NSEDC extends board of directors' terms to four years
During the Norton Sound Economic Development Corporation’s fourth quarter board of directors meeting held in Nome last week, the board voted to extend the limits of their terms of office to four years, up from three years.
The motion came out of the Rules and Bylaws committee with the argument that the complexities of being a board member would be better served if the terms were longer. General counsel Katie Peterson summarized during the committee meeting that the board found that three years is inadequate for new members to learn the ropes. “Four years would allow for a learning curve and would allow directors to better fulfill their legal obligations to the company,” Peterson said.
Chief Operating Officer Tyler Rhodes explained in a follow up email that NSEDC has a complex organizational structure—dealing in both non-profit and for-profit realms, as well as nuanced fisheries regulations—that requires time to fully understand.
“Often at the three-year mark, board members have only recently gotten fully up to speed when their term ends,” Rhodes wrote in an email to the Nugget. “Extending to four years will allow for more effective representation while still providing adequate opportunity for turnover and new ideas through new representation.” The current three classes of directors will be maintained, meaning the same groups of communities will see elections at the same time. However, with the term lengths being extended, every fourth year, no NSEDC elections will take place.
The change is effective this year, with the communities of Gambell, Golovin, Koyuk, Stebbins and Wales electing their NSEDC representative in October 2017 for a term of 2017-2021. In 2018, Elim, St. Michael, Savoonga, Nome and Teller will elect their representative for a term from 2018-2022. In 2019, Brevig Mission, Diomede, Shaktoolik, Unalakleet and White Mountain vote for their director to serve from 2019-2023. In the year 2020, there will be no NSEDC election.
NJUS fuel interest reimbursement
During the finance committee meeting and the full board meeting, NSEDC directors discussed in which form to allow Nome Joint Utilities to benefit from NSEDC’s consolidated bulk fuel program. While NSEDC’s entire order is around 1.6 million gallons of fuel for all participants, capping it at 500,000 gallons per participant, Nome Joint Utilities usually orders 2.2 million gallons from its supplier and through a larger buying group. The 2.2 million gallons include 170,00 gallons for the Nome Public Schools district to bring down their cost of fuel. Explains NJUS manager John Handeland, “Every year we send the same request, to consider allowing us to participate under a modification of their regular fuel program, because Nome is a bigger community and we do not ‘fit’ within their regular program. We need more than 500,000 gallons and we also need to stay with the Western Alaska Fuel Group (utility buying group) to get best deal.”
NJUS proposed three options: 1. to have NSEDC finance NJUS’ whole fuel purchase while staying in the Western Alaska Fuel group; 2. to have NSEDC finance up to 500,000 gallons, which is the regular NSEDC program limit; or 3. to have NSEDC reimburse NJUS for their loan interest with an outside bank up to 3 percent for their entire fuel purchase. In 2015 and 2016, NSEDC went with option 3 and covered NJUS’ interest expenses. According to Handeland, in 2016 it was $73,000 and in 2015 it was $108,000.
During the finance committee meeting, the committee voted to put option 1 before the full board, which met the following day. Nome’s representative Pat Johanson presented the argument that if NSEDC is willing to pay interest on NJUS loan to purchase fuel, they may as well finance the entire NJUS fuel loan and keep the interest in house.
NSEDC CEO and President Janis Ivanoff cautioned that a full financing of Nome’s fuel purchase would be a significant outlay and that in the past, when Sitnasuak’s Bonanza Fuel participated in the program, it stretched NSEDC’s operational budget thin, which has resulted in capping the order limit to 500,000 gallons. NSEDC ended up having to borrow money and “ate the interest” as chairman Dan Harrelson said. Tyler Rhodes in a follow up email explained, “NSEDC paid approximately $50,000 in interest costs associated with a line of credit that was in part used to pay bulk fuel program purchases.” When the full board met the next day, Johanson again fought for option one, but was overruled and the board amended the motion to go with option 3, to reimburse NJUS’ interest up to three percent. Board member Dean Peterson was reluctant to go for option 1 because he was under the impression that the Nome consumer would have “no benefit from it.”
In a follow up email with John Handeland, he explained that both options indeed do help the rate payers. He wrote that “option 1 would to a greater extent because it would avoid an additional $20,000 plus in legal and associated financing costs. Every place we can trim is a benefit.”
He added that as other expenses increase, NJUS looks at places to decrease to keep things flat, and this could be one of them.
In the end, the board voted for option 3, reimbursing NJUS for its loan interest up to three percent.
In other business
• The board heard a financial update. Preliminary numbers as of December 31, list net assets of $220.3 million, an increase from 2015 which ended with $206 million. Rhodes cautioned that this number will change as NSEDC receives more information from various industry partners in regard to fourth quarter performance as well as tax data from 2016. “The main drivers in the increase are increases in royalties and investment portfolio income, as well fluctuations in grant disbursements year-to-year,” he said.
NSEDC’s Treasurer and CFO Rick Walicki said that investment income was $5.3 million. Cash and cash equivalents were $12.4 million. Long-term debt is $32.1 million, including the current portion of $3.65 million.
• Crab revenue for the fishing vessels Aleutian 1 and Patricia Lee increased from $14 million to $17 million, with increases seen for all species. Separate from the two vessels, NSEDC also saw increased royalties through a direct marketing campaign for golden king crab. NSEDC is now directly selling the crab to buyers in Seattle, versus receiving a royalty from a harvester who then sells the catch on their own. “This approach requires a much greater upfront investment, both financially and in staffing,” said Rhodes. “However, directly selling the product can potentially result in greater revenues, as it did this time.”
• The board voted to increase NSEDC’s optional annual contribution to employee 401(k) retirement plans. For the past several years, the board has elected to contribute a “profit sharing” amount equal to 4 percent of each participating employee’s salary toward their retirement plans. Previously that amount had been approved at three percent.
• Dutch Harbor Acquisitions is no longer in operation and its assets have been sold. Siu Alaska Corporation’s longline vessel Glacier Bay, associated cod fishing rights in the Bering Sea and the Aleutian Islands, is for sale for $2.2 million.