Elwood Brehmer

Eielson named preferred location for F-35s

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

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

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

Enstar workers strike after rejecting contract

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

EPA holds first public hearing on proposal to veto Pebble

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

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

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

Enstar employees go on strike

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

Health, safety 'overkill' is the norm on Slope

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

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

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

AEDC: economic outlook good despite gov't spending cuts

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

Feds ask Mat-Su for ferry grants back

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

Alaska Air reports another record quarter

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

Icebreakers top US Arctic needs during House testimony

The challenges behind melding the Arctic needs of the State of Alaska and federal agencies were exemplified during a July 23 House subcommittee meeting. Representatives from the U.S. Coast Guard, Navy, the National Oceanic and Atmospheric Administration, the National Science Foundation and the State of Alaska testified to what they need to operate in the Arctic. Topping the list in the testimony before the Coast Guard and Maritime Transportation Subcommittee was icebreaking capability. Subcommittee chair Rep. Duncan Hunter, R-Calif., said the United States is already behind Russia in that regard, which operates about 40 icebreaking vessels, and China, which isn’t an Arctic nation. “The U.S. fleet of icebreakers is in a dismal state. I wouldn’t even call it a fleet, really,” Hunter said in his opening remarks. The Coast Guard has two operational icebreakers, the Healy and the Polar Star. A third, the Polar Sea, is currently deactivated. With the 2013 release of an Arctic strategy report by the White House and a subsequent implementation plan, Rep. John Garamendi, D-Calif., said he is glad the Obama administration is taking the Arctic seriously, but disappointed that the planning initiatives “have not yet taken root in the administration’s budget.” “The stark reality is that with each passing year the Arctic is becoming more open, more accessible, warmer and a more compelling economic and security interest to the U.S.,” Garamendi said. “Other nations have grasped this reality; we should too.” The U.S. will lose power and influence in the region if the federal government does not take Arctic issues seriously, Hunter said. The U.S. is set to take chairmanship of the international Arctic Council forum beginning next year. The round figure of $1 billion is the estimated price tag to construct a new heavy icebreaker for use by the Coast Guard and the Navy. Hunter said an icebreaker that is simply a research vessel and not capable of carrying out Defense Department missions would cost about $500 million. He asked both NOAA Director of Response and Restoration and retired Coast Guard Capt. Dave Westerholm and National Science Foundation polar director Kelly Faulkner if their agencies would be willing to contribute to funding construction of one or more icebreakers. Westerholm and Faulkner said their budgets, collectively about $11 billion, are not allocated to build an icebreaker. The agencies, including branches of the military, are protecting their “current budget turf,” Garamendi said, when building icebreakers should be a shared responsibility. While the National Science Foundation may not be ready to fund construction of such a vessel, it is the foundation’s position that high-tech science capabilities be left off any future icebreakers if the cost of the features could compromise the heavy icebreaking mission. In a lighter moment, while smiling in the direction of Rep. Don Young, Garamendi said, “Perhaps from the oil revenues of Alaska we can find money” to build an icebreaker. “If we build an icebreaker we’re going to charge the hell out of you,” Young responded. Young and Hunter questioned why the agencies couldn’t contract with private firms that have icebreaking vessels for their work. Faulkner said the National Science Foundation has contracted for icebreaking capabilities in the past. A July 17 Congressional Research Service report updating the status of the Coast Guard’s effort to modernize its icebreakers found growing uncertainty in the Department of Homeland Security’s budget requests for icebreaker funds. The fiscal year 2013 submission laid out requests totaling $860 million through fiscal year 2017, a funding schedule that would have allowed the Coast Guard to take delivery of a vessel within 10 years, according to the report. The fiscal year 2014 budget submission pushed back and lessened funding requests to $230 million through fiscal year 2018. This year’s budget request is for $230 million through fiscal year 2019. If the $6 million in the current request is awarded, the Coast Guard will have received $15.6 million for icebreaker acquisition over the last three years. Alaska Department of Natural Resources Deputy Commissioner Ed Fogels testified that social issues that plague many of the roughly 50,000 residents of Arctic Alaska are directly related to a lack of economic development in the area. The federal government needs to cooperate with the state to encourage proper resource management and development in the region, something that hasn’t happened recently, he said. “The state is concerned about the opportunistically heavy-handed interpretation we have seen of certain laws and systems over natural resource management in Alaska, particularly those pertaining to resource development permitting, such as the National Environmental Policy Act, the (Army Corps of Engineers) 404 permitting system, the Clean Water Act, the Clean Air Act, the Marine Mammal and Protection Act and the Endangered Species Act,” Fogels testified. “We request that Congress review the executive branch’s burdensome, inefficient, scientifically dubious and overly-broad application of these laws which can place additional weight on the individuals, businesses and communities that drive the well-being of Alaska.” Fogels referenced Interior Secretary Sally Jewell’s denial of a road between the Aleutian villages of King Cove and Cold Bay as “an example of what we don’t need to do in the Arctic.” He said the state is on the forefront of resource stewardship and has a management program that should be a model for Arctic nations and the rest of the United States. The state’s investigation into access roads on the North Slope and the Ambler Mining District in Northwest Alaska are projects that could help the region’s economy, he said. In Alaska’s push for Arctic infrastructure development, Fogels cited the state’s collaboration with the Army Corps of Engineers on a plan for a deepwater port near Nome. Such a port has been advertised as an Arctic station by the Coast Guard and oilfield service and response vessels. The Corps of Engineers recommendation for an Arctic port is expected by the end of the year.

Crowdfunding transforms business investing, spreads risk

Crowdfunding is not just for cash anymore. Danae Ringelmann, co-founder of Indiegogo, the world’s largest crowdfunding website, said what was once thought of as a niche funding mechanism is now attracting businesses and projects for countless reasons. “Indiegogo is actually a lot more than an alternative form of financing,” Ringelmann said. “It’s doing something very fundamental in the whole financial equation, and that is it reduces risk and specifically market risk and execution risk.” Ringelmann shared her experience July 28 at the Anchorage Economic Development Corp.’s Crowdfunding AK forum, held at the Bear Tooth Theatrepub in Anchorage as part of AEDC’s annual Entrepreneurship Week. Almost all startups share three types of risk, she said, the first being funding. Naturally, crowdfunding mitigates funding risk by allowing a project or business to be pitched to millions at once rather than to just a single boardroom. When crowdfunded, a startup’s market risk dissipates as funding grows, Ringelmann explained. Being funded by hundreds or thousands of individuals from every corner of the globe proves an idea’s merit from the get-go, she said. And even more specifically, crowdfunding allows entrepreneurs to conduct market research while improving their pitch for dollars. The “perk” feature of crowdfunding cures much of the execution risk associated with launching a product. It can be used to determine the optimal size a product should be or the exact features it should have to reach peak demand, she said. Ringelmann described the transformation of the Misfit Shine, an activity tracker funded through Indiegogo. She said the entrepreneur behind the “world’s most elegant activity monitor,” as it is advertised on its website, offered different colors of Misfits as perks for investing in the product. In the end he found that his funders were willing to pay $50 more for a black Misfit than a silver one. “It’s a way to get smarter faster,” Ringelmann said. Further, while the Misfit was originally designed as a sleek, button-style device — an alternative to wrist-worn activity monitors — his funders began asking for it incorporated into jewelry and a new product line was born, Ringelmann recalled. “When people part with their dollars it’s a much greater indication in terms of what their true interests are rather than what they say in terms of would they buy or fund something,” she said. As the hidden features of Indiegogo and crowdfunding have become unveiled themselves since it launched in 2006, the platform is continuously being used in new ways, Ringelmann said. Crowdfunding is being incorporated into pitches for traditional financing because of its ability to ease the market and execution worries of banks or venture capitalists that were previously largely unknowns during the funding stage of a startup. She explained that often when a funding milestone is reached with traditional financing a crowdfunding campaign will be launched to solidify market interest and determine the overall amount of capital needed before it is all invested. Even large, established businesses are getting into the crowdfunding game. Marvell Technology Group, a large multinational semiconductor producer worth nearly $5 billion, used Indiegogo to test a new line of code writing software, Ringelmann said. “(Marvell) used Indiegogo to raise $50,000 — they surpassed their goal a little bit — only because they wanted to test the market and see if they were making something the world wanted in the way that they wanted it,” she said. As crowdfunding continues to evolve, Ringelmann said she believes it will force the investing scene to evolve away from cash being the ultimate bargaining chip and towards it being another commodity as it is available from more sources. In the traditional financing game those with cash had the power and were sought after because they were a startup’s only option. She said that model is shifting. “What’s happening is now the sources of capital have to add more value than just being the sources of cash,” Ringelmann said. As cash becomes less important, banks and venture investors will start to emphasize the intangibles they can provide that distant crowdfunders cant, Ringelmann said. She predicted that the future of traditional financing will be less about providing cash and more about using the value of relationships and expertise to win the opportunity to invest in a project. “I do see a symbiotic relationship going on between Indiegogo and the crowd and traditional financing,” she said. While crowdfunding is mainly a way to attract capital today, tomorrow it will be an “incubator of ideas,” according to Ringelmann. “What we’re trying to do is build this ecosystem where everyone can fund what matters to them.” Elwood Brehmer can be reached at [email protected]

Ambler Road proponents dismiss conflict of interest claims

Concerns over a proposed mine access road in Northwest Alaska are unfounded, the state and a mining company proponent of the project claim. According to Nancy Wainwright, an attorney with law firm Trustees for Alaska representing the village of Ambler, Dowl HKM has performed work on the Ambler Road project for the state and was contracted previously by Vancouver-based NovaCopper. Dowl HKM is a national transportation infrastructure engineering and environmental consulting firm. “(Dowl HKM) appears to be a very important factor in this road promotion,” Wainwright said. Alaska Industrial Development and Export Authority spokesman Karsten Rodvik said questions raised at authority board meetings earlier this year about a possible conflict of interest stemming from a third-party consulting firm hired by AIDEA and NovaCopper, which has pushed for a road to the Ambler Mining District, are an unneeded worry. “Dowl HKM has not performed work on any contract for NovaGold or NovaCopper since AIEDA took over management of the Ambler project,” Rodvik said. He added that he sees no basis for claims that a conflict of interest exists. The road would provide access to four rich copper, zinc, lead and silver deposits that stretch for about 75 miles between the Brooks Range and the upper Kobuk River. It would run west for approximately 200 miles from near milepost 135 of the Dalton Highway and give any Ambler-area mines that are developed rail access in Fairbanks. AIDEA took over the Ambler Road project last year, primarily so the state financing authority could investigate a public-private partnership financing model for the industrial road. As a privately funded one-lane corridor, it would likely be closed to public access while mining activity is occurring. The state Department of Transportation worked on the project beginning in 2010, prior to transferring it to AIDEA. On its current timeline, construction on the road would begin in 2019, according to AIDEA. In a March report to the Legislature, AIDEA Deputy Director Mark Davis said Dowl HKM was involved with the project with DOT and the authority, a fact Wainwright said is significant. She said Ambler residents are worried about the relationship between AIDEA, the consultant and NovaCopper at public meetings. The parties present at public meetings in remote villages and fly out in the same planes, she said. “There’s an appearance of a conflict that has never been resolved,” Wainwright said. NovaCopper CEO Rick Van Nieuwenhuyse wrote in an email that the “conflict of interest is completely without merit.” He could not be reached for further comment in time for this story. NovaCopper has touted the road a link to jobs at one or more mines that could be developed in the district. AIDEA has said it could also provide lower cost fuel to isolated communities in Northwest Alaska through ice road links from the industrial Ambler Road. Rodvik said AIDEA is currently seeking a contractor to conduct the environmental impact statement, or EIS, a step in the project required by the National Environmental Policy Act that it hopes to begin late this year. Whatever group the authority selects to conduct the EIS must keep previous consultants on the project at arms length, Wainwright noted, to comply with NEPA regulations that state no entity that has any history on a project can be involved in the EIS process. Additionally, she said villagers are worried that their concerns about the potential impact to caribou migrations and subsequent subsistence activity are not being taken seriously at public meetings. Reports from some meetings are that public comments are not being recorded, Wainwright said, and at others only those comments supporting the project are being documented. As a result, villagers in the road corridor have taken to holding their own meetings, she said. Wainwright emphasized that the AIDEA board has pushed for public input on the Ambler Road at its meetings and has heard public concerns, but that the board’s directive to does not seem to be reaching staff, she said. “When citizens have to take over the public process that agencies are supposed to handle the public process has gone awry,” she said. Rodvik said AIDEA has held 31 public meetings from the Interior to Kotzebue since it took over the project and has received “significant” support for its work. He noted that none of the meetings to date have been required by any process and that another round of public involvement will begin with the EIS. Before AIDEA moves forward with the project the authority’s board must approve any agreement, Rodvik noted. Elwood Brehmer can be reached at [email protected]

EPA inches closer to stopping Pebble

The Environmental Protection Agency took another step towards blocking a Pebble copper and gold mine July 18. Dennis McLerran, EPA Region 10 administrator, said in a formal statement that the agency is moving to protect the robust salmon stocks of Bristol Bay from the possible impacts of a large mine in the region. The 214-page proposed determination document calls for a ban of large-scale mining in the area of the Koktuli River and Upper Talarik Creek watersheds north and west of Iliamna, where the Pebble deposit is located. The watersheds are part of the larger Kvichak and Nushagak River watersheds — the Pebble deposit sits nearly on the border of the two — which support some of the largest returns of sockeye salmon in the world each year. “The science is clear that mining the Pebble deposit would cause irreversible damage to one of the world’s last intact salmon ecosystems. Bristol Bay’s exceptional fisheries deserve exceptional protection,” McLerran said. “We are doing this now because we’ve heard from concerned tribes, the fishing industry, Alaskans and many others who have lived and worked for more than a decade under the uncertainty posed by this potentially destructive mine.” If developed, it is believed a Pebble mine would be one of the world’s largest surface copper and gold mines. The EPA has justified its proposed action under Section 404(c) of the Clean Water Act, which gives the agency the authority to block the placement of fill material in any area that it determines would have an adverse impact on fish or wildlife. Pebble Limited Partnership has not submitted a formal mine plan and has yet to apply for a Section 404 wetlands permit issued by the regional U.S. Army Corps of Engineers. For those reasons the Pebble Partnership is accusing the EPA of overstepping its regulatory authority. “The correct, legal and defensible way forward is for EPA to suspend its preemptive 404(c) process and allow us the full opportunity to have our project reviewed by federal and state regulatory agencies, including EPA, under (the National Environmental Policy Act),” Pebble CEO Tom Collier said in a formal statement. After losing London-based Anglo American Plc, a 50 percent-share investor in the Pebble project last September, remaining owner Northern Dynasty Minerals Ltd. has said it will go forward with a mine plan after it finds another investment partner. The Pebble Partnership has said a mine would provide more than 1,000 jobs over the 25-year life of the mine to an area of Alaska with high unemployment. Pebble’s opponents argue it would jeopardize the nearly 14,000 full-time and seasonal positions provided by the fishing industry. In February, the EPA said it would investigate using its Clean Water Act authority to block the mine, an announcement that spurred Pebble Partnership to file a lawsuit against the agency in federal District Court May 21, claiming the EPA could not make a reasonable judgment on potential mine impacts with the information it had. Days later, the State of Alaska requested to intervene on behalf of Pebble because blocking the mine would restrict the state’s right to develop its resources for the benefit of its residents, according to its court filings. All of Pebble’s mineral claims are on state land. The EPA’s ability to overrule a Corps of Engineers wetlands permit approval or deny a permit based on an application has been used only 13 times in the 42 years of the history of the Clean Water Act. Never before has the agency used the Clean Water Act as justification to restrict land use prior to a wetlands permit submission for a specific project. The EPA has based its actions on its Bristol Bay Watershed Assessment, released in January, which found that Pebble could potentially harm the region’s fisheries, and subsequently the associated commercial fishing industry. Intra-agency emails from 2010-11 suggesting Region 10 EPA officials had determined the outcome of the assessment against Pebble from before the agency formally announced it would be conducted have caused Pebble to dispute its objectivity. The EPA Inspector General’s office is currently conducting a review of the assessment process. “EPA’s proposal is based on a watershed assessment that its peer reviewers found to be no better than a screening document, and that EPA’s professionals have recognized is missing the information needed for a permitting decision,” Collier said. The most recent proposal determination focuses on mine sizes that the EPA says Northern Dynasty Minerals Ltd., currently the sole Pebble owner, used in its U.S. Security and Exchange Commission filings for investors. Those hypothetical mines range in size from 2 billion tons of ore processed over a 25-year mine life to a 6.5 billion-ton mine. According to the EPA, Pebble’s pit mine would cover up to 6.9 square miles and require three mine tailings impoundments covering up to 18.8 square miles. In the draft determination the agency claims a mine capable of processing just 250 million-tons of ore would lead to the loss of at least 5 miles of anadromous fish, or salmon, habitat, or the loss of at least 19 miles of tributary streams to anadromous waters. Additionally, the loss of 1,100 or more acres of wetlands would occur, according to the EPA. As nearly every announcement related to the Pebble has, the July 18 EPA announcement sparked a rash of announcements from mine supporters, its opposition, and even some in between. Sen. Mark Begich took a stand against Pebble after the Bristol Bay Assessment was released in January, and supported the EPA in a formal statement from his office issued July 18. “This is a long and detailed determination, but based on initial review, the draft determination applies only to the Pebble deposit,” Begich said. “The limited scope is critical and means the determination would not affect mining or any other resource development project in any other parts of the state.” Begich’s congressional delegation mates, Sen. Lisa Murkowski and Rep. Don Young have said they would withhold judgment on the mine until a formal plan is released; something Murkowski has chided Pebble for not doing. “The EPA is setting a precedent that strips Alaska and all Alaskans of the ability to make decisions on how to develop a healthy economy on their lands,” Murkowski said in a release. “This is a blueprint that will be used across the country to stop economic development.” Young called the determination a “jurisdictional power grab.” At a July 18 Commonwealth North lunch presentation, state Department of Natural Resources Commissioner Joe Balash said that the EPA is “in the best light, attempting to put constraints on development of minerals in that particular region and we’re very anxious for what that means for future deposits that are identified as having commercial value.” Trout Unlimited Alaska has led the fight against Pebble and applauded the EPA’s proposed determination, as did the United Tribes of Bristol Bay. “We are grateful that the EPA listened to our tribes and followed the science showing that the mining proposals like Pebble will threaten our way of life,” United Tribes President Robert Heyano said in a formal statement. “This announcement brings us the much-needed certainty that our salmon and waters will be protected, and as a result, our communities, culture and livelihood.” The EPA Region 10 office will take public comment on the determination July 21 through Sept. 19, and public meetings on the issue will be held in Anchorage Aug. 12 and several Bristol Bay communities Aug. 13-15. Elwood Brehmer can be reached at [email protected]

Fairbanks legislator suggests Interior gas pilot project

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

Industry offers avgas alternatives, FAA targets 2018 use

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

Alaskans take up oil debate before Aug. vote

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

Strong, early sockeye returns highlight salmon season

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

Nearing 30 years, state power program keeps going and going

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

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