Port of Alaska - City and users clash over potential cement and petroleum tariffs

Port of Alaskas Petroleum and Cement Terminal (KTUU).

ANCHORAGE, Alaska (KTUU) - Businesses using the Port of Alaska (POA) are urging the Municipality of Anchorage (MOA) to slow down on a critical upgrade project.

MOA officials are debating how -- and when -- to move forward with upgrades to the Petroleum and Cement Terminal (PCT), as part of the multi-year Port of Alaska Modernization Program (PAMP). Port users met with the Anchorage Assembly and the Mayor’s Office to discuss the project at a joint session Friday.

"There's an overall lack of confidence of it being completed,” said Casey Sullivan, a spokesperson for Marathon Petroleum. “The project, as designed, in our opinion, is unaffordable."

The POA handles 80 percent of the state's cement cargo, and petroleum makes up just over half of all cargo volume, according to the Anchorage Economic Development Corporation. POA also brings in all fuel used at Joint Base Elmendorf Richardson, and about half of the fuel sold at Ted Stevens International Airport. This potentially means a lot of money in tariffs for companies using the port.

POA users like Marathon Petroleum could likely see tariff increases, specifically for petroleum and cement, to pay for upgrades to the PCT. Currently, the muni is awaiting word on a $100 million federal disaster application it filed with FEMA Jan. 2019. Much of the pre-approved funding for the project comes from state bonds dating as far back as 2012. POA users worry tariffs would fall hardest if the muni is unable to secure these funds.

“What happens if the funding takes years to be secured, or is never secured? What are we to do with this?" Sullivan asked.

There are five POA facilities that have functioned well beyond their planned service life -- in some cases nearly 60 years past due for repairs. PAMP is a large-scale reconstruction project that would replace POA’s aging infrastructure, making it more seismically resilient in case of another big earthquake, like the one on Nov. 30, 2018. It would also expand and deepen terminals currently too shallow to support modern cargo ships.

While PAMP is a full-scale upgrade to the POA, the municipality is taking things one step at a time – beginning with the $220 million PCT upgrade. The muni wants to award a $42 million construction bid to Pacific Pile and Marine to finish the first phase of the job in 2020.

Eight major companies utilizing the PCT wrote a formal letter to Mayor Ethan Berkowitz, asking him to put the project on hold because of potential tariff increases. These companies include Matson and Tote, Marathon Petroleum, Anchorage Fueling and Service Company, and more.

“The initiation of the PCT project without funding absolutely creates uncertainty for the port users and our customers," Sullivan said.

The PCT is well past due for upgrades, as demonstrated by the corrosion of steel pilings that support the dock.

The muni has used bandaid efforts called “pile enhancement jackets” -- pieces of metal that wrap around the corroded pile. They’re meant to last for 10 years before they need to be switched out. They're getting more and more expensive.

There are 1,400 total piles used to hold up the entire port. Of those 1,400, 668 have already been “jacketed.” Each jacket costs $32,000, and the muni estimates they use 50 – 100 per year. That’s between $1.6 - $3.2 million per year that could be put towards a long-term solution.

Many of these piles provide vertical stability, and absorb seismic and lateral motion -- like the motion that occurred during the Nov. 30 earthquake. According to Falsey’s report, pile enhancement jackets “do not bring piles back to original capacity and jackets on vertical piles do not provide significant seismic resilience.”

Between state grants, bonds, and port revenue, there’s close to $157 million of secured funding for the PCT project. The muni has already spent $96.2 million of that, with $60.7 million remaining. However, about $29.8 million of that comes from state grants and bonds issued in 2012 and 2013 – so that money is aging along with the infrastructure.

The assembly has many POA-related decisions to make; perhaps the most pressing is whether to heed the demands of POA users or award the contract bid. They technically have until Aug. 1 to make this decision, but will likely make it by their next regular meeting July 23, 2019.

By the time the PCT project is slated to finish in 2021, the municipality expects a $100 million funding shortfall. Falsey says in order to make up that shortfall, increased tariffs are unavoidable. That’s why POA users, including petroleum and cement freight companies like Marathon, are formally asking the muni to put all projects on hold until they’ve had a chance to minimize tariff increases.

Despite the unsettled perspective of POA users, Falsey laid out multiple alternative scenarios for the PCT project – all of which ended up costing more money and left greater risk for seismic events and corrosion.

To fund completion of the PCT and keep cement and petroleum tariffs at a minimum, the muni is proposing borrowing $200 million from the Alaska Industrial Development and Export Authority. This would be a 50-year loan, charging 0 percent interest for the first 15 years, and .25 percent for the remaining 35 years.

The muni would create a sinking fund to repay the loan as well as save for future replacement. Under this scenario, the muni would increase both cement and petroleum tariffs at flat rates of 3.57 percent annually, beginning in 2019. This would generate $2.5 million in tariff revenue, using port revenue and other means to finance the rest.

The muni says tariffs would drop about 97 percent -- nearly back to 2018 numbers -- after 2026.

Falsey says the muni is working to secure funding, and complete the project, without stalling shipments.

“Our goal is we have to find a way to continue to get the minimum volumes in; to do it reliably; to do it cheaply. The proposal we have in front of you now, I think is there," Falsey said, referring to the borrowing plan that would increase cement and petroleum tariffs.

Shortly after the earthquake, the municipality filed that application for federal assistance, asking for $100 million for FY2018 Pre-Disaster Mitigation for the PCT Project. They have also applied for $22 million in relief from FEMA’s Hazard Mitigation Grant Program, and $25 million in Department of Transportation BUILD grants. They expect to know whether or not they will have access to these funds by the end of 2019.

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