Legislature(2011 - 2012)BARNES 124

03/05/2012 01:00 PM RESOURCES


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01:06:32 PM Start
01:06:54 PM HB361
02:50:35 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 361 DISPOSALS OF STATE RESOURCES TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
         HB 361-DISPOSALS OF STATE RESOURCES/ROYALTIES                                                                      
1:06:54 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  announced that the  only order of  business would                                                               
be HOUSE BILL  NO. 361, "An Act relating to  the Alaska Land Act,                                                               
including certain lease,  sale, and other disposal  of state land                                                               
and  materials; relating  to  production  royalties from  miners;                                                               
relating  to rights  to use  state  water; and  providing for  an                                                               
effective date."                                                                                                                
                                                                                                                                
1:07:11 PM                                                                                                                    
                                                                                                                                
DAN  SULLIVAN,  Commissioner,  Department of  Natural  Resources,                                                               
explained that  HB 361  is one  part of  the process  for dealing                                                               
with  the issue  of broad  permitting reform  across a  number of                                                               
fronts critical  to the  state.   The administration's  effort on                                                               
permitting reform has strong bipartisan  support; the bill is the                                                               
beginning of  a process  and the administration  is open  to more                                                               
ideas.   Over the last  year the Department of  Natural Resources                                                               
(DNR) has  travelled the state  asking for and  encouraging input                                                               
on permitting reform.                                                                                                           
                                                                                                                                
1:09:42 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  SULLIVAN said  the department  has focused  on five                                                               
different areas with  regard to permitting reform.   The focus of                                                               
HB 361 is  to improve the agency's  internal permitting structure                                                               
so that it  is efficient, timely, and certain,  which will reduce                                                               
the backlog.   The department is working  to enhance coordination                                                               
within different  state departments  and with  different entities                                                               
and stakeholders throughout  the state.  The  department has also                                                               
sought  input  from  the public  about  the  permitting  process,                                                               
including  input from  localities, municipalities,  industry, and                                                               
non-governmental organizations.   The  department has  held eight                                                               
meetings throughout the  state with different groups  to get good                                                               
ideas, some of  which are reflected in HB 361.   Another focus is                                                               
improving  coordination  between  state  and  federal  government                                                               
because  even on  state lands  federal permitting  issues have  a                                                               
strong nexus  to what the state  is trying to do.   Additionally,                                                               
there has been focus on  anticipating and planning for permitting                                                               
in the  next phases  of resource development  that the  state has                                                               
yet to see, one example of this being the shale oil task force.                                                                 
                                                                                                                                
1:12:21 PM                                                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN  shared that  the department  is part  of a                                                               
national effort,  with Alaska in  many ways leading  efforts that                                                               
others are joining  for addressing the problem  of getting large-                                                               
and small-scale  resource development  projects done in  a timely                                                               
manner.    The  large  network   of  complex  federal  and  state                                                               
regulatory systems  almost ensures  the delay of  any significant                                                               
projects.   The department's own  backlog of 2,500 permits  is an                                                               
example  and  it is  not  helping  the  state's economic  or  job                                                               
prospects.   Other  examples are  the Kensington  Gold Mine,  the                                                               
Shell  Oil  exploration  wells,  and timber  sales.    Broad  bi-                                                               
partisan  consensus has  emerged across  the U.S.  that this  big                                                               
problem  needs  to  be  tackled.   For  example,  last  week  The                                                             
Economist  carried   a  cover  story   entitled,  "Over-Regulated                                                             
America".   Former  president Bill  Clinton wrote  an article  in                                                               
Newsweek  this  past  fall  where  he mentioned  that  a  way  to                                                             
jumpstart  the economy  is to  make the  approval and  regulatory                                                               
process  faster  and more  efficient.    In today's  Wall  Street                                                             
Journal the  governor of Massachusetts  is making the  cutting of                                                             
red tape a huge focus of  his state government efforts.  Governor                                                               
Brown  of  California  has  put  out  the  "permittee's  bill  of                                                               
rights".                                                                                                                        
                                                                                                                                
1:15:25 PM                                                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN  posited that the federal  government has a                                                               
schizophrenic  approach.   President  Obama  issued an  executive                                                               
order  to make  energy development  more efficient,  yet agencies                                                               
like the  National Marine Fisheries  Service did not seem  to get                                                               
that  memorandum, so  last week  the state  sent comments  to the                                                               
agency.   Consensus is  building on  the recognition  that overly                                                               
burdensome regulations,  or regulations that served  a purpose 20                                                               
years  ago, are  strangling economic  opportunity and  inhibiting                                                               
job growth across the U.S., which is also the case in Alaska.                                                                   
                                                                                                                                
1:17:06 PM                                                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN said that while  DNR thinks it important to                                                               
focus on  efficiency, timeliness,  and certainty,  the department                                                               
does not want to cut corners.   The state has some of the highest                                                               
standards for  environmental protection  and stewardship  and the                                                               
department wants to keep them.  He said  HB 361 is one piece of a                                                               
multi-pronged  approach  that  the department  looks  forward  to                                                               
discussing with the committee.                                                                                                  
                                                                                                                                
1:19:42 PM                                                                                                                    
                                                                                                                                
WYN  MENEFEE, Chief  of Operations,  Central Office,  Division of                                                               
Mining, Land  and Water, Department  of Natural  Resources (DNR),                                                               
drew attention  to the  briefing paper  in the  committee packets                                                               
outlining the objectives  that HB 361 would accomplish.   He said                                                               
DNR's  focus in  this first  round is  to find  things that  will                                                               
increase  certainty,  timeliness,  and  efficiency,  as  well  as                                                               
litigation-proofing certain aspects of the state's statutes.                                                                    
                                                                                                                                
MR. MENEFEE discussed the first  objective of HB 361, which would                                                               
give  the department  more flexibility  to use  negotiated leases                                                               
when  possible, rather  than  a competitive  bid  process.   This                                                               
would not throw away the bid  process, but would allow the use of                                                               
a  shorter, less  exhaustive  process for  those  times when  the                                                               
department  has determined  that  there is  no  competition.   He                                                               
explained that in the competitive  bid process of an auction, the                                                               
department must prepare an auction  brochure and go through extra                                                               
steps,  which increases  time and  cost to  the applicant.   This                                                               
provision  would raise  the monetary  caps  on negotiated  leases                                                               
[from  $5,000  to   $10,000],  which  would  allow   a  few  more                                                               
negotiated  leases to  come under  negotiation.   The  department                                                               
would still  have to do a  final decision and public  notice, but                                                               
the auction procedure  would not have to be set  up and the lease                                                               
amount for the tract could instead be negotiated.                                                                               
                                                                                                                                
1:21:57 PM                                                                                                                    
                                                                                                                                
MR. MENEFEE,  in response  to Co-Chair  Seaton, pointed  out that                                                               
the most  current briefing paper  is dated 3/5/12 [as  opposed to                                                               
2/29/12].  He related that  the department had discussed going up                                                               
to 15 years [for the maximum  time period of a negotiated lease],                                                               
but then  decided to leave  it at 10  years.  He  further pointed                                                               
out that this provision applies only  to land leases, not oil and                                                               
gas leases.                                                                                                                     
                                                                                                                                
1:23:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  appreciated this, saying  it has been  a problem                                                               
for people having  to go with a permit for  leases because people                                                               
can make significant expenditures,  such as building fences, only                                                               
to  have the  land taken  away  with 30-days-notice  at any  time                                                               
during that  five-year permit.   However,  a difficulty  with the                                                               
permit is  that there is no  public notice.  He  inquired how the                                                               
department will  ensure before  it does  a negotiated  lease that                                                               
there has been public notice and  that there is not more than one                                                               
interested applicant.                                                                                                           
                                                                                                                                
MR. MENEFEE replied  that when the department does  a disposal of                                                               
interest  it must  follow  the requirement  in  AS 38.05.945  for                                                               
public noticing  of the decision,  and this would still  apply to                                                               
the  proposed shorter  process.   The  department  must tell  the                                                               
public that it is going  through this decision process by posting                                                               
on its  web site and by  posting locally.  The  difference in how                                                               
this would  be done is  that instead  of noticing and  then going                                                               
through the process of preparing  an auction for competitive bid,                                                               
the department  would in that first  notice state that it  has an                                                               
application for a certain activity  for a certain number of years                                                               
and that  the department is  going through a decision  process on                                                               
this lease  application.   The notice will  ask that  anyone else                                                               
interested in this  particular parcel of land  let the department                                                               
know  by  a  specified  date.    If  there  is  a  response,  the                                                               
department would then go through  an auction procedure.  If there                                                               
is  no  response,   the  department  would  then   go  to  direct                                                               
negotiation with the applicant, which would save time.                                                                          
                                                                                                                                
1:25:42 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  maintained that notice  on the web site  has not                                                               
taken  place  for permitting,  which  has  been  a problem.    He                                                               
surmised that  a lease would  require notice be given  versus the                                                               
temporary use permit.   He understood the  negotiated lease would                                                               
be limited to 10 years, not 30 years.                                                                                           
                                                                                                                                
MR. MENEFEE responded  it is broken up into two  parts.  One part                                                               
is that  for directly  negotiated it  is the  10-year limitation.                                                               
However, if  there is  no response  of competitive  interest from                                                               
the public notice,  then the lease can be for  a longer term than                                                               
10 years.                                                                                                                       
                                                                                                                                
1:26:46 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON understood  Mr. Menefee  to be  saying that  the                                                               
department would not go out for  public notice if it is a 10-year                                                               
lease, it would  simply be a negotiated lease.   But if the lease                                                               
is for  a longer  term, then  the department  would go  through a                                                               
competitive notice  process.   He expressed  his concern  about a                                                               
process that gives  the department authority to  do a competitive                                                               
lease and then notify the public that it did this.                                                                              
                                                                                                                                
MR. MENEFEE answered  that the requirements for what  DNR must do                                                               
for a  disposal of interest  are in one  part of statute  that is                                                               
not  addressed  in HB  361,  so  those  would  not change.    The                                                               
department would still  have to notify the public for  30 days on                                                               
both negotiated and competitive  processes.  The department would                                                               
still  have to  go through  a  formal best  interest finding  for                                                               
either  process,  which  is  required  by law.    The  only  real                                                               
difference is the time saver  and an additional notice that saves                                                               
about 30 days by not having  to produce an auction brochure for a                                                               
competitive sale when there is no interest.                                                                                     
                                                                                                                                
1:28:02 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  SULLIVAN interjected  that  the  notice issues  are                                                               
still there.   The only change  would be that if  after notifying                                                               
the department learns  no one is interested,  a competitive lease                                                               
sale would not  be useful because there is no  competition.  That                                                               
is where this change would come in.                                                                                             
                                                                                                                                
MR. MENEFEE  added that  that would  shave off  about 30  days of                                                               
time and money  because the applicant must pay  for public notice                                                               
and a brochure  must be prepared in an auction  procedure.  Three                                                               
different things  would not occur  if after noticing it  is found                                                               
that no  one else but the  applicant is interested.   There would                                                               
still be  the public notice  and the best interest  decision, but                                                               
it would shave time.                                                                                                            
                                                                                                                                
1:29:01 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON asked what is  being gained because it seems like                                                               
the  two  processes are  exactly  the  same  if  no one  else  is                                                               
interested -  one process  being that the  department could  do a                                                               
longer  term lease  for a  10-year  negotiated sale  that has  no                                                               
competitive interest and the other  process being a $10,000 limit                                                               
negotiated lease.                                                                                                               
                                                                                                                                
MR.  MENEFEE  responded  HB  361 would  provide  that  the  short                                                               
process could automatically  be done for a  negotiated lease that                                                               
is under  the proposed  cap of  $10,000 and  less than  10 years,                                                               
which would mean not doing  an auction, not preparing a brochure,                                                               
and  not soliciting  further competition.   The  public would  be                                                               
notified about  it, but  it would not  be done  competitively and                                                               
the department  could go  direct.   The statutes  already provide                                                               
that the  department can go  direct as  long as it  is underneath                                                               
the  current cap  of $5,000  and under  10 years;  the public  is                                                               
noticed that this is happening,  but competition is not solicited                                                               
for it.   For example, under HB 361 an  application for a 30-year                                                               
lease  worth  $20,000  would  require  that  the  department  ask                                                               
whether anyone  else wants  to do  this at  this location  or use                                                               
this land  for something else.   If someone does come  back, then                                                               
the department would do a  full auction procedure and competitive                                                               
process and the highest bidder would  get it.  In the event there                                                               
is no  interest, the department  would do the longer  term lease,                                                               
but  it would  not  have  to go  through  the auction  procedure.                                                               
Conducting an  auction procedure when  no one else  is interested                                                               
spends a lot of time and money for no gain.                                                                                     
                                                                                                                                
COMMISSIONER  SULLIVAN pointed  out that  the threshold  issue is                                                               
competition.  If  there is a solicitation and  there is interest,                                                               
the department will then do what  is in the interest of the state                                                               
which  is to  have competitive  bidding to  get the  highest bid.                                                               
Currently, however,  even if  there is  no competition,  DNR must                                                               
still  go  through  the  process   of  competitive  bidding  with                                                               
brochures and  so forth even  though it  is only for  one entity,                                                               
which is  a waste of  both the  state's and the  applicant's time                                                               
and money.                                                                                                                      
                                                                                                                                
1:32:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI,  saying his  question could  be answered                                                               
at a  later time, inquired how  many leases would be  affected by                                                               
the proposed change of raising the cap from $5,000 to $10,000.                                                                  
                                                                                                                                
1:33:16 PM                                                                                                                    
                                                                                                                                
MR. MENEFEE  addressed Co-Chair Seaton's  question about  what HB                                                               
361  would do  in  regard to  public notice  on  permitting.   He                                                               
explained  that   permitting  fits  under  another   statute,  AS                                                               
38.05.850,  and that  under current  statute there  is no  public                                                               
notice requirement  for permitting, although DNR  does put public                                                               
notice out on most of its  permits.  However, certain permits are                                                               
"immediate  fast turnaround  permits,"  such  as DNR's  over-the-                                                               
counter  permit for  harvesting non-timber  forest products  like                                                               
mushrooms.   That is a  land use permit and  DNR does not  go out                                                               
with public  notice because it  has already told people  it would                                                               
do an over  the counter in advance.  So,  while there are certain                                                               
instances  where  the  department  does  not  do  further  public                                                               
notice, it  does use its web  site and does post  most everything                                                               
there.    In emergency  instances  such  as  a plane  crash,  the                                                               
department has  the flexibility  to immediately  authorize rescue                                                               
people to  cross state land  with heavy  equipment to get  to the                                                               
site, in  which case  there is  no public  notice.   However, DNR                                                               
may,  after the  fact, notify  the public  that it  did authorize                                                               
this.   He  clarified  that the  difference  between leasing  and                                                               
permits is that  leasing is a disposal of interest  for which the                                                               
legislature  has  mandated under  statute  that  there be  public                                                               
notice.    Nothing  is  said   about  permits  because  they  are                                                               
revocable at  will and are  of a shorter  term of less  than five                                                               
years, although DNR has done public notice on permits anyway.                                                                   
                                                                                                                                
1:35:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER asked  whether the  terms and  the amount                                                               
are  public  record  for  those leases  that  come  to  fruition,                                                               
whether negotiated or through auction.                                                                                          
                                                                                                                                
MR. MENEFEE  replied yes, anything  DNR does as  an authorization                                                               
is  a public  record  and anyone  can get  the  actual permit  or                                                               
lease.  That is important  because the department's decisions are                                                               
appealable and  a person wishing  to determine whether he  or she                                                               
agrees or disagrees with DNR's decision  must be able to see what                                                               
the stipulation and terms are.                                                                                                  
                                                                                                                                
1:35:42 PM                                                                                                                    
                                                                                                                                
MR. MENEFEE  returned to his  briefing on the  bill's provisions,                                                               
noting that  the second objective or  efficiency of HB 361  is to                                                               
allow the department  discretion in renewing land  leases in good                                                               
standing.   The department would have  the option - it  would not                                                               
be mandated  - to decide  whether it is the  right thing to  do a                                                               
renewal in  those cases where  the person  has met all  terms and                                                               
conditions, made  all the payments,  and did what was  said would                                                               
be done.   A  decision and  public notice  for the  renewal would                                                               
still be  required by law, but  the department would not  have to                                                               
go  through  a competitive  process  to  extend  the lease.    He                                                               
recalled a  question brought up  in an earlier  committee meeting                                                               
about whether  DNR has requirements  that people build  what they                                                               
say they are going  to build.  Some of DNR's  older leases do not                                                               
have such a provision,  but now when DNR goes out  for a lease it                                                               
has  a provision.   For  example, one  provision is  that if  the                                                               
lessee does  not use the  lease within two  years in the  way the                                                               
lessee said it would be used,  DNR can cancel the lease.  Another                                                               
provision is  that to get a  final lease the lessee  must provide                                                               
DNR with  a survey  after any  proposed buildings  are built.   A                                                               
timeline for this is included in  the lease and penalties will be                                                               
applied  if   this  is  not   done  according  to   the  lessee's                                                               
development plan.                                                                                                               
                                                                                                                                
COMMISSIONER  SULLIVAN  added  that,   in  that  way,  these  are                                                               
analogous to  oil and gas leases,  but said these changes  do not                                                               
apply to oil and gas leases.                                                                                                    
                                                                                                                                
1:37:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON requested Mr. Menefee  to provide a list of these                                                               
types of leases and asked whether  this would apply to all leases                                                               
except oil and gas.                                                                                                             
                                                                                                                                
MR.  MENEFEE replied  that the  provision  would not  be for  all                                                               
leases.   Not included  would be  anything with  forestry because                                                               
that is done under different statutes.   Oil and gas would not be                                                               
included.   A separate section  deals with mining leases.   Also,                                                               
in  the  way  stated  in  the  bill,  aquaculture  would  not  be                                                               
included.  Included  would be upland leases  and tideland leases,                                                               
such  as docks.    In  further response  to  Co-Chair Seaton,  he                                                               
agreed to provide a  list of what is included and  a list of what                                                               
is not included.                                                                                                                
                                                                                                                                
1:39:04 PM                                                                                                                    
                                                                                                                                
MR. MENEFEE moved  to the third objective of HB  361, which would                                                               
be  to separate  statutes that  have been  confusing to  both the                                                               
public and to department staff.   Timber sales and material sales                                                               
are currently mixed together in  one pot, although procedures for                                                               
each  of these  are  different.   Under HB  361,  there would  be                                                               
separate statutes  for timber and separate  statutes for material                                                               
sales.   The  bill would  also make  things more  expeditious for                                                               
material  sales  by  including provisions  for  the  renewing  of                                                               
leases   and   direct   negotiation  on   material   sales   when                                                               
solicitation  shows there  is no  competitive interest.   Another                                                               
issue is that,  currently, when DNR sells  multiple contracts out                                                               
of the same materials site,  it does individual decisions on each                                                               
one of those  contracts.  Since the public has  already been told                                                               
that gravel will be taken out of  such a site, HB 361 would allow                                                               
for just one decision for that  site.  Additionally, HB 361 has a                                                               
special  purposes  provision  on  material  sales;  for  example,                                                               
people wanting to take material out  of a river for flood control                                                               
where that material is actually  contributing to the flooding and                                                               
causing  the state  to have  to  do emergency  response and  road                                                               
repair.   This provision  would allow  for getting  that material                                                               
out at  a price less  than fair market  value and would  apply to                                                               
communities,  individuals,  and   commercial  entities;  a  prime                                                               
example of this issue is Seward.                                                                                                
                                                                                                                                
1:41:24 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  noted that [HB  89] is currently in  the Senate,                                                               
which looks at  this same issue and would  specifically require a                                                               
minimum of  12.5 percent of net  profits.  He did  not think that                                                               
DNR currently has  the authority to go to a  net profit valuation                                                               
versus the sale by  quantity.  He said he is  unsure how broad an                                                               
authority  is being  asked for  under HB  361, such  as providing                                                               
that the material can be sold  at less than fair market value and                                                               
having the  industry know what  the net  profit basis is  when it                                                               
comes to  the department.   He expressed his concern  that apples                                                               
and oranges  are being mixed  and that  the impetus will  be lost                                                               
for getting  bedload material available  for removal at  the 12.5                                                               
percent net profit royalty.   He requested Mr. Menefee to comment                                                               
on  the definition  of less  than  fair market  value because  he                                                               
fears there will not be  a definition until someone negotiates it                                                               
with the department.   He further noted that there  were a lot of                                                               
questions from DNR and the  Department of Transportation & Public                                                               
Facilities (DOTPF)  about wanting engineering studies  to prevent                                                               
the undercutting of bridges and so forth.                                                                                       
                                                                                                                                
1:43:37 PM                                                                                                                    
                                                                                                                                
MR. MENEFEE responded  that DNR does not see the  12.5 percent in                                                               
HB 89  as conflicting with this  provision in HB 361  because the                                                               
provision  in  HB  89  would  be a  more  specific  statute  that                                                               
specifically says what  is to be done  for commercial operations.                                                               
When there  is a  more specific statute,  that statute  will rule                                                               
the  day.   So, even  if HB  361 provides  for below  fair market                                                               
value, DNR  would go with the  more specific statute if  there is                                                               
one.  He added that HB 361 would  cover the fringes of what HB 89                                                               
does not  cover.   For example,  HB 89  could not  be used  if an                                                               
individual came  to DNR wanting  to take out material  that would                                                               
not be sold  and a net profit could not  therefore be calculated,                                                               
but HB  361 would give the  department the ability to  do that at                                                               
less than  fair market value  if the  department deems it  in the                                                               
best interest  of the state.   The department would go  through a                                                               
decision process  and would look  to regulations to  provide some                                                               
guidance.                                                                                                                       
                                                                                                                                
1:45:25 PM                                                                                                                    
                                                                                                                                
MR. MENEFEE read  the provision in HB 361 [page  11, lines 26-31]                                                               
regarding the  disposal of  materials under  AS 38.05.872:   "The                                                               
commissioner may convey materials at  less than fair market value                                                               
to  municipalities, other  state and  federal agencies,  or other                                                               
entities, and make  other arrangements for land  and materials as                                                               
mitigation of  a flooding area  where excess  material deposition                                                               
significantly  contributes to  the  flooding,  consistent with  a                                                               
site-specific flood mitigation plan  approved by the commissioner                                                               
and determined  to be in the  best interests of the  public."  He                                                               
said the  department would  have to  write regulations  that back                                                               
that  up and  in  those  regulations for  a  site specific  flood                                                               
mitigation plan, the  department would want to  ensure that there                                                               
is  proof  that  the  materials   being  deposited  are  actually                                                               
contributing to the  flood damage.  The  department would further                                                               
look at the engineering aspect  to ensure that such removal would                                                               
not result  in the washing out  of a downstream bridge.   With an                                                               
approved  site-specific  mitigation  plan, any  subsequent  sales                                                               
that  abide  with that  plan  would  be  covered.   He  therefore                                                               
thought that  HB 361 would  capture Co-Chair  Seaton's intention,                                                               
which is to  ensure that it is sound engineering-wise  and in the                                                               
public  interest;  additionally,  it  would  cover  noncommercial                                                               
takes of the material by a community or an individual.                                                                          
                                                                                                                                
1:46:52 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON pointed  out that the current price  on the Kenai                                                               
Peninsula is  $3.25 a  [cubic] yard, but  for a  municipality the                                                               
price  is $.50  a [cubic]  yard.   Also, adjacent  landowners can                                                               
take out  gravel and store it  on their land without  charge.  He                                                               
inquired whether  a different statutory  basis is needed  to keep                                                               
doing this.                                                                                                                     
                                                                                                                                
MR. MENEFEE clarified that if  DNR issues a public and charitable                                                               
material sale under  the current statute of AS  38.05.810, and it                                                               
is at less  than fair market value, DNR can  under regulation use                                                               
the rate  of $.50  per cubic yard.   So, it  is correct  that any                                                               
municipality going  through the  process of  getting a  permit in                                                               
place for a  material sale can do that.   However, a municipality                                                               
or  borough does  not want  to be  saddled with  that cost  if an                                                               
individual wants  to take it  out and,  secondly, it must  be for                                                               
public  purposes.    Taking  out   material  and  putting  it  on                                                               
someone's  driveway becomes  a beneficial  use  and therefore  it                                                               
does not fit under that statute;  thus, DNR would have to issue a                                                               
material  sale  directly  with that  individual  and  charge  the                                                               
higher rate  because it  would be  used for  beneficial purposes.                                                               
If  it is  going to  benefit the  public in  another way,  DNR is                                                               
trying  to clarify  that it  can do  that through  a fair  market                                                               
value.  The  department sees that this can happen  in other areas                                                               
of the  state besides  Seward, so the  department is  looking for                                                               
clarity that  it can go at  less than fair market  value when the                                                               
department's  decision process  shows  that it  will benefit  the                                                               
public.                                                                                                                         
                                                                                                                                
1:49:18 PM                                                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN noted  that the issues in HB  361 are quite                                                               
specific due to  the department having great  public servants who                                                               
are  experts in  the  work they  perform and  who  are also  very                                                               
focused on what is required by  statute.  So, while something may                                                               
seem  to be  a small  specific issue,  personnel are  looking for                                                               
ways  that, from  their experience,  will make  the process  more                                                               
effective  to save  the  state money  and to  save  time for  the                                                               
applicants,  while also  keeping  in mind  the state's  interest.                                                               
Although  the  changes  in  HB   361  are  small,  when  each  is                                                               
aggregated  in terms  of efficiency  and  time it  results in  an                                                               
overall macro-savings to  the state.  He welcomed  any ideas from                                                               
committee members about HB 361.                                                                                                 
                                                                                                                                
CO-CHAIR SEATON  assured the commissioner  and DNR staff  that he                                                               
is not opposed to these issues.                                                                                                 
                                                                                                                                
1:51:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER understood that  under HB 361 any decision                                                               
granting a  waiver or allowing  something to be  done differently                                                               
will have  been determined  to be  in the  public interest.   The                                                               
rationale for  that decision  making will be  part of  the public                                                               
record for  people to review  so that someone who  disagrees will                                                               
have  access to  the information  and the  decision will  be well                                                               
founded.                                                                                                                        
                                                                                                                                
COMMISSIONER SULLIVAN concurred that this is correct.                                                                           
                                                                                                                                
1:52:22 PM                                                                                                                    
                                                                                                                                
MR.  MENEFEE  returned to  his  briefing,  moving to  the  fourth                                                               
objective of  HB 361 regarding  temporary water use permits.   He                                                               
explained  that a  temporary  water use  authorization  is not  a                                                               
permanent water  right; it is a  temporary water use that  can be                                                               
revoked or changed if something  is amiss.  Under temporary water                                                               
use  authorization, the  department has  some projects  that last                                                               
longer than five years, such  as exploration, North Slope oil and                                                               
gas projects,  and ice roads.   When  someone has been  using the                                                               
same site and  same volume, having the department  go through the                                                               
same permitting  procedure again for  that applicant is  a longer                                                               
process than  is needed.   This provision would shave  some time,                                                               
but  environmental  review  would   still  be  required  and  the                                                               
applicant would  need to  be in good  standing, meaning  that the                                                               
applicant must have  abided by all the stipulations  and terms of                                                               
the permit.                                                                                                                     
                                                                                                                                
CO-CHAIR  SEATON  understood  that   while  temporary  water  use                                                               
permits could  be reissued it would  not mean that they  become a                                                               
permanent  fixture  of  automatic reallocation.    Competing  use                                                               
objections could be raised and the water reallocated.                                                                           
                                                                                                                                
MR. MENEFEE confirmed this would be  the case.  He said that when                                                               
considering the  renewal of a temporary  water use authorization,                                                               
the department  would look  to see whether  there is  a competing                                                               
interest.   If there is,  and the original company  or individual                                                               
is not fully  utilizing that water and there is  room for another                                                               
user, the  department would make  that decision.   Considerations                                                               
would be on a case-by-case basis.                                                                                               
                                                                                                                                
1:54:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON asked whether  this exact situation took                                                               
place in Sitka.                                                                                                                 
                                                                                                                                
MR. MENEFEE replied he is  not familiar with the Sitka situation,                                                               
but said that it very well might be.                                                                                            
                                                                                                                                
REPRESENTATIVE P.  WILSON related that someone  [in Sitka] wanted                                                               
to renew  a water permit,  but because DNR believed  that someone                                                               
else could use  some of the water not being  used, the renewal is                                                               
still being looked at.                                                                                                          
                                                                                                                                
MR. MENEFEE  responded that  this is  not limited  to one  or two                                                               
cases; it has happened in many places around the state.                                                                         
                                                                                                                                
COMMISSIONER SULLIVAN added  that this issue came up  a number of                                                               
times during the department's hearing process across the state.                                                                 
                                                                                                                                
1:55:50 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  expressed  his concern  about  the  application                                                               
being submitted at  the five-year mark.  Although  this would not                                                               
apply to mariculture leases, he  noted that the permit period for                                                               
such leases  is 10 years,  but the renewal application  cannot be                                                               
submitted before  the end of those  10 years.  If  the department                                                               
is backlogged and cannot address  the renewal, the operation of a                                                               
commercial lessee is  therefore stopped.  He  asked whether there                                                               
is anything in  HB 361 that would allow all  leases to be applied                                                               
for before the  end of the lease period to  prevent a time crunch                                                               
and regulatory bind.                                                                                                            
                                                                                                                                
MR. MENEFEE  answered that under  the land leases there  would be                                                               
no problem with someone applying  in advance; DNR would encourage                                                               
them to come  in before the lease expires.   The department would                                                               
send them  a letter before the  end of the lease,  as it normally                                                               
does, asking whether the lessee  wishes to do this further, which                                                               
would give  the department  enough time  so no  one is  out there                                                               
unauthorized.   The department wants  to give itself  enough time                                                               
to process  the paperwork to get  the permit in place  before the                                                               
other one expires.  The five-year  mark is to let the lessee know                                                               
that the maximum temporary water  use authorization is five years                                                               
and  as  this  is  approaching  it is  the  appropriate  time  to                                                               
reapply.   It would be  fine if  it was done  at four and  a half                                                               
years, the point  is that it needs to be  done before it expires.                                                               
For  temporary water  use authorizations  the typical  processing                                                               
time is a maximum of about  two to four weeks, although sometimes                                                               
it takes  longer if the  department knows the applicant  does not                                                               
need  the authorization  for  a while.   Because  it  is a  short                                                               
turnaround  time for  temporary water  use authorizations,  it is                                                               
unusual when  the department cannot  get an authorization  out in                                                               
time.   While there is  a backlog for  many things, this  area is                                                               
not one  of them, so  it is unlikely  that someone would  have to                                                               
stop  their  construction  to  wait   for  reauthorization  of  a                                                               
temporary water use permit.                                                                                                     
                                                                                                                                
COMMISSIONER SULLIVAN  interjected that  this is  still something                                                               
DNR is trying  to address and the scenario  described by Co-Chair                                                               
Seaton is something the department does not want to have happen.                                                                
                                                                                                                                
1:59:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON understood  that specific  legislation is  being                                                               
considered to  get around the  mariculture land title  lease, but                                                               
said doing this  would still not be allowed until  the end of the                                                               
term.   He said he  would appreciate the department  looking into                                                               
whether a  statutory provision  needs to be  changed so  that the                                                               
renewal could be done within a year of the end of the term.                                                                     
                                                                                                                                
COMMISSIONER SULLIVAN allowed the  co-chair has made this request                                                               
this before and apologized for  the department not addressing it.                                                               
He said the department will  look at the statutory provision that                                                               
applies to this issue.                                                                                                          
                                                                                                                                
MR. MENEFEE  agreed this  is something  for which  the department                                                               
can find  the right  language to.   He  said the  department will                                                               
look at this  to figure out a  way in which it is  clear that the                                                               
department does not  have to wait until the end  [of the lease to                                                               
renew a permit].                                                                                                                
                                                                                                                                
2:00:35 PM                                                                                                                    
                                                                                                                                
MR. MENEFEE turned to the fifth  objective of HB 361, which would                                                               
provide "litigation  proofing".   He related that  the Department                                                               
of Law  found that  some statutes  are not  in full  agreement or                                                               
have added  to confusion, which  could potentially put  the state                                                               
at  risk  for litigation  and  delay  projects.   The  department                                                               
realized it  needed to  clarify all the  statutes that  deal with                                                               
public  auction and  sealed bids,  and this  provision of  HB 361                                                               
would bring them  into consistency.  Sections 1-4 and  7-9 of the                                                               
bill all  deal with the  same thing  and would make  the statutes                                                               
consistent so that they are legally sound.                                                                                      
                                                                                                                                
2:01:23 PM                                                                                                                    
                                                                                                                                
MR. MENEFEE  discussed the  sixth objective  of HB  361 regarding                                                               
public notice  requirements.   He said  this provision  would not                                                               
change a  huge amount  of what  DNR does,  but the  department is                                                               
trying to transition  into putting an emphasis  on the electronic                                                               
posting of  public notices on  the state public notice  web site.                                                               
People would know that this is the  place to go to find out about                                                               
all  of the  state's  activities.   For  people  who  do not  use                                                               
computers,  the  department would  still  post  notices in  local                                                               
newspapers and post offices.                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE inquired whether a  notice is tied to a geographic                                                               
area so that a citizen could define a geographic area.                                                                          
                                                                                                                                
MR.  MENEFEE  replied  the department  has  evaluated  this,  but                                                               
presently a citizen cannot designate  that e-mails be sent to him                                                               
or her;  however, the ability  to send notices to  citizens based                                                               
on specific geographic  areas may become possible  in the future.                                                               
Currently,  a citizen  must  look  at the  [web]  site, which  is                                                               
designed  so that  a  recognizable location  is  included in  the                                                               
title,  such as  the name  of  a specific  bay and  not just  the                                                               
latitude and longitude.                                                                                                         
                                                                                                                                
2:03:30 PM                                                                                                                    
                                                                                                                                
MR.  MENEFEE  continued his  briefing,  saying  that the  seventh                                                               
objective  of  HB  361  is about  royalty  exemption  for  small-                                                               
production miners.   He  explained that  small-production miners,                                                               
such as placer miners, already  have exemptions and usually these                                                               
miners  do not  pay royalty  because their  exemptions cover  the                                                               
amount of gold  that they have taken.  However,  these miners are                                                               
still  required  to go  through  an  audit,  which  is a  lot  of                                                               
paperwork for  coming to  the same conclusion  that a  royalty is                                                               
not owed.   Recognizing this,  the department is  suggesting that                                                               
the exemption  be put into statute.   The miner would  still have                                                               
to  file how  much is  produced,  but would  not have  to do  the                                                               
royalty  portion.    Where  that   exemption  would  start  would                                                               
probably be in  regulation, but the department must  do some more                                                               
research to  figure out  the right  spot for  drawing a  line for                                                               
where people do not  have to pay a royalty.  The  idea is to save                                                               
time for both department staff and the small-production miners.                                                                 
                                                                                                                                
2:05:01 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  asked  whether  DNR   is  working  on  this  in                                                               
conjunction with  the Department  of Revenue  (DOR).   He related                                                               
that the  committee earlier heard a  bill that would do  this and                                                               
both DNR  and DOR objected saying  that even though a  net profit                                                               
of $40,000  is allowed  before royalty  payment is  required, the                                                               
departments  still  wanted the  filings.    He surmised  DNR  has                                                               
concluded that  [small-production miners] would not  have to make                                                               
a filing.   He  further inquired  whether DOR  has agreed  not to                                                               
require filings if the net profit is below $40,000.                                                                             
                                                                                                                                
MR.  MENEFEE  responded that  the  aforementioned  bill [HB  298]                                                               
relates  to  the  mining  license  tax  and  HB  361  relates  to                                                               
royalties.   He related that  Ms. Johanna Bales of  DOR confirmed                                                               
in an  earlier conversation today  that there is no  problem with                                                               
this part  of the bill.   He noted that this  provision would not                                                               
modify the mining  license tax, which is controlled  by and filed                                                               
through DOR.                                                                                                                    
                                                                                                                                
MR. MENEFEE  added that to  make it easier  for both DOR  and the                                                               
miner, the eighth  objective in HB 361 would  provide that people                                                               
filing their royalty could file in  the same year as their mining                                                               
tax, whether that  is a calendar year or fiscal  year; this would                                                               
mimic what DOR  does under the mining license tax.   Thus, HB 361                                                               
would provide  that no extra work  be done when the  state is not                                                               
bringing in  income, while at the  same time making it  easier on                                                               
the miner.                                                                                                                      
                                                                                                                                
2:07:14 PM                                                                                                                    
                                                                                                                                
MR.  MENEFEE concluded  his  briefing by  pointing  out that  the                                                               
ninth objective  of HB 361  would allow the extension  or renewal                                                               
of a submerged  land mining lease, similar to  the provisions for                                                               
temporary  water use  authorization and  renewal of  land leases.                                                               
He noted that  the state's only submerged land  mining leases are                                                               
off the  Nome area  and the  lease time period  is for  20 years.                                                               
The leases  require that there  be production and  this provision                                                               
of the bill would allow extension  of the lease for those lessees                                                               
who are  producing and who are  in good standing with  the state.                                                               
He explained  that the amount  of acreage in these  leases varies                                                               
in size, from 40 acres to 2,000  acres, so it is logical that the                                                               
lessee will not get through  the whole acreage within the 20-year                                                               
time period and will want to continue the work.                                                                                 
                                                                                                                                
REPRESENTATIVE  P.  WILSON  surmised  these leases  are  for  the                                                               
dredging of gold.                                                                                                               
                                                                                                                                
MR. MENEFEE  answered that  gold dredging  is occurring  on these                                                               
offshore submerged  mine leases.   While there are  multiple ways                                                               
and  different types  of  equipment for  dredging,  only a  small                                                               
portion of the acreage can be dealt  with at one time and so only                                                               
several   acres  of   the  lease   can  be   dredged  per   year.                                                               
Additionally,  ice scour  during  winter storms  can move  things                                                               
around over the  years, so dredging of the same  area may be done                                                               
again in another  year.  He noted that the  department can choose                                                               
to go  to competition  if there is  competitive interest  in that                                                               
mining lease.                                                                                                                   
                                                                                                                                
2:10:32 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON drew  attention to page 2 of HB  361 dealing with                                                               
the Board  of Agriculture and  Conservation and a  provision that                                                               
would [grant first option to  purchase or lease agricultural land                                                               
to the adjacent  landowner or adjacent lessee] for  the amount of                                                               
the high  bid received at  public auction or  by sealed bid.   He                                                               
pointed  out  that  under this  proposed  provision  an  adjacent                                                               
landowner would  not have  to bid  because he  or she  would have                                                               
first option to  take someone else's sealed bid,  which would not                                                               
be in  the best  interest of  the state as  far as  receiving the                                                               
best bid.   He  said if  he is correct  in his  interpretation of                                                               
this proposed  provision he would like  it to be changed,  but if                                                               
he is wrong he would like an explanation of the provision.                                                                      
                                                                                                                                
MR. MENEFEE  replied that  this provision  would not  change much                                                               
other than  the sealed bid  part.   He agreed Co-Chair  Seaton is                                                               
correct  in the  sense that  the adjacent  person would  have the                                                               
right to  match the high  bid.  This  person would still  have to                                                               
participate; however,  he allowed, this person  could conceivably                                                               
put in  a low sealed  bid to be participatory.   He said  he will                                                               
therefore get  back to  the committee with  an answer  on exactly                                                               
how  this would  work because  he  does not  normally handle  the                                                               
agricultural leases.  The department  will clarify this provision                                                               
to ensure  that the state  will receive the highest  bid possible                                                               
if there is competition.                                                                                                        
                                                                                                                                
2:13:50 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON noted that the  idea of modifying this statute is                                                               
to arrive at a  process that works best for the  state as well as                                                               
residents.  It would be difficult  if a person worked hard to put                                                               
together a  business plan and went  to the auction in  sealed bid                                                               
fashion  only to  have that  work  thrown away  because a  person                                                               
adjacent to that land could simply  match that sealed bid.  While                                                               
he  understood why  people would  like to  have "first  dibs", he                                                               
maintained it  was not  in the  best interest of  the state.   He                                                               
urged  that  while  considering modification  of  this  piece  of                                                               
statute, DNR develop the rationale for  why it would want to keep                                                               
this provision, especially under a sealed bid situation.                                                                        
                                                                                                                                
MR. MENEFEE requested that Mr.  Cameron Leonard of the Department                                                               
of Law be given the opportunity to address the aforementioned.                                                                  
                                                                                                                                
CAMERON  LEONARD,  Senior  Assistant  Attorney  General,  Natural                                                               
Resources  Section,  Civil  Division (Fairbanks),  Department  of                                                               
Law, allowed  that Co-Chair  Seaton's point  is well  taken under                                                               
the [proposed] statute as written,  because an adjacent landowner                                                               
or several adjacent landowners would  have the option to purchase                                                               
at  the highest  bid.   He  pointed out  that  there are  acreage                                                               
limits for this proposed provision and  this could not be done on                                                               
a parcel  exceeding 320  acres.   He did not  know how  often, in                                                               
practice, it  would come  up that an  independent bidder  who did                                                               
not  have  land  adjacent  would  want  to  acquire  agricultural                                                               
parcels of  less than that  size.  He said  he would get  back to                                                               
the committee with an answer.                                                                                                   
                                                                                                                                
2:16:20 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  commented  that  this is  public  policy  being                                                               
broached.  Attempts are being  made to get agricultural land near                                                               
towns  for young  farmers so  that the  state can  grow its  next                                                               
generation of  young businessmen.   However, he  maintained, this                                                               
could be precluded under the aforementioned provision.                                                                          
                                                                                                                                
COMMISSIONER  SULLIVAN specified  that  DNR is  looking from  the                                                               
broader perspective of  trying to provide clarity  on the ability                                                               
to use  sealed bids.  He  conceded, however, that the  changes to                                                               
this particular  provision might raise another  issue with regard                                                               
to  the prerogative  rights of  an adjacent  owner that  were not                                                               
present  prior to  the  adding of  this  [proposed] language  for                                                               
sealed bids.   He said the department will therefore  get back to                                                               
the committee  on this  issue as it  is something  the department                                                               
may have missed.                                                                                                                
                                                                                                                                
2:18:55 PM                                                                                                                    
                                                                                                                                
CO-CHAIR   FEIGE  moved   to  discussion   of   the  bill   after                                                               
ascertaining that no one in the audience wished to testify.                                                                     
                                                                                                                                
CO-CHAIR SEATON  offered his appreciation  for HB 361,  saying it                                                               
will streamline things for Alaskans and the state.                                                                              
                                                                                                                                
CO-CHAIR FEIGE announced that he did  not intend to move the bill                                                               
out of committee today.                                                                                                         
                                                                                                                                
2:20:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DICK  moved to  adopt  Amendment  1, labeled  27-                                                               
GH2717\A.3,  Bailey,  3/5/12,  which read  [original  punctuation                                                               
provided]:                                                                                                                      
                                                                                                                                
     Page 8, following line 17:                                                                                                 
          Insert a new subsection to read:                                                                                      
               "(f)  Notwithstanding (b) - (e) of this section,                                                                 
          for  the   purpose  of  creating  incentives   for  the                                                               
          development of  peat as  a heat  or energy  source, the                                                               
          director   may   negotiate   the  sale   of   peat   to                                                               
          individuals,  organized   or  unorganized  communities,                                                               
          tribal  governments,  or  private profit  or  nonprofit                                                               
          organizations.  Under  this  subsection,  the  director                                                               
          shall provide,                                                                                                        
                    (1)  for personal use by an individual or                                                                   
          for  testing  or  product development,  not  more  than                                                               
          20,000 cubic feet of peat free of charge; or                                                                          
                    (2)  for users requiring more than 20,000                                                                   
          cubic yards, the required amount  of peat at 20 percent                                                               
          of the appraised fair market value."                                                                                  
                                                                                                                                
REPRESENTATIVE P. WILSON objected for discussion purposes.                                                                      
                                                                                                                                
2:20:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DICK  said Western Alaska has  a tremendous energy                                                               
concern.   Several people in this  area have been looking  at the                                                               
option  of peat,  some for  as long  as 15  years, but  they have                                                               
always  bumped into  a wall,  which  is that  the appraised  fair                                                               
market value  of peat makes  it not  pencil out.   He understood,                                                               
however,  that one  person was  able to  establish a  fair market                                                               
value for  peat along the road  system.  He qualified  that he is                                                               
not saying peat is  going to work in Alaska, but  said there is a                                                               
tremendous possibility  for heating  schools and  other buildings                                                               
and  it  will remain  unknown  whether  this is  possible  unless                                                               
people are given the  option to try.  There are  a lot of startup                                                               
costs.    Powering the  Donlin  Creek  Mine  with peat  has  been                                                               
researched.   The intention of  Amendment 1 is that  for personal                                                               
use or for  testing or product development, not  more than 20,000                                                               
cubic feet  of peat  be given  free of  charge, which  would give                                                               
someone  the chance  to get  started.   For users  requiring more                                                               
than [20,000 cubic yards], Amendment  1 would provide the peat at                                                               
20 percent of the appraised fair  market value.  He requested Mr.                                                               
Menefee to speak  to the issue of appraised  market value because                                                               
the problem is determining a value  when the product has not been                                                               
sold in  Western Alaska  before.   The idea is  not to  give away                                                               
state resources, he said, but to  see if peat is possible and, if                                                               
so, to ensure that the people doing it can make a decent profit.                                                                
                                                                                                                                
2:23:43 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE asked how the peat would be harvested.                                                                           
                                                                                                                                
REPRESENTATIVE P. WILSON responded that  she has a constituent in                                                               
Petersburg who  burns peat taken  from the  lot in town  on which                                                               
his home  sits.   He cuts  bricks of peat,  dries them  in stacks                                                               
that are  laid across his  yard and  covered with tarps,  and has                                                               
now heated  his house  for several  years with the  peat.   He is                                                               
making  a  basement  to  his  house  by  cutting  the  peat  from                                                               
underneath the house.  She said  the process is amazing and works                                                               
for this man.  While she did  not know whether this would work in                                                               
colder areas of the state, she  said it sure works in Petersburg.                                                               
In response to Co-Chair Feige, she  said the hole for digging out                                                               
the peat is 10 feet deep and moving out.                                                                                        
                                                                                                                                
REPRESENTATIVE DICK added that last  year he considered a bill to                                                               
do this,  but because it  is such a small  item it seems  that HB                                                               
361 is  a natural place for  such a provision.   He asserted that                                                               
this provision  speaks to  a very  real need  and the  state will                                                               
never  know  if peat  will  work  financially or  environmentally                                                               
unless it is explored.                                                                                                          
                                                                                                                                
2:26:35 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE asked whether Mr. Menefee would like to comment.                                                                 
                                                                                                                                
MR.  MENEFEE first  addressed Co-Chair  Feige's  question of  how                                                               
peat is  harvested, explaining that  it can be  done individually                                                               
by using  a shovel knife like  what has been used  in Ireland for                                                               
years.     Commercially it  can  be harvested  by equipment  that                                                               
rolls up  the peat like  a sod roller  does.   There is a  lot of                                                               
peat in Alaska, he said, with some bogs as deep as 5,000 feet.                                                                  
                                                                                                                                
MR. MENEFEE,  addressing Amendment  1, said  as written  it would                                                               
give the  department the  ability to go  below fair  market value                                                               
for peat.   Because of the clarification that  peat is considered                                                               
material  the department  would be  able to  sell it  at material                                                               
prices  normally and  therefore at  appraised fair  market value.                                                               
However, the  problem with peat is  that it is very  difficult to                                                               
do an appraised  fair market value.  The one  appraisal in Alaska                                                               
was done  by the University of  Alaska and the university  had to                                                               
go to Finland to find the value  of peat in those places where it                                                               
is harvested.  He suggested that  if the committee chose to adopt                                                               
Amendment 1, it may want to  base the value off of DNR's regional                                                               
representative  sales price  for material  rather than  appraised                                                               
fair market value.  This is  because the applicant must pay to do                                                               
an appraised fair  market value and that will cost  a lot because                                                               
it will  be an  international appraisal,  not a  local appraisal.                                                               
In  a regional  representative  sales price,  DNR would  estimate                                                               
material cost and  would base the reduction of value  off of that                                                               
price.                                                                                                                          
                                                                                                                                
2:28:48 PM                                                                                                                    
                                                                                                                                
MR. MENEFEE,  regarding personal  use of the  peat or  testing or                                                               
product development, said that it does  not seem to sync with the                                                               
20,000 cubic feet  because that amount seems like a  lot of cubic                                                               
feet for  product development; however,  he did not  know whether                                                               
he  was  correct in  this  regard.    He  also pointed  out  that                                                               
paragraph  (1) of  the amendment  is  written in  cubic feet  and                                                               
paragraph (2) is  written in cubic yards, which means  there is a                                                               
substantial  gap  between  20,000  cubic feet  and  20,000  cubic                                                               
yards.   He did not  know whether  this gap was  intentional, but                                                               
said DNR  would not  know what  it is supposed  to do  in between                                                               
these numbers.                                                                                                                  
                                                                                                                                
REPRESENTATIVE DICK informed the  committee that the first number                                                               
is supposed to be yards [not feet].                                                                                             
                                                                                                                                
2:29:41 PM                                                                                                                    
                                                                                                                                
MR. MENEFEE  provided a  visual representation  of the  volume by                                                               
noting that  a normal  dump truck carries  about 10  cubic yards.                                                               
Thus, [20,000 cubic  yards] would be [2,000] dump  trucks of peat                                                               
that  would be  given  free  of charge  for  product testing  and                                                               
development.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DICK provided  another  visual representation  of                                                               
volume by  noting that [20,000  cubic yards] would be  0.15 miles                                                               
by 0.15 miles  by 1 yard deep.   He said a  decent pellet machine                                                               
costs $100,000  because the cheap $5,000-$10,000  machines out of                                                               
China do not last.   He reiterated that he does  not want to give                                                               
away state resources,  but wants to make it  possible for someone                                                               
to get  started and find  out whether it  can happen and  this is                                                               
where  he came  up with  the number  of 20,000  cubic yards.   He                                                               
added that  if the  20,000 cubic  yards stays  in the  ground the                                                               
state receives nothing anyway.                                                                                                  
                                                                                                                                
2:31:14 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ, in  regard to personal use,  asked how much                                                               
peat would be needed per year to heat a typical a home.                                                                         
                                                                                                                                
PAUL  VERHAGEN, Staff,  Representative  Alan  Dick, Alaska  State                                                               
Legislature,  did not  know  but said  he will  get  back to  the                                                               
committee with an answer.                                                                                                       
                                                                                                                                
REPRESENTATIVE   P.  WILSON   related  that   her  aforementioned                                                               
constituent in Petersburg  told her it took more  peat than cords                                                               
of wood per year because peat is not as efficient as wood.                                                                      
                                                                                                                                
REPRESENTATIVE  DICK  commented  that the  Petersburg  person  is                                                               
using blocks of peat in a stove  as opposed to pellets of peat in                                                               
a pellet  stove which  burn much  more efficiently.   He  said he                                                               
brought  up  Amendment  1  for   the  sake  of  conversation  and                                                               
receiving comments  from the committee.   He offered  to withdraw                                                               
the amendment until he has answers to the questions.                                                                            
                                                                                                                                
CO-CHAIR FEIGE  suggested the  amendment be  set aside  for later                                                               
consideration once the questions have been answered.                                                                            
                                                                                                                                
2:33:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE GARDNER inquired whether  anyone else in the state                                                               
besides the  gentleman in  Petersburg is  researching peat.   She                                                               
said this  could end up  being a huge amount  of peat if  lots of                                                               
organizations and businesses start getting into it.                                                                             
                                                                                                                                
MR. VERHAGEN  responded that  quite a  few people  have expressed                                                               
interest  and  the biggest  interest  that  he  is aware  of  was                                                               
expressed by  Donlin Creek Mine,  which had  a study done  by the                                                               
university.  While there was plenty  of peat to run the mine, the                                                               
investors  were not  enthusiastic about  a nontraditional  energy                                                               
source  and  opted for  another  source.    Because of  what  has                                                               
happened  in Tok  there are  now  quite a  few other  communities                                                               
working  with   biomass,  such  as  Fort   Yukon  and  Tanacross.                                                               
Numerous school districts in the state  are now looking to do the                                                               
same thing  as the school district  in Tok did.   He related that                                                               
last year  Galena contacted him to  say it would like  to get rid                                                               
of 30,000 cubic  yards of peat that was dug  up during excavation                                                               
for a  new building.   However, this  year Galena decided  to use                                                               
that peat for  its own biomass project, which is  why Amendment 1                                                               
includes the  opportunity for tribes, communities,  or any entity                                                               
to begin this experiment.                                                                                                       
                                                                                                                                
2:35:18 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FEIGE  asked  whether peat  falls  within  the  current                                                               
definition of biomass.                                                                                                          
                                                                                                                                
MR. VERHAGEN answered  he has confirmed with Mr.  Menefee that it                                                               
does.  There were some  suggestions that modifications be made to                                                               
the definition, but at this point peat is in that definition.                                                                   
                                                                                                                                
REPRESENTATIVE MUNOZ offered her  appreciation for the amendment,                                                               
saying  she thinks  this could  be  something very  useful.   She                                                               
suggested  going  with  only  the  amendment's  first  paragraph,                                                               
excluding the  volume amounts so  that it would  be up to  DNR to                                                               
determine the appropriate amounts for the various users.                                                                        
                                                                                                                                
2:36:14 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON   stated  the  committee  should   look  at  the                                                               
Department of  Revenue in addition  to the Department  of Natural                                                               
Resources because  the mining license tax,  [administered by DOR]                                                               
currently applies to sand, gravel,  and marketable earth, so that                                                               
tax would apply to peat.  He said  he does not know if there is a                                                               
royalty issue.   He inquired  whether there is  a way to  look at                                                               
biomass  energy projects  globally;  for  example, whether  using                                                               
willow, barley, or  timber for biomass might be  better than peat                                                               
in one area, but vice versa in another.                                                                                         
                                                                                                                                
COMMISSIONER  SULLIVAN replied  this is  a good  question because                                                               
peat is only one of a number  of other sources that Alaska has in                                                               
great supply for  potential energy use by Alaskans.   He said the                                                               
department  is currently  looking at  wind and  staff is  charged                                                               
with  ensuring  that  the  state  gets the  best  value  for  its                                                               
resources.    However, the  flip  side  is  that when  there  are                                                               
markets  or resources,  particularly a  new resource  or a  broad                                                               
public  use  source  like wind-generated  power  that  goes  into                                                               
utilities, staff is trying to get  a good deal for the state, but                                                               
the users  of that resource  are the  citizens of the  state, and                                                               
this creates  a conundrum that must  be dealt with.   He said the                                                               
department will  look at  the amendment  with regard  to offering                                                               
suggestions  or making  clarifications.   He  further noted  that                                                               
through its Division  of Forestry, DNR has been  very involved in                                                               
what is going on with biomass in Tok and other places.                                                                          
                                                                                                                                
2:40:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P.  WILSON advocated setting  a limit in  some way                                                               
should the  committee want  to use  this for  development because                                                               
there will come a point at  which it is developed and an industry                                                               
could be made out of it.                                                                                                        
                                                                                                                                
COMMISSIONER  SULLIVAN  agreed  that  the  amendment  would  spur                                                               
development while setting a limit.                                                                                              
                                                                                                                                
REPRESENTATIVE DICK advised he is  not meaning to sabotage HB 361                                                               
by adding so much detail that it  makes it hard to get it through                                                               
the legislature,  but reiterated that  this issue seemed to  be a                                                               
natural  fit with  the bill.   He  said willow  has already  been                                                               
piloted  and is  a winner,  but he  is unaware  of anyone  moving                                                               
forward  with pelletized  peat, which  is  why he  would like  to                                                               
create an incentive for the pelletizing of peat.                                                                                
                                                                                                                                
2:42:38 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE  set Amendment 1  aside for  further consideration                                                               
when HB 361 is again before the committee.                                                                                      
                                                                                                                                
COMMISSIONER  SULLIVAN offered  appreciation for  the committee's                                                               
consideration of HB 361, saying that  the bill fits with a number                                                               
of  other bills  currently moving  through the  legislature.   He                                                               
said  bringing the  department's permitting  system in  line will                                                               
help promote economic opportunity in the state.                                                                                 
                                                                                                                                
CO-CHAIR FEIGE complimented the work of  DNR staff on HB 361.  He                                                               
said  the cumulative  effects of  the little  tweaks in  the bill                                                               
will have a  positive effect on the way the  State of Alaska does                                                               
business and  the way  the state  is perceived as  a place  to do                                                               
business.                                                                                                                       
                                                                                                                                
2:44:30 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON  related that the  Anchorage Daily  News recently                                                             
had an  article about  the state  considering hunting  rights for                                                               
private  landowners  in  Alaska.   The  proposal  would  grant  a                                                               
property right  for private landowners  to use or sell  hunts and                                                               
would  involve a  new landowner  permit.   He  asked whether  the                                                               
regulation changes  being talked about  would advance, or  in any                                                               
way  incorporate,  special  landowner rights  to  resources  that                                                               
currently belong to all of the public.                                                                                          
                                                                                                                                
MR. MENEFEE  responded he is  unfamiliar with this  proposal, but                                                               
said there  is nothing in HB  361 that would affect  a right that                                                               
is given  to someone through a  fish and game statute;  HB 361 is                                                               
strictly in regard to things that would be authorized by DNR.                                                                   
                                                                                                                                
2:46:12 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON said he wants to  make sure that HB 361 would not                                                               
incorporate anything that would make  new rights to landowners of                                                               
currently considered  state resources.   While  he did  not think                                                               
the bill would, he  wanted it on the record that  that is not the                                                               
bill's intention.                                                                                                               
                                                                                                                                
COMMISSIONER SULLIVAN  noted that this  is the first he  has seen                                                               
the article and  he has not been briefed on  the issue.  However,                                                               
he continued, the issue in the  article is not related to what is                                                               
being proposed in HB 361.                                                                                                       
                                                                                                                                
MR. MENEFEE  added that there  could be other laws  or ordinances                                                               
that base qualifying criteria on  whether someone is a landowner;                                                               
that does not affect DNR's  regulations on whether the department                                                               
sells  land  to  someone.     The  department's  regulations  are                                                               
completely separate -  the game resources in the  state of Alaska                                                               
are not  managed by DNR at  all.  Those regulations  are strictly                                                               
through the Alaska Department of Fish & Game.                                                                                   
                                                                                                                                
2:48:02 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON said he realizes  that but wanted to ensure there                                                               
was no connection.                                                                                                              
                                                                                                                                
COMMISSIONER SULLIVAN answered that DNR  is looking at the issues                                                               
of  permitting  reform,  efficiency, timeliness,  and  certainty.                                                               
Much  of HB  361 is  about the  efficient use  of staff  time and                                                               
state  money  and doing  that  in  conjunction with  other  state                                                               
agencies, including the Alaska Department  of Fish & Game.  Thus,                                                               
many of the  ideas are not just  a DNR focus but also  a focus of                                                               
other agencies.  He said he  is unaware of any connection between                                                               
the aforementioned and the permitting issues in HB 361.                                                                         
                                                                                                                                
CO-CHAIR  SEATON  said  he  would   appreciate  DNR  letting  the                                                               
committee  know at  the  next hearing  on the  bill  if there  is                                                               
something that conjoins the two.                                                                                                
                                                                                                                                
REPRESENTATIVE P.  WILSON understood Commissioner Sullivan  to be                                                               
saying that  DNR is looking  at ways to  save time and  money and                                                               
other departments are doing the same.                                                                                           
                                                                                                                                
COMMISSIONER SULLIVAN confirmed that this is correct.                                                                           
                                                                                                                                
2:50:20 PM                                                                                                                    
                                                                                                                                
[HB 361 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB0361A.pdf HRES 3/5/2012 1:00:00 PM
HRES 3/14/2012 1:00:00 PM
HB 361
Sectional Analysis of HB 361.pdf HRES 3/5/2012 1:00:00 PM
HRES 3/14/2012 1:00:00 PM
HB 361
HB 361 Transmittal Letter.pdf HRES 3/5/2012 1:00:00 PM
HB 361
Briefing Paper_HB361_030512.pdf HRES 3/5/2012 1:00:00 PM
HRES 3/14/2012 1:00:00 PM
HB 361
HB0361-1-2-022912-DFG-N.pdf HRES 3/5/2012 1:00:00 PM
HRES 3/14/2012 1:00:00 PM
HB 361
HB0361-2-2-022912-DOT-N.pdf HRES 3/5/2012 1:00:00 PM
HRES 3/14/2012 1:00:00 PM
HB 361
HB0361-3-2-022912-DNR-Y.pdf HRES 3/5/2012 1:00:00 PM
HRES 3/14/2012 1:00:00 PM
HB 361