By Rachel Kapochunas, CQ Staff

Alaska Republican Sen. Ted Stevens received no holiday respite from potential 2008 election problems, drawing his first primary challenger even as an investigation continued into whether he had received favors from a politically-connected state oil services company.

Republicans also face similar complications when it comes to the re-election bid of Republican at-large Rep. Don Young who also has been named in stories about Veco, which has had close ties to many Alaska politicians.

Wealthy real estate developer David Cuddy, who lost to Stevens in the 1996 GOP primary after spending more than $1 million in personal funds, publicly announced last week his plans for a rematch against the six-term senator.

Cuddy told CQ Politics that his drive to restore fiscal conservatism as well as combat widespread federal corruption prompted him to enter the race.

“There’s a growing awareness that we can’t keep spending ourselves to the extent we are,” Cuddy said Wednesday, speaking by phone from Anchorage. “We can’t continue doing business the way we’ve been doing business.”

Cuddy formerly served as a state representative for one term in the early 1980’s and is the current president and founder of Ranch Studios, a Texas film studio. Much of his wealth stemmed from a lucrative banking career. Cuddy said this is the first time he feels prepared to launch a rematch since losing his daughter in a 2001 drunk driving accident.

Democrats have expressed an eagerness to challenge the Stevens and Young, but the GOP has a strong track record in the state. CQ Politics rates the senate raceas Republican Favored and Young’s race as Leans Republican.

Cuddy is undeterred by Stevens’ standing in the GOP. He noted that the state’s electorate is highly independent and he hopes to capture the same “independent” supporters that catapulted Republican Gov. Sarah Palin to a win in 2006.

In that contest, the party establishment supported Republican Gov. Frank Murkowski’s re-election campaign, but Murkowski’s rocky and controversial tenure prompted voters to support Palin, who successfully defeated Murkowski in the Republican primary.

Cuddy said Palin’s win marked a “huge difference” in politics because she succeeded without “the good old boy crew.”

As far as campaign strategy and fundraising are concerned, Cuddy said those plans have yet to take shape because he believes Stevens could resign or retire before the Aug. 26 primary and the candidate fields for both parties have yet to take shape.

Stevens is an institution in Alaska politics. He was first appointed to the Senate in 1968 and won the seat in his own right in 1970. Stevens has earned a reputation for being a staunch advocate for Alaska and bringing home valuable federal dollars for his home state especially when he served as the powerful Appropriations Committee chairman.

But the investigation of Veco has clouded his upcoming bid for re-election.

A new story on the probe surfaced in the news Wednesday when the Seattle Timesreported that a project foreman believes Stevens misrepresented the total cost of a remodeling job on his home involving Veco-provided labor.

At issue is whether Veco may have covered renovation costs. Stevens’ home was raided by the FBI and the IRS in July 2007. A Veco employee revealed to the media in 2007 that he was paid to oversee the renovations. At the time of the raid, Stevens said he paid all the bills for his home renovation. He has declined to comment on the investigation until it has reached conclusion.

Bill Allen, the former chief executive of Veco Corp. and a longtime close associate of Stevens, pleaded guilty to bribing Alaska state lawmakers in May, and it was reported in September that the FBI taped phone conversations between Allen and Stevens. The corruption investigation has so far resulted in the conviction of three state lawmakers, two oil executives and a lobbyist.

The Veco scandal also has complicated Young’s 2008 re-election contest, which has drawn several Democratic candidates. But Stevens is viewed as a much more difficult candidate to challenge and his race has been slow to develop.

Cuddy said he will file paperwork with the Federal Election Commission in early January to establish his campaign, becoming the first major GOP candidate to enter the race.

Ray Metcalfe, founder of the Alaska Republican Moderate Party, is running for the Senate as a Democrat. Metcalfe has been an outspoken critic of government corruption and Stevens. In the 2006 House race, Metcalfe lost the Democratic nomination by 6 percentage points to unsuccessful candidate Diane Benson, who is waging a rematch to take on Young in 2008.

Anchorage Mayor Mark Begich is considering running for the Senate or the House and is regarded as a top-flight candidate by state and national Democrats for Stevens’ seat, but has kept strategists on the edge of their seats by waiting to announce his decision.

Several longshot candidates have filed with the Alaska Division of Elections to run for Senate including Democrat Rocky Caldero, a councilman in the small Aleutian city of Unalaska and Republican minister Gerald L. Heikes.