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Port of Alaska tariffs sting users
Petroleum and cement terminal tariffs enter 10-year run-up to recoup rebuilding costs; Muni Assembly attempts to assuage pain Steve Sutherlin Petroleum News
A spike in tariffs for petroleum and cement at the Port of Alaska began on schedule Jan. 1, as established by an Anchorage ordinance unanimously passed Dec. 17 with an amendment designed to establish a yearly tariff review and involve port users in the port process.
The unprecedented rate of increase will boost last year’s tariffs of 16.4 cents per barrel of fuel 4 to 5 cents each year, targeting 56.3 cents per barrel by 2029. Cement tariffs will reach $5.72 per ton in 2029, up from $1.67 per ton in 2019.
The rates are designed to partially fund construction of a new $200 million petroleum and cement terminal at the port. Users and the municipality agree that action is needed to shore up the aging infrastructure, but users continue to have concerns about the design, cost, and the process.
The amendment - which was added just prior to adoption of the ordinance - “requires annual reporting on the tariff revenues generated, user comments and response to rate increases in relation to and status of capital projects,” Assemblywoman Meg Zaletel said. “Particularly for me, this is important that we have an annual report, and that we’re thinking forward about how we’re going to finance the capital projects we know we’re looking to undertake through the Port of Alaska modernization program, and whether or not the tariff should adjust to include a plan toward saving toward those intended capital projects.”
Assemblyman Christopher Constant referenced a consultant’s report which recommended the assembly find ways to work more closely with the stakeholders in the port process.
“What we decided in this conversation was to A: allow the Port Commission annually in September an opportunity to review the revenues, grants and other funds that may have come in as a surprise - or kind of as anticipated but not previously calculated - to determine the question in November and December of ‘should we the assembly have the conversation of whether to actually tip down the tariff?’”
“We’re giving the users - through the commission - the opportunity to ensure that we aren’t just once in 10 years raising these tariffs and having a bunch of cash,” he said. “The idea is to give the users - though the Port Commission - a clearer voice.”
Secondly, Constant said, the amendment would “allow the users a section in the port’s annual report, which will be a very meaningful way of them participating in the conversation over the long term, in both direct, current ways, and in the historic record.”
Smoothing away rate shock The tariff hikes could have been worse. In February, the municipality presented an analysis to the Port Commission which said it would take as much as a 600% increase over 10 years to fund construction through higher tariffs alone.
Jim Jager, director of external affairs for the port, told Petroleum News in November that the port’s overall cost estimate has already factored in some degree of success in attracting grants, as well as an anticipation of favorable financing terms. The port landed a $25 million grant in November.
Rate consultant Bill Wilks of Parrish, Blessing, & Associates Inc. said in a Dec. 6 assembly work session that the rates would be ratcheted up slowly - in what he referred to as a smoothing process - to avoid rate shock.
Wilks said any rate scenario would have to meet five criteria.
Debt service coverage must be 1.3 or greater, cash operating reserves must be 90 days or greater, capital reserves must be sufficient for bond covenants, reserves must be set aside for one full year of principal and interest, and by 2029 rates must fully recover their cost.
Stakeholder concerns remain At the Dec. 6 work session Ryan Zins, vice president, Alaska Basic Industries Inc. said cement tariff increases are proving hard to pass on to customers.
“As far as the industry goes, we’re in a fourth year of a recession; it’s tough,” he said. “We sent out to customers rate increases for next year; we’re hearing it from everybody ... we have the national or Trump tariffs, we have carbon tax increases, we have bunker fuel increases, and we have some very concerned customers.”
Casey Sullivan, government and public affairs manager for Marathon Petroleum Corp. in Alaska, told Petroleum News in November that the port is moving forward at lightning speed, based on plans drawn without significant input from the people that are actually going to use the dock.
“That is a little bit of the crux of the issue, that we as the user group, and Marathon, to some degree, have had on the design aspect,” Sullivan said. “We want that port to be successful, but we also want to do it in a prudent fashion, both financially and construction wise.”
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