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

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

Hilcorp finances to stay private; ratings agencies eye debt for deal

After months of review, Alaska state regulators on March 12 granted confidentiality to Hilcorp Energy’s finances, removing a hurdle for the company as it seeks to buy BP Alaska’s pipeline assets as part of a $5.6 billion deal. The Regulatory Commission of Alaska said the Houston, Texas-based company and its subsidiaries can keep their financial statements out of the public eye. Hilcorp in August announced it intended to buy BP Alaska’s assets, including the company’s 49 percent stake in the 800-mile trans-Alaska pipeline, and interests in related pipelines. The companies’ financial statements are declared to be “confidential as a matter of law,” the agency wrote in a 19-page order. More than 200 people have filed comments with the RCA, many concerned about Hilcorp’s request for privacy. Skeptics have expressed concern that privately owned Hilcorp, a small company compared to BP, may not have the financial capabilities to handle unexpected events such as cleanup costs for a major oil spill. They also have said the transaction involving the trans-Alaska pipeline is so important to the state’s economy that the public needs a greater understanding of Hilcorp’s finances. Hilcorp, known for buying and reviving aging oil and gas fields, has said it has provided unusually granular details of its operations at the agency’s request. The oil company has also cautioned that disclosing that and other financial information would hurt its competitive advantage. The five-member commission said its interpretation of state statute prevents it from releasing the documents because they are not required to be filed with the Federal Energy Regulatory Commission. Commissioner Stephen McAlpine was the lone dissenting member. He said the companies did not originally state, as required, that they were seeking the confidentiality protections of the statute. “With this in mind, I believe that airing these documents publicly and subjecting the entire transaction to intense debate far outweighs the petitioners’ interest in keeping them confidential,” McAlpine said in a two-page dissent. “Instead, Hilcorp has invited an unnecessary public relations nightmare over what may come of the lifeblood of our state. Now public scrutiny may well be based on speculation as to what the documents may or may not say rather than a complete airing of the facts as they exist,” he said. Hilcorp and BP filed for a transfer of the pipelines assets in September. The commission will decide on that larger issue by Sept. 28, the commission’s order said. Philip Wight, an analyst with Alaska Public Interest Research Group, which has taken a lead in questioning the deal, said the commission’s order sets a “regressive precedent.” He said the public interest group is considering legal action to reverse the commission’s decision. “By ruling on a murky technicality, the commission failed to do its job to protect the public interest,” Wight said in a statement. “Alaskans are being denied the information we need to be good stewards of our resources.” Agencies eye Hilcorp debt rating Because it is a privately owned company, little is publicly known about Hilcorp’s financial picture. For skeptics of the deal, a major question has been whether Hilcorp has the financial muscle to pull off the large acquisition without putting important obligations, such as infrastructure maintenance, at risk. Two major credit rating agencies, Moody’s Investors Service and Standard & Poor’s, have expressed concern that the oil company will take on large amounts of debt to finance the deal. Analysts with both agencies have described Hilcorp’s current rating as a good one. But if Hilcorp borrows too much, the agencies could downgrade the oil company’s rating. That would make it more expensive for Hilcorp to borrow money because investors will demand larger interest payments. If Hilcorp borrows too much, it could put itself and investors at financial risk, said Jim Posey, a former commissioner for the Alaska Public Utilities Commission, a precursor to the Regulatory Commission of Alaska. (The RCA is the state agency that will decide whether Hilcorp’s finances can be kept confidential.) “I think the rating agencies are looking at them and saying this is a big bite for them, and in an environment where oil is somewhat in decline, they’re rightfully asking, ‘What is the prospect of this investment?’” said Posey, also former general manager for Anchorage Municipal Light & Power. Hilcorp did not respond to requests for comment for this article, including how much money it might seek to borrow to finance the acquisition. Moody’s expressed concern about Hilcorp’s rising debt in a December report. Hilcorp has successfully invested in mature oil fields, exploiting under-performing wells and creating diversified operations across the U.S., the report said. “With a seasoned management team, (Hilcorp Energy) has continued to demonstrate a strong track record of replacing production and adding reserves through the drill bit and via targeted acquisitions,” Moody’s said in the report. But the company’s debt levels rose over the past year, the report said. While Hilcorp will grow significantly as it acquires BP Alaska’s oil production and reserves, it also has future expenses to account for, including retiring old assets, Moody’s said in the report. “If the BP acquisition were to be mostly debt funded, debt levels … could approach $6 billion from the roughly $2.6 billion outstanding at September 30,” Moody’s said. Hilcorp can avoid a rating downgrade by employing “a prudent mix of debt, an equity infusion, and/or alternative funding,” Moody’s report said. Hilcorp has done well under the leadership of its billionaire founder, Jeffery Hildebrand, the report said. “The singular control Mr. Jeffery Hildebrand wields over (Hilcorp Energy’s) operations through his ownership of (Hilcorp Energy’s) general partner is also considered in its credit profile; however, the company has prospered under his control and leadership, while maintaining a strong operating profile,” Moody’s said. Andrew Brooks, a Moody’s analyst, said in November that the credit rating agency needed to see Hilcorp’s financial plans for the acquisition as part of its credit review of the company. Brooks could not be reached for additional comment. Standard & Poor’s put Hilcorp on notice of a possible ratings downgrade in August, shortly after the deal with BP was announced. A review that could lead to a downgrade will be closed once the sale is complete, perhaps late this spring, the agency said. Ben Tsocanos, an analyst with Standard & Poor’s, said the agency has seen Hilcorp’s financial plan. The plan is not publicly available, he said. “We were of the opinion they’d go to market around now (to borrow money),” Tsocanos said. “In general, they are a pretty decent operator,” Tsocanos said of Hilcorp. The Wall Street Journal reported last month that Hilcorp plans to purchase BP Alaska’s assets entirely by using debt. But the newspaper said in that report that coronavirus fears had increased challenges for energy companies trying to borrow money. That could help put pressure on Hildebrand to contribute some of his own money to help pay for part of the deal, the newspaper reported. Denali Kemppel, general counsel for Hilcorp Alaska, told state lawmakers on Feb. 26 that Hilcorp, with its history of acquisitions, has built relationships with a sophisticated group of banks. The company is in discussion with those banks to help determine the best plan, she said. “We are currently still evaluating all options to finance the transaction,” she said, noting that Hilcorp has made two payments to BP for a total of $500 million, with future payments planned. BP and Hilcorp have addressed public concerns about Hilcorp’s financial capabilities in statements filed with the Regulatory Commission of Alaska. Hilcorp is not trying to avoid responsibility to prove it’s “sufficiently well-capitalized,” and is instead concerned that disclosing its finances will hurt its competitive advantage, the oil companies said in a document it sent to the commission in December. The oil companies have also said Hilcorp has provided all required documents to regulators overseeing the sale. Corri Feige, the Alaska Department of Natural Resources commissioner, has said the company has been transparent and forthcoming in providing information the state needs to oversee the transaction, including for a “stress test” to determine Hilcorp’s ability to respond to a major accident should one occur. The oil price crash could delay Hilcorp’s plans to borrow money, said Tsocanos with Standard & Poor’s. Prices plunged more than 20 percent, amid a price war between Saudi Arabia and Russia and depressed demand due to the coronavirus outbreak. Prices for North Slope crude fell to less than $35 a barrel on March 9, levels not seen in four years. For now, the lower prices could make it more difficult for Hilcorp to borrow cash at favorable terms, Tsocanos said. “I don’t think it’s realistic for them to go to capital markets with oil at $35 (a barrel), so I think they will wait for the dust to settle a little bit,” Tsocanos said. Monday’s oil price crash eroded a large chunk of Hildebrand’s wealth, according to Tom Metcalf, a reporter with Bloomberg. Hildebrand’s estimated wealth fell from $5.4 billion to $2.4 billion, pushing him off the list of the world’s 500 wealthiest people, Metcalf said in an email, citing calculations from the Bloomberg Billionaires Index.

How COVID-19 is impacting Anchorage’s small business — and what you can do

A few months ago, Jasmin Smith closed her longtime venture The Business Boutique to focus on Baby Vend, her startup business offering supplies for babies and children via vending machines. As if launching a startup wasn’t enough, in January she also opened a co-working space, Umoja, in Mountain View. Smith poured her extra income into each of these ventures, confident that a steady revenue stream from teaching entrepreneurial classes and hosting the occasional event would keep her cash flow stable until her startups started to turn a profit. That quickly changed as the impacts of COVID-19 swept the globe. Smith’s teaching contract was canceled when the program and events she was planning were put on hold. As a single mother of young children, her options for temporary work are limited by the need for childcare. “Even if it’s just for a short time, the impacts are scary,” Smith said. “My monthly income is dipping but home and business bills are due at the beginning of the month. I have some savings, but those will start to go quickly.” Todd Grebe, a local musician, is similarly worried. He is already feeling the impact to his various income streams, which include performing, selling his music online, teaching, running an Airbnb, and driving for ride sharing apps. “I’m torn between making money in order to provide security for my family and being morally/ethically responsible to society at large,” Grebe said. Grebe also just invested in recording a new album. Typically, he would release it alongside live shows, but he worries if online presence alone will be enough to pay it off. “I’m trying not to stress too much, but at some point this is going to get really bad,” Grebe said. Looking outside for guidance In Seattle, “really bad” has already arrived. Currently the epicenter of the COVID-19 outbreak in the U.S., small businesses are reeling from the impacts. A Seattle survey published on March 12 showed that 80 percent of small businesses are reporting a drop in demand. Additionally, 60 percent of small businesses are considering wage reductions and staffing cutbacks, and 35 percent say they may be facing closure. The majority of respondents noted that they expected circumstances to worsen, and on March 16, they did. Washington Gov. Jay Inslee signed a statewide emergency proclamation to temporarily shut down restaurants, bars, entertainment, and recreational facilities. Restaurants are still able to provide take-out and delivery services, and the ban does not apply to grocery stores and pharmacies, but the business losses will be substantial. To help mitigate the impacts of COVID-19, the City of Seattle is working to help workers and families, deferring payment on business taxes and utilities, setting up a Small Business Stabilization Fund and providing assistance to access federal aid. Restaurants On March 16, Anchorage Mayor Ethan Berkowitz followed Inslee’s lead and signed an emergency order to require bars, breweries, and restaurants to halt dine-in service for food and beverage. Drive-thru, take-out, and delivery services are still allowed, and grocery stores are not impacted by the emergency order. “By making sacrifices now, we reduce the likelihood that we will pay a larger cost later,” Berkowitz said in a statement. “These closures are consistent with CDC recommendations and with our strategy of doing what we can to reduce the possibility of transmitting COVID-19. As a friend told me, ‘It will be impossible to know if we overreacted or did too much, but it will be quite apparent if we underreacted or did too little.’ ” Many restaurants were already offering increased pick-up and delivery service. Here’s a sampling: • Fire Island Bakery and Market Juice are taking phone orders for pickup and staff will deliver your order to your car. • Kincaid Grill is offering a 20 percent discount on pickup orders. • 49th State Brewing Company has an online order and pick-up option that includes crowlers. • The Chicken Shack, which was already using third party delivery apps GrubHub and DoorDash, added a private delivery option to limit the number of people who come in contact with your order. Retail Although retail stores have not been given a mandate to close, business is slowing. Kim Stalder, owner of downtown Anchorage clothing store Circular Boutique, says she didn’t have a single customer walk through her door on March 13 when the first case of COVID-19 was announced in Alaska. “I think they were all at Costco stocking up,” Stalder said. On March 14, foot traffic increased to seven shoppers, but she’s unsure how long people will continue to come. “One of my regulars came in today, like she does every Saturday,” Stalder said. “This time she let me know she wouldn’t be visiting for a while.” Stalder says she doesn’t want to temporarily close and is trying to make sure her customers feel comfortable by providing hand sanitizer upon entry and taking extra care to wipe down all hard surfaces after each shopper leaves the store. “I’m also offering private shopping by appointment, and will ship orders to people or deliver directly to their homes,” Stalder said. However, if the Fifth Avenue Mall closes, as a tenant she’ll be forced to as well. Another mall tenant, the Alaska Salt Company, announced on March 15 they will be closing until further notice. “This was not a fun decision to make,” owner Britni Siekaniec wrote in an Instagram post. “It seems like we JUST got this place put together, fully staffed with wonderful people and ready for a booming summer. Now, it feels like the first day of winter. As a small business that is sustained by a seasonal, tourist market, our future is looking quite uncertain.” Siekaniec is encouraging customers to shop online until their retail space opens again. Health and entertainment The Anchorage ban also included gyms and entertainment facilities like theaters, as well as prohibiting gatherings of 50 people or more through March 31. Courtney Lyons, an instructor for Anchorage Yoga and Cycle and a bartender at Spenard Roadhouse, will be out of work for at least two weeks. She supports Berkowitz’s decision to issue the emergency order. “I’m not really upset about the impact that it will have on me. It’s more important to protect vulnerable people in our community, and if this is the step we need to take to prevent the spread of the virus, if this saves one life, that’s what’s most important to me,” Lyons said. Skinny Raven Sports postponed the Shamrock Shuffle — a popular annual foot race — and put Pub Runs on hold until the end of March, but is keeping retail locations open. They’ve also updated their website for online shopping with direct shipping, and will make deliveries to Anchorage residents placing phone orders. Owner Daniel Greenhalgh says that he’s planning to temporarily close if necessary. For now, people needing gear to get outside for fresh air and exercise have options for shopping. How the federal government is helping The U.S. Small Business Administration is working directly with state governors to provide targeted, low-interest loans to small businesses and nonprofits via the Economic Injury Disaster Loan program. These loans may be used for fixed debts, payroll, accounts payable and other bills that can’t be paid because of COVID-19’s impact, and offer long-term repayment options. In an unprecedented move, the Federal Reserve announced that it would be dropping interest rates to zero and buying at least $700 billion in government and mortgage-related bonds, as well as giving generous loans to banks so they can offer small businesses and families loans to keep financial markets stable and support businesses. Additional updates include: • The Centers for Disease Control and Prevention has compiled a list of recommendations for employers, ranging from capital access and workforce capacity to inventory and supply chain shortfalls and insurance coverage issues. • The U.S. Department of Labor Occupational Safety and Health Administration prepared “Guidance on Preparing Workplaces for COVID-19” based on traditional infection prevention and industrial hygiene practices. The document focuses on how employers can implement entering, administrative and work practices controls. • Congress is working to pass the Families First Coronavirus Response Act to provide a number of resources to individuals and businesses. How individuals can help Alaskans wanting to support local businesses while staying home can shop online or purchase gift cards to use later. Those with the financial means may want to consider tipping extra or opt to pay for services they choose to cancel — like babysitting, house cleaning or hair appointments — or continuing to pay their membership dues for gym membership and exercise classes. Regardless of circumstance, gratitude always makes an impact; send a thank-you note or leave an encouraging comment on social media. Practicing social distancing can end up isolating us when we need connection the most; fortunately, technology that can help bridge the gap. Despite the uncertainty, Stalder feels confident in her community. “As a lifelong Alaskan, I’ve seen firsthand how Alaskans support each other in times of need. I feel certain we’ll see that during this crisis.” And, as Grebe says, “This is Alaska after all, and if there is anywhere in the world with a better can-do attitude than ours, I’m not aware of it.” ^ Gretchen Fauske is a marketing-minded economic developer fueled by a passion for entrepreneurship, innovation, and small business. She is the associate director for the University of Alaska Center for Economic Development, Board President for Launch Alaska, Vice Chair for Anchorage Downtown Partnership, and a Gallup-certified CliftonStrengths coach.

CEO: Permanent Fund still source of stability for state

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

Price war could cost Alaska hundreds of millions in oil revenue

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

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

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

House budget rejects proposal for shellfish sector to fund lab tests

Alaska shellfish farmers and divers fear they won’t be “open for business” much longer if they’re forced to pick up the tab for federally required lab tests as outlined in Gov. Mike Dunleavy’s budget. The Department of Environmental Conservation has proposed shifting the state cost to the harvesters which last year totaled almost a half-million dollars. Geoduck clam divers in Southeast Alaska, for example, pay about $150,000 each year to collect samples that are sent to the single federally approved laboratory in Anchorage and tested for paralytic shellfish poison and other toxins. Divers also pay $20,000 for water quality samples twice a year, and $8,000 to test for inorganic arsenic. “And then we pay the Alaska Department of Fish and Game about $25,000 a year for them to do the management and assessment of the geoduck resource,” said Phil Doherty, co-director of the Southeast Alaska Regional Dive Association, or SARDFA. The geoduck divers also tax themselves 7 percent to cover SARDFA’s $50,000 administrative costs. In all, Doherty said it adds up to $266,000 per year. SARDFA is unique in that it is the only commercial fishing group in Alaska that is taxed through legislative action to pay for state oversight of the fishery, which is centered around Craig and Ketchikan. “We pay the department to do the work they need to do and we pay for all of the PSP sampling that needs to get done. We just don’t pay for the lab costs,” Doherty explained. The geoduck fishery harvests about 650,000 pounds each year valued at around $4 million to about 60 divers. “Out of that $4 million, you take the 3 percent fisheries tax, So that is about $120,000 a year that goes to the state via the fisheries tax that goes into the general fund,” he said. If a testing fee of $400 to $700 per sample is added, Doherty said it would increase divers’ costs by $60,000 to $100,000 per year. “We would not have the money to pay for that,” Doherty said. “And therefore, the geoduck fishery would close down. That would mean a loss to the State of $120,000 a year in geoduck fish taxes, $25,000 in ADF&G payments and $20,574 for Dept. of Environmental Conservation permits.” Meanwhile, 50 or 60 geoduck dive boats and their crews have been beached for more than a month because their market in China is closed due to the coronavirus. Meta Mesdag, owner of the Salty Lady Seafood oyster farm in Juneau and president of the Alaska Shellfish Growers Association, called the cost shift “an impossible ask.” In a letter to the House Finance Committee and DEC Commissioner Jason Brune, Mesdag said, “asking a nascent industry that produced $1.6 million in revenue last year to absorb $457,700 in program expenses will decimate shellfish farming in Alaska,” reported the Alaska Landmine. “The state is fully on board with growing this industry; however, they seem to not understand that in order to do so, we must have the necessary infrastructure in place to comply with federal mandates, and it’s not the farmers’ responsibility, but a matter of public safety,” Mesdag said. The Alaska Mariculture Task Force, created in 2016 with a goal of growing a $100 million industry in 20 years, opposes shifting the lab costs. “This public health service assures that commercially available shellfish is safe for consumption. At the current size of the mariculture industry, the proposed fees are not financially feasible nor realistic. The rate increases will be devastating to the existing industry and will restrict future expansion,” the task force wrote in a letter to the legislative finance committees. Should it pass, Alaska will be the only state that makes its growers/divers pick up the federal testing tab. Mesdag also questioned Alaska’s high testing costs for samples from 26 Alaska shellfish oyster growers. She told the Landmine that Bigelow Analytical Services, a private nonprofit in Maine, told her they would do all of Alaska’s tests for $31,000 per year. “The industry believes that we are actually subsidizing (Alaska’s) environmental health lab at $457,700 a year for a test that should cost $31,000 a year to operate,” Mesdag said. Alaska legislators in the House rejected the proposal in the operating budget that passed last week, and it is now up to the state Senate — and the governor’s veto pen — to decide. Warm bottom crashed cod Warmer temperatures on the ocean bottom were key to causing the cod crash in the Gulf of Alaska. That’s the conclusion of a National Marine Fisheries Service study that connected low numbers of cod larvae, juveniles and adults to loss of spawning grounds in the 2013–16 heatwave called “the Blob,” the largest warm water anomaly ever recorded in the North Pacific. Pacific cod are unique among all cod species because they only spawn once in a season and have eggs that adhere to the ocean floor. Females can actually place their eggs in habitats with temperatures that optimize hatch success. Researchers Ben Laurel and Lauren Rogers at the Alaska Fisheries Science Center in Newport, Ore., determined that Pacific cod eggs have a very narrow bottom temperature range for hatching success, much narrower than Alaska pollock or Atlantic cod. The Blob caused Gulf of Alaska waters to reach nearly 61 degrees, compared to a norm closer to 50 degrees. Right after, biologists saw no first year cod. “A lot can happen in that first year of life that we would like to learn more about how to predict whether or not these year classes coming through are actually going to survive. But there is always variability and uncertainty that we have to be braced for,” Laurel said in a previous interview, adding that data on young Gulf cod go back to 2005. The research is providing a window into how the fish will fare in a changing climate, he said. “It’s sort of a dress rehearsal for things to come. And it’s encouraging we had really responsive actions to this really drastic reduction in the population,” Laurel added. “I’m encouraged by that, but also tentatively nervous about what’s in line for the future.” The report titled Loss of spawning habitat and prerecruits of Pacific cod during a Gulf of Alaska heatwave, appears in the Canadian Journal of Fisheries and Aquatic Sciences. Fishy winners Bullwhip Hot Sauce was the biggest winner in the final round of the Alaska Symphony of Seafood competition in Juneau. The hot sauce, made with bull kelp by Juneau-based Barnacle Seafoods, took home the Grand Prize in a field of 20 entries, four of which were seaweed products. The Symphony contest begins in November at Pacific Marine Expo where all entries are judged by an expert panel and first place winners are announced. Second and third place and the grand prize winners are kept under wraps until the Juneau event where legislators and others select their favorites in three categories: retail, foodservice and Beyond the Plate, which features items made from seafood byproducts. “It can be things that are edible such as fish oil capsules, or things that are nonedible such as salmon leather wallets,” said Julie Decker, executive director of the Alaska Fisheries Development Foundation, host of the Symphony for 27 years. Barnacle’s Bullwhip Hot Sauce also took first place at retail. A Cod Fish and Chips Meal Kit by Alaskan Leader Seafoods placed second and Sea Asparagus Pesto by Seattle’s Foraged and Found came in third. For foodservice, Alaska Southern Style Wild Wings by High Liner Foods took top honors. Second was Alaskan Kombu Seaweed made with Kodiak kelp by Blue Evolution. Salmon Dumplings by Tai Foong USA placed third. For Beyond the Plate, Juneau’s WILD by Nature Alaskan Fish Skin Jewelry came in first, followed by Pescadots dog treats from Drool Central, a Mum and Pup Barkery of Anchorage. Top winners were set to travel to the big Seafood Expo North America next week in Boston which was postponed due to the Coronavirus. Fish givers American Seafoods is accepting applications for its community grant program from Kodiak Island, Aleutian and Pribilof Islands, Western Alaska Peninsula, Bristol Bay, Lower Kuskokwim, Lower Yukon, Norton Sound and regions north. The majority of awards will range from $1,000 to $7,500 each for a total of $45,000. Since 1997, American Seafoods has granted over $1.7 million to Alaska organizations and programs. Request forms are available at or contact Kim Lynch ([email protected]; 206-256-2659. The deadline is April 13; grant recipients will be announced on April 29. Laine Welch lives in Kodiak. Visit or contact [email protected] for information.

Laid up: Ferry fixes compete with federal road funding

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

Tourism industry braces for impact of cruise travel warning

The U.S. government has explicitly warned Americans not to travel on cruise ships due to coronavirus, a little more than a month before the start of Alaska’s projected 1.4 million visitor summer cruise season. “U.S. citizens, particularly travelers with underlying health conditions, should not travel by cruise ship,” the State Department said in an alert March 8. The advisory is raising questions and anxieties in Alaska’s cruise port towns with the arrival of the first ships expected at the end of April. Cruise visitors spend $2.8 billion in the state each season, according to the Cruise Industry Association of Alaska. On March 9, Gov. Mike Dunleavy tried to offer reassurance, saying there was “time to work through the cruise ship issues” before the season begins. But whether the coronavirus warning, plus nonstop scenes of quarantined ships seeking ports, will have many would-be cruise passengers rethinking their vacations remains to be seen. Cruise lines have not announced any cancellations of sailings to Alaska, and have even added sailings as ships were pulled from their Asia seasons early, said Mike Tribbles of CLIA, the Alaska cruise industry organization. The organization said in a statement that it was “surprised at the advisory” but would work with the government on an “aggressive, responsive plan” for summer cruising in Alaska. “Our first priority is to protect our guests, our crew and the communities where we sail,” CLIA said in a statement. “This includes more stringent boarding procedures, adding additional onboard medical resources and temperature screenings at embarkation.” Still, lots of questions remain. Perhaps no Alaska town has more to lose than Skagway, where 454 cruise port visits are planned for this summer. The Southeast Alaska town has a population of only 700-800 during the winter, but swells up to 30,000 people on days when multiple large cruise ships come to unleash passengers on its historic downtown. Some 95 percent of the economy in Skagway is tied to cruise ship tourism, said Mayor Andrew Cremata, a freelance writer who has lived in the town for 26 years. His first priority is making sure Skagway’s health is protected — but economic health is important too: Many people in town make their living during the short summer tourism season, and a significant reduction in the number of cruise visitors would be devastating. “We have to look at worst case scenarios,” said Cremata. “Either a long delay in cruise ship (arrivals) or cancellations, for a week or a month or the whole season.” Cremata said he’s been disappointed by the lack of communication from the cruise companies. Leaders in Skagway have been learning about cruise protocols through news stories, he said. He’d like to know about embarkation protocols, what would happen if a person tested positive while on the cruise, and health screenings for crew transfers. “We don’t want a situation where a cruise ship could potentially bring infected passengers into our community, where it cripples the community and causes the season to be shut down,” he said. That said, he’s optimistic. The town has done a good job of making its own emergency preparedness plans for coronavirus. “We need to prepare for the worst but ideally, this thing mitigates itself,” he said. The mayor of Sitka, scheduled for about 200 cruise port calls this summer, is also weighing options. “Certainly our town relies significantly on tourism,” said Gary Paxton. “But to say we’re gonna lose our cruise industry is an overstatement.” Paxton hadn’t heard of the cancellations of any sailings as of Monday. “I think the cruise lines know how to deal with these kinds of things,” he said. The cruise industry itself is downplaying the threat. Executives were said to be surprised by Sunday’s alert, which came one day after a meeting between industry executives and Vice President Mike Pence. In a statement, Carnival Cruise Line, which operates Princess Cruises and Holland America Line, two key players in the Alaska market, said that “while advisories are in place, we are open for business.” “We continue to implement higher and more rigorous protocols to protect” traveler health and safety, the statement said. Some operators, like Princess, have offered an up to $200 credit for cruisers who choose to keep their bookings. Cruising remains “one of the most attractive vacation options available,” Carnival said.

GUEST COMMENTARY: Alaska’s oil spill response rules are working

After 30 years without a significant oil spill in Alaska’s waters, it’s tempting to think that we can relax our vigilance. But we cannot. At no time since the Exxon Valdez have there been so many pressures on oil spill prevention and response. In October, the Alaska Department of Environmental Conservation, or DEC, announced its intention to streamline oil spill contingency plan regulations and statutes to alleviate a perceived burden to industry and show Alaska is open for business. We hope that means all business — from subsistence and food security to commercial fisheries and tourism — clean waters and coasts are vital to the state, and DEC should not dilute protections. This announcement understandably caught the attention of Alaska’s regional citizens’ advisory councils and the many Alaskans, like myself, who experienced the devastating effects of the 1989 spill. In the early ‘90s we worked together with the oil industry and DEC to develop Alaska’s oil spill response planning standards and regulations. They are why Alaska is considered a national and world leader in oil spill prevention and response today. We support Alaska’s current standards and contingency plans regulations and statutes. So I appreciated Tim Bradner’s Jan. 10 endorsement in the Anchorage Daily News of strong regulatory oversight as the social license for economic development in Alaska. Unfortunately, the governor is not giving some resource agencies the backing they need. DEC’s proposed budget eliminates two training staff and five other staff in the Spill Prevention and Response Division. Cutting staff raises doubts about the department’s ability to provide the regulatory oversight necessary to prevent spills while being prepared to mount an effective response, let alone its ability to conduct a wholesale review of Alaska’s oil spill planning and response standards. To his credit, the DEC Commissioner assured the Cook Inlet Regional Citizens’ Advisory Council at our December board of directors meeting that he had no intention whatsoever of weakening Alaska’s oil spill prevention laws. We intend to hold him to that promise. But the neither the governor nor commissioner rescinded the public scoping process as we requested. And the commissioner is still of the opinion that regulations amount to red tape, cost too much, and stymy growth. As he stated recently at the Alaska Chamber’s legislative fly-in in Juneau, “Our goal is not to reduce environmental protections or eliminate anything that protects human health and the environment. It’s to get rid of that additional cost and that regulatory red tape.” These simply aren’t good enough reasons to risk tearing apart our protective oil spill prevention and response system. CIRCAC supports regulatory changes that would improve Alaska’s spill response capability. We would welcome more incentives to use proven technology, such as the newer skimming systems that are now available. We also support funding for DEC to accomplish the necessary training in Contingency Plan Review and to effectively respond to oil spills. But we will vigorously oppose any proposed changes that will weaken existing, protective laws. DEC is accepting comments on its public scoping of Alaska’s oil spill prevention regulations and statutes until March 16. If DEC chooses to revise the spill prevention and response rules, it should ensure that any proposed changes not weaken protections that safeguard the marine environment. We can tell DEC to preserve, strengthen, and improve Alaska’s oil spill planning standards and contingency plans and focus on prevention. Remember the words of the Oil Pollution Act of 1990: “…complacency on the part of the industry and government personnel responsible for monitoring the operation of the Valdez terminal and vessel traffic in Prince William Sound was one of the contributing factors to the Exxon Valdez oil spill.” We cannot afford a return to the complacency that triggered the worst oil spill in Alaska’s history. Tell the state and federal powers that be that any attempts to weaken or dismantle Alaska’s oil spill prevention and response system are unacceptable. ^ John Williams is a long-time resident and former mayor of Kenai, one of the official “Oiled Mayors” during the Exxon Valdez oil spill, and current president of the Cook Inlet Regional Citizens Advisory Council board of directors.

GUEST COMMENTARY: Time to get natural gas to Alaskans

The Alaska Gasline Development Corp. has been the primary state entity tasked with unlocking North Slope gas for Alaskans’ benefit. AGDC has worked for years to obtain a Federal Energy Regulatory Commission order allowing construction of an LNG facility and large-scale gasline project through Alaska. To AGDC’s credit, it just received a final environmental impact statement, or FEIS, from FERC for that project. After obtaining comment on the FEIS, the FERC will likely issue an order to AGDC allowing construction of an Alaska gasline and LNG facility. AGDC has proved itself a fairly nimble, adaptive state government corporation. In the last year, AGDC has dramatically reduced its spending and rightly focused AGDC’s work on getting the FERC order. Now, however, AGDC management must strategically pivot to fulfilling its broader statutory mission: getting natural gas to Alaskans. While AGDC has been singularly focused on commercializing North Slope gas for one project, AGDC’s statutory mission is not so narrowly confined. Alaska law says AGDC’s purpose is to construct, own, operate, manage, or participate in natural gas pipelines and facilities so as to make natural gas available to Alaskans at the lowest rate possible. AGDC’s purpose can be furthered with one large gasline project from the North Slope, but that gasline project is not the only way to get gas to Alaskans. Alaskan communities need cheaper, cleaner natural gas to replace diesel-powered generation and AGDC has the legal authority to do it. AGDC should be exploring other projects to determine whether it can get gas to Alaskans. When AGDC refocuses on its broader statutory mission, Alaskans benefit. Second, after fully embracing its statutory purpose, AGDC should take stock of its assets and maximize them to get natural gas to Alaskans. Chief among AGDC’s assets for sale or use in a gas project will be the FERC approval. With a FERC order in hand, AGDC (along with several gas producers) will have de-risked the permitting of an Alaska gasline project. FERC approval is effectively a permit that other investors and companies don’t have to spend years and hundreds of millions to get because AGDC has done the permitting work for them. AGDC should soon have a valuable, marketable asset (e.g. the FERC order) that could benefit Alaskans. When AGDC has its FERC approval for the Alaska LNG Project, AGDC will need to transition from primarily managing a permitting and engineering effort at the FERC to managing commercial negotiations aimed at producers, pipeline investors and operators, and the gas markets. The commercial negotiations with private sector parties will be around AGDC selling or otherwise transferring its lead role in the project, along with the FERC authorization. Third, after focusing on its mission and on how to leverage the value of a FERC order to get a project built in the state’s interest, AGDC’s board should consider monetizing or leveraging other AGDC assets for the benefit of Alaskans. With its statutory mandate to get natural gas to Alaskans, AGDC should ask whether it can play a role in gas pipeline infrastructure to the Donlin mine site. Doing so would not only power the mine, but potentially leverages cheaper, cleaner power for all of Southwest Alaska. AGDC should be asking whether it can play a role in bringing cheaper, cleaner gas to Southeast Alaska by spring boarding off an LNG project planned for southern Southeast Alaska. Beyond these, AGDC has compiled and created much environmental and engineering data that could benefit other projects. AGDC should, therefore, consider how to leverage and monetize the reams of engineering analysis and environmental data it owns for Alaskans’ benefit. Getting natural gas to Alaskans at the lowest possible rates possible is AGDC’s reason for being. AGDC should fully embrace its statutory mission and use all of its resources to meet Alaskans’ need for cleaner, cheaper energy. ^ Sean Parnell is a former governor of Alaska (2009-14), and is now Of Counsel at the law firm of Holland &Hart LLP.

GUEST COMMENTARY: NEPA ripe for revisions after 50 years

When I was entering high school in the early 1970s, sit-ins for the environment and a new thing called Earth Day were all the rage. I wore a green-and-white striped eco-flag patch on my Army-surplus jacket. We identified with a nonpartisan global youth movement that was behind efforts to fight air and water pollution. When Congress passed the National Environmental Policy Act, or NEPA, I believed America was doing the right thing to mandate an environmental impact statement for major projects that required federal approval. Fifty years hence, I still believe in the spirit and goals of the environmental movement. Environmental stewardship is an ongoing mission for everyone. To that end, I also support the EIS process: It requires a conversation between project developers and the public. It ensures that projects meet agencies’ objective permit standards (e.g. limiting the parts per billion of pollutants coming out of a smokestack or a water pipe). It promotes science, as it makes sure agencies consider less tangible, values-based norms we share like respecting wilderness, open space, good hunting and fishing, diverse and abundant wildlife populations, and limiting noise, traffic and other development impacts At the same time, the EIS process has produced bad, unintended consequences. It has added uncertainty to and prolonged the permitting process for too many projects. It routinely forces the expenditure of a lot of money on design and engineering work in advance of permitting decisions that don’t need so much specific information. It has invited a continuous stream of lawsuits over the adequacy of assessment and generated lengthy documents few people read. In short, the process itself, rather than specific opposition or a project’s failure to meet objective standards, has come to delay, add great expense to or even to block projects our nation needs. We should update and reform this system. A recent set of executive orders by the Trump administration has set the stage for the first comprehensive update to the EIS process since 1978. These reforms would limit the time and expense project developers, government officials, and the public all face in the EIS process. For the past three years, the Council on Environmental Quality, which oversees this process, has earnestly crafted these measures. As CEQ Director Mary Newmayr notes: “The process for completing environmental impact statements for highway projects now exceeds seven years and statements currently average over 600 pages, and in some instances are thousands of pages long. In many cases, it can take a decade or more before permits are issued and construction can begin.” Some critics instantly dismissed the new EIS rules as quick Trump administration policy to fire up bulldozers and advance economic growth at the expense of the environment. But a closer look shows the new rules would still consider the environmental costs as well as the economic benefits of projects, namely economic growth and jobs. Citizens who believe impacts are overlooked can still head to the courts. But some burdens will be lifted. If regulatory procedures create costs and obstacles to development without a discernible protection for people or the environment, how are we served? Environmental rules should protect the environment, rather than waste time, paper and money. America’s environmental laws have set standards around the world. But when policies become costly and convoluted, they drive development of natural resources and infrastructure to other nations with lesser standards, then we need to change them. Early in my career, I helped lead Alaska’s state environmental agency. We were a cooperating agency in several EIS processes, including some controversial mines. Some of those mines are operating today, and some never made it through the gauntlet. EIS completion was required before almost any key permit was issued. It was then that I found the EIS process, as it had evolved, was often a barrier to problem solving, a process with no discernable schedule, and an impediment to investment. In one case, we found that if we gave credence to a new idea with less potential environmental impact, it became an “alternative” in the EIS process. If it became an alternative, it had to be studied. If it had to be studied, it would set back the project in time and expense to the point that the whole EIS process might begin again. I have seen a similar dismissal of alternative consideration in other, more recent projects pending in Alaska. This has caused me to realize that while NEPA’s goals continue to have merit, an accumulation of lawsuits, new mandates, and case law has created a process of, by, and for itself rather than for the environment. For that reason, I welcome CEQ’s start on modernization of the process. CEQ’s proposed revisions to NEPA are open for comment to March 10. There is a chance to greatly streamline this cumbersome process. Inevitable court cases will follow, and hopefully the courts will approve this EIS modernization approach that has been long in coming. Mead Treadwell served as Alaska’s lieutenant governor from 2010 to 2014.

FCC orders telecoms to inventory Chinese equipment

Nearly a year after the federal government labeled Chinese telecommunications companies Huawei and ZTE as potential national security threats, the Federal Communications Commission is looking for more complete information about which American companies are using their equipment. The FCC announced Feb. 26 that all telecommunications companies eligible for Universal Service Fund monies are required to inventory and report the cost of replacing any Huawei or ZTE equipment currently in use. The data, which companies can report through a portal on the FCC’s website, is due by April 22. The reporting is optional for companies that are not USF-eligible. “Given that those designations may become final this spring, we are moving forward quickly to identify where equipment and services from these suppliers are embedded in our communications networks and, where they do have a foothold, to be in a position to help remove them,” said FCC Chairman Ajit Pai in the release. Companies have to report the type of equipment from Huawei or ZTE they are using, how it’s being used, what they paid for it and how much it would cost to replace. The latter information could be used for a reimbursement program, according to the announcement. Many telecommunications companies, particularly small ones, rely on the USF, which distributes billions in funding every year, paid for by telecommunications companies based on an assessment of their end-user revenues. Funds are provided through four programs: the Connect America Fund, which helps cover the costs of providing service in high-cost areas; low-income support; the E-Rate program, which provides funds to help schools and libraries obtain telecommunications services; and support for rural health care clinics. Accusations that Huawei and ZTE pose a national security threat go back for years, linked to concerns that the companies include “back doors” in their security protocols for spyware. In 2019, President Donald Trump’s administration moved to flag Huawei—a Chinese technology company—as a potential national security threat because of security flaws discovered in some of its devices. ZTE, another Chinese technology company known particularly for smartphones, was also added to the list. The companies’ ties to the Chinese government raised further scrutiny. Some U.S. companies, including Google, have indicated that they intend to continue working with Huawei, but Congress indicated that the FCC should require that U.S. telecommunications providers rip and replace the now-prohibited equipment. The problem is that is incredibly expensive, especially for smaller companies. The Huawei and ZTE equipment is typically much cheaper than equivalents available from other countries. So as part of the plan to replace all the equipment, Congress is working on a bill to reimburse companies for replacing the equipment. Sen. Dan Sullivan cosponsored the Secure and Trusted Communications Network Act of 2019, which passed the Senate March 4 and would prohibit the FCC from subsidizing the purchase of any equipment from “untrusted suppliers” as well as set up a reimbursement program for companies with fewer than two million customers to replace the equipment. The House passed a companion bill on March 3, and the legislation package is now before Trump to sign. Alaska’s two main state-based telecommunications providers, Alaska Communications and GCI, won’t be affected by the reporting requirement and equipment replacement. Neither has any Huawei or ZTE equipment in use at this time, according to spokespeople for both companies. “GCI has been monitoring the situation since last year and we have already conducted an inventory of our network,” said Heather Handyside, GCI’s vice president of corporate communications, in an email. “I am pleased to report that GCI has no Huawei/ZTE equipment on our network systems.” The Alaska providers who may be required to report to the FCC are prepared to do so, said Christine O’Connor, executive director of the Alaska Telecom Association. The details of the reimbursement program through the FCC are still up in the air. The commission has not yet adopted an order on the removal and replacement program, said Tina Pelkey, a spokesman for the FCC, in an email. “The details are still pending, including what costs will be reimbursed, and the Commission has not yet decided specifics about the proposed program while we review the record,” she said. The two bills passed by the House and Senate would also establish an information-sharing network for smaller companies to obtain information related to the vulnerability of their networks. The bill focuses largely on the ongoing conversion to 5G networks, which are being rolled out in some regions of the U.S. and worldwide. 5G, the fifth generation of cellular and wireless network standards, is expected to increase wireless speeds and reduce latency, among other improvements. Alaska, with its broad geography and small population, has lagged behind the country in implementation of 4G, and some regions still don’t have reliable coverage. As companies look to adapt to the changing network standards, the bill aims to push them away from purchasing equipment from companies that could pose a national security threat — particularly Chinese companies. Last year, AT&T announced buildouts of 5G network capability in Alaska, including Anchorage, Bethel and Kusilvak. GCI began building out its 5G infrastructure in Alaska in 2019, with completion expected in 2020 and rollout expected in the first half of the year, according to GCI’s website. Elizabeth Earl can be reached at [email protected]

Cook Inlet setnet permit buyout bill stalled in Senate

Cook Inlet’s East Side setnetters are still looking for relief in the form of a permit buyback, but the bill that would allow it is stuck in the Legislature. Senate Bill 90, sponsored by Sen. Peter Micciche, R-Soldotna, would establish a mechanism in law for setnetters on Cook Inlet’s East Side to set up a permit buyback. There’s no funding included in the bill, but the establishment of the mechanism itself would allow stakeholders to seek funding, whether it comes from the federal government, state, or private equity. Micciche introduced the bill in the 2019 session, when it received three hearings in the Senate Resources Committee. However, it does not currently have any hearings scheduled as of March 10. Micciche said he hopes to get the bill moving soon and intended to request hearings for it. “It’s certainly a high priority; it’s at the top of my list,” Micciche said. “My goal is to get it passed in this session.” The East Side setnet fishery has gradually been losing value for years. For the last few decades, user-group politics have led to the Board of Fisheries reducing the time and area allowances for setnetters on Cook Inlet’s East Side, who compete for salmon headed for the Kenai and Kasilof rivers, which also host large sport and personal-use fisheries. In 2014, after the disastrously low king salmon runs in Cook Inlet, the Board of Fisheries instituted paired-use restrictions, which further reduced setnet fishing time on the East Side and based openings on the type of gear allowed for king salmon sportfishing in the Kenai River. The effect of additional time and area cuts is that some setnetters in the Kenai area now open in mid-July and close by the second week of August. However, Kenai king runs have continued to struggle, as they have across the state. Citing continuing concerns for king salmon in the Kenai River, the Board of Fisheries increased the optimum escapement goal for king salmon at its meeting in February, meaning paired restrictions may be used more often. The new paired rules restrict setnet fishing time to no more than 48 hours of fishing time per week when the sportfishery is set to no bait. If the fishery goes to no retention of fish longer than 34 inches, setnetters would be limited to no more than 36 hours of fishing per week, and if it goes to catch-and-release only, the limit would be 24 hours of fishing per week. If the sportfishery for kings closed, so would the East Side setnetters. Setnetters have long argued against the paired restrictions, saying it is not an equal burden because when they lose time, they lose opportunity, while commercial guides can still operate and make money on no bait or on catch-and-release fishing. East Side setnetters harvest kings at a higher rate than the drift gillnet commercial fishery does, in part because king salmon migrate along the shore on the way back to the river, but they primarily take sockeye salmon. As they’ve lost fishing opportunity, the value of the setnet sites and permits has gone down. In 1990, the value for Cook Inlet setnet permits reached a high of $98,514 per permit; by 2019, they were worth approximately $19,500 per permit, according to the state Commercial Fisheries Entry Commission. The decline in value has been relatively steady since the 1990s, when it climbed after large runs of salmon in the 1980s in Cook Inlet pushed the value of the catch up for commercial fishermen. Some setnetters would like to sell their permits out permanently, taking the lump sum rather than hoping the profit margin will improve. The bill would buy back up to 200 permits on Cook Inlet’s East Side, defined under a new administrative area outlined in the bill, for $260,000 each, minus the administrative costs. The site would then close permanently, ultimately reducing the fleet by about half. The goal of the bill would be to both reduce the number of nets in the water and make the remaining sites more profitable for those who choose to stay. All buybacks would be voluntary, and the program would still have to be approved by the permitholders by a vote. Micciche said there was some confusion last year and invited lawmakers to educate themselves on how the fishery and the bill work. The bill would not provide funding; it would establish the vehicle for fishermen to start researching funding, he said. Until the bill passes, they can’t approach potential funding sources. “In the meantime, they’re watching their livelihoods erode from beneath them,” he said. On Feb. 21, Sen. Gary Stevens, R-Kodiak, signed on as a co-sponsor, but then reversed course and removed his name about two weeks later, on March 3. Micciche said as far as he knew, Stevens still thought the buyback program was a good idea. Stevens’ office didn’t return a request for comment. At previous hearings, senators raised concerns about the proposed amount for each buyout and fishermen trying to game the system; during public comment, stakeholders objected to the bill because of the precedent of the Legislature getting involved in Cook Inlet’s messy fisheries politics, because of the closing of waters, and because of the lack of clearly identified funding in the bill. Elizabeth Earl can be reached at [email protected]

Movers and Shakers for March 15

Explore Fairbanks recently announced its 2020 board of directors. Executive officers are: Chair Ashley Bradish, Gold Dredge 8 and Riverboat Discovery; Past Chair Kathy Hedges, Arctic Circle Trading Post; Chair-Elect Buzzy Chiu, Premier Alaska Tours; Treasurer Kristin Baysinger, Carlson Center, who will also serve as Meetings and Conventions Chair; and Secretary Ralf Dobrovolny, 1st Alaska Tours, who will also serve as Tourism Chair. Additional board members are: Audit Chair Danielle Hayes, HAP Alaska Yukon; Communications Chair Javier Villasenor-Gaona, Chena Hot Springs Resort; Nominations Chair Greg Allison, Good, LLC; Public Policy Advisory Chair Adriel Butler, Aurora Expeditions; Visitor Services &Partnership Development Chair Kory Eberhardt, A Taste of Alaska Lodge; and Reinhard Neuhauser, Alaska Fishing and Raft Adventures; Jess Pena, Fairbanks Arts Association; John Scherzer, Westmark Hotel &Conference Center; Lisa Simons, Springhill Suites by Marriott; and Shalley Villamarin, Grande Denali Lodge. Ex Officio representatives are Jimi Cash, Fairbanks North Star Borough Assembly, and Shoshana Kun, Fairbanks City Council. The Anchorage ATHENA Society announced the inductees into the Class of 2020. A group of 10 women have been chosen, representing a variety of fields and expertise. The 2020 inductees are: Tammy Lee Ashley, Director of Program Operations, Alaska Native Justice Center; Deena Bishop, Superintendent, Anchorage School District; Deborah Bitney, Vice President of Finance and Administration, Rasmuson Foundation; Lori Davey, Vice President, Enterprise Market, GCI; Valerie Nurr’araaluk Davidson, Owner, Valerie Davidson and Associates; Amy Fredeen, Chief Financial Officer &Executive Vice President, Cook Inlet Tribal Council; Kari C. Hall, Founder, Owner, Operator, Allure Day Spa and Hair Design; Jodie Hettrick, Fire Chief, Anchorage Fire Department; Cathleen N. McLaughlin, Owner/CEO, Restorative and Reentry Services; Melinda Taylor, Communication Director, IBEW Local 1547. The ATHENA Leadership Award, the Society’s highest award, recognizes a former inductee for exceptional service. This year’s recipient is: Carol Gore, President/CEO, Cook Inlet Housing Authority. Before joining CIHA, Gore was VP of Cook Inlet Region where she managed a national and Alaska-based portfolio valued at more than $200 million. The Anchorage ATHENA Society will celebrate professional excellence, commitment to community, and the encouragement of leadership potential of women when the ten new members are inducted at the annual luncheon March 23 at the Dena’ina Center. Doors open at 11:30 am, the program begins at noon and will conclude no later than 1:30 pm. Trish Skoglund has been appointed vice president of sales and supply for Crowley Fuels LLC, one of Alaska’s leading petroleum transportation, distribution and sales companies serving more than 280 communities throughout the state. Skoglund, based in Anchorage, reports to Rick Meidel, vice president and general manager of Crowley Fuels Alaska. Skoglund has spent the last 12 years in the oil and gas industry in Alaska, and previously worked in the international trading industry. She earned a bachelor’s degree in business administration and marketing from Portland State University, and an MBA in global business from University of Portland. Skoglund holds a Project Management Professional certificate from the Project Management Institute, a global education and research association. Kristin DeSmith, who has served as communications director for the Municipality of Anchorage since 2017, will take on a new role as senior policy adviser in the mayor’s office. Carolyn Hall has been named the new communications director for the MOA, effective March 9. In her new role, DeSmith will focus on several policy areas, including domestic violence/sexual assault, higher education, and the arts. Hall has more than 15 years of experience in communications and marketing, most recently with the University of Alaska’s Office of University Relations, former Gov. Bill Walker, and the Municipality of Anchorage’s Office of the Municipal Clerk.

Interior files response to lawsuit challenging King Cove road land swap

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


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