered Cook Inlet Beluga whales that frequent Knik Arm during summer to feed. Dougherty has said bridge building would be done around the Beluga’s time in the area. In-water construction work at the nearby Port of Anchorage has been halted at times when whales were spotted within a mile of the port. McCarthy said a meeting was held June 20 between officials at Parnell’s Washington, D.C., office and NMFS officials to see where the agency stands on the construction proposal. KABATA staff did not know what the results of the meeting were as of June 24, McCarthy said. Authority officials have said issuance of the project’s U.S. Army Corps of Engineers wetlands permit is contingent upon NMFS approving the construction plan. While KABATA and the DOT wait to hear from NMFS, Dougherty said all of the other agencies have agreed to a transfer of permits from the authority to DOT. The two state groups have identified that integrating the automated toll system, which is KABATA’s role, into the design-build contract will likely be a challenge, Dougherty said, but she is confident that and other difficulties can be overcome. KABATA Chief Financial Officer Kevin Hemenway told the board that a draft socioeconomic study of the bridge’s potential impact on the region should be out in late July. The authority commissioned the study approximately a year ago and at the time said it would be available in fall 2013. McCarthy has said the original timeline was aggressive and Dougherty has downplayed the importance of the study results since the project has shifted away from the P3 financing model, when investors needed such information. The authority officials have been unclear as to exactly what has held up the study. Dougherty was also formerly made head of the authority when the board unanimously approved a motion to do so June 19. Prior, she had been acting executive director for the authority, having taken the role after Andrew Niemiec resigned in December following a motorcycle accident. Another motion approved Dougherty to begin transferring information and funds to DOT when HB 23 takes effect July 1. In the coming weeks the $55 million approved for KABATA in the capital budget will almost assuredly be transferred to DOT, but it’s currently unclear exactly when and how that will happen, authority spokeswoman McCarthy said. Through May 31, KABATA has spent $83.4 million to get the Knik Arm bridge project to its current point, Hemenway said. What money the authority has to spend going forward — $1.6 million has been set aside in the state budget for its fiscal 2015 operation — and what KABATA will have in terms of personnel is unclear. Dougherty will be taking a currently unformed position with DOT July 1 throughout the remainder of the project in addition to her role as KABATA chief, Deputy Commissioner Kim Rice said. Rice said she and Dougherty, a former DOT employee, worked together extensively in the past and that familiarity will help them sort out the unprecedented transition. “There is no clear path forward but we’ll get there and it will be collaborative,” Rice said. Elwood Brehmer can be reached at [email protected]

Bering Straits Native Corp. seeks land for future Arctic port

The prospect of new port facilities in Western Alaska will rely heavily on Arctic oil and gas development, according to a recent Northern Economics study. Commissioned by Bering Straits Native Corp. and marine services company Crowely Maritime Corp., the feasibility analysis released June 6 focused on Port Clarence, northwest of Nome on the Seward Peninsula. BSNC found that a “basic” port and man camp could be up and running within four years of a firm oil and gas industry commitment to engage in developing the Alaska Outer Continental Shelf, or OCS, energy resources. Northern Economics Inc. is an Anchorage-based consulting firm that frequently analyzes resource and infrastructure development in Alaska. Shell was the last company to do major work in the Chukchi and Beaufort seas in 2012, drilling partial “top holes” in leases at each. Shell was restricted to only drilling above oil-bearing zones because its spill response barge had not been approved for Arctic operations. With the 2008 Chukchi lease sale environmental impact statement now being revised by the Bureau of Ocean Energy Management after a court order, it is unclear exactly when Arctic OCS oil and gas exploration will resume. The agency is targeting March 2015 to complete its work, which could allow for Shell to have a working season that year. When it does, BSNC wants to be ready. Early stage infrastructure at Port Clarence would likely cost between $34 million and $72 million, with a likely total falling in the $48 million range, the study determined. With that money, a basic, gravel-filled sheet pile dock, similar to that at the Red Dog port, and a 66-man camp could be constructed, according to the study. One of the biggest reasons Port Clarence was the focus of the study is its low projected ongoing costs when compared to other, more developed sites in the region. Operations and maintenance for the preliminary development is forecast at $1.4 million per year. When assumed debt service on the infrastructure is added, the annual revenue requirement of such a base is estimated at $4.15 million. Port Clarence is one of a handful of spots on Alaska’s western coast with naturally deep water; it would require little to no dredging. Its mean near-shore depth is about 35 feet, and the channel past Point Spencer leading into the natural harbor is more than 40 feet deep. Northern Economics concluded that oil and gas exploration and oil field support services were the only two large industry markets likely to use the port regularly. If the decision is made by the oil industry to further invest significant money into Arctic OCS exploration — Shell alone has said it has spent upwards of $6 billion there already over eight years — the critical decision to develop or not would likely come in 2018 or 2019, according to the study. An active and ready Port Clarence would be needed not long after. The study noted that Port Clarence is about 500 miles from the majority of the federal Chukchi OCS oil and gas leases. Dutch Harbor, currently the closest domestic deepwater port, is more than 1,300 miles from the lease areas, a distance that could make timely emergency or spill response difficult. Port Clarence is typically ice-free from early June through mid-October, according to the study. In the study, Crowley is cited as suggesting ice breakers could expand the operating season up to 10 months a year. The depth characteristics of the port are one of the reasons BSNC is seeking conveyance of the shoreside land, the region Alaska Native corporation has said. “The growing potential of the Arctic is a high priority for us. I believe that in addition to supporting oil and gas industry needs, Port Clarence is going to positively contribute to sustainable economic growth in the region,” BSNC President and CEO Gail Schubert said in a formal statement. In May Rep. Don Young introduced legislation to the House to transfer nearly 2,400 acres of federal land on and near Point Spencer to BSNC as part of the land owed to it under the Alaska Native Claims Settlement Act, plus 180 acres to the State of Alaska. Current infrastructure at Point Spencer includes an airstrip and a U.S. Coast Guard LORAN-C navigation facility, decommissioned in 2010. Young’s bill would allow the Coast Guard to retain its use of the 140-acre site and give it the option of leasing space from BSNC if it needs to in the future. Rep. Duncan Hunter, R-Cali., chairman of the Coast Guard and Maritime Transportation Subcommittee supported the legislation, Young said in a May 16 release. “We are desperately in need of development in the region, particularly as activity in the Arctic continues to increase, and this bill establishes a path forward for a variety of necessary tasks and missions, including search and rescue operations, shipping safety, economic development, oil spill prevention and response, port development and refuge, arctic research, and maritime law enforcement,” Young said. Increasing maritime activity in the Bering Strait is a major reason the U.S. Army Corps of Engineers is also investigating the possibility of enhancing the marine infrastructure in the region, currently centered in Nome. In March 2013, the Corps of Engineers released a preliminary study of its own — part of ongoing multi-year planning — that narrowed a list of potential Western Alaska deepwater port sites to Nome and Port Clarence, specifically for their respective infrastructure and proximity to deep water. A number of projections have been made as to how much Bering Strait vessel traffic will increase in the coming years if summer Arctic sea ice continues to recede. The study reports that from 2009-2013, the trans-Strait vessel count grew from 239 to 349 in 2013, including the first liquefied natural gas tanker — headed south — through the Strait. The Northern Economics team referenced the Corps of Engineers work numerous times in its study. A federal Arctic port plan was originally scheduled to be released earlier this year, but a desire by Corps leadership to investigate more options in regards to specific site plans has pushed the release of the draft plan back closer to the end of the year, according to Corps of Engineers Alaska spokesman Curt Biberdorf. Elwood Brehmer can be reached at [email protected]

Breakwater next step in Seward marine development

The City of Seward is ready to jumpstart development that has been decades in the making. When Gov. Sean Parnell signed the fiscal year 2015 capital budget May 28, Seward was officially awarded $5.9 million from the state to complete its breakwater and begin full-scale work on what the city calls the Seward Marine Industrial Center. Total, the city has gathered $25.9 million for the breakwater, to be built in front of Seward Ship’s Drydock. The money came in three chunks: $10 million as part of the $453 million bond package approved by voters in 2012; $10 million in the fiscal year 2014 capital budget; and most recently the $5.9 million approved by Parnell. At 1,200 feet long when finished, the breakwater will all but enclose roughly 15 acres of water behind it, Seward Community Development Director Ron Long said. That space will be available to anyone wishing to lease it, Long said. While it may not be momentous or even overly exciting, getting a breakwater in place is the lynchpin to developing the industrial center. The breakwater will shelter the shipyard’s waterfront and the city’s adjacent cargo dock from the battering Gulf of Alaska waves that periodically make their way up Resurrection Bay. “The cargo dock never really got any traction because the breakwater was never completed,” he said. Parties from numerous user groups including oil and gas support companies, barge services and the Western Alaska Community Development Quota, or CDQ, fishing fleets have expressed interest in using the industrial harbor when the breakwater is standing, he said. All of the CDQ groups currently homeport in Seattle and travel to the Bering Sea to fish. A 2013 report to the Legislature regarding the $10 million appropriation emphasized that the Coastal Villages Region Fund CDQ group spends up to $10 million on vessel maintenance and nearly $20 million on moorage and other costs each year in Seattle. According to the city, the CDQ groups could save up to $75,000 in fuel per trip by harboring in Seward versus Seattle. Once complete, Long said it’s up to the city to be proactive and get firm commitments from the groups interested in using Seward as a base of operations. “People have been listening to Seward say we’re going to build that breakwater for 25 years; they’re not going to put any money down on the table until they actually see something,” he said. That time will likely come in about a year. Long said the city can begin dumping rock in October, as to not disturb returning salmon. He said the interim months would give contractors enough time to stockpile rock for the project from the nearby city quarry. Work will continue through April of next year, and if need be, the finishing touches will be put on the breakwater in the fall of 2015, according to Long. Barring an unforeseen setback, the area behind the breakwater will officially be open for business in the spring of 2016, but access to the shipyard, cargo dock and fuel storage facility will also remain open during construction. “We want to be careful that we keep those users alive and well during the construction period,” Long said. Federal marine habitat impact mitigation plans — which the project’s U.S. Army Corps of Engineers wetlands permit is contingent upon — are currently being worked out, Long said. “Now it’s close enough to fully funded that we’re gong ahead with (requests for proposal) and contracts will be on the street pretty quick,” he said. When designing the breakwater, city officials took advantage of the state-of-the-art vessel bridge simulator at AVTEC, the state’s local vocational and technical training campus. Long said variations of a basic breakwater design and extreme weather conditions were plugged into the simulator while vessels ranging from 400-foot tank barges to large catcher-processors and mega yachts were steered through the entrance. In the end, the city saved the state some money on what was originally a $27.9 million project. “We crashed tens of millions of dollars of vessels up against the virtual breakwater and as a result we changed a couple minor aspects to the breakwater and wound up peeling about $2 million off the cost,” he said. The water that will be behind the breakwater is 24 feet deep now, Long said. He doesn’t foresee the need to have a deeper harbor, as users with larger vessels would likely head to the city’s deepwater railroad dock, but it could be dredged to 31 feet before undercutting the existing dock sheet pile would become an issue, he said. The genesis for the Seward Marine Industrial Center came in 1986 when city voters approved a $30 million general obligation bond to purchase and construct the infrastructure for what shortly after became Seward Ship’s Drydock, Long said. It was then that the first portion of the breakwater was built as well. Seward recently made its final payment on the 25-year obligation, he said. The dry dock and the prospective business center are at the end of Nash Road across Resurrection Bay from the city proper. “A little town of 2,500 people just retired $30 million of debt invested out of their pockets, so there’s a lot of public buy-in wanting to see this area developed,” Long said. As Long explained it, the breakwater is one of three components to the Seward Marine Industrial Center. The second is the shipyard — in the process of being purchased by Vigor Industrial LLC, the Portland, Ore.-based shipbuilder that operates the Ketchikan shipyard as Vigor Alaska. Vigor will act as the “anchor tenant” of the industrial center, Long said. While the shipyard is operated privately, the property is owned by the city. Vigor Industrial announced its preliminary agreement with Jim Pruitt, the owner of Seward Ship’s Drydock in January. In May, the Seward City Council approved operations and maintenance lease transfers from Seward Ship’s Drydock to Vigor. Once the final details of the sale are worked out and it is finalized, Vigor Alaska’s shipyard development coordinator Doug Ward said Vigor plans to invest in the Seward shipyard as it did when it purchased the Ketchikan shipyard in 2012, although perhaps not quite on the same scale. Vigor Industrial currently operates six shipyards in Oregon and Washington in addition to its Alaska facilities. Working with the Alaska Industrial Development and Export Authority, which owns the Ketchikan property, Vigor has overseen more than $130 million of facilities construction and upgrades at its southern Alaska yard. Ward said having two of the state’s largest shipyards under congruent ownership should help draw added marine business to Alaska and Long said the city’s discussions with AIDEA about Vigor as a tenant were nothing but positive. Vigor spent roughly $250,000 on a comprehensive environmental assessment of the Seward shipyard and it came back with a “clean bill of health,” Long said, that was encouraging not only to city officials, but to residents as well. Also reassuring was Vigor’s emphasis to hire locally when expanding its workforce Ketchikan workforce, he said. According to Ward, 97 percent of Vigor Alaska’s 161 employees at the end of 2013 were hired from Ketchikan. “What we expect (Vigor’s) going to do is to keep on doing what they do best,” Long said. “They’ve demonstrated a commitment to the environment; they’ve demonstrated a commitment to their workforce and to doing a good job attracting repeat customers. That’s been their history and their business model and their standard that they’ve used in previous acquisitions. That’s what they’ve said they’re going to do and that’s what we look forward to.” The remaining component to Seward’s Marine Industrial Center is the uplands, of which the city has more than it knows what to do with, according to Long. The uplands are ideal for bulk raw commodity storage, he said, and businesses will likely develop around what support the harbor users and Vigor need. Those “self-sorting” needs could include net mending, propeller repair, welding and fabrication shops, warehouse and refrigeration space or even forklift rental, Long surmised. He said in five years he hopes to be able to see the map of the industrial center’s future — ultimately a “thriving working waterfront” supporting business that “filters out through all facets of the economy that keep a town alive and thriving and a place where people want to be,” Long said. “That’s the kind of thing I’m looking for.” Elwood Brehmer can be reached at [email protected]

Wash out halts rail service to Seward

Alaska Railroad passengers hoping to take the train to Seward will have to wait at least one more day to get there by rail. High water at Skookum Creek near Portage washed out an 80-foot section of the track bed adjacent to the bridge over the creek Tuesday morning. The railroad’s Glacier Discovery train route has also been shortened as a result of the washout, according to an Alaska Railroad Corp. release. The sightseeing train will stop at Whittier instead of following its normal route to whistle stops at Spencer and Grandview south of Portage. Seward-bound passengers have the option of taking a motor coach provided by the railroad if they choose. Railroad crews began maintenance on the right-of-way almost immediately after the erosion was discovered. As of late Wednesday the railroad’s goal was to have service restored by Friday the release states. “This area experienced significant isolated rainfall that measured as much as a half-inch every 10 to 15 minutes for a sustained period. We are essentially dealing with a new river channel that did not exist,” railroad vice president of engineering Clark Hopp said. In all, the railroad estimated about 300 to 400 passengers per day are impacted by the schedule changes. One coal train from Healy to Seward has been delayed as well, the railroad said. Anyone wishing to cancel or reschedule train tickets or take the motor coach to Seward can call the Alaska Railroad at (907) 265-2494 for more information. Elwood Brehmer can be reached at [email protected]

Deadlines looming for Interior gas project

The Alaska Industrial Development and Export Authority is in overdrive to finalize agreements for all of the facets of the complex plan to deliver lower cost natural gas to the state Interior. Staff from AIDEA’s project partner, Colorado-based engineering and consulting firm MWH Americas Inc., helped lay out the near-term Interior Energy Project timeline to the state authority’s board of directors at a June 4 meeting. “The next three months are going to be very critical as we drive towards financial close, and that’s the goal, getting to financial close,” MWH Vice President and Managing Director Rick Adcock said. The first step to getting to financial close with all the parties involved in late October is finally completing the working agreement for the future of the project. AIDEA Executive Director Ted Leonard said the agreement would lay out the ground rules with MWH over the up to 30-year life of the project. It should be ready for board review at the June 26 AIDEA board meeting, he said. “We are right now in the process of completing the concession agreement, which is the main agreement that AIDEA will have with the project company,” Leonard said. AIDEA is also actively looking for gas from one, or possibly more, North Slope suppliers, he added. Those talks will continue over the next couple weeks. Chris Brown, a vice president and Alaska manager for MWH said the team hopes to have a gas supply contract in place by June 30. The $332.5 million in bonds, loans and direct appropriations that the state gave AIDEA to put towards the project last year in Senate Bill 23 for the IEP is reserved specifically for North Slope natural gas production, liquefaction and shipment down the Dalton Highway to Fairbanks and North Pole. Converting to natural gas heat from fuel oil could cut heating costs up to 50 percent for some residents, multiple studies have indicated. First gas is scheduled to reach the Interior in late 2015, when Fairbanks Natural Gas, a small private utility that serves the center of Fairbanks, should have its distribution system fully built out. Golden Valley Electric Association, the region’s power utility, could also have a substantial demand for gas that would be burned to generate electricity. Leonard said AIDEA is still investigating the possibility of hauling Cook Inlet gas north to Fairbanks, much the way Fairbanks Natural Gas currently operates, but on a larger scale. Using Inlet gas could be an easier and cheaper solution, particularly with the option of hauling it the majority of the way by rail. However, the availability of gas from the region has limited that option. Hilcorp, the main producer in Cook Inlet, is making supply commitments into 2019 and is “examining the market’s appetite for even longer supply commitments,” Hilcorp spokeswoman Lori Nelson wrote in an email to the Journal. Further, Nelson wrote that Hilcorp is interested in supplying all of Interior’s gas needs, as it does Fairbanks Natural Gas and Southcentral utilities, and that the company thinks it can be an equally reliable supplier to other parties around Fairbanks. AIDEA projects residential gas demand from the IEP to be about 7.5 billion cubic feet, or bcf, of gas annually by 2021 — less than 10 percent of Southcentral’s gas demand of about 90 bcf per year. Currently, Fairbanks Natural Gas gets just less than 1 bcf per year from Hilcorp. If North Slope gas is used, the utilities — Fairbanks Natural Gas, the Interior Gas Utility and Golden Valley — will have to agree to a price range until a final price can be worked out, members of the IEP team said. Brown said the goal is to have a final gas price pinned down Oct. 3. The utilities would then enter into final off-take agreements and the rest of the Slope LNG plant contracts and others would fall in line by the end of October. All of the items on the IEP list are very interdependent, he said. “In order to get to that off-take agreement there has to be a gas price; there has to be (operating expenditures and capital expenditures) for the LNG plant; there has to be trucking and storage costs known,” Brown said. The size of the LNG plant, which could cost more than $180 million for a 9 bcf plant, likely won’t be finalized until the gas demand is clear, as well. “It’s the interplay of increasing certainty that allows the process to move forward,” Brown said. During the feasibility stage, AIDEA estimated the “burner tip,” or gas cost for consumers, would about $15 per thousand cubic feet, or mcf. Now the team has to work towards an indicative cost range that will be the basis for the preliminary off-take agreements, Brown said. Those agreements are needed by July 30 to keep the process moving, he said. MWH’s Adcock said other potential industrial and federal government customers are being pursued as well. “We’re trying to get all of the utilities to the table to help us understand demand profiles (and) timing,” Adcock said to the board. While everyone involved repeatedly acknowledged the aggressive timeline of the project, AIDEA board member and former state senator for Fairbanks Gary Wilken noted that the board was told in February the commercial agreements would be in place by the end of May and that timeline has been pushed back five months to the end of October. In April the AIDEA board approved a $15 million loan to Fairbanks Natural Gas to jumpstart the expansion of the utility’s distribution system so its customers could be able to receive gas when it becomes available. A key term of the loan was Fairbanks Natural Gas consenting to a “take or pay” agreement of 0.5 bcf of gas. Wilken said he has concern with the fact that Fairbanks Natural Gas could decline the $15 million loan at 3 percent and look for a private lender at likely a higher interest rate if it can find a better gas price than the IEP can provide. Golden Valley President and CEO Cory Borgeson said a hitch in the plan is that it doesn’t incentivize the utilities to sign up early; they are offered the same gas price no matter when they sign up. Part of the answer has to be a non-guaranteed price, he said. Without the utilities’ gas demand, the whole project could fall apart. “Every one of the utilities is going to act like a business and make their decision based on the narrowing of that (gas) price range,” AIDEA’s Leonard said. Adcock said he’s confident off-take agreements will be reached with the utilities given that everyone understands the importance of the agreements to the project. Elwood Brehmer can be reached at [email protected]

July hearing set for Kenai Loop gas payments

Buccaneer Energy, Cook Inlet Region Inc., and the State of Alaska will be back before the Alaska Oil and Gas Conservation Commission July 7 to duke it out once more over gas royalty rights from Buccaneer’s Kenai Loop well pad. The hearing will be held — as has been the case with most milestones in the dispute — if the parties cannot come to an agreement on royalty payments prior to July 7. CIRI claims Buccaneer owes it royalties for gas Buccaneer drained from the Native corporation’s land that is adjacent to the Kenai Loop pad. Buccaneer once held a now-terminated gas lease with for the CIRI property. It does not dispute that the drainage is occurring. The Alaska Mental Health Trust Authority, which owns the property under the Buccaneer pad also owes it money, CIRI claims, because the authority has been receiving royalties on gas that CIRI had right to. Whether or not CIRI is liable for production expenses if it is eligible to receive gas revenue will be another point of debate at the hearing. The commission ordered Buccaneer to set up an escrow account by June 1 to hold its Kenai Loop production revenue until the dispute is resolved and make monthly deposits to the account starting June 10. Formation of the account has been delayed as Buccaneer asked the commission for clarification regarding details in the order and a brief comment period for the other parties was also established. How Buccaneer’s May 31 filing for Chapter 11 bankruptcy filing in South Texas will impact negotiations and where its money goes immediately remains unclear. All of the parties have said an agreement has been close at times during months of negotiations. Buccaneer’s bankruptcy filings list the company’s combined assets at between $50,000 and $500,000 and liabilities of $50 million to $100 million. In May 2013, Division of Oil and Gas Director Bill Barron denied Buccaneer’s application to form a Kenai Loop unit from its leases in the area. When the application was submitted in July 2012 Buccaneer was the working interest owner to 7,499 acres of lease space in the proposed unit. The company had right to 4,827 acres Mental Health Trust Authority land, its 1,275-acre lease with CIRI and 1,391 acres of state land over four leases. Units are typically formed when an oil or gas pool extends beyond a sole landowner’s property; they are a way to parcel royalties and prevent drainage or other resource rights disputes among multiple lessees. Before the decision to deny the unit was made, CIRI informed the division that it had terminated Buccaneer’s lease, but Buccaneer did not acknowledge that fact, according to Barron’s ruling. CIRI’s termination of the lease has subsequently been upheld in Alaska Superior Court. Barron wrote in the 20-page document that his decision was based on the fact that Buccaneer was at the time the sole working interest owner in the area, thus making unit formation unnecessary. Additionally, the state land leases were set to expire on at the end of September 2012 when the application was filed a couple months prior to their expiration. The only interest that would have been protected by granting the unit would have been Buccaneer’s by way of gaining state lease extensions, according to Barron’s findings. He also claimed that Buccaneer made no commitments to fully develop the gas resources in the unit, and “exploration may be a component of unit activity but the primary purpose of unitization is development of reserves proven during the primary term of a lease,” Barron wrote. Subsequently Buccaneer appealed Barron’s decision in April 2013 to the Department of Natural Resources commissioner. That appeal is currently unresolved before commissioner Joe Balash. The commissioner is withholding a decision on the appeal while the “fundamental issues involving the leases that would underpin the proposed unit are addressed” through either a settlement reached by the parties or the conservation commission process, according to DNR spokeswoman Elizabeth Bluemink. Elwood Brehmer can be reached at [email protected]

Prudhoe flight first commercial use over land for UAS

The nation’s the first commercial unmanned aircraft flight over land took place June 8 when a drone working for BP flew over the Prudhoe Bay oil fields. The Federal Aviation Administration issued a certificate of authorization, or COA, to allow BP to survey pipelines, roads and other North Slope equipment, the agency announced June 10. “These surveys on Alaska’s North Slope are another important step toward broader commercial use of unmanned aircraft. The technology is quickly changing, and the opportunities are growing,” Transportation Secretary Anthony Foxx said in a formal statement. ConocoPhillips was awarded restricted COAs last summer to fly over its offshore leases in the Chukchi Sea. They were the first COAs issued for commercial UAS operations in the country. Unmanned aircraft systems manufacturer AeroVironment conducted the flight for BP with its Puma, a hand-launched fixed-wing UAS with a wingspan of about nine feet. “The flight operation will use light detection and ranging 3D technology to survey the gravel roads and pads at Prudhoe Bay. This technology will help BP optimize the planning and implementation of maintenance programs for the North Slope infrastructure throughout Prudhoe Bay. Targeting maintenance activities on specific road areas will save time, and address safety and reliability,” BP Alaska spokeswoman Dawn Patience wrote in a company statement. Curt Smith, U.S. technology director for BP, said the company is seeking precision mapping of Prudhoe Bay oil field roads, which the light and range technology, or LIDAR, mounted on unmanned aerial vehicles, can provide. The goal, however, is to aid in the company’s implementation of GPS-aided guidance for vehicles and equipment in the field. BP has been testing various approaches to driver and operator assistance with GPS in the field but found that the oilfield roads were not adequately mapped. LIDAR data, which can map surface contours to five centimeters horizontal and one-centimeter vertical accuracy, solves that problem and it is most effectively delivered from the air, with the UAV as an effective way to do that, Smith said. It’s also the only way to map off-road facilities like pipelines, where truck-mounted LIDAR can’t go, he said. The procedure will also enable BP to plan rig moves from pad to pad in the field because the condition of oil field gravel roads can be surveyed, and needed repair done, before heavy, bulky rig components are moved to a new location. Now that the system is up and running people at the field are coming up with new ideas, like using the unmanned aircraft to survey power transmission lines. “You know you have a winner (in a new technology) when people start asking, ‘can it do this?” Smith said. “Our initial goal was safety, to give vehicle operators assistance in driving during whiteouts and poor visibility but we’re finding more and more uses for this,” Smith said. GPS-aided vehicle operation is commonly used in agriculture and in large surface mines but its application by BP on the North Slope will be a first. But BP isn’t ready for autonomously-controlled vehicles, at least yet, Smith said. The company will start with “driver-assisted” GPS where the operator has access to a display screen with guidance instructions. In early May, FAA Administrator Michael Huerta made a trip to Alaska to formally open the Pan-Pacific UAS Test Range Complex operated by the Alaska Center for Unmanned Aircraft Systems Integration, an extension of the University of Alaska Fairbanks. When Congress passed the FAA Modernization and Reform Act in 2012 it mandated the FAA to draft and implement regulations to integrate unmanned aircraft into the national airspace. The Pan-Pacific Test Range and five other sites like it across the country were formed by the agency to allow government and industry a place to safely experiment with regulations and new technology. “The 2012 reauthorization law tasks us with integrating small UAS in the Arctic on a permanent basis. This operation will help us accomplish the goal set for us by Congress,” Huerta said. Alaska is widely considered a top test site for UAS because of its extensive uninhabited areas with relatively little air traffic. Oil and gas companies in the state have also expressed interest in the craft for surveying on and offshore leases and existing infrastructure — a cheaper and safer means of monitoring than manned flights. Elwood Brehmer can be reached at [email protected]

Prudhoe flight a first for unmanned craft

BP partook in the nation’s the first commercial unmanned aircraft flight over land June 8 when it flew over Prudhoe Bay. The Federal Aviation Administration issued a certificate of authorization, or COA, to allow BP to survey pipelines, roads and other North Slope equipment the agency announced June 10. “These surveys on Alaska’s North Slope are another important step toward broader commercial use of unmanned aircraft. The technology is quickly changing, and the opportunities are growing,” Transportation Secretary Anthony Foxx said in a formal statement. Unmanned aircraft systems manufacturer AeroVironment conducted the flight for BP with its Puma, a hand-launched fixed-wing UAS with a wingspan of about nine feet. "The flight operation will use light detection and ranging 3D technology to survey the gravel roads and pads at Prudhoe Bay. This technology will help BP optimize the planning and implementation of maintenance programs for the North Slope infrastructure throughout Prudhoe Bay. Targeting maintenance activities on specific road areas will save time, and address safety and reliability," BP Alaska spokeswoman Dawn Patience wrote in a company statement. In early May FAA Administrator Michael Huerta made a trip to Alaska to formally open the Pan-Pacific UAS Test Range Complex operated by the Alaska Center for Unmanned Aircraft Systems Integration, an extension of the University of Alaska Fairbanks. When Congress passed the FAA Modernization and Reform Act in 2012 it mandated the FAA to draft and implement regulations to integrate unmanned aircraft into the national airspace. The Pan-Pacific Test Range and five other sites like it across the country were formed by the agency to allow government and industry a place to safely experiment with regulations and new technology. “The 2012 reauthorization law tasks us with integrating small UAS in the Arctic on a permanent basis. This operation will help us accomplish the goal set for us by Congress,” Huerta said. Alaska is widely considered a top test site for UAS because of its extensive uninhabited areas with relatively little air traffic. Oil and gas companies in the state have also expressed interest in the craft for surveying on and offshore leases and existing infrastructure — a cheaper and safer means of monitoring than manned flights. ConocoPhillips was awarded restricted COAs last summer to fly over its offshore leases in the Chukchi Sea last summer. They were the first COAs issued for commercial UAS operations in the country. Elwood Brehmer can be reached at [email protected]

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