Elwood Brehmer

New data, old well add up to major North Slope find

With one unique North Slope oil discovery already in hand, a small group of explorers claims to have found another prospect on par with one of the state’s largest oil fields that is worth developing even at near rock-bottom prices. Leaders of London-based Pantheon Resources said in an interview with the Journal that a modern evaluation of an old exploration well along with information gleaned from recent nearby drilling gives them the confidence to say they have a roughly 1.8 billion-barrel discovery south of Prudhoe Bay along the Dalton Highway and Trans-Alaska Pipeline System corridor. Pantheon CEO Jay Cheatham said the prospect, dubbed Talitha, could ultimately produce approximately 500 million barrels of oil with peak production nearing 90,000 barrels per day, which would make it comparable to ConocoPhillips’ large Alpine field to the northwest. If the resource estimates prove out, Talitha would be the latest in a series of big North Slope oil discoveries over roughly the past five years, which has led many within the industry to conclude there is a “renaissance” occurring in what was once the country’s premier oil basin. However, while the economics of large North Slope prospects are routinely challenged by remote locations and a lack of infrastructure, Talitha and Pantheon’s nearby Greater Alkaid project avoid those multibillion-dollar hurdles, according to Cheatham. ConocoPhillips and Oil Search, two of the companies advancing major new North Slope oil projects, recently announced a collective $270 million pullback of previously forecasted investments. “We are so advantaged because of our location — being able to be right there along the Dalton Highway,” Cheatham said. The company has estimated the Greater Alkaid prospect, which is believed to hold 76 million barrels of recoverable oil, could produce up to 30,000 barrels per day. The Alkaid-1 well was drilled in 2015 by Anchorage-based Great Bear Petroleum, Pantheon’s predecessor firm on the project. It is just east of the Dalton and about 20 miles south of Prudhoe. Pantheon bought Great Bear and its roughly 200,000 acres of North Slope leases in January 2019. Results from the Pipeline State-1 exploration well drilled by Arco in 1988 also helped form the basis of geologic data that led Pantheon leaders to conclude they have a very large resource. The Pipeline State well is also just east of the haul road and about 6 miles south of the Alkaid prospect. Pantheon Technical Director Rob Rosenthal, a founding member of Great Bear, said the well data from Greater Alkaid was combined with the old Pipeline State well test results and data from a modern 3D seismic shoot of the whole area to give a better picture of what lies beneath. “It’s essentially in the same rocks, in the same stuff, in the same play,” as the Alkaid well, Rosenthal said of the Talitha prospect. He added that even though the 10,000-foot vertical Pipeline State-1 well has a roughly 2,200-foot oil-bearing column over four reservoirs, with the technology and oil prices of the late 1980s it did not add up to a viable prospect at the time. “There would have been no call back at $10 oil to go out and shoot 300-400 square miles of 3D (seismic), but today with the drilling technology, the completion technology, we can make this commercial,” Rosenthal said. Pantheon is so far focusing on the shallowest reservoir. Cheatham stressed the “dual advantage” that being adjacent to the haul road and TAPS provides the company. First, it allows Pantheon to avoid the massive up front costs of installing miles of remote gravel roads, drilling pads and pipelines and the corresponding multi-year environmental reviews that North Slope operators routinely face. It also makes it much easier for Pantheon to produce oil — and cash flow — early to help support full development of Talitha. “It’s not like you’ve got to put in your whole facility. We can get (the wells) online virtually as we drill them,” Cheatham said. Rosenthal added that the location also allows Pantheon to work year-round, while other companies are forced to limit appraisal drilling and early project development to the ice road season. It all adds up to projects that are viable at oil prices in the $30 per barrel range, according to Cheatham. The price for Alaska North Slope crude hovered near $30 per barrel in the second week of April as Saudis and Russian officials worked to end their production and price war that added downward pressure to oil markets already flooded with supply after the severe COVID-19-induced drop in demand started a month ago. Full development is currently envisioned as about 170 wells split roughly evenly between water injectors and producers, a high-level plan similar to what was used to develop Alpine, he said. Company leaders are hopeful development could begin in 2022 or 2023 if the global pandemic and subsequent economic shutdown do not persist for many months. Cheatham and Rosenthal told the Journal in January that they planned to drill one or two more wells this year around Alkaid-1 and initiate a long-term production test, but that work is on hold at least until travel restrictions ease. They acknowledged that Pantheon will need to find a partner to help finance large-scale development and that is challenged right now as well. However, when Pantheon begins in earnest its search for financing for its projects, Rosenthal said he does not believe the company will be hampered by the decisions numerous investment banks have made in recent months to stop funding Arctic oil developments because Greater Alkaid and Talitha aren’t in sensitive or otherwise controversial areas. “When they say ‘Arctic’ they mean offshore or ANWR or things like that,” Rosenthal said. “I don’t think there’s necessarily a blanket ‘we’re not going to fund anything in Alaska,’ but it’s up to us to send out a positive message about what we’re doing.” Cheatham said the project economics — and again, location along existing infrastructure — will be the ultimate deciding factor in whether or not Pantheon gets the money it needs for its work. “We are economic really at prices that are so low that if any large projects get new funding we believe that ours would be right at the top of the list,” Cheatham said. ^ Elwood Brehmer can be reached at [email protected]

88 Energy drilling program misses oil, hits condensates

A small Australian explorer is reporting mixed initial results from an exploration well drilled last month in an area south of the largest North Slope oil fields. Leaders of 88 Energy announced April 7 that the Charlie-1 well hit a large pool of natural gas condensates in the Torok sand formation but did not hit the concentrations of oil they were hoping for. The Charlie-1 well was drilled roughly 30 miles west of the Dalton Highway and about 35 miles south of Prudhoe Bay. It is a western step-out from 88 Energy’s Icewine oil project centered on a drilling pad near the Dalton. 88 Energy is the operator of nearly 480,000 acres of continuous leases that run east-west along the southern North Slope and are bisected by the haul road and Trans-Alaska Pipeline. The company works in Alaska under its wholly owned subsidiary Accumulate Energy Alaska. The Charlie-1 well targeted conventional oil prospects in the Brookian geologic sequence largely based off of data from the nearby Malguk-1 well drilled by BP in 1991. 88 Energy Managing Director David Wall said in a statement that samples of the gas condensates will be analyzed for commercial viability over the coming months. “On the one hand, we have confirmed the presence of mobile hydrocarbons in the primary targets of the well, but, at the same time, there are challenges that need to be more fully understood related to whether these can be commercialized on the North Slope,” Wall said. Condensate samples were taken from the Torok formation — a subset of the Brookian sequence — at approximately 10,500 feet and 10,650 feet, according to the April 7 statement. Wall added that shallower targets were found to hold water and not have proper sand accumulations. The total project was expected cost approximately $23 million, according to estimates made prior to drilling. 88 Energy is one of several small independent companies exploring areas south of Deadhorse primarily for Brookian oil targets. 88 Energy’s prior Icewine drilling was focused on shale zones along the Dalton highway. While 88 Energy is the primary operator over the broader Icewine acreage, Charlie-1 drilling was farmed out to London-based Premier Oil for a 60 percent stake in roughly 57,000 acres of leases. However, Premier intends to withdraw from the project because the results did not meet the company’s expectations, 88 Energy officials said in the April 7 project statement. The Charlie-1 well is going to be plugged and abandoned rather than suspended or tested further because additional work this late in the season could result in stranding the Nordic-Calista No. 3 rig used to drill the well at the site if ice road conditions deteriorate and returning to plug the well later if the project is not deemed viable would add further costs, according to 88 Energy. Company officials also noted that personnel needed to conduct future work could be unavailable in the coming months due to the COVID-19 pandemic. Elwood Brehmer can be reached at [email protected]

Gov vetoes $210M; revenue forecast heads south

Gov. Mike Dunleavy made significant vetoes to the state budget for the second straight year before signing it, but he said many of the cuts will be backfilled with federal coronavirus aid the state is expected to receive. In all, Dunleavy announced vetoes of $210 million in unrestricted general funds on April 7 for a final combined fiscal year 2021 operating and capital budget total of just more than $4.5 billion. The roughly $440 million Dunleavy vetoed from the budget last year following an exceptionally contentious and prolonged budget process with the Legislature helped spur an ongoing effort to recall him from office. He also continued to press the Legislature to reconvene as soon as possible to approve an additional Permanent Fund dividend payment that he says is needed to help Alaskans deal with the effects of the economic shutdowns ordered to limit the spread of the virus. He noted that Congress approved direct stimulus checks of up to $1,200 per person as part of the $2.2 trillion Coronavirus Aid, Relief and Economic Security, or CARES, Act legislation passed March 27. “All across the world, leaders and economists are looking to mimic the PFD. Yet here in Alaska, our leaders are doing the opposite. I will continue to call on the Legislature to follow the law, utilize the statutory calculation for the Permanent Fund dividend and get money into the hands of laid off workers throughout Alaska,” Dunleavy said. “Call it a PFD, call it a COVID-19 emergency relief payment; it does not matter. We must act now to help our fellow Alaskans.” The Legislature, which quickly passed the budget March 29 and recessed from the session, funded a single PFD payment of $1,000 per person. While the Senate originally approved $1,000 payments in spring and fall in light of the economic hardships being faced statewide, lawmakers ultimately decided to keep the $680 million needed for the additional payment in the Earnings Reserve Account of the Permanent Fund in light of the increasingly bleak fiscal picture the state as a whole is also facing. Lawmakers who supported the single, $1,000 PFD have since said they did not want to make additional, ad hoc draws on the Permanent Fund that would violate the 5.25 percent of market value, or POMV, annual draw limit on the fund, particularly at a time when financial markets are extremely volatile and the state’s projections for future revenue are also getting worse. The money will likely be needed in the future just to maintain some basic levels of state services, irrespective of PFDs, they stress. As to the vetoes, Dunleavy said the CARES Act funding would cover a “majority” of the individual cuts he enacted. Alaska is set to receive at least $1.25 billion of federal aid to address general economic and health issues that arise from the virus and the governor has broad authority to accept and distribute that money. “We looked over the CARES Act and had discussions with people in Washington (D.C.) so we believe we are going to be able to do what we say we’re going to do” with that money, Dunleavy said in a press briefing. House Speaker Bryce Edgmon said in a formal statement that lawmakers need to hear more details about the discussions the administration had with federal officials about uses for the CARES Act aid and noted the vetoed money the administration wants to replace largely comes from things the Dunleavy has previously battled over with legislative leaders. “From our initial understanding, federal funds can only be used for expenditures incurred due to COVID-19, not expenditures unrelated to the COVID-19 response,” Edgmon said. “There is no guarantee the federal government will pick up the tab. This approach is incredibly troubling to me.” According to a list provided by the Office of Management and Budget, here are the vetoes the administration expects to pay for with the federal aid:$31.2 million in community assistance payments • $66.7 million in combined K-12 education funding • $100 million in school bond debt reimbursement payments to local governments • A $2.7 million COVID-19 response grant to the Municipality of Anchorage • A $5 million homeless grant to the Alaska Housing Finance Corp. • $2.3 million in non-mandatory municipal debt reimbursement payments Dunleavy said the $100 million veto to school bond debt reimbursement, for example, will be eligible for repayment with CARES Act funds because local governments are collecting less in tax revenue as a result of the economic restrictions the pandemic pushed officials to order. However, the money he vetoed was the state’s share of those payments. Dunleavy also vetoed $31 million from a supplemental budget request the Department of Health and Social Services made to Medicaid funding shortfalls for the rest of the 2020 fiscal year as well as $15 million from the Alaska Marine Highway System allocation and a $1 billion transfer from the Earnings Reserve to the corpus of the Permanent Fund. DHSS Commissioner Adam Crum said the vetoed supplemental Medicaid funding will be made up through an increase to the federal match for Medicaid passed by Congress in response to the pandemic. Additionally, Dunleavy vetoed $12.5 million from the University of Alaska budget, money the Legislature approved that funded the system beyond the $75 million in cuts over three years the governor and regents agreed to last year. Revenue forecast goes south In the latest state revenue forecast released April 6, Department of Revenue officials project the collapse in oil prices and lost tax revenue from other sources will result in forgone revenue totaling nearly $530 million for the rest of the 2020 fiscal year, which ends June 30, and $815 million in 2021 versus the revenue forecast released last December. The final unrestricted revenue tally is now pegged at $4.5 billion for 2020 and $4.3 billion in 2021. Legislative Finance Director Pat Pitney has said the state could drain the Constitutional Budget Reserve and be forced to make ad hoc draws on the Permanent Fund by fiscal 2022 based on oil price and financial market projections. Oil prices have crashed since late February in part due to a sharp pullback in oil demand stemming from the travel and work restrictions put in place worldwide, but also because of a price war between Saudis and Russian officials that oil market analysts hope will be resolved soon. Revenue officials last fall forecasted an average Alaska North Slope crude price of $63 per barrel and the guess was largely looking correct until the COVID-19-induced economic upheaval. Now they are predicting an average price of $51 per barrel for the year, with prices averaging just $37 per barrel through 2021 and gradually climbing to $50 per barrel by 2027. Elwood Brehmer can be reached at [email protected]

Railroad netted $21M in ’19; uncertainty lies ahead in ‘20

The Alaska Railroad Corp. turned a solid profit of $21.6 million last year on improved freight business, but along with countless businesses and industries the railroad’s prospects for 2020 are uncertain at best given the global economic disruption brought on by the COVID-19 pandemic. The $21.6 million net income in 2019 was a 17 percent increase over $18 million in 2018 and marked the third consecutive year of annual profits for the state-owned railroad following an unexpected $4 million loss in 2016, which leaders attributed to a dispute with Municipality of Anchorage officials over splitting federal transit funds. The net return was generated on the back of $203.9 million in total revenue, amounting to 7.5 percent revenue growth over 2018, according to the annual report published April 1. Alaska Railroad operating revenue increased 8 percent to nearly $177.6 million and led to operating income of $4.7 million last year, compared to $1.5 million in 2018. The Alaska Railroad is a public corporation but it does not receive state funding to support its general operations. The railroad does receive federal formula grants largely tied to its passenger service, as is the case for many passenger railroads nationwide. The federal funding has totaled about $52 million to $57 million annually in recent years, according to the report. Aside from its traditional operations, the Alaska Railroad also owns title to about 37,000 acres across the state, roughly half of which are revenue-generating properties. Income from that real estate totaled just more than $14 million in 2019, which accounted for about 11 percent of the railroad’s total revenue and was $1 million more than 2018. Railroad officials noted in a statement accompanying the report that despite just 9 percent annual growth in the volume of freight hauled by Alaska trains in 2019, freight revenue grew by nearly $14 million, or 16 percent to $85.3 million. Gravel accounted for more than half of the nearly 3.5 million tons of freight moved last year but the jump in revenue is largely attributed to increased demand for the railroad’s rail-barge service between Seattle and Whittier from North Slope oil companies. The rail-barge link allows railcars loaded in the Lower 48 to be barged to Whittier where they are added to Alaska Railroad trains. In addition to normal oil production operations, companies are in the midst of developing several billion-dollar-plus new projects on the Slope following a burst of large oil discoveries in recent years. Alaska Railroad spokesman Tim Sullivan wrote via email that there hasn’t yet been a slowdown in demand for freight transit, but company officials are concerned about what current low oil prices may mean for the state and the railroad’s business. Oil Search Alaska, ConocoPhillips and BP have all announced work slowdowns this month with oil prices at the lowest levels seen in nearly two decades — a combination of failing global demand in response to the virus and a subsequent Saudis-Russian price war. In light of that situation, it’s unclear how the railroad’s main business lines will be impacted this year, which CEO Bill O’Leary acknowledged in a formal statement. “We recognize COVID-19 is weighing heavily on the global economy, and the railroad is responding with the ingenuity and durability that are our hallmarks. Whatever the outcome of COVID-19, one thing is certain: The Alaska Railroad is stronger for the gains, triumphs and investments made during 2019,” O’Leary said. “We remain realistic and optimistic that the railroad can bank on that strength, foster growth where it is plausible, and help fellow Alaskans weather the challenges ahead.” While freight service accounted for more than 40 percent of the railroad’s total revenue, passenger service provided nearly 20 percent of its 2019 revenue stream as well. The railroad carried 522,101 passengers last year, which was about 10,000 passengers less than 2018. However, railroad officials attribute the decline mostly to an odd combination of wildfires and flooding along tracks in Southcentral Alaska that both disrupted passenger service for several days in separate events. Prior to last year, passenger volumes had been on a steady annual increase driven primarily by a growing visitor industry in the state. A trip on the railroad is part of many tour packages marketed by cruise companies and other tour operators. Additionally, a focus on marketing winter excursions has also helped the railroad roughly double its “offseason” ridership over the past several years. However regular summer passenger service had been suspended until early July in response to the COVID-19 pandemic, according to information posted on the railroad’s website. Railroad officials also began initial planning work on a $60 million-plus overhaul to the Seward cruise dock and terminal, which the railroad owns, late last summer. Construction of the new facilities was originally planned to run through late 2023. Sullivan said the Seward project is still an “important and critical project” for the railroad, but its pace has been slowed given the uncertain future of the cruise industry. Railroad officials also expect to finally finish the drawn out and costly federally mandated safety program known as Positive Train Control, or PTC, this year to meet a Dec. 31, 2020, implementation deadline. According to Sullivan, the Alaska Railroad has spent $165 million to-date to develop a PTC system on its tracks. That total is likely to reach $182 million by the end of the year, Sullivan said. PTC is a safety system designed to eliminate human error accidents on passenger railroads. The PTC mandate came down from Congress in 2008 after several serious accidents involving passenger trains in the Lower 48. The PTC implementation deadline was first set for December 2015, but Congress extended it to December 2018 with provisions for some railroads to have the deadline pushed to 2020 when it became clear many rail operators across the country were not going to hit the 2015 target. Elwood Brehmer can be reached at [email protected]

Final Ambler road review out; AIDEA adds $35M for project

Bureau of Land Management officials maintained their support for the most direct proposed road route to Interior mining prospects in their final environmental review of the plan published March 27, the same day leaders of the state-owned development bank moved $35 million for future work on the project amid sharp public criticism. The 211-mile industrial road concept preferred by BLM Alaska officials to reach the Ambler mining district is what the Alaska Industrial Development and Export Authority proposed in early 2017 when officials there submitted federal permit applications for the project. AIDEA is advancing the long-sought link to the remote Ambler mining district in an attempt to spur development of a suite of metal prospects in the area. Estimated in 2017 to cost between $280 million and $380 million for basic gravel construction, the final environmental impact statement, or EIS, for the road now pegs the total construction cost at approximatley $520 million. BLM Alaska Director Chad Padgett said in a March 26 statement preceding the release of the final Ambler road EIS that the roughly 430-page document incorporates information gathered over three years of community and Tribal consultation meetings. “My staff traveled to more than 20 communities in the project area to solicit input and gather traditional knowledge,” Padgett said. “Those efforts contributed to this comprehensive analysis that will help pave the way for Alaska to responsibly develop its natural resources and create jobs.” BLM led the EIS because the agency is responsible for issuing road right-of-way permits to AIDEA if the project is ultimately approved. Agency officials cannot reach a record of decision on the project until at least 30 days after the final EIS is published and it’s unclear exactly when that will happen. The 211-mile industrial-use road would run west along the southern flank of the Brooks Range from the Dalton highway at milepost 161. It would pass near the villages of Bettles and Evansville near its eastern end and terminate among several mining prospects just north of the Kobuk River villages of Ambler, Shungnak and Kobuk. Agency officials dismissed an alternate route starting at mile 60 of the Dalton that would snake 332 miles northwest to the district because although it would avoid Gates of the Arctic National Park and Preserve; its added length would inherently mean more environmental impacts and costs compared to AIDEA’s proposal, the EIS states. Critics have pointed to the cost of the project, and the fact that there is no guaranteed repayment method, as reasons to scrap the plan. The Wilderness Society contends the current estimate for the road does not consider some of the costs inherent to building in remote northern Alaska, such as constructing a road over permafrost. The group suggests the road could end up costing $1 billion or more as a result. The proposed mines have also drawn scrutiny for potential impacts to salmon and whitefish runs in the Kobuk River drainage and many residents of the area villages are concerned about impacts to caribou in the region that are an important subsistence food source. Numerous village and Tribal governments in the area of the proposed road have issued formal statements of opposition to the project. AIDEA officials insist access to the road will be restricted to mining activity because it would ultimately be paid for through tolls under the plan; there would be no public access to currently isolated hunting areas, which has been another concern of area residents worried about increased activity. Currently, Vancouver-based Trilogy Metals Inc. is the only company with advanced prospects in the Ambler area. The company holds two main prospects, Arctic and Bornite, which contain high-grade copper along with cobalt, zinc, lead and precious metals. Trilogy leaders have said the Arctic prospect contains copper at grades up to 10 times greater than many other modern mines and the only thing holding back development is cost-effective access. Interim Trilogy CEO Jim Gowans said in a company statement that the final EIS marks a critical milestone for the road project that will “unlock the incredible mineral potential” of the region. “Trilogy, through its joint venture company, Ambler Metals LLC, is already discussing the next steps for the financing and development of the road with the Alaska Industrial Development and Export Authority,” Gowans said. AIDEA moves $35M for road Also on March 27 the AIDEA board of directors approved a transfer of $35 million from the authority’s Revolving Fund to its Arctic Infrastructure Development Fund to eventually support development of the Ambler road. The resolution directing the funding shift notes that further board action is required to spend the money, but a slew of public commenters made it known they were not happy that AIDEA officials took up the resolution at a short-notice emergency meeting that otherwise dealt with loan and regulatory issues related to the COVID-19 pandemic. Many commenters simply stated their strong overall objection to the road project and the mines it is intended to support, while others questioned whether the authority had violated open meetings laws with its second emergency meeting in as many days. Anchorage Democrat Rep. Andy Josephson testified that he shared in the concerns of others regarding the timing of the meetings and the funding transfer resolution. “I’m concerned that the optics of what you’re doing is so poor given what people are dealing with,” Josephson said to the AIDEA board members, adding that the Legislature’s decision to not capitalize the Arctic Infrastructure Development Fund exemplifies divisions among lawmakers over the Ambler road project. AIDEA’s Revolving Fund held approximately $1.3 billion at the end of the 2019 fiscal year last June 30, according to the authority’s annual financial report, but the vast majority of that money was committed to loans or other investments. The Revolving Fund held approximately $33.2 million in unrestricted cash at the time as well. Attorneys for the Anchorage-based environmental nonprofit law firm Trustees for Alaska also questioned the legality of the $35 million transfer in a memo sent to state lawmakers March 25. The memo asserts than an initial version of the resolution describes that the money would fund “expert engineering, attorney, advisor, and other professional fees to work on permitting, road and bridge design, acquisition of rights-of-way, public outreach, cultural resources evaluations, and other tasks necessary or convenient to reaching a decision point on whether to proceed with construction of the project.” Trustees attorney Bridget Psarianos said in an interview just prior to the March 27 meeting that much of the work outlined in the original resolution should have already been done so it could be included in the EIS for the road. That language was removed from a revised version of the resolution, which states that the authority has the ability to transfer the money so it can continue to advance Arctic infrastructure developments and “pursuing (the Ambler road) through the Arctic Infrastructure Development Fund is in furtherance of the authority’s mission to promote economic development and to create employment opportunities in Alaska.” Trustees argues the transfer is “directly contrary” to both the Alaska Constitution and the Executive Budget Act, which outline the appropriations process through the state Legislature and the governor. “The Ambler road project is a capital appropriation item, and AIDEA cannot increase funding for this project without approval, regardless of the source of that funding. Funds for the project are subject to appropriation by the Legislature, not AIDEA,” the Trustees memo states. “Because AIDEA has been unable to secure additional funding for the Ambler road through the Legislature and the capital budget process, it is now attempting to make an end-run around the authority of the Legislature by unilaterally appropriating money from its Revolving Fund to this project.” AIDEA spokesman Karsten Rodvik wrote via email that “When used for capital expense, money in AIDEA’s Revolving Fund is not subject to the Executive Budget Act. Also, the board has the authority to move money between funds.” The Legislature created the Arctic Infrastructure Fund in 2014 but it had not been capitalized until the $35 million was moved into it. Psarianos wrote in an email after the meeting that the firm has serious questions about the legality of the authority’s actions and “we are considering a variety of options to attempt to right this wrong.” Gov. Mike Dunleavy’s 2020 fiscal year budget plan originally proposed to transfer $84 million from the Revolving Fund to an oil and gas tax credit fund outside of the authority, but the move was not included in the Legislature’s final budget. (Editor's note: This story has been updated to reflect the latest available cost estimates for the road project.) Elwood Brehmer can be reached at [email protected]

Fishing community takes precautions as it readies for salmon season

As Alaska’s top doctor put it, “We know the fish are coming regardless of COVID-19 or not and we can’t ask them to stay home.” As a result, government officials and fishing stakeholders statewide are working to ensure Alaska can still have a strong summer salmon season even amidst a potentially prolonged COVID-19 winter. Alaska Chief Medical Officer Dr. Anne Zink made the comment during a March 30 press briefing, adding that the state has a specific fisheries work group trying to figure out ways small communities can handle an influx of fishermen and processing workers while also adhering to important health guidelines that run counter to the realities of a traditional fishing season. While Alaska’s diverse fisheries continue year-round, the famed Copper River sockeye and king fishery that unofficially kicks off the salmon harvest in mid-May each year will be one of the first testing grounds for trying to find that balance. United Fishermen of Alaska Executive Director Frances Leach said fishing groups across the state have been working for weeks to find ways to adjust normal fishing operations in light of the host of challenges the virus — and steps taken to fight it — raises. It started with crowdsourcing to simply identify who was doing what to make sure everyone is rowing in the same direction, Leach said. “Communicating is huge. Commercial fishermen are kind of infamous for not giving away their secret fishing spots so trying to shift gears and make sure we’re all communicating and sharing information during this time is really important,” she said. The goal is to standardize new health guidelines and corresponding procedures for each fishery as much as possible to make sure fishermen and support workers know what is expected of them. Leach said industry leaders are in the process of developing and submitting vessel action plans to the state that detail what steps they will take to prevent the spread of the virus while they are fishing and how they will respond if someone on their vessel develops symptoms during the season, among other considerations. The plans are not special to the fishing industry; each company working in an industry deemed critical by state officials must submit a similar COVID-19 Worker Mitigation Plan to the state Department of Commerce, Community and Economic Development if workers arriving prior to May 1 will not be quarantined for 14 days to monitor for symptoms of the virus. The plan requirement could also be extended beyond May 1 if the virus remains a significant threat to public health in the weeks and months to come as many health experts expect it will. “Just because we’re considered a critical workforce doesn’t mean that we can just run off and start fishing,” Leach said. She’s hopeful the state will adopt operating parameters for each segment of the industry in order to simplify the process because absent that, the state officials would literally have to review thousands of action plans for each individual fishing vessel, Leach said. “We have so many types of fishing vessels and fisheries in the state of Alaska that one plan cannot be applied to every single vessel in Alaska. We’re going through and catering plans to each type of vessel,” she said. At the epicenter of the rapidly approaching Copper River fishery in Cordova, Mayor Clay Koplin said city officials have been doing their best to prepare for the ranging impacts of the virus since late January even though the isolated Prince William Sound community has yet to report a confirmed case of COVID-19. The city’s protective provisions have mirrored the state’s fairly closely, Koplin said, noting the city put its own 14-day self-quarantine mandate on intrastate travelers ahead of health mandates issued by Gov. Mike Dunleavy. “We are acting as if the virus is already here on one hand, so we’re being proactive internally but we’re also acting as if the virus isn’t here and we have to keep it out,” Koplin said. Cordova is also requiring fishermen and processing companies to submit action plans similar to the state, Koplin added, though the state plans will be accepted at the city level. He acknowledged there is a “high state of fear” among Cordova residents about what the salmon fishery might bring. However, fishing also accounts for roughly 90 percent of the city’s economy, so still having a viable season is extremely important, he said. Cordova’s year-round population of approximately 2,300 is boosted by upwards of 860 fish processing workers at the peak of each summer season, according to state Labor Department figures. In addition, roughly two-thirds of the nearly 540 commercial fishing permits for the area are held by individuals from outside the community, Koplin said, and with each vessel comes several crew members. He said many stakeholders have quickly done what they can to ease residents’ concerns as much as possible and assist the city in the COVID-19 fight. Leaders of fish processing companies have been submitting their virus prevention and operating plans and some started doing so even before they were asked to do so, according to Koplin. “They filed very aggressive plans up to and including bringing in their own medical staff for the season and they have lots of bunkhouse space so they can essentially kind of quarantine their entire operation except for the fleet and that’s where a lot of our concerns are,” he said. The city also has Vessel Operator Mutual Agreement forms on its website for both large and small operators to sign that outline the local government’s expectations and requirements for working in the fishing industry amid the ongoing pandemic. Koplin said the situation largely requires more pre-planning by fishermen who typically buy fishing gear, boat parts, groceries and other supplies in Cordova prior to the Copper River fishery. “We would prefer that they do exactly what residents are doing. Don’t engage in any kind of interaction that you don’t absolutely have to,” Koplin said of arriving fishermen. He added that a lot of what fishermen will need to do when, and before, they get to Cordova will depend on where they came from. “If they come up on a seiner and they stop in Ketchikan (where 13 COVID-19 cases had been reported as of this writing) for three weeks and then come to Cordova we’re going to be extremely concerned,” Koplin described. “But if they leave Seattle and they’re in route for two weeks and they don’t really have any human contact then they’ve effectively quarantined before they got here.” With fishermen coming from all over, it can be difficult to communicate with the entire salmon fleet, so city officials are utilizing the state Commercial Fisheries Entry Commission as a conduit to communicate their expectations to fishermen, he said. If a fishermen or processing worker gets sick, Koplin stressed that they should call health facilities instead of going to them to limit their exposure to others if they indeed have contracted the virus. Department of Fish and Game Cordova Area Management Biologist Jeremy Botz said he doesn’t think the measures being taken to limit the spread of the virus will significantly impact management of the Copper River sockeye and king fishery. “Every season is pretty dynamic as far as the fishery goes. Until the fish start returning we really don’t have a clear sense as for what to expect,” Botz said. At this point, he expects managers will have their normal means to assess run strength but if they are put in a position where they don’t have those tools they can turn to their best available historical data to manage the run. Botz said he is planning for a fairly normal season in terms of fishing effort. “It’s hard to imagine a scenario where we wouldn’t be able to go out and have a commercial fishery,” he said. Market uncertainty While everyone in Cordova is working to make the fish catching go off as smooth as possible, the market end of the equation could pose another challenge. The Copper River sockeye and kings are prized as the first fresh salmon of Alaska’s season and some years consumers at high-end restaurants and markets in Seattle pay upwards of $60 per pound for the most sought-after king fillets. This year, however, that market is missing. Alaska Seafood Marketing Institute Executive Director Jeremy Woodrow said ex-vessel prices for early season fresh halibut — traditionally purchased by restaurants — have been depressed and a somewhat similar scenario is expected for Copper River salmon. However, Woodrow said processors should still be able to sell their product if they adapt to the new market conditions. Frozen salmon portions are selling well and canned salmon “is flying off the shelf” these days, he added. “I think Americans are more in-tune about supporting the American economy right now,” Woodrow said, and that sentiment could hopefully translate into buying more Alaska salmon for their own dinner tables this year. “If this challenge continues there’s likely going to be some lessons that can be learned from the Copper River fishery,” he said. Koplin noted that Cordova resembles a ghost town during fishing openers and said ideally the town will look that way as long as the COVID-19 threat lasts, whether folks are out fishing or not. “I guess my preference would be that every day of the week looks like that ghost town — that people are on their boats or they’re going out and doing some sport fishing in between commercial openers; anchoring up in their favorite cove and just not spending the time in town for their own health and that of the community,” Koplin said. ^ Elwood Brehmer can be reached at [email protected]

Oil price collapse foreshadows huge deficits before PFD payments

What little financial wiggle room Alaska had to start the year has been squeezed out of the state’s fiscal picture and then some, according to the Legislature’s top budget analyst. Legislative Finance Division Director Pat Pitney told members of the public policy group Commonwealth North during a March 27 videoconference that the State of Alaska is now facing significant annual deficits even before Permanent Fund dividends are paid for the foreseeable future. Pitney summed up the impact of ongoing volatility in energy and financial markets as “declining lines” in the state’s revenue outlook. Lawmakers will likely have to reconcile an additional $300 million added to the fiscal year 2020 deficit and could similarly be faced with yearly pre-PFD deficits of $300 million and growing down the road based on the current scenario, she said. While many state officials and leaders of Alaska’s core industries are focused on the immediate health and economic impacts of the COVID-19 pandemic, the latest budget crunch is due to another reset of global oil markets that is only marginally linked to the worldwide health crisis. Saudis and Russian officials were unable to strike a deal in early March to curb oil production in response to the sudden curtailment in demand stemming from suspended economic activity worldwide due to the response to the COVID-19 outbreak. The situation quickly devolved into a price war as Saudis leaders ordered more production on the premise their country can outlast Russia and other large producers dependent on oil revenue for a major share of their budgets. The end result has been an approximate halving of oil prices over the past month. The Department of Revenue’s official fall 2019 forecast pegged Alaska oil at $59 per barrel for the 2021 fiscal year, which starts July 1, with prices gradually rising with inflation in the out years. Pitney told lawmakers earlier this month that Legislative Finance was basing its state revenue projections on a roughly $40 per barrel oil average for the next year-plus based on similarly priced Brent benchmark futures trades. The additional $300 million shortfall this year is similarly based on $40 per barrel oil for the rest of the year, she noted. Based on those fundamentals, the final 2020 deficit is expected to be about $730 million, according to Legislative Finance officials. The Energy Information Administration forecasted in mid-March that Brent benchmark crude — which Alaska oil follows closely — will average $43 per barrel in 2020 and return to $55 per barrel in 2021, but those projections could change along with the global response to COVID-19. However, as of March 25 Alaska North Slope crude was selling for $26.73 per barrel, according to Department of Revenue figures. CME Group, a Chicago-based firm comprised of four commodity exchanges, published Brent oil futures on March 30 of $22 per barrel for May, gradually rising to $37 by December. The Department of Revenue typically publishes an update to their annual fall forecast in late March or early April to give lawmakers deliberating budgets more timely information on the state’s finances, but department officials have said they are holding off on publishing new numbers for now given the market volatility. Many legislators who favor smaller dividend payments to help stabilize the state’s finances in-lieu of drastic budget cuts or new taxes have noted that the current budget had a surplus of more than $400 million based on oil in the low $60s per barrel and before paying PFDs. That quickly evaporated with a cumulative $1.1 billion PFD appropriation and a $360 million supplemental budget to mainly pay for shortfalls in Medicaid and wildfire funding. The oil price collapse just takes more away from the revenue side of the ledger. Under a longer-term projections by Legislative Finance, a slower oil market recovery to about $35 per barrel would cut annual state revenue by $700 million to $800 million per year. The combination of very low oil prices and lower return projections for the Permanent Fund stemming from COVID-19 induced stock market declines the whole situation could end up costing the state up to $11 billion of lost revenue potential over the next decade, according to Pitney. “Under a scenario with annual revenue going from $5.5 billion to $4.5 billion, irrespective of dividends we’d have high annual deficits,” she said. Lawmakers recessed from the current legislative session shortly after the House approved a combined operating and capital budget bill shortly after midnight March 29. The Senate had previously approved the budget that had been negotiated in a conference committee. The fiscal 2021 budget calls for spending approximately $4.7 billion in unrestricted general funds and is largely in line with the current budget on most agency items. However, it adds $30 million for K-12 education, $12.5 million for the University of Alaska, and $88 million in health system and disaster assistance funding for the state’s response to the COVID-19 pandemic. The Legislature also approved nearly $17 million more for Alaska Marine Highway System operations than Gov. Mike Dunleavy requested in his budget and $19 million from the Vessel Replacement Fund to repair the currently laid up ferry Aurora that typically serves Prince William Sound communities. The budget includes $680 million to pay dividends of $1,000 per person this fall, but a Senate proposal to pay a $1,000 PFD that would’ve provided a cash infusion to the state’s beleaguered economy was pulled out of the final budget that’s headed for Dunleavy’s desk. The budget relies on a roughly $1.1 billion draw from the Constitutional Budget Reserve, the state’s last remaining savings account. Dunleavy thanked legislators for quickly passing the budget in a statement from his office but said the missed an opportunity to help Alaskans by not approving a significantly larger PFD appropriation. The governor had previously called on lawmakers to approve a supplemental spring PFD of $1,306 per Alaskan to make up for the difference between the $1,606 residents received last fall and the more than $2,900 dividends called for under the statutory dividend formula. “The vast majority of economists worldwide, as well as the president of the United States, and almost every member of Congress understand how a quick injection of cash into the hands of workers will do more to stabilize the economy than any other approach at this time,” Dunleavy said in reference to the checks of up to $1,200 many Americans are set to receive from the federal stimulus package. “My administration will continue to work closely with Alaska’s congressional delegation and the White House on how to maximize the benefit of the federal emergency relief package here in Alaska.” House Speaker Rep. Bryce Edgmon, I-Dillingham, wrote in a lengthy Facebook post March 30 that the sudden drop in oil prices and a roughly 10 percent decline in the value of the Permanent Fund in recent weeks forced the Legislature to make choices that will hopefully mitigate the long-term damage do the state’s finances — namely, approving a single, $1,000 PFD payment this fall. “If the Legislature is able to return to session this year, I predict that the first order of business would be to take a second look at helping Alaskans who could be suffering even more than they are today,” Edgmon wrote, adding that while the choices were difficult this year, “next session will be worse” if oil prices don’t make a drastic recovery. “When the Legislature convened this January, a budget surplus existed. But today it’s a faint memory, and in its place is a nearly $600 million hole. Next year could easily feature all at the same time: major budget cuts, attempts to impose new revenue measures and a zero PFD,” he wrote. Pitney said Legislative Finance analysts expect the CBR to finish fiscal 2020 on June 30 with about $1.5 billion after starting the year with more than $2.1 billion. (The final deficit projections do not match the CBR draw due to mandated CBR deposits from court and tax settlements and modest investment returns during the year.) Pitney, a former budget director for Gov. Bill Walker, said state officials need a minimum of approximately $600 million in the CBR to continue using it as a day-to-day cash management account. A CBR balance of less than $600 million would require Revenue officials to turn to the Permanent Fund’s Earnings Reserve Account to manage the state’s cash flow. A rough calculation of current projections indicates the CBR could be down to approximately $500 million by the end of fiscal 2021. As early as 2022 lawmakers would be faced with making a $350 million ad-hoc draw from the Permanent Fund to pay for state operations even before accounting for a PFD appropriation, according to Legislative Finance models. Elwood Brehmer can be reached at [email protected]

Financial institutions aim to aid battered customers

Alaska’s financial institutions are doing what they can to help businesses and individuals through the economic consequences of the response to COVID-19 and they’re largely doing it from a position of strength. “We’ve got plenty of funds to lend,” Northrim Bank Chief Lending Officer Michael Huston said March 24. The state’s largest banks were all growing and nearly all of them had significant net income increases and strong loan portfolio performance based on third quarter results. Northrim, for example, had a 45 percent year-over-year increase at $7.8 million in net income. Anchorage Economic Development Corp. CEO Bill Popp said the state’s banks and credit unions are “in the best possible situation we could’ve hoped for” given the dire economic situation facing thousands of Alaskans and people worldwide brought on by government-mandated business closures and event cancellations aimed at limiting the spread of the virus. “There’s great leadership in our financial institutions and they have the resources to stay solvent,” he said. Popp is also a co-chair of the Economic Resiliency Task Force formed by Anchorage Mayor Ethan Berkowitz to help city leaders navigate the unprecedented situation and minimize its impact on Anchorage’s economy. It’s unclear exactly how many workers will ultimately be impacted by attempting to pause the state and national economies, but what is certain is the numbers will be painfully large. State Labor Department officials reported roughly a six-fold increase in unemployment claims in the days after the state and local governments began restricting public gatherings and closing bars and restaurants in mid-March. Popp said he’s heard numerous lenders are aggressively working to modify business loans, refinance mortgages and defer payments and interest for businesses that have had to close and individuals who have had their income cut off so quickly. He stressed a need for an immediate cash infusion into the economy. Popp said the explosion of the pandemic and the quick nature of the subsequent government responses left many business owners without time to react. “Businesses have been caught without sufficient cash resources to ride this out,” he said. Based on information the task force is receiving, Popp said the group expects the virus and resulting movement restrictions to be in place for months, not weeks. A survey published by the National Federation of Independent Business indicated that as of March 24, more than three-quarters of Alaska small businesses were being negatively impacted by the response to the virus. Approximately 5 percent of mall businesses have been positively impacted. At the time, 68 percent of small business owners said they were very concerned about the potential impact to their business, according to the survey. Gov. Mike Dunleavy said on March 20 his administration had reached an “understanding” with members of the state’s banking community to partner on a program to offer state-backed bridge loans to small businesses. Bank executives said they are generally supportive of the concept but they are waiting to hear more details about it. A spokesman for Dunleavy did not respond to questions about the loan program in time for this story. In a March 23 statement, officials with the Alaska Industrial Development and Export Authority encouraged its borrowers in need of assistance to contact the private lender that participated in the loan with AIDEA. “The authority can then work with the lender to help achieve a positive solution for the client,” the AIDEA statement reads. The state-owned development bank regularly participates in private commercial loans at up to 90 percent of the loan, many of which are in the tourism and hospitality sectors. Some of the lending Northrim is doing is in the form of short-term loans to businesses that are trying to pay their employees through the work stoppage, Huston said. Northrim is providing 90-day payment deferrals and 120 days of interest-only payments on business loans, according to Huston. The statewide bank has different options for individuals with loans or mortgages, he said. “We have significant resources to assist any borrower that is having difficulty as a result of this pandemic,” Huston said. James Wileman, president of Anchorage-based Credit Union 1, said his institution is offering loan extensions, reduced monthly payments, 60-day deferrals and giving borrowers 1 percent back on new loans. Credit Union 1 workers search the cooperative’s records when local companies announce layoffs, Wileman said, in an attempt to determine if any members have been impacted and reach out to them for assistance if need be. “We’re just looking for ways to help,” he said, noting the juxtaposition of needing to help fuel the economy in any way we can while also severely restricting nearly all activity. Popp additionally noted that waiving late fees and other payment-related penalties during extraordinary times can prevent compounding an already difficult situation. Aside from more traditional means of assistance, on March 24 CU1 began encouraging members to support certain local restaurants with takeout and delivery orders, and each time someone posts a photo of their food on social media with the #cu1foodie hashtag, the credit union will donate $50 to that restaurant. Steve Lundgren, president of Denali State Bank, said his institution is handling each borrower independently. The Fairbanks-based bank first began hearing from Aurora-centric and winter tourism operations impacted by initial international travel restrictions before many other businesses were hit by state and local government mandates. “We’ve made a lot of concessions in terms of payment modifications with those borrowers,” Lundgren said. He implored state officials in a March 24 interview to issue a strict “stay at home” mandate across Alaska in an attempt to blunt the impact of the pandemic as quickly as possible. Lundgren said he believes sharp immediate measures will prevent the COVID-19 pandemic from lingering any longer than it needs to. “The quicker we can get this issue resolved the quicker we can help our economy recover,” Lundgren said. Elwood Brehmer can be reached at [email protected]

NEPA revisions continue with senators’ support

They’re undeniably complex, dry, arcane and seemingly always published in painfully hard-to-read print, but the Council on Environmental Quality’s proposed changes to the implementing regulations for the National Environmental Policy Act are likely to have an outsized impact on Alaska. That’s because, from the smallest commercial fishing boat to the most remote eco-tourism trek to the largest oil project, Alaska’s economy is inextricably linked to its natural resources and federal jurisdiction on nearly every level. On Jan. 10 the Council on Environmental Quality, or CEQ, published 47 pages of changes to National Environmental Policy Act regulations in the Federal Register, an action that officially opened the proposed regulations for public comment. It officially marks the only major change to NEPA regulations since the council first approved them in 1978. A public comment period closed March 10. The CEQ is an arm of the White House tasked with implementing NEPA requirements. The sweeping regulatory changes precipitate from Executive Order 13807, which President Donald Trump signed in August 2017, directing agencies to complete reviews for major infrastructure projects within two years, among other things. NEPA, the landmark federal environmental policy signed into law by President Richard Nixon in 1970, was so transformative it is often referred to as the “Magna Carta” of environmental law. In conjunction with the Clean Water and Air acts, it forms the national basis for environmental protection, pollution control and land conservation. At the highest level, the regulatory reforms are aimed at shortening the length of environmental reviews in terms of both time and page count of the final documents. Proponents of the changes, which include Alaska’s congressional delegation, insist the current process for conducting environmental impact statements, or EIS — the most thorough reviews under NEPA — results in unnecessary permitting delays that routinely hamper economic and infrastructure development nationwide. Skeptics worry the proposed regulatory overhaul is a backdoor attempt by a very pro-development presidential administration to weaken fundamental environmental protections nationwide. Brian Litmans, a senior attorney for the Anchorage-based environmental nonprofit firm Trustees for Alaska, said he believes NEPA is important for all Americans simply because it requires federal regulators to examine all aspects of a proposed project or action holistically so they can make informed decisions when issuing major development permits or making long-term land-use decisions. “NEPA doesn’t require a particular outcome and that’s one of the great things about it,” Litmans said. “It simply tries to get all of the relevant information on the table so the agency can understand what’s at stake and make a decision and I think because of that NEPA has been a success and projects can be better because of it.” The basic EIS structure involves an agency issuing a notice of intent to start evaluating a project or plan deemed to a “major federal action,” followed by a public scoping period to solicit input as to what aspects of that action stakeholders feel should be studied in the EIS. A draft EIS is published following the scoping period, after which a final EIS is published and then a record of decision, or ROD, is issued. Public comment periods of varying lengths must also follow the publication of each version of the EIS. Few direct stakeholders dispute the value of its core goals, but a largely Republican group of lawmakers at the state and federal levels largely in Western states where federal land ownership is extensive has grown increasingly frustrated at the persistent growth of NEPA reviews, particularly environmental impact statements. Part of that is because the NEPA framework is so commonplace in federal agencies. The simple process is used to adjudicate mines and oil developments, public land-use plans and road construction projects. Legal hurdles Sen. Dan Sullivan, for one, said the rulings in NEPA-related lawsuits that have piled up over the decades have led to an unrealistic burden on EIS drafters, or NEPA practitioners, as they are often known. They must account for so much case law, often from seemingly unrelated issues or projects, that writing an EIS has become a practice in writing a “legally defensible” document as much as it is conducting a thorough environmental review, according to Sullivan and others. “This is something my Democrat colleagues agree is a problem; my Republican colleagues certainly agree it’s a problem: this big issue that under our federal permitting system and to some degree state and local, but a lot of it’s federal — that you have this super-long lead time that’s required for any major infrastructure project,” Sullivan said in an interview. “Of course, it costs money and it costs time. Money and time are usually enhanced by litigation and it makes it very difficult for us to build stuff.” Eric Fjelstad, an Anchorage-based partner with the national business law firm Perkins Coie, has spent roughly 20 years working on NEPA issues. He believes the current system benefits no one — except maybe attorneys. That’s because there is nearly always a contingent that opposes a large project or major federal planning decision for a myriad of reasons. Those groups then regularly sue the decision-making agencies to overturn a record of decision or delay the process based on perceived legal flaws in a given EIS. “It’s devolved into somewhat of, I’ll call it a ‘gotcha’ review process where the process is a series of hurdles with people playing different roles and ultimately the courts at the end exacting a gotcha sanction,” Fjelstad. “Is there any realistic world where it should take four, five, six years to study something at this level? And this isn’t the only study that occurs on big projects,” he added, referring to an EIS. According to CEQ figures, approximately half of the 1,161 EIS reviews conducted from 2010-17 took longer than three years and seven months to complete. Roughly one-quarter took more than six years and the average time from a notice of intent to a record of decision was 4.5 years. About one-quarter of those analyzed took less than two years and two months to complete. Ted Boling, an associate NEPA director for the CEQ, said during a February presentation at the Alaska Forum on the Environment conference that the council primarily wants to modernize the regulations to help produce more timely and effective NEPA reviews. The council also seeks to codify years of court rulings in the proposed regulations to clarify exactly what is required under the law, according to Boling. “Much of that guidance and case law is reflected in modern agency NEPA practice but it’s not reflected in the regulations,” he said. In addition, the proposed regulations meet the president’s orders by directing agencies to complete an EIS within two years and a less rigorous environmental assessment within one year. New guidelines The CEQ is also seeking to harden current guidelines for the length of an EIS. Current NEPA regulations recommend the text of a final EIS be less than 150 pages. An EIS of “unusual scope or complexity” should be limited to 300 pages, according to the regulations. It’s 75 pages for an environmental assessment. The new regulations would make those recommendations mandatory in most cases. However, the 2010-17 EIS review found that the average length of a final EIS from the time period was 669 pages, with about one-quarter each less than 300 pages or more than 730. Boling emphasized that the harder timeline and length directives are “not just a get out of jail free card” for agency officials looking to do less work. The proposed regulations allow for senior agency officials to exempt certain complex or highly scrutinized reviews from the limitations. “Ideally, the senior agency official says, ‘Yes, this is an important project so I will read more pages than usual,” Boling said. The new language also defines reasonable alternatives, which are a required part of an EIS, as alternatives that are “technically and economically reasonable” to be in line with longstanding Supreme Court decisions, according to Boling. He further added that the council is proposing to clarify that a project’s effects should not be considered significant — and therefore not be studied — “if they are remote in time, geographically remote or they result in a lengthy causal chain.” That also codifies a Supreme Court ruling, Boling said. He acknowledged that it’s a “great point of debate” as to whether or not the new regulations will ultimately change what projects necessitate an environmental assessment or EIS. “It really gets into the question of how will the case law work?” he said. Many of the high level reforms to the parameters of an EIS were in part pulled from Sullivan’s Red Tape and Rebuild America Now bills, according to the senator. He said one of the first conversations he had with President Trump was about the need for NEPA reform. While he would prefer to make the changes in statute, Sullivan said regulatory reform via an executive order “is really good.” “We have been kind of ground zero for this” in Alaska, Sullivan said, noting it took nearly 20 years to reach a record of decision on the Kensington gold mine near Juneau and other projects. That project only began after a Supreme Court decision. He dismissed concerns that the changes will weaken environmental protections. “We don’t want to cut corners in Alaska,” he said. “It’s about timely permitting — certainty in the permitting process — so people can make investment decisions to move forward on infrastructure projects.” ‘Morphed into its own entity’ Sen. Lisa Murkowski similarly said the EIS process has become overly burdensome over the years. “It has morphed into its own entity, the NEPA process, far beyond what the act initially required,” Murkowski said in an interview. The legislation itself is a relatively brief seven-page bill that outlines Congress’ desire for a national environmental policy, establishes the CEQ and describes very generally how that policy should be implemented. “The Congress recognizes that each person should enjoy a healthy environment and that each person has a responsibility to contribute to the preservation and enhancement of the environment,” NEPA states. Sullivan and Murkowski said the status quo of EIS timelines and particularly lengthy documents discourages public involvement, contrary to NEPA’s intent. “The whole point of NEPA was to bring the public into the permitting process. You do that by having an EIS that’s 100, 200 pages; something that the average citizen can sit down and read. That was the point. Public involvement, public engagement, public input,” Sullivan said. Boling went a step further and said the council wants to make an EIS more readable for the senior agency officials tasked with making major permitting decisions based on them. The page limits are designed to help get to the core detailed statement of an EIS, Boling said, adding that appendices to the main document are “free space” that do not count towards the limit. “We’d be concerned if people were trying to take really complicated projects and just reduce it all to 150 pages but we’re also equally concerned that decision-makers need to actually be able to use those documents,” he said. “Ultimately, it’s not a paperwork exercise; it’s designed to be something that decision-makers can actually read, digest and respond to.” Litmans, of Trustees for Alaska, said the EIS timeline and length statistics can be skewed by a few exceptional cases. He noted that a very small number of projects reviewed by federal agencies are actually subject to an EIS. The vast majority are given a finding of no significant impact, or FONSI. Litmans referred to a 2014 Government Accountability Office report that found less than 1 percent of projects subject to a NEPA analysis resulted in an EIS and less than 5 percent required an environmental assessment. The rest receive a categorical exclusion, meaning a formal environmental review isn’t needed. He said Boling is “far off the mark” in saying the CEQ is simply codifying case law in the regulations. “This rule completely guts or removes from the regulations the concepts of cumulative effects and indirect impacts. These are aspects of a project that have to be considered under NEPA,” Litmans said. A section of the regulations attempting to define “effects” and “impacts” states that a “but for” causal relationship does not constitute a particular effect under NEPA. “Analysis of cumulative effects is not required,” the regulations state further. Fjelstad said he believes an EIS should be narrowly focused on roughly five to 10 areas of study that are particularly germane to a project. “It’s the old maxim, pick a few things and bring real rigor to the table and do it right rather than trying to solve everyone’s issues,” he said. Litmans said there is a large body of case law defining the requirements of a cumulative effects analysis and simply cutting it out lends to a whole new round of lawsuits. “This rule just removes key aspects of what’s required in an agency review and adds new terms that will have to be defined by the courts,” he said. Litmans also said that permit applicants are regularly the cause of delays in the process because they were not armed with the requisite information an agency needs for an EIS when they start it. Such is the case with the Pebble mine EIS, he said. “You have a project that’s sorting things out as it goes along and as a result the reviews are going to take longer,” Litmans said of Pebble. “The shouldn’t, in the middle of the process, while the draft EIS is being written and completed say, ‘Well, we’re going to go get some more field data this summer,’ which is what they did.” Murkowski joined a series of state and federal resource agencies in roundly criticizing the U.S. Army Corps of Engineers’ draft EIS for Pebble published in February 2019, contending it lacks detailed information and minimizes the project’s potential impacts to the region’s salmon and other resources despite being approximately 1,400 pages. In response to a question about how she reconciles support for the regulatory reforms with the Pebble EIS Murkowski said, “When you say a project needs a review that’s fair and thorough, that fairness and thoroughness is not necessarily measured by pounds of paper or the length of time within a process.” Pebble spokesman Mike Heatwole wrote via email that the company has not had an unusual number of information requests from the Army Corps of Engineers for a project of its size. More people than normal are interested in Pebble and therefore the intricacies of the process have been made more transparent than normal by the Corps, according to Heatwole. He added that midstream changes to the project did not fundamentally change the layout of the project or the company’s approach to mining the resource. “The modifications were improvements upon the environmental impacts of the project and in many cases reduced the footprint of the project,” Heatwole wrote. Boling said agencies can better meet the new, firmer review timelines by making sure applicants have all of the information needed at the ready and Fjesltad acknowledged that “a lot of people start when they’re not ready.” The CEQ received 598,989 comments on the proposed regulations, according to the Federal Register. CEQ spokesman Dan Schneider wrote March 17 that modernizing the environmental review process for infrastructure projects is a priority for the administration and the council is currently reviewing the comments. ^ Elwood Brehmer can be reached at [email protected]

Dunleavy pushes for PFD check, lays out $1B plan for virus response

Gov. Mike Dunleavy pressed legislators in a Friday noontime address to quickly approve funding to pay Alaskans the $1,306 he says they are owed to fulfill last year’s Permanent Fund dividend payments as the central piece to his administration’s COVID-19 economic stabilization plan. The governor said he has also ordered $1 billion to be transferred from existing state accounts and put into a disaster relief fund to cover a surge in unemployment payments and demand on other assistance programs indirectly caused by the virus. The state released more details on the plan later, which calls for paying the statutory PFD in two installments for 2020 — June and October — in addition to to the supplemental request for 2019. “Immediate and far-reaching economic relief is needed right now, not tomorrow, not two weeks from now, but right now,” Dunleavy said during a roughly 10-minute address that was streamed from his state Facebook account. He pointed to the fact that Congress is working on an economic relief plan that includes direct payments to Americans — up to $1,200 to many and $500 per child — that largely mirror the PFD in urging legislators to approve the payment and said the state checks could be issued as soon as next month. Most lawmakers have opposed full, statutory PFD payments for several years as the state has grappled with billion-dollar-plus annual deficits. “Never in the last 40 years has the payment of the PFD been more critical,” Dunleavy said. The state is partnering with Alaska banks to provide bridge loans for small businesses that have been hurt by government-mandated closures or in other ways as health officials try to slow the spread of the virus. The bridge loans will be made at interest rates offered by the Small Business Administration, according to Dunleavy. “The state will 100 percent guarantee these loans to ensure our lenders aren’t at risk,” he said. Spokespersons for the governor’s office and several local banks could not immediately provide additional details on the small business bridge loans. While it’s unclear exactly how many Alaskans have been put out of work as a result of mandated and voluntary business restrictions intended to reduce social contact, the impact is undoubtedly widespread and is expected to have a huge impact on the coming tourist season. Division of Employment and Training Services Director Patsy Westcott wrote in an email that the state can’t yet release its most recent unemployment data due to federal reporting requirements, but wrote generally that, “our claims workload has increased significantly this week and is expected to do so in the coming weeks.” The leisure and hospitality industry employed more than 44,000 people during its summer peak last year, according to the state Labor Department. Senate Republican leaders sent out an open letter to Alaskans shortly after the governor’s address ensuring them that the Legislature is exploring all the ways it can assist impacted individuals and mitigate the long-term economic damage caused by the response to the virus. The letter does not address policy specifics, but states clearly that “No Alaskan in need will be left behind.” “This virus has wreaked havoc on the price of oil, the stock market is in retreat, and now countless workers will go without paychecks as business owners are forced to close-up shop. The uncertainty of the next weeks and months will only compound the harm to the private sector of our economy. Without a swift response, this virus could cause long-term damage beyond the health impacts,” the letter states. Senate President Cathy Giessel and Finance Committee co-chairs Sens. Bert Stedman of Sitka and Natasha von Imhof, of Anchorage signed the letter. Dunleavy further said he signed an emergency order protecting the approximately 13,000 Alaskans that receive rental assistance from the state-owned Alaska Housing Finance Corp. He also ordered AHFC to stop rental evictions for at least 60 days and loan servicers have been authorized to grant forbearances to homeowners who have had their finances affected by the response to the virus. On Monday, Anchorage Mayor Ethan Berkowitz ordered all bars, restaurants and entertainment facilities to close, except for drive-through, take-out and delivery services. Dunleavy ordered them closed statewide Wednesday evening through April 1. Additionally, $75 million has been authorized to underwrite emergency health care facilities and provide health care workers with personal protective equipment. Dunleavy said another $100 million will be made available to address the added demand on state programs and workers, particularly state health workers. “We need our state workers protected and safe and we need them to continue the functions of state government,” he said. Resources will also be set aside to help local governments deal with unexpected costs and lost sales revenue. Dunleavy told Alaskans to expect additional economic assistance measures as well as further health mandates to attempt to slow the spread of COVID-19. State health officials reported 12 cases in Alaska when the governor made his announcement. A 13th case was confirmed shortly afterwards. Elwood Brehmer can be reached at [email protected]

ConocoPhillips, Oil Search cutting Alaska spending by $270M

ConocoPhillips and Oil Search announced early Wednesday that they will be scaling back their North Slope operations in response to the collapsed global oil market. For ConocoPhillips, which has the largest share of overall oil production in the state, the belt-tightening will result in a roughly $200 million reduction to the company’s capital spending plan in Alaska for the year through “laying down a couple of (drilling) rigs” at the Alpine and Kuparuk fields, Chief Operating Officer Matt Fox said in a conference call with investors. According to Fox, the Houston-based company expects to see a production impact of about 2,000 barrels per day on the Slope from less development drilling the remainder of the year. ConocoPhillips produced nearly 130,000 barrels per day from Kuparuk and 56,000 barrels per day from Alpine in February, according to state Revenue Department figures. Alaska North Slope crude sold for $27.73 per barrel on March 17, according to the Revenue Department. According to aggregated figures provided by Revenue, Alaska companies currently spend nearly $39 per barrel, on average, to produce oil and ship it to West Coast refineries. Papua New Guinea-based Oil Search, a relative newcomer to the Slope, announced in a lengthy statement from its Sydney office Wednesday that it would be slowing work on its large Pikka Unit oil development until more favorable market conditions return. The slowdown amounts to a roughly $70 million pullback in Alaska for the rest of the year. Oil Search had previously expected to spend about $230 million in the state for the remainder of 2020; that’s now been revised to the $160 million range, according to the statement. ConocoPhillips Alaska spokeswoman Natalie Lowman wrote in an email that she couldn’t provide any further details to what was discussed in the conference call at this point. The Alaska reduction is part of a $700 million pullback to the company’s global 2020 capital program, CEO Ryan Lance said, which amounts to a 10 percent curb in spending overall. The company spent approximately $1.5 billion on North Slope capital investments last year, according to its 2019 earnings report. ConocoPhillips executives also said they will be cutting the company’s share repurchase program from $750 million to $250 million per quarter starting April 1. It all amounts to $2.2 billion less in spending for the rest of 2020. Lance said the moves to limit spending immediately are meant to stabilize cash flow, while stressing ConocoPhillips is much better prepared to weather this price downturn than it was in 2015-16. ConocoPhillips leaders have said they restructured their operations in response to the 2015-16 price collapse — which bottomed out at $26 per barrel for Alaska crude — to be profitable at prevailing prices of $40 per barrel. “Today, we believe we are in a strong position to take this methodical approach because ConocoPhillips is in a relatively advantaged position compared to the rest of the industry,” he said. The company ended 2019 with roughly $14 billion in liquid reserves, according to Lance. He also didn’t rule out making acquisitions while oil prices are low, but acknowledged that the combination of a pandemic-induced demand drop for oil and a surge in supply from the price war between Russia and Saudi Arabia is an unprecedented situation. “We know in our minds that it will pass but it doesn’t bring much comfort at the moment,” he said. Oil prices began falling in early February from a long run in the mid-$60s per barrel as traders reacted to lower demand forecasts from China due to the country’s reaction to COVID-19. That price decline accelerated earlier this month when Saudi and Russian officials could not agree on curbing production rates to stabilize oil markets in the face of less demand due to the virus curtailing economic activity worldwide. That disagreement quickly turned into a price war, with officials from each side refusing to cut production on the premise they can outlast the other in a time of painfully low prices for each oil-dependent government. The Energy Information Administration earlier this month forecasted that Brent benchmark crude — which Alaska oil follows closely — will average $43 per barrel in 2020 and return to $55 per barrel in 2021, but those projections could change along with the global response to COVID-19. Fox said ConocoPhillips is checking the temperatures of its North Slope employees and asking them to fill out a health questionnaire before they begin their work rotations. The company is also reducing staffing levels at its remote operations — which include parts of Norway and China in addition to Alaska — to provide space for quarantining workers that might contract COVID-19, but so far no cases of the virus have been indentified amongst employees in those locations. Lance added that the global response to the virus has not impacted oil or gas production so far. BP Alaska spokeswoman Meg Baldino wrote via email that the company is focused on "safe, reliable and compliant operations" until the pending $5.6 billion sale of its Alaska assets to Hilcorp Energy, which includes the large Prudhoe Bay oil field, is complete. A spokesman for Hilcorp Alaska did not immediatley respond to a request for comment. Oil Search According to its statement, Oil Search will continue early development activities at Pikka, such as laying gravel roads, to meet its state and federal permitting requirements but work on production facilities and other aspects of the complex project “will be placed on hold.” The statement also says that some engineering work towards full field development at Pikka will continue so the company is ready to make a final investment decision on the project when market conditions improve. Oil Search will also complete testing of the two exploration wells it drilled this winter, which both encountered oil, the company noted. Oil Search has significant producing operations in Papua New Guinea, but the Pikka development is its first foray into the United States. “While Oil Search is fortunate to have world-class assets, these unprecedented times require us to take immediate and decisive steps to position us for a potentially extended period of lower oil prices and business uncertainty,” Managing Director Keiran Wulff said. Spokeswoman Amy Burnett said she could not offer any further details at this time. Oil Search completed an $850 million buyout of Armstrong Energy and a silent owner in Pikka in 2018 to take a 51 percent operating stake in the unit. Spanish major Repsol holds a 49 percent interest in the Pikka Unit and its Nanushuk oil project. As recently as October the company was working to move up its initial production target on the nearly $5 billion project roughly a year from late 2023 to 2022. Oil Search received its record of decision on the Nanushuk project from the U.S. Army Corps of Engineers last spring. Once fully developed, its expected the Pikka Unit will produce upwards of 120,000 barrels of oil per day at its peak. Look for updates to this story in an upcoming issue of the Journal. Elwood Brehmer can be reached at [email protected]

Spill response comments range from status quo to modernization

Department of Environmental Conservation officials received a mixed bag of comments, but not a huge volume, to their somewhat controversial opening of the state’s oil spill prevention and response regulations to possible revisions. While the decision last fall to solicit public input on and proposed changes to the regulations drew sharp responses from numerous conservation and fishing industry groups as well local governments in coastal communities, just more than 120 businesses, trade groups, community organizations and individual Alaskans commented over the 153-day comment period that ended March 16. Most members of the public urged DEC officials to maintain the current levels of protections in the regulations and many questioned why the department would open the regulations to possible changes given the state’s reliance on marine resources and the relative lack of large fuel or oil spills in the state since the Exxon Valdez in 1989. DEC Commissioner Jason Brune said he wanted to make sure the regulations weren’t unnecessarily burdening industry without a corresponding environmental benefit and had no intent to do away with the requirements prior to opening the scoping period last October. Brune said at the time that he had heard from industry representatives that there are ways the detailed rules could be improved; however, he declined to elaborate on specific suggestions, saying he did not want to color any subsequent public comments. He said in a department statement following the close of the comment period that he's excited about the feedback the department recieved. "It is not our intent to roll back environmental protections. If the department determines there are changes to be made to the regulations, those will go through a fully transparent public process later this year that will include additional opportunity for the public to provide comment," Brune said. Local government officials by and large also emphasized a general desire for the department to uphold current levels of oversight on the oil and gas industry while also suggesting some changes to clarify and strengthen the existing regulatory code. City and Tribal councils and assemblies from Cordova, Homer, Kodiak, Valdez the Kenai Peninsula Borough and Kotzebue submitted resolutions against actions to ease the regulations. Oil and gas producers did not offer comments but businesses in other subsets of the industry such as fuel shippers, oilfield service companies and Alyeska Pipeline Service Co. all offered numerous ways they feel the regulations are too rigid, unclear, or outdated. The Prince William Sound Regional Citizens’ Advisory Council offered 12 pages of comments stressing a belief that the regulations are not necessarily flawed as written. The council acknowledged that it’s likely the “current regulations could be clarified or simplified to improve their usability,” but also said the oil discharge prevention and contingency plans that all companies processing and shipping fuels and crude must have to operate in the state serve seven broad objectives to protect the environment. The contingency plans, often referred to as C-plans by stakeholders, amount to “working” emergency plans that provided detailed and long-term response procedures, according to the PWS council. They are also a way to assess past spills at a facility and serve both as a demonstration that the plan holder is using best available technology in its operations and as “a permit to operate that, if not followed, is a violation of law,” PWS council officials wrote. Cook Inlet Regional Citizens’ Advisory Council Executive Director Mike Munger similarly emphasized the seven functions of the regulations and wrote that council officials “believe that sweeping changes to the current requirements are not warranted,” adding that any changes easing spill prevention, preparedness or transparency would be “unacceptable.” The councils for Cook Inlet and Prince William Sound, established following the Exxon Valdez spill and mandated by the Oil Pollution Act passed by Congress in 1990, used the scoping period to offer several ways the regulations could be strengthened or otherwise improved. The Cook Inlet council, for instance, requested that international standards be used to determine oil skimmer recovery rates and that efficiency mandates be established in the regulations. “At this time, there is no generally required methodology for response organizations to determine the best equipment to use or for plan reviewers to assess the adequacy of the equipment included in plans,” Munger wrote. Skimmers are towed behind or alongside vessels to collect oil from the surface of the water. While widespread in oil spill response, questions to their efficacy, particularly in waves or ice conditions, are regularly raised amongst stakeholders. Jim Ayers, a former director of the Exxon Valdez Oil Spill Trustee Council and chief of staff to former Gov. Tony Knowles argued against major changes to regulating an industry “that has repeatedly proven its inability to self-regulate,” and urged DEC to continue incorporating lessons from the Exxon Valdez and the 2010 BP Deepwater Horizon Gulf of Mexico spills into its oversight of the oil industry. “DEC’s supposition that this framework is too burdensome — after 30 years of industry compliance and numerous revisions to streamline regulations — is not only untrue, but also transfers the burden of another disaster to the communities and environment DEC is charged with protecting,” Ayers wrote. Alyeska Pipeline Emergency Preparedness and Response Director Andres Morales suggested numerous technical and clarification changes that company officials feel would help “optimize” the regulations. Alyeska is owned by the major North Slope Producers. It operates the Trans-Alaska Pipeline System and the Valdez Marine Terminal. Morales offered a handful of examples where Alyeska officials believe state regulations are duplicative to federal requirements; requested more specificity in areas of regulation that defer to “department discretion;” and — as did other industry stakeholders — asked for more standardized timelines and processes in approving C-plan amendments and other procedural mandates. The Alaska Oil and Gas Association supplied 28 pages of comments asking DEC officials to modernize regulatory language and standards to reflect current industry standards. AOGA Regulatory and Legal Affairs Manager Patrick Bergt also wrote that the trade group does not believe a “best available technology” analysis should be required in instances when C-plans must be in line with good engineering practices, applicable industry standards and state and federal regional and area contingency plans. “AOGA believes these issues can be addressed and the regulatory schemes streamlined without increasing any risks of damage or harm to the environment,” Bergt wrote. “More certainty in the requirements and a clearer description of compliance standards would lend itself to more consistency in implementing spill prevention.” The Alaska Fuel Storage and Handling Alliance, multiple fuel shipping companies and Marathon Petroleum Co., which owns the Nikiski refinery, submitted similar comments along those conceptual lines. Elwood Brehmer can be reached at [email protected]

Energy Secretary: ‘Topping off’ reserve with US purchases signals confidence in industry

President Donald Trump’s push to refill the country’s oil reserves is intended to reassure domestic producers at a time when collapsed prices are straining the industry and a substantive rebound appears to be months away at the earliest, the nation’s top energy official said in a March 17 interview. Trump on March 13 directed the Department of Energy to purchase upwards of 77 million barrels of domestic oil to top off the Strategic Petroleum Reserve. Energy Secretary Dan Brouillette said by phone that the reserve, or SPR, exists specifically “to mitigate these types of disruptions, if you will, wherever they come from.” The current price collapse started gradually in early February as traders reacted to lower demand forecasts from China due primarily to the country’s response to COVID-19, which amounted to a major and ongoing slowdown of the country’s massive economy. The price fall picked up speed earlier this month when Saudi and Russian officials could not agree on curbing production rates to stabilize oil markets in the face of less demand due to the virus curtailing economic activity worldwide. That disagreement quickly turned into a price war, with officials from each side refusing to cut production on the premise they can outlast the other in a time of painfully low prices for each oil-dependent government. The West Texas Intermediate benchmark price for Lower 48 oil has fallen nearly 40 percent since the end of February to $28.70 per barrel on March 16. Alaska North Slope crude prices have closely followed that trend, ending that day at $29.30 per barrel, according to figures provided by the state Department of Revenue. According to aggregated figures provided by the Department of Revenue, Alaska companies currently spend nearly $39 per barrel, on average, to produce oil and ship it to West Coast refineries. ConocoPhillips leaders have said they restructured their operations during the 2015-16 price downturn to be profitable at prevailing prices of $40 per barrel. “We want to send a very strong signal to the American producing community that we believe in them. They’re a very good industry, a very strong industry and we liken this and the president likens this to much like a company buying back its own stock,” Brouillette told the Journal. “You have confidence in your enterprise and you show the world that by investing in it yourself.” He said the administration is also trying to take advantage of a “good time to buy” that could save taxpayers hundreds of millions of dollars versus making the purchase at higher prices. Alaska crude largely sold in the mid-$60s per barrel range for more than a year prior to the current price collapse. Constructed following the oil embargo of the mid-1970s, the Strategic Petroleum Reserve is the country’s counter to volatility in oil markets and supply chains. It is made up of oil stored in cleared salt caverns along the Gulf Coast and has an overall capacity to store up to 713.5 million barrels of oil, according to the Department of Energy. While Trump announced the plan, it relies on funding from Congress and Brouillette said the administration is working closely with lawmakers and has bipartisan support in both chambers, including from Sens. Lisa Murkowski and Dan Sullivan, to get an SPR funding package passed. Sullivan said in a statement from his office March 16 that he proposed only purchasing oil produced in the United States to fill the reserve in discussions with Brouillette. “The energy sector supports tens of thousands of jobs in Alaska, and millions of jobs across the country. It’s crucial that we do what we can to shore up our domestic energy market by purchasing only American-produced, and in particular for our state, Alaskan-produced oil — all of which the Department of Energy has the authority to do,” Sullivan said, adding it should be done as quickly as possible. The oil and gas industry provides approximately 10.9 million jobs nationwide, according to the American Petroleum Institute. In Alaska, oil accounts for nearly 10,000 direct industry jobs, with thousands more oil-related jobs in closely tied support sectors, such as construction and engineering. Brouillette said current market prices in the $30 per barrel range would necessitate a $2.3 billion to $2.5 billion appropriation to buy the 77 million barrels, but $3 billion could be needed if expectations of a purchase send prices slightly higher ahead of the sale. It’s unclear exactly where the oil would come from and what price the government would ultimately pay because a purchase would be done through an auction, according to Brouillette. He said Energy officials would start by soliciting proposals from sellers and review bids ahead of making purchases. Department officials are confident they can begin purchases within two weeks of Congress approving the funding, according to Brouillette. He also said that the idea has widespread industry support, but stressed that “they certainly don’t see it as a lifeline or anything like that. What they see is a common-sense policy decision being made by the president, so they’re just very, very supportive of that.” Frank Macchiarola, a senior vice president of economics and policy at the American Petroleum Institute, wrote in an emailed statement that the industry group is not seeking policy relief from the current situation, and added that the Trump administration is simply exercising the authority afforded it by Congress to manage the SPR. Murkowski said in a statement for the Journal that she believes near-term SPR purchases would ease oversupplied markets and “likely result in a small bump in oil prices.” Murkowski chairs the Senate Energy and Natural Resources Committee. “The health of Alaska’s economy is inextricably tied to the health of our resource industries, and plummeting oil prices are having a detrimental effect on our state. I support President Trump’s proposal to fill the Strategic Petroleum Reserve — right now, we have an opportunity to buy low and buy American — and my team and I are working with Senate leadership and administration officials to make that happen,” she said. Representatives from the Alaska Oil and Gas Association and ConocoPhillips Alaska said they did not have enough information to comment on the sale’s specific impact on Alaska producers at this point. Longtime Alaska petroleum economist Roger Marks said in a brief interview that he doesn’t think the sale will boost oil prices domestically because it would be a small amount relative to overall production, but it could offer producers another place to sell their oil during a market glut. The Energy Information Administration estimates U.S. production will hit 13 million barrels per day this year. Brouillette said it’s unclear when oil markets will rebalance, in part because it’s hard to know when downward pressure on oil demand stemming from the global response to COVID-19 will ease. However, he expects demand to rebound quickly once the virus subsides. The day-to-day changes in the situation also make it difficult to quantify immediate demand, which makes it hard to know how out-of-balance oil markets are worldwide, Brouillette said. He added that a major pandemic-induced demand drop is not something energy market observers are familiar with. “It’s unprecedented, in that sense,” he said. More generally, the EIA is predicting a global surplus of about 1.5 million barrels per day in the first quarter of the year and a surplus of 2 million barrels per day in the second quarter. The EIA expects global oil production and consumption to align in the fourth quarter of 2020 at about 102 million barrels per day, according to its Short-Term Energy Outlook published earlier this month. Last fall, Gov. Mike Dunleavy urged former Energy Secretary Rick Perry to consider building a second SPR at the site of the remote former naval base on Adak Island in the Aleutian chain. Brouillette said he believes adding redundancy to the oil storage system would be a good thing but he hasn’t given Dunleavy’s proposal much additional consideration. Elwood Brehmer can be reached at [email protected]ajournal.com.

CEO: Permanent Fund still source of stability for state

Alaska Permanent Fund Corp. leaders stress that they are working to find investment opportunities that will have long-term benefits for the fund amid the drastic market downturn brought on by the COVID-19 pandemic. The Permanent Fund, which has become the state’s primary source of budget revenue in addition to providing annual dividend checks, has seen its value drop from nearly $66.7 billion at the end of January to $58.7 billion at the close of markets March 16, a decline of about 12 percent. Over that time, the Dow Jones Industrial Average lost a full quarter of its value, closing at 21,328 on March 12. The market index rebounded to almost 23,000 near the end of trading March 13 following President Donald Trump’s national emergency declaration in response to the virus. Airline industry groups have begun requesting government assistance to weather the pandemic, with Airlines for America, which represents 10 of the largest domestic passenger and cargo carriers, on March 16 asking for up to $50 billion in government grants and loans. Trump administration officials on March 17 began pitching an $850 billion national economic relief package to Congress. Stock investments currently comprise about one-third of the value of the Permanent Fund, according to unaudited financials provided by the corporation. However, markets fell further in initial trading March 16 following additional domestic travel restrictions and economic disruptions from trying to contain the spread of the virus. Officials were forced pause trading Monday for 15 minutes in an attempt to slow the sell-off, a move that has been made three times in the past week. The Dow closed trading March 17 up more than 5 percent at 21,237. It was at a record high or more than 29,000 points as recently as Feb. 21 before beginning a precipitous fall. APFC officials said via a statement issued March 13 that they “remain diligent” in their management of the fund and they will be able to meet the state’s near-term expected cash calls despite the tough times. The APFC is scheduled to transfer $3.1 billion from the Permanent Fund’s Earnings Reserve Account to the general fund in the 2021 state fiscal year, which starts July 1. The money has been dispersed in installments as it is needed by the Department of Revenue since the Legislature and former Gov. Bill Walker approved an annual percent of market value, or POMV, draw on the fund in 2018 to help fund state services. CEO Angela Rodell acknowledged the economic concerns the virus has generated in addition to the broader public health crisis in a formal statement, but stressed that “the fund continues to be a source of stability” for the state. “Yes, we have taken losses, but the diverse mix of assets along with our long time horizon means we are keeping our commitment to provide a stable source of revenue for Alaskans to rely on,” Rodell said. McKinley Capital Management CEO Rob Gillam offered a similar perspective. In an interview, Gillam stressed that while immediate concerns are rightly over the health of individuals who have contracted the virus and others whose livelihoods have been affected; however, from a financial standpoint the pandemic and its impacts are likely to be relatively short-term for investments that are intended to grow over many years and even decades in some instances, he said. “This is a disruption event. Disruption events tend to be short-lived,” Gillam said. “Whether it’s a week, month or three months — that’s relatively short-lived.” Prior to the POMV draw, APFC officials are first scheduled to transfer $4 billion from the Earnings Reserve into the corpus of the fund where the money cannot be appropriated by lawmakers. The large transfer is intended to cover inflation-proofing payments for up to the next four years. Legislators originally approved a $9 billion transfer in the 2020 operating budget but that was vetoed down to $4 billion by Gov. Mike Dunleavy, who has pressed the Legislature to appropriate additional funds from the earnings reserve to fulfill full, statutory Permanent Fund dividend payments that have not been made since 2015 as the state continues to grapple with billion-dollar-plus annual deficits. The Earnings Reserve held roughly $18 billion as of Jan. 31, but that was down to $16.1 billion by March 16 and according to an APFC statement, the fund had lost approximately $6.2 billion in unrealized gains through the first half of March. About $1.1 billion in unrealized gains remained as of March 16. More than $7 billion of the ERA balance is committed to the inflation proofing and general fund transfers. On March 5 the APFC Board of Trustees passed a resolution recommending the Legislature restructure the fund into a single account through a constitutional amendment and limit annual draws to 5 percent of the fund’s overall value. The change would help ensure the corporation can meet the state’s cash calls during times challenging financial times when the fund’s near-term earnings are limited, according to APFC officials. If the high thresholds for passing a constitutional amendment cannot be met this session, the board urged lawmakers to make statutory amendments to their guidelines for using the fund. Those include a periodic review of the average annual real return assumption of 5 percent and working to maintain a “four-times buffer” in the Earnings Reserve that would keep at least four times the annual POMV draw amount in the account to allow managers to absorb times of low market performance and still meet the state’s cash needs from the fund. Spokeswoman Paulyn Swanson wrote in an email that the $4 billion transfer, which is currently listed as “committed” in the fund’s monthly financial statements, is scheduled for the end of the fiscal year in late June. Swanson noted that the APFC trustees have not considered a resolution asking the Legislature to amend the transfer in any way. Senate Finance Committee co-chair Sen. Natasha von Imhof said in a brief interview that legislative leaders are “looking at everything right now” pertaining to the budget and as of March 13 were not considering changing or delaying the $4 billion transfer to the fund’s corpus. House Finance members heard from Legislative Finance Division officials last week that even under the corporation’s low annual return scenarios for the year the Permanent Fund would likely still realize at least $1 billion to $1.5 billion in statutory net income to the Earnings Reserve this year in dividends, interest and rent from real estate investments that are independent from market performance. Legislative Finance budget analyst Alexei Painter noted the fund could still capture income from stocks bought several years ago even if those same investments have lost value recently as long as the value when they are sold is greater than when they were purchased. “It won’t be a realized loss because, really, the last two years have been positive and this is just an unwinding of some of that. It’s not like 2008 when we were actually selling at a loss,” Painter said. Von Imhof noted lawmakers were still waiting for the Revenue Department’s spring revenue forecast update and the Senate is still forming its version of the state operating budget. Elwood Brehmer can be reached at [email protected]

Price war could cost Alaska hundreds of millions in oil revenue

What started as a small dip in oil prices from concerns of a virus-induced global economic slowdown has turned into a free fall from battling authoritarians. It all adds up to another big hole in the State of Alaska’s budget. Lawmakers heard from Legislative Finance Division officials on March 11 that the ongoing drop in oil prices will likely add $300 million to the current year budget deficit and upwards of a $600 million revenue reduction in the 2021 fiscal year that starts July 1. Oil price forecasts in the $60 per barrel range — that in recent years has been the baseline for the “new normal” in oil markets — now appear very optimistic. Legislative Finance Director Pat Pitney told House Finance Committee members that it would be irresponsible to continue to assume the projections made in the Fall 2019 Revenue Sources Book will hold given the disruptions of the past few weeks. The updated Legislative Finance figures for state oil revenues are based on Brent benchmark futures, or oil market trading today based on what traders believe the price will be weeks and months from now. Brent is the global standard price for waterborne crude shipments and Alaska North Slope crude has historically traded close to the going Brent price. “There’s futures trading at $40 per barrel and that’s as good a predictor as anything to say what it’s going to be,” Pitney said. The Energy Information Administration predicted last week that Brent crude will average $43 per barrel in 2020 and return to $55 per barrel in 2021, but those projections could change along with the global response to COVID-19. The Department of Revenue typically provides legislators an update in March to their annual fall state revenue forecast. However, department officials said the sudden volatility of oil and financial markets has caused them to temporarily put that on hold. Alaska oil prices were largely in the mid-$60s per barrel through most of 2020 fiscal year — in line with Revenue’s forecasted average of $63.54 per barrel. They began falling in early February as traders reacted to lower demand forecasts from China due to the country’s reaction to COVID-19. That price decline turned into a plunge earlier this month when Saudi and Russian officials could not agree on curbing production rates to stabilize oil markets in the face of less demand due to the virus curtailing economic activity worldwide. That disagreement quickly turned into a price war, with officials from each side refusing to cut production on the premise they can outlast the other in a time of painfully low prices for each oil-dependent government. Alaska North Slope crude sold for $29.30 per barrel on March 16, according to the Revenue Department. Bloomberg reported March 17 that Saudis officials plan to increase the country’s oil exports to a record 10 million barrels per day over the coming months. If Alaska oil prices average $40 per barrel for the rest of the 2020 fiscal year, the yearly average will be about $55 per barrel, or about 13 percent less than the fall forecast price. Revenue officials originally estimated a $59 per barrel average price for Alaska oil in fiscal 2021, meaning prices in the $40 per barrel range would be more than 30 percent less than what lawmakers once presumed they could budget from. The most recent Legislative Finance projections put Alaska’s final 2020 fiscal year deficit at approximately $930 million. The state would have a deficit of more than $2.1 billion in 2021 based on Gov. Mike Dunleavy’s proposal for ostensibly flat state budgets and full, statutory Permanent Fund dividend payments. Pitney said the bottom line for Alaska is the Constitutional Budget Reserve, the state’s last remaining savings account, is in serious jeopardy in nearly all budgeting scenarios, especially those that include large PFDs. The CBR held $2.2 billion at the end of February, but state officials will make additional calls on that money before the June 30 end to this fiscal year. Dunleavy’s 2021 budget proposal originally included a roughly $1.5 billion deficit that has only grown as oil prices have fallen. “In considering the governor’s amended budget, the CBR would be completely depleted and we wouldn’t get through the fiscal ’21 period,” Pitney said. Without a PFD, the governor’s budget originally had a roughly $430 million general fund surplus, but that has all but evaporated. Pitney said it’s hard to project a scenario in which the CBR lasts beyond the 2022 fiscal year at current budget levels of about $4.5 billion in unrestricted general fund spending plus nearly any level of substantive PFD payments. Lawmakers and Revenue officials have said the CBR needs to hold at least $500 million or so to allow for daily cash management as money is continually added to and drawn from the general fund for state operations. Legislative Finance analyst Alexei Painter noted that a broad-based tax would take months to set up and start collecting, meaning the revenue couldn’t be used immediately to help remedy the situation. Most income and sales tax proposals have been pegged to generate about $500 million at most. Painter said the state could likely maintain current levels of services and balance the budget without dividends at the new oil price and revenue projections as long as large annual supplemental budgets can be avoided. “If you assume no supplementals it would be a balanced budget, so the CBR balance would increase over time because there would be (interest) earnings to it but no draws from it,” he said. However, the supplemental budget is a near yearly necessity to pay for unexpected costs, such as wildfire expenses, incurred after the budget is set each spring. The 2020 supplemental passed by the House and under consideration in the Senate has $298 million in unrestricted general fund spending. The largest appropriations are for Alaska’s severe 2019 wildfire season and backfilling Medicaid cuts the Department of Health and Social Services was unable to achieve. Rep. Adam Wool, D-Fairbanks, noted that the legislative majorities have committed to not overspending from the Permanent Fund, but added that the situation laid out by Legislative Finance leaves the Legislature few other immediate options. “I haven’t heard too many people say they don’t want a dividend, so it’s really a conundrum,” Wool said. Anchorage Democrat Rep. Andy Josephson predicted lawmakers will ultimately approve a “significant CBR draw to pay a modest dividend” in October, but how they will deal with a potentially long-term oil price drop is unclear. Most legislators are still trying to fully comprehend the situation. Finance co-chair Rep. Jennifer Johnston, R-Anchorage, said any idea of full PFDs is “built on fairy dust” and questioned whether Revenue officials could use the Permanent Fund Earnings Reserve Account as a cash management tool instead of the CBR in future years. “However we look at this we’re taking our CBR away as a cash management fund,” Johnston said. Elwood Brehmer can be reached at [email protected]

Opponents of $40M Kake Road argue for shift to ferry system

State transportation officials are preparing for a $40 million road project in a remote part of Southeast Alaska while many residents are questioning whether the money could be better spent addressing more immediate needs. The Kake access project would link 21 miles of existing logging roads with 13 miles of new roads across Kupreanof Island in central Southeast. The new single-lane gravel road with turnouts would end at a new boat launch near Twelvemile Creek in Frederick Sound. Kake is a community of roughly 600 residents on the west side of Kupreanof and the road to the east side of the island would provide locals a way to get closer to Petersburg on nearby Mitkof Island, which has a larger airport with daily Alaska Airlines service and a small hospital, among other benefits, proponents say. However, skeptics of the plan, including a contingent of Kake residents, contend lawmakers should reappropriate the money to help restore ferry service across much of coastal Alaska at a time when a combination budget cuts and unexpected mechanical issues on the vessels have left many communities in the region without service for months. Joel Jackson, president of the Organized Village of Kake, the Tribal government for the community, insists most Kake residents don’t believe they will see the benefits of the road — some of which would require more state-funded infrastructure — and therefore don’t want it. Jackson called it “our road to nowhere” in an interview. He believes the money would be better spent improving ferry service. The Kake road was approved by the Legislature way back in 2012 but was one of several state-funded construction plans put into abeyance by former Gov. Bill Walker’s administration following the fall of oil prices in 2015 that brought on years of large budget deficits lawmakers are still trying to resolve. Most of those paused projects have been restarted by the Department of Transportation under Gov. Mike Dunleavy. While Dunleavy has fought for deep spending cuts across much of state government, he has also proven to be an ardent supporter of road projects of nearly any size across the state. Department of Transportation and Public Facilities Commissioner John MacKinnon said the department restarted the project in part to follow through with what the Legislature directed them to do years ago. “It’s one of those things, when we get an appropriation to do something we consider that an obligation to try and carry out,” MacKinnon said in an interview. Kake is one of the smaller communities on the Alaska Marine Highway System and many proponents of the project have said they see it as a precursor to a shorter ferry trip between Petersburg and Kake, although at this point there are no plans for a ferry terminal at the end of the road and building one would likely be another multimillion-dollar endeavor. “You go back to day one on the ferry system and the model has always been: You build roads where you can and where you can’t you do short shuttle links with ferries,” MacKinnon said. “That’s the most efficient system to provide the service.” DOT’s website for the project cites a purpose to provide “increased recreational and subsistence opportunities” for area residents. No one lives along the route that is entirely through U.S. Forest Service lands. Republican Sen. Bert Stedman represents the area and originally secured the state general fund money to pay for the road. Stedman has maintained his support for the project while also pressing the Dunleavy administration to limit funding cuts to the Alaska Marine Highway System. Stedman did not return calls seeking comment in time for this story, but he wrote a letter to Petersburg Borough Mayor Mark Jensen Feb. 14 outlining his rationale. For starters, Stedman notes the $40 million — a figure which, coincidentally, nearly matches the cut to the ferry system’s operating budget this year — cannot be used for vessel repairs or increased service without a formal reappropriation in the capital budget that would have to be approved by the Legislature and the governor. Lawmakers frequently move state funding around via language in budget bills, but Stedman noted in his letter that Dunleavy previously vetoed additional ferry appropriations last summer. However, that was before unexpected repairs cropped up on multiple ferries, prompting the administration to seek additional capital funding for vessel work in the 2020 supplemental budget this winter. MacKinnon said DOT officials agreed they would need to get Stedman’s approval to seek a reappropriation of the funds and Stedman told them to move ahead with the project in subsequent discussions. The Petersburg Assembly voted down a resolution opposing the road and requesting the money be spent on ferries on March 2. Member Jeigh Stanton Gregor, who sponsored the resolution, acknowledged it’s unlikely the money would be moved but argued there has not been an “honest dialogue” about the project. “To advocate for all of coastal Alaska is important. I think it’s our responsibility to try,” Stanton Gregor said in support of the resolution. The eastern portion of the road would cross through the Petersburg Borough. Other assembly members who voted against the resolution said they did so because Kake Mayor Lloyd Davis wrote a letter in January to Dunleavy supporting the road, in part because it could improve emergency access to the community, Davis wrote. Jackson claimed Davis is out of touch with most Kake residents on the issue. He said the Tribal government, which formally opposes the project, represents about 80 percent of the community. Jackson additionally cited an informal poll of Kake residents and claimed 217 are against the project and just 27 support it. “It’s unfortunate our mayor sent out that letter without realizing how people really feel,” Jackson said. Davis also did not return calls seeking comment. Jackson said he is also Kake’s incident commander and dismissed the viability of shuttling individuals in need of medical care down the road in the community’s only ambulance. For one, he said, it would still require water or air travel to get to larger medical facilities. Additionally, a several hour round-trip down the road — DOT states it would have a 25 miles per hour speed limit — would leave the rest of the community without an ambulance for that time, Jackson said. Stedman and other supporters also contend the road is a first step to a power line intertie between to Kake that would reduce energy costs. Petersburg Assemblyman Stanton Gregor said Kake deserves cheaper energy but he doesn’t believe road will lead to it. That project, estimated at roughly $60 million, has been shelved until more state funding is available, according to Southeast Alaska Power Agency CEO Trey Acteson. DOT officials expect to finalize permitting for the road this summer and complete construction in 2022. Elwood Brehmer can be reached at [email protected]

Laid up: Ferry fixes compete with federal road funding

Alaska’s ferry system is in disarray with 10 of 12 vessels out of service for repair or lack of funds, leaving many communities without service for many months, but paying for major fixes to the aging ships could mean taking money away from road projects. Righting the Alaska Marine Highway System is the top priority going in the Department of Transportation and Public Facilities, Commissioner John MacKinnon said in a March 9 interview. The current situation is underlain by the constant tension between many road-system Alaskans who feel the ferries cost too much to serve too few and the residents of 35 coastal communities, for whom ferry service is their road system. Understanding the funding options available to the state requires a deep dive into the arcane world of federal transportation formula programs. Some of those formulas are so complex even career transportation officials — state and federal alike — cannot succinctly explain how the money the state receives from the federal government is calculated. At the highest level, the State of Alaska typically receives between $550 million and $600 million per year in formula-driven federal funds for highway projects in its Surface Transportation Improvement Program, or STIP. That money comes from up to 15 Federal Highway Administration, or FHWA, programs, but roughly $450 million of it is derived from the National Highway Performance and Surface Transportation Block Grant programs. And while many of the FHWA programs are dedicated to specific issues such as reducing road and rail intersections or metropolitan planning, that $450 million can be spent more generally on road construction or ferry projects, according to state DOT officials. Alaska also receives $15 million to $20 million per year from the FHWA Ferry Boat Funding Program solely for vessel and terminal projects. This money is calculated based on ferry route miles and the number of passengers and vehicles carried by the Alaska Marine Highway System. It can only be used on AMHS capital projects, such as vessel overhauls or shore side terminal improvements. Nearly all federal transportation formula funding also requires a state match, which is often at least 10 percent. Ferry Boat Funding requires a 20 percent match, according to the STIP. The National Highway Performance and Surface Transportation funds eligible for roads and ferries are largely calculated based on roads classified as part of the National Highway System by FHWA. Ferry officials often tout that they operate approximately 3,500 miles of routes and those routes linking communities on the National Highway System — Whittier-Valdez, Haines-Juneau, Homer-Kodiak and others — are also part of the national system and can generate formula funding. But DOT officials also point out that the National Highway Performance funds are partly derived from metrics meant for roads that simply don’t work for ferry routes. The current state of the ferries has led some system advocates to question why the state is laying up vessels and deferring repairs that have been deemed too costly as lawmakers continue to debate how to close a structural deficit of more than $1.5 billion per year. Gov. Mike Dunleavy’s first budget proposal released Feb. 14, 2019, largely panned by legislators, called for a 75 percent cut to the AMHS annual operating subsidy for this fiscal year, which would have shut the system down in October after three months of operations. A compromise struck with legislative leaders kept funding in place to offer year-round service at significantly reduced levels, but unexpected maintenance issues with several ferries meant the system was ostensibly shut down for much of the winter outside of a daily shuttle route between Ketchikan and Metlakatla served exclusively by the small, purpose-built ferry Lituya. As for funding ferry operations, Dunleavy and many other road system Republican lawmakers argue the ferry system’s annual subsidy of $90 million to $100 million in recent years is just too much money for a network of vessels with declining ridership. The number of ferry passengers has fallen to about 250,000 per year after peaking at nearly 340,000 passengers in 2011 and 2012. The number of vehicles carried has remained relatively flat at about 100,000 per year over the same period. System revenue from tickets, staterooms, and dining service among other fees has averaged about $50 million in recent years, for an annual cost recovery of about 35 percent. Comparatively, the state’s 8-cent per gallon gas tax on highway fuels has generated approximately $30 million per year of late. That money is the only state fee drivers pay for vehicle infrastructure and accordingly has traditionally been allocated for highway maintenance. DOT officials have also begun using about $30 million per year of FHWA capital funds for road maintenance as state oil revenues have dwindled. The Alaska Senate on March 2 approved Senate Bill 115 to double the state’s highway fuel tax, which is by far the lowest in the nation and hasn’t been changed since 1970. Funding options Robert Venables, executive director of the regional development nonprofit Southeast Conference, said in an interview that he feels up until this year state officials have allocated adequately balanced capital funds for roads and vessel repairs. “It looks to be quite scaled back in terms of previous years,” Venables said of the AMHS capital projects plan. The state spent $277 million of federal capital funds on ferry projects from 2009 to 2019. Another $161 million of state general funds were spent on annual vessel overhauls over that same period, according to AMHS officials. State funds in the range of $12 million to $16 million per year are used for vessel maintenance partly so the work can be done at a shipyard in Ketchikan rather than likely being done Outside under the procurement guidelines that come with federal money. The STIP calls for spending roughly $35 million of combined Ferry Boat and state matching funds in the current 2020 state fiscal year, the vast majority of which is targeted for a major terminal overhaul in Skagway. Some of the $35 million total is also debited against federal funding anticipated next fiscal year. None of the AMHS capital projects are scheduled to be funded by discretionary FHWA funds in 2020 or 2021 other than a plan to eventually replace the 56-year-old Tustumena ferry, a $238 million project, according to the STIP. The Tustumena, and its eventual replacement are specially designed for open ocean voyages to primarily serve Alaska Peninsula and Aleutian Island communities. The Dunleavy administration did request an additional $5 million of state money for an unexpected steel repair for the ferry LeConte in the 2020 supplemental budget. That money was approved by the House and is under consideration by the Senate. Venables emphasized that the problem is not so much funding in any given year, as it is not having a long-term vision for the system — a common refrain among ferry stakeholders. He pointed to the ferry Taku, which the state sold for scrap at a price of $171,000 just a couple years after an approximately $10 million overhaul. “The real issue is not having the one, large strategic plan; not how much has been spent over the past 10 years,” he said. The Southeast Conference partnered with the Alaska DOT under former Gov. Bill Walker to commission a multi-year study aimed at finding ways the system could be transformed from a state agency subject to political influence to a more independent organization as a way to maximize operational efficiencies and implement a long-term strategy. Dunleavy administration officials said the result of that work — a recommendation to make the AMHS a public corporation with an expert board of directors — did not do enough in their eyes to reduce the need for an annual state subsidy in the near-term. A subsequent ferry reform study released in January concluded full privatization of the system is not feasible, but little more than that. Dunleavy has since formed a nine-member AMHS Working Group comprised of public members, lawmakers and state transportation advisors, including Venables, who also chairs the Marine Transportation Advisory Board. MacKinnon, of DOT, said in an interview that there’s simply more projects in need of funding than there is money to spend even with the large annual federal contribution. “We’ve got a STIP that’s significantly oversubscribed and when we have just $500 million a year coming into that through the federal program we have to go through the process of how we prioritize those,” said MacKinnon, who is the former head of the Associated General Contractors of Alaska. Prioritizing what projects are funded in what year and how is a multi-step process and a large part of that is just finding projects that are truly ready for construction, he said. When it comes to balancing ferry and road projects he emphasized that there is a conversation about the benefit of each one — similar to balancing competing projects of any type. “I don’t want to say we’re picking this ferry project over that road project,” MacKinnon said. He added that in recent years the AMHS had typically operated three or four of its ferries in Southeast during the slower winter season and if not for one vessel dedicated to serving Prince Rupert, British Columbia — service now suspended in part for customs issues — it likely would have been just two vessels. The ferry Tazlina joined the aforementioned Lituya as the two ferries currently operating system-wide when it returned to service March 5 following warranty repairs and inspections. ‘Rusty Tusty’ replacement paused As for the aging Tustumena’s long-awaited replacement, the project is paused as the state waits for a federal waiver from the Buy America Act for parts made outside of the U.S. But even if the waiver were granted soon, MacKinnon said he would be hesitant to approve it for construction at least until the AMHS Working Group issues its recommendations for ways to reform the system, which are expected next fall. He also said it would be difficult to justify funding the Tustumena replacement via a single-year FHWA appropriation, regardless of the circumstance. “That’s almost half of our annual allocation from Federal Highways,” he said. “If I were to do that in one chunk you’d hear a lot of screaming coming from the rest of the state; not just from communities that are looking for a (road project) for their community but you’d hear it from contractors who would go, ‘There’s no highway projects bidding this year.’” Instead, MacKinnon would prefer selling guaranteed anticipation revenue vehicle, or GARVEE, bonds, that act as revenue bonds for reliable future federal funding and would allow the state to fund the Tustumena replacement in one year and repay the bonds over up to 10 years. The state last used GARVEE bonds in 2002, according to MacKinnon. “I think for an isolated project like the Tustumena (replacement) a GARVEE would make sense,” he said. Venables, in his capacity as head of the Southeast Conference, said the situation with the Tustumena exemplifies why a long-term strategy for the system is so badly needed. AMHS General Manager Capt. John Falvey said during a January public meeting that repairs this winter to the Tustumena could keep it going for another 10 years barring major unforeseen problems. Given that, Venables said the Tustumena’s replacement “should move forward in an orderly fashion” so the vessel is ready for service before its predecessor is derelict. Building the replacement vessel is expected to take close to five years, AMHS officials have said. Elwood Brehmer can be reached at [email protected]

Interior files response to lawsuit challenging King Cove road land swap

A third federal court ruling is the next step in the ongoing fight over a proposed emergency access road through the Izembek National Wildlife Refuge. Attorneys for the Department of the Interior on March 3 filed their arguments in U.S. Alaska District Court in response to a motion for summary judgment sought by a consortium of conservation groups that sued the department last August to block a land exchange to facilitate construction of the road. Interior Secretary David Bernhardt signed a land swap deal with King Cove Corp. leaders last July after Dean Gould, president of the Native Village Corp., sent a draft agreement to him in May. Led by Sen. Lisa Murkowski, advocates argue that the 11-mile segment to complete an approximately 30-mile road will provide a safe and reliable way for the roughly 800 year-round residents of King Cove — a village shrouded by mountains and notoriously bad weather — to reach Cold Bay’s airport and its 10,100-foot runway during medical emergencies. The Cold Bay airport was originally built as a military airfield in World War II and has occasionally been used by commercial jetliners needing to make emergency landings. The Izembek National Wildlife Refuge is breeding ground for nearly all of the world’s Pacific black brant geese and is home to other rare and threatened waterfowl populations. The land deal Bernhardt signed is strikingly similar to what former Interior Secretary Ryan Zinke, Bernhardt’s predecessor, approved in early 2018 but it does not cap the federal government’s land conveyance to 500 acres or explicitly prohibit the proposed gravel road from being used for commercial purposes. U.S. Alaska District Court Judge Sharon Gleason threw out Zinke’s land swap in March 2019 following a lawsuit from the same group now opposing Bernhardt on the basis that Zinke did not provide a rationale for reversing Interior’s policy on the exchange. The current case is being heard by Judge John Sedwick. In December 2013, then-Interior Secretary Sally Jewell rejected a congressionally-approved exchange of 206 acres within the Izembek refuge on the Alaska Peninsula for about 56,000 acres of state and King Cove Corp. land, concluding the road would unacceptably damage critical waterfowl habitat in the refuge. A federal judge in 2015 threw out a lawsuit against Jewell by the Agdaagux Tribe of King Cove over her 2013 decision, ruling that she did not violate the National Environmental Policy Act by rejecting the land exchange and subsequent road construction. Several national groups, including The Wilderness Society and the Sierra Club joined with local groups such as Friends of Alaska National Wildlife Refuges and the Alaska Wilderness League to sue both Zinke and Bernhardt over the issue. The Anchorage-based conservation nonprofit firm Trustees for Alaska has argued both cases on their behalf. In addition to the specific issues of Izembek, opponents to the exchange also stress that allowing a road to be built through congressionally-designated wilderness — one of the highest land preservation classes available — would set a dangerous precedent for public lands nationwide. Trustees attorneys contend in their Jan. 23 motion for summary judgment that — as with Zinke’s deal — Bernhardt did not adequately justify his decision despite drafting a 20-page memo supporting the agreement in a direct attempt to address why the prior deal was rejected by the court. They insist that, among other problems, Bernhardt violated the landmark 1980 Alaska National Interest Lands Conservation Act, or ANILCA, multiple times and did not conduct the requisite environmental analysis of the yet undetermined land exchange. “The Secretary’s memo does not confront the prior findings, only offering conclusory statements instead of reasoned explanation,” Trustees’ motion states, noting that U.S. Fish and Wildlife officials repeatedly concluded the land exchange and road would irreparably harm the refuge. Jewell’s 2013 rejection was based on a Fish and Wildlife Service recommendation to do so. According to Bernhardt’s agreement, the land swap would be an equal-value trade not subject to acreage limitations. However, King Cove Corp. would agree to relinquish its rights to 5,430 acres of land it had selected within Izembek under the Alaska Native Claims Settlement Act but has yet to be conveyed. The Native village corporation would still have rights to other yet-to-be-conveyed selections outside of the refuge. Bernhardt wrote in his accompanying memo that Jewell committed to finding alternatives to the road, which spurred a 2015 U.S. Army Corps of Engineers study of a possible King Cove-Cold Bay ferry, King Cove airport upgrades and a helicopter shuttle, but to-date has not amounted to much more. That study concluded that a ferry and two terminals would be more than 99 percent reliable but would cost between $30 and $42 million to build, according to Bernhardt. The State of Alaska estimates the road would cost about $30 million to build. He added that since the report, Aleutians East Borough officials, strong advocates for the road, have said they don’t intend to develop a landing craft. The borough previously operated a federally funded hovercraft as a means of emergency transportation during bad weather to Cold Bay but cited high operating costs and reliability concerns when that operation was scrapped. Bernhardt also noted in the memo that the State of Alaska is instituting drastic cuts to funding for the Alaska Marine Highway System, although it’s unlikely the state would operate a King Cove-dedicated ferry. The Corps of Engineers determined expanding King Cove’s small airport or using a helicopter to be more expensive and less reliable options. The conservation groups argue that the overarching purpose of ANILCA and the refuge are for conservation and protection of habitat important not only to wildlife, but also local subsistence harvesters. Congress gave the Interior leader the ability to make land deals in ANILCA for the purpose of acquiring private in-holdings inside a refuge or park boundary not to “undercut the protections it was enacting,” the summary judgment motion states. Interior attorneys counter in their brief that it is Bernhardt’s duty to balance multiple interests under ANILCA, “relating not only to protection of the national interest in the scenic, natural, cultural and environmental values of the public lands in Alaska, but also to the provision of an adequate opportunity for satisfaction of the economic and social needs” of the state, which includes public health and safety. They also argue that an environmental analysis of the land exchange is unnecessary because Section 910 of ANILCA states that the National Environmental Policy Act does not apply to a “conveyance” of Alaska federal land to an Alaska Native corporation. Bernhardt is not additionally bound by another section of ANILCA prescribing a consultation process to build a transportation corridor through a refuge because it only applies to federal lands and the road would not be built until King Cove Corp. owns the road right-of-way, according to Interior’s March 3 court brief. The department’s attorneys also note that the Interior-King Cove Corp. agreement only authorizes a land exchange — the details of which are still undecided — and not road construction, which means it’s premature for intra-agency Fish and Wildlife consultation over the potential impacts to wildlife listed under the Endangered Species Act that use the refuge. Trustees attorneys insist that is an argument in semantics, and that there would be no land exchange if it wasn’t for the road proposal. Elwood Brehmer can be reached at [email protected]

FERC completes environmental review of Alaska LNG Project

Alaska is a major step closer to securing the key federal license to build a long-sought North Slope natural gas pipeline and export project. The Federal Energy Regulatory Commission on Friday issued the final environmental impact statement, or EIS, for the roughly $40 billion Alaska LNG Project, a massive document that largely affirms the plan proposed by the state-owned Alaska Gasline Development Corp. The Alaska LNG Project is the latest attempt to commercialize the large volumes of North Slope natural gas. State and energy company officials have tried since the late 1970s to put together a plan to produce and sell the gas that is considered “stranded” based on the location lacking infrastructure to access global or even local markets. However, frequently changing market and political conditions, combined with the tremendous expense of developing a North Slope gas project, have scuttled prior efforts. To that end, it’s also unclear at this point if the Alaska LNG Project is economically viable, especially at current low prices amid a global oversupply. At its core, the project consists of a large North Slope gas treatment plant; an 807-mile buried natural gas pipeline from the Slope to the Kenai Peninsula; offtake points for state use, and a three-train liquefaction plant at Nikiski capable of producing up to 20 million metric tons of LNG per year for export to Asian markets. If developed, the project would generate upwards of 18,000 jobs during construction and roughly 1,000 new jobs during its 30-year operational life, according to AGDC and state Labor Department estimates. It would also provide natural gas to the Fairbanks area and other communities along the pipeline route that currently rely on fuel oil for heating and in some cases power generation. The final EIS documents support AGDC’s conclusion that the project should terminate in Nikiski despite prior objections from officials in the Matanuska-Susitna Borough and the City of Valdez who contend their areas were not adequately considered. The end-point location was chosen way back in 2013 when the project was led by a consortium of North Slope producers. Mat-Su officials in particular have argued the borough’s Port MacKenzie was dismissed based on inaccurate information submitted to FERC. The EIS authors wrote that information provided by the Mat-Su Borough regarding the wetland acreage at Port MacKenzie was added to the final EIS but did not change the final decision. AGDC officials have said locating the LNG plant at Port MacKenzie — farther up Cook Inlet than Nikiski — would require more tanker trips over the long-term as well as additional dredging to accommodate the large tankers in the shallow waters of the upper inlet. FERC officials rejected siting the LNG plant at Anderson Bay near Valdez in part because it would require 113 miles of spur pipelines to get gas to Fairbanks and Anchorage, which would have additional environmental impacts, although Valdez leaders insisted the spur lines should not be evaluated as part of the overall project, according to the EIS. Ending the project in Valdez would additionally require building the pipeline through an “exceptionally rugged stretch of terrain” through Thompson Pass as AGDC concluded there is not enough room in the parallel Richardson Highway and Trans-Alaska Pipeline System corridors to accommodate another pipeline, the EIS states. Gov. Mike Dunleavy called the final EIS a “milestone” for the project and commended the work of AGDC officials throughout the three-year permitting effort in a formal statement. “We look forward to reviewing the EIS and receiving the record of decision from FERC, at which point we will evaluate our next steps,” Dunleavy said. “FERC licensure is an important component in determining if Alaska LNG, which must be led by private enterprise, is competitive and economically advantageous for development.” AGDC President Frank Richards said the EIS collates more than 150,000 pages of data. Richards, a longtime engineering executive for the quasi-state agency, was appointed as president by the AGDC board of directors Feb. 28 after interim president Joe Dubler announced his retirement. “Such a rigorous, comprehensive environmental analysis provides assurance that the merits and impacts of Alaska LNG have been carefully vetted by numerous federal regulatory authorities,” he said in a formal statement. Dunleavy has been sharply critical of the state leading the project through AGDC — a structure championed by former Gov. Bill Walker — but has followed the recommendation of the large North Slope producers and others who urged the administration to finish the permitting that was already well underway when Dunleavy took office in late 2018. Many observers and insiders view securing the FERC construction license as a way to de-risk the project for potential investors and developers. As Dunleavy mentioned in his statement, his administration is in the process of refining the project’s costs and economic viability. Several lawmakers also commended the AGDC team on its work to get to the final EIS in official statements. Republican Sen. Peter Micciche, who represents Nikiski, said reducing risk in the project is “key to attracting capital” for the project and ensuring that it generates revenue for the state if it is built. Since the current iteration of the project began in 2013, the three major Slope producers and the state have spent more than $600 million to reach this point, with the state share about $237 million of that total. AGDC leaders have said they will attempt to sell the project to a private developer once FERC issues its final record of decision, which is expected in June and, based on the final EIS, is likely to be a favorable ruling for the project. “Once we have the final approval from federal regulators — expected later this year — Alaskans will know the true marketplace potential for this monumental LNG export project,” Micciche said. A state-led project was touted as a way to reduce costs by capturing the state’s federal tax-exempt status for LNG sales when AGDC took it over from BP, ConocoPhillips and ExxonMobil in early 2017 following the collapse of world oil and LNG markets. BP and ExxonMobil signed gas sales term sheets with the state in 2018, but those were allowed to lapse under the Dunleavy administration. The companies, which hold the rights to the majority of the gas in the Prudhoe Bay and Point Thomson oil and gas fields, subsequently agreed last May to commit up to $10 million each to help AGDC finance the rest of the complex FERC permitting process. They are also assisting the state in its economic review of the project plan. Elwood Brehmer can be reached at [email protected]

Court hears MARAD case to dismiss port lawsuit

After nearly six years in court, a lawsuit against the federal government worth hundreds of millions of dollars to Anchorage currently hinges on whether or not a commonly invoked working pact can constitute a binding agreement. Attorneys for the Municipality of Anchorage and the U.S. Maritime Administration spent Feb. 18-19 in a San Francisco courtroom sparring over the enforceability of a memorandum of understanding officials for the city government and federal agency signed in 2003 to coordinate work on the since-failed Port of Anchorage Intermodal Expansion Project. Department of Justice attorneys representing the Maritime Administration, commonly referred to as MARAD, argued that Congress tasked the agency with managing the project through language in a February 2003 omnibus federal spending bill that allowed MARAD to accept and spend state and local money on the work, according to transcripts of the proceedings. They insist the MOU simply clarified Anchorage officials’ decision-making authority for the project and it was the city’s responsibility to provide requirements and direction to MARAD for the project. Vincent Phillips said on behalf of MARAD that it was the February 2003 spending bill, not the MOU signed the following month, that acted as the “operative agreement” for the project and therefore the federal government is not liable for all of the work that went awry. “Anchorage, in their lobbying efforts convinced — induced Congress to spend $140 million for this project by saying Anchorage was already going to spend $163 million for the project. So what Anchorage wanted the government to then do — wanted Congress to then do was essentially make it a federal project and allow a federal agency to not only spend the federal appropriation to build the project but also spend Anchorage’s money,” Phillips told Federal Claims Court Judge Edward Damich. Anchorage is seeking upwards of $320 million from MARAD to recoup the $163.4 million of state and municipal money spent on the project as well as the more than $180 million that port officials estimate it will cost to partly remove and stabilize 35 acres of fill added to the north end of the port during the expansion project, according to city attorneys. The federal government also contributed $140 million to the project through Department of Transportation grants and Defense allocations. Overall, MARAD accepted $306.4 million of federal, state and local money for the construction project and spent $302 million of that on the work, according to court filings. State lawmakers additionally approved another $128 million in grants and bonds for the project that was matched by $9 million from the port after work stopped in 2010, but that money stayed with Anchorage and was not transferred to MARAD. Port officials have since used part of the remaining money to fund a new design for a port overhaul. Lengthy legal battle The Municipality of Anchorage sued MARAD in March 2014 alleging the agency’s mismanagement of the project ultimately led to improperly installed — and subsequently damaged — steel sheet piling that served as a foundational element of the expansion project dock design. In sum, more than $300 million of public money was spent on the project with little to show for it. The municipality commissioned MARAD to oversee the expansion project; it began in 2003 as a way to direct federal funding to the Anchorage port, which is designated by the Department of Defense as a national strategic port for its importance to troop and equipment deployments from Alaska bases. MARAD, in turn, hired Integrated Concepts and Research Corp., or ICRC, to manage the project. ICRC was owned by Koniag Inc., the Alaska Native Regional corporation for Kodiak, when the project started but has since been sold to a Virginia company. The MARAD-Anchorage relationship ended in 2012. The municipality first sued a suite of contractors, including ICRC, involved in the dock design for the expansion project in March 2013. That lawsuit netted $19.3 million for Anchorage through seven individual settlements made in early 2012. A wholly new set of municipal and port officials have since started work on a scaled-back port modernization program, which aims to replace the existing infrastructure at the port without significantly adding new space, which the expansion project sought to do. A final price for the new project is still being revised — an eye-popping estimate of $1.9 billion emerged last year that is still being whittled down — but city officials acknowledge it will very likely be many hundreds of millions of dollars. The members of Alaska’s congressional delegation have said Anchorage needs to resolve its lawsuit with MARAD before they can seek large amounts of additional federal funding for the port modernization effort. Work resumes without resolution The Anchorage Assembly also officially renamed it the Port of Alaska in 2017 as a means of signifying the city-owned port’s importance to the rest of the state. The port is the primary import terminal for all of the consumer goods, fuel, building materials and other things destined for communities across mainland Alaska. Major work is scheduled to resume at the port next year with the first of two construction seasons to build a new, roughly $220 million petroleum and cement terminal at the port — a full 10 years after the first project was stopped. In November, the U.S. DOT awarded a $25 million infrastructure grant to port officials for construction of the new commodity terminal. MARAD announced a similar $20 million grant to the port Feb. 11. What’s in an MOU? For their part, city attorneys stressed during the two-day “mini-trial” intended to fully vet MARAD’s summary judgment motion filed last June that the 2003 MOU was implemented as a binding contract, even if it wasn’t explicitly titled as one. Anchorage and MARAD also signed a second MOU in 2011 to “more substantively involve” city and port officials in the project, the 2011 memorandum states. Municipal attorney Jason Smith said the MOUs were used in a manner similar to the countless other contracts the federal government enters into in that at its core it contained “consideration,” or one thing in exchange for another. “Consideration, at its most basic, is a promise for a promise and that is exactly what both the 2003 MOU and the 2011 MOU demonstrate. There is no dispute because MARAD admits it agreed to provide the services of federal project oversight, contract management and administration of funds to the Municipality of Anchorage,” Smith told Judge Damich. In exchange for oversight, Anchorage agreed to help fund the project, Smith said. He repeatedly pointed to a common contract clause also found in both MOUs that allowed MARAD to withhold 3 percent of all project funding for administrative costs the agency incurred from managing the project. The administrative fee paid the salaries of contractors working on multiple projects, covered intra-government audit costs and other ancillary expenses, according to Smith. Phillips countered that MARAD actually withheld only $3.2 million for its administrative costs — just more than 1 percent of the total spend — and that money all came from the $140 million federal contribution to the project. A true 3 percent administrative fee would’ve been more than $9 million, Phillips noted. “We’re saying no fee was paid to retain services and Anchorage didn’t actually retain MARAD’s services,” Phillips said. “The 2003 MOU was merely a means by which MARAD implemented its statutory obligation from Congress to administer the project,” he added later. However, Smith rebutted that in his closing arguments by noting MARAD used state and port money in part to secretly settle two contract disputes with ICRC in 2012 and 2017 totaling $15.4 million. According to accounting records submitted by government attorneys, MARAD paid approximately $9 million of state and port money to ICRC in October 2012 as part of an $11.3 million settlement and another $1.6 million of nonfederal project funding in a $4.1 million January 2017 settlement. Municipal attorneys allege those settlements were deliberately made without the city’s knowledge, which MARAD’s lawyers don’t dispute. “The municipality wishes that the government had restricted itself to 3 percent of the state (and) municipal funds,” Smith said, adding that Anchorage officials only learned about the 2017 settlement through disclosure of lawsuit-related documents last December. Federal attorney Phillips also argued more broadly that MARAD was not under contract with the Municipality of Anchorage because the agency derived no tangible benefit from the project. The federal benefits, he stressed, were indirect and went to the Department of Defense, as the final design included added developments to account for the military’s needs. Among those was an access road built between the port and nearby Joint Base Elmendorf-Richardson to allow for direct troop and equipment transports without using public roads. Another part of the expansion portion of the project was adding dock space requested by the military. Unique project Former port finance administrator Cheryl Coppe testified that she helped coordinate MARAD’s involvement in the project and agency officials discussed its military uses. But they also saw it as a “demonstration project” to prove up the agency’s project management chops, according to Coppe. “It was a first-of-its-kind project; the Maritime Administration had never before been involved in port infrastructure development. They had never been involved as a federal lead agency, unlike their sister administrations in the DOT,” Coppe testified in questioning from Smith. Congress subsequently tasked MARAD with marine infrastructure projects in Hawaii and Guam after MARAD took control of the Anchorage port work in 2003. A 2013 DOT Inspector General’s audit of the projects concluded that problems arose in the Anchorage and Hawaii projects due to the agency’s narrow interpretation of its responsibilities. “Rather than take on a comprehensive role in developing and overseeing the port infrastructure projects, MARAD’s main role has, until recently, been limited to obligating and distributing funds to contractors for project tasks, such as project oversight, program management, engineering, design, and construction,” the 2013 IG report states. Failing to draft independent cost estimates — a step required by general federal and U.S. DOT regulations — could also have led to cost overruns at Anchorage, Hawaii and Guam, the report states further. Under cross examination by MARAD attorneys, Coppe said it was assumed before federal money became available that only port and state funds would be used on the project. She said city officials — with the help of Alaska’s congressional delegation — went to MARAD for quicker procurement and overall project development once it became clear federal money could be used. MARAD’s attorneys added that even if the military did garner benefits from the project they were indirect and minimal; but Smith countered that MARAD debunked that argument itself. “There’s no dispute that the military gained direct benefits as a result of this contract arrangement. We know it’s undisputed because MARAD all the way up until July of 2019 bragged about all of these benefits on its website and blast it out to the general public,” Smith said in his closing arguments. He claimed statements promoting the Anchorage port project on MARAD’s website were taken down at the behest of the agency’s attorneys. Judge Damich did not indicate when he would rule on the government’s motion for summary judgment, which was the impetus for the two days of arguments and witness testimony. Municipal attorneys have said they’re hopeful the case can reach a bench trial sometime this year. Elwood Brehmer can be reached at [email protected]

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