Legislature(2011 - 2012)BUTROVICH 205

03/30/2012 03:30 PM Senate RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 145 OIL/GAS PRODUCTION TAX CREDITS: NENANA TELECONFERENCED
Heard & Held
+= SB 215 GASLINE DEV. CORP: IN-STATE GAS PIPELINE TELECONFERENCED
Heard & Held
<Public Testimony>
+ Bills Previously Heard/Scheduled TELECONFERENCED
= SB 219 DISPOSALS OF STATE RESOURCES
Heard & Held
              SB 219-DISPOSALS OF STATE RESOURCES                                                                           
                                                                                                                                
4:32:32 PM                                                                                                                    
CO-CHAIR WAGONER called  the meeting back to  order and announced                                                               
consideration  of  SB 219,  version  A,  recounting that  he  had                                                               
objected for discussion  purposes. Finding no one  to testify, he                                                               
closed  public  testimony.  He asked  if  any  committee  members                                                               
wanted a briefing as to the development of SB 219.                                                                              
                                                                                                                                
SENATOR FRENCH  asked what this  statute does to  temporary water                                                               
use authorizations  and if  they were first  put into  statute in                                                               
2001.                                                                                                                           
                                                                                                                                
4:34:25 PM                                                                                                                    
WYN MENEFEE,  Chief of Operations,  Division of Mining,  Land and                                                               
Water,  Department of  Natural  Resources  (DNR), Anchorage,  AK,                                                               
said he but didn't know the date they were put in statute.                                                                      
                                                                                                                                
SENATOR  FRENCH  said  the  idea   then  was  instead  of  having                                                               
permanent water  rights assigned to someone,  an individual would                                                               
just get a  temporary permit. His concern was  that the temporary                                                               
permits were getting to be  permanent since they are extended for                                                               
five years. He asked how many were out there.                                                                                   
                                                                                                                                
MR.  MENEFEE  replied  672  temporary   water  use  permits  were                                                               
administered in  2011. He explained  that the reason  they aren't                                                               
permanent  is  because a  permanent  water  right is  actually  a                                                               
property  right  that  goes  with   the  property  regardless  of                                                               
ownership. A temporary water use  authorization is not a right to                                                               
water; it's the management of that  water. So, it can be changed,                                                               
revoked,  additional conditions  can be  added like  reduction in                                                               
water quantities or  use periods can be suspended  to protect the                                                               
public interest.  None of  that can  be done  with a  water right                                                               
without  the  consent of  the  water  right appropriator  or  the                                                               
abandonment of that water use.   Therefore, a temporary water use                                                               
permit  is designed  to allow  the Division  of Mining,  Land and                                                               
Water to manage the water use  in Alaska, whereas the water right                                                               
is  more of  a process  where the  company or  an individual  can                                                               
protect their  water source from others  from adversely affecting                                                               
their use. They have different purposes.                                                                                        
                                                                                                                                
4:37:00 PM                                                                                                                    
SENATOR FRENCH  said maybe it was  an issue of semantics,  but it                                                               
seemed funny  to have  something they  called a  "temporary water                                                               
use authorization"  that one can  get for  as long as  five years                                                               
and then get  a reauthorization for another five  years. Now it's                                                               
been  in existence  for 10  or more  years and  its being  called                                                               
temporary. It doesn't seem temporary.                                                                                           
                                                                                                                                
MR.  MENEFEE  replied  that  each  five-year  renewal  is  a  new                                                               
authorization even if  they call it a renewal, and  the state can                                                               
decide to  issue it for  only one year  if there are  other needs                                                               
for the water.                                                                                                                  
                                                                                                                                
SENATOR  FRENCH recalled  that  these  authorizations were  being                                                               
issued without the same level of public notice as other permits.                                                                
                                                                                                                                
MR. MENEFEE answered that was  correct and explained that because                                                               
it  is  actually  a  property  right,  they  go  through  a  more                                                               
formalized   public  notice   procedure.   The  temporary   water                                                               
authorizations, although they  don't do a "public  notice" in the                                                               
sense  of going  out  and  advertising in  newspapers,  are on  a                                                               
public   website  that   shows  all   the  temporary   water  use                                                               
authorizations  that have  been issued.  People can  look at  the                                                               
site  which  allows  querying anywhere  in  Alaska  by  meridian,                                                               
township  and range  to find  out  if an  authorization had  been                                                               
issued.                                                                                                                         
                                                                                                                                
SENATOR  FRENCH  asked  if  the website  would  convey  when  the                                                               
authorization expires  and when the opportunity  to provide input                                                               
into the renewal would ripen.                                                                                                   
                                                                                                                                
4:40:54 PM                                                                                                                    
MR. MENEFEE replied that he would have to research that.                                                                        
                                                                                                                                
SENATOR WIELECHOWSKI  asked the standard  of review on  appeal in                                                               
one of these cases.                                                                                                             
                                                                                                                                
CAMERON LEONARD,  Assistant Attorney  General, Department  of Law                                                               
(DOL), Anchorage,  AK, said  he agreed that  most of  these cases                                                               
would use  an abusive  discretion standard,  but the  standard of                                                               
review the court uses depends upon  how the appeal is framed. So,                                                               
if for example,  someone were claiming that  the commissioner had                                                               
misapplied either  the regulations or  the statutes, then  a less                                                               
deferential standard would  apply. For a typical  case of someone                                                               
objecting to the renewal of  a temporary water use authorization,                                                               
he  would argue  on behalf  of DNR  that the  standard of  review                                                               
should be abusive discretion.                                                                                                   
                                                                                                                                
SENATOR WIELECHOWSKI  asked if it's  hard to overcome  an abusive                                                               
discretion standard.                                                                                                            
                                                                                                                                
MR. LEONARD answered  yes; it's probably the  most deferential of                                                               
the  various  standards the  courts  use.  He explained  that  in                                                               
general, the  court will make  sure the  agency has taken  a hard                                                               
look at the  relevant factors and no obvious  mistake in judgment                                                               
had occurred.                                                                                                                   
                                                                                                                                
SENATOR FRENCH asked how often that happens.                                                                                    
                                                                                                                                
MR.  LEONARD replied  that he  found only  one reported  decision                                                               
brought   by   Greenpeace   against   a   temporary   water   use                                                               
authorization for building  an ice road on North Slope;  it was a                                                               
procedural challenge  to the way DNR's  appeal procedures worked.                                                               
Because it  was a  question of  law, the  standard of  review was                                                               
substitution of judgment, which means  the judge doesn't defer to                                                               
DNR at all on how the law should be interpreted.                                                                                
                                                                                                                                
CO-CHAIR PASKVAN asked  if there is a concern as  to any capacity                                                               
for water volumes that will be  needed on the North Slope at this                                                               
time.                                                                                                                           
                                                                                                                                
MR.  MENEFEE answered  that his  research  revealed that  Pioneer                                                               
wanted   to   receive   some  water   from   the   ConocoPhillips                                                               
desalination facility.  When ConocoPhillips'  needs are  low they                                                               
could provide more  water to Pioneer, but if they  need the whole                                                               
amount,  then they  are  not  required to  supply  that water  to                                                               
Pioneer as  per an agreement  between companies. The  solution is                                                               
either  ConocoPhillips  decides  to   expand  their  facility  or                                                               
Pioneer builds their own.                                                                                                       
                                                                                                                                
Will there  be water shortages?  He said  they don't know  of any                                                               
places where  water shortage would prevent  development. However,                                                               
they recognized there  are certain areas of the  North Slope that                                                               
have  less water  in the  surface systems  and until  they drill,                                                               
they aren't  sure whether  the subsurface  systems have  any. But                                                               
development companies regularly incorporate  water use into their                                                               
planning  for  the North  Slope,  because  it  is in  their  best                                                               
interest  to seek  and obtain  a water  right versus  a temporary                                                               
water  use authorization.  At this  point,  it isn't  known if  a                                                               
situation would actually restrict development.                                                                                  
                                                                                                                                
4:46:10 PM                                                                                                                    
CO-CHAIR PASKVAN asked  if there is a limitation at  this time on                                                               
any company's capacity  to obtain water rights from  the State of                                                               
Alaska and  if temporary water use  permits can be used  to force                                                               
people into bad competitive circumstances.                                                                                      
                                                                                                                                
MR.  LEONARD said  that was  a challenging  question and  what he                                                               
could tell  him was that there  are instances where because  of a                                                               
lake's  depth, the  company could  only pull  so much  from water                                                               
from it  and had  to maybe go  to a different  lake or  stream to                                                               
pull that water.  That influences development, but  at this point                                                               
it appears  that at  any time  they have had  a reduction  in the                                                               
amount of  water that  someone could take  from an  area, another                                                               
way was  found to address the  issue although it might  mean that                                                               
it's  more expensive.  But at  this point,  he was  not aware  of                                                               
anything that had prevented development  or had adversely hurt an                                                               
independent from coming in because of a water issue.                                                                            
                                                                                                                                
CO-CHAIR PASKVAN  asked if this  is a priority for  the division,                                                               
why the legislation was not introduced until Feb 29, 2012.                                                                      
                                                                                                                                
4:48:50 PM                                                                                                                    
JOE BALASH, Deputy Commissioner,  Department of Natural Resources                                                               
(DNR),  Anchorage, AK,  replied  that the  department  has had  a                                                               
backlog from  the transition in  2010. The work had  largely been                                                               
done  with  the  assistance  of   the  legislature  in  terms  of                                                               
appropriations to  increase staffing  in the Division  of Mining,                                                               
Land and  Water. They have taken  on the task of  maintaining the                                                               
workload  and at  the same  time  tackling the  analysis and  the                                                               
reconstruction of  the system. To  manage the land and  the water                                                               
in the division  they undertook an internal  review and conducted                                                               
a series  of public  hearings and meetings  all across  the state                                                               
during the late  summer and fall to gather  input from interested                                                               
parties. The information was put  together and analyzed about how                                                               
to  make  their  processes  more efficient.  That  was  "the  low                                                               
hanging fruit and noncontroversial." That  is what is in front of                                                               
the committee now. There is also  a sentiment that this will be a                                                               
process  of improvement  that will  take place  over many  years.                                                               
They  are attempting  to resolve  many things  through regulatory                                                               
packages that will be put out to public comment.                                                                                
                                                                                                                                
CO-CHAIR PASKVAN  asked if  the holder of  a temporary  water use                                                               
permit could sell a portion of it or all of it.                                                                                 
                                                                                                                                
MR. MENEFEE  answered that the temporary  water use authorization                                                               
is not  sellable. If,  for instance,  ConocoPhillips was  using a                                                               
well instead of  a desalination plant and wanted to  sell part of                                                               
it,  they could  do  that as  part of  their  business plan.  The                                                               
department doesn't  issue a temporary water  use authorization or                                                               
a water right  for using salt water, because there  is so much of                                                               
it. They can, but they don't.                                                                                                   
                                                                                                                                
CO-CHAIR  PASKVAN  asked  if  there  is a  way  a  company  could                                                               
improperly use  a temporary  water use  permit and  block someone                                                               
from access to a water resource on the central North Slope.                                                                     
                                                                                                                                
4:54:05 PM                                                                                                                    
MR. MENEFEE replied that is not  an issue, because the renewal is                                                               
not  automatic.  The  staff reviews  and  decides.  Other  things                                                               
having  demand on  the water  will be  considered before  issuing                                                               
another  temporary water  use authorization  to the  same company                                                               
for  that  use.  The  authorizations are  revocable  and  can  be                                                               
changed.                                                                                                                        
                                                                                                                                
4:55:18 PM                                                                                                                    
CO-CHAIR PASKVAN  remarked that a  book by James  Michener, named                                                               
"Centennial," told  how an economic  interest focused on  all the                                                               
areas that had  water, because that was going to  control tens of                                                               
thousands of miles. He wanted to  make sure this was not creating                                                               
that type  of situation where  you allow an economic  interest to                                                               
essentially  dominate  an entire  region  by  just owning  a  few                                                               
little pinch points.                                                                                                            
                                                                                                                                
MR. MENEFEE said  temporary water use authorizations  will not do                                                               
that.  But he  wouldn't say  that water  rights couldn't  be used                                                               
toward  that end.  You can't  diminish  a water  use right;  it's                                                               
first come first served.                                                                                                        
                                                                                                                                
SENATOR WIELECHOWSKI  said they probably  will see this  play out                                                               
on the  North Slope at  some point, particularly with  shale gas,                                                               
and asked  if the dominant  right exist  only during the  time of                                                               
the permit. Does it expire and they  have to renew it? Or do they                                                               
have a dominant right forever for that water?                                                                                   
                                                                                                                                
MR. MENEFEE  clarified that a  temporary water  use authorization                                                               
is not  a water right. Water  rights are where you  get the right                                                               
to  the water  and the  first in  line gets  the dominant  right.                                                               
Temporary water use authorizations have  nothing to do with that;                                                               
it is the  division deciding to give them water  to use for their                                                               
intended purpose.  So, therefore, if  a company chooses  to apply                                                               
for the water right, 5,000  gallons for instance, if historically                                                               
they show they  only used 1,000 and don't really  need the 5,000,                                                               
you could argue to reduce it. But  as long as they use the amount                                                               
they  said they  would, that  stays with  the land  in perpetuity                                                               
even if it gets sold.                                                                                                           
                                                                                                                                
4:59:06 PM                                                                                                                    
SENATOR WIELECHOWSKI said  his dominant concern was  they see the                                                               
issue of  water rights playing  out in western states.  Alaska is                                                               
fortunate because it has a lot  of water, but he thought it would                                                               
play out on the North Slope  because shale oil needs huge amounts                                                               
of  water. He  was  very concerned  about  giving companies  what                                                               
appears  to be  de  facto permanent  right to  water  use and  he                                                               
wanted  to make  sure this  bill  wasn't doing  that, because  it                                                               
takes  away the  notice and  the opportunity  to oppose,  and the                                                               
standard for  appeal is abuse  of discretion, which  is virtually                                                               
impossible to overturn.                                                                                                         
                                                                                                                                
MR. MENEFEE explained in order to  have a water right you have to                                                               
have ownership  control of the land.  On the North Slope,  an oil                                                               
and gas lease is  the right to the land. As long  as that oil and                                                               
gas lease stays in place, they  have the water rights. If the oil                                                               
and gas  lease goes away  and they don't  have it any  more, then                                                               
the water right  does not stay. It disintegrates on  the point of                                                               
the  land  ownership control.  So,  as  long  as someone  has  an                                                               
ownership  interest, then  the water  right stays  perpetual, but                                                               
there   is   a  difference   between   a   temporary  water   use                                                               
authorization  and a  water right,  because every  five years  or                                                               
even  three years  into the  permit and  someone comes  along and                                                               
needs to share  the water, the division has to  make a management                                                               
decision  at that  point in  time and  there is  nothing stopping                                                               
them from changing that person's water use.                                                                                     
                                                                                                                                
He said  a situation might come  up when a company  might use all                                                               
the  existing water  and someone  else  wants to  come along  and                                                               
there is no  more water left; a decision would  be made somewhere                                                               
along the line to share the  water or make the other company haul                                                               
water from farther away.                                                                                                        
                                                                                                                                
MR. BALASH sought to assure  him about the department's plans for                                                               
managing water on  the central North Slope  saying they requested                                                               
a  geo-hydrologist   position  for   the  Division   of  Geologic                                                               
Geophysical  Surveys,   because  it   is  critically   needed  to                                                               
understand the  water resource there,  particularly as  the state                                                               
is on the  leading edge of shale development. He  used an example                                                               
of work the division had done  from the MatSu area where a number                                                               
of businesses,  community wells and  home owners rely  on shallow                                                               
water wells  to provide  their water  supply. As  that population                                                               
has mushroomed over the last couple  of decades, it's got to be a                                                               
bigger and bigger  deal. The division has its arms  around it now                                                               
and has a  good understanding of where the  demand and production                                                               
are - and they want a  similar understanding on the central North                                                               
Slope.                                                                                                                          
                                                                                                                                
5:04:15 PM                                                                                                                    
CO-CHAIR PASKVAN  repeated his concern  with water  rights issues                                                               
and creating pinch points.                                                                                                      
                                                                                                                                
CO-CHAIR WAGONER commented that he  came from a state where water                                                               
rights are  treated like  mineral rights;  they have  battles and                                                               
wars and lawsuits. He then  concluded saying amendments needed to                                                               
be in  his office  by 9  am on Monday  and that  other amendments                                                               
would conform this bill to HB 361. He thanked the presenters.                                                                   
                                                                                                                                
[SB 219 was held in committee.]                                                                                                 

Document Name Date/Time Subjects
SB145CS(RES)-DNR-DOG-03-29-12.pdf SRES 3/30/2012 3:30:00 PM
SB 145
SB145CS(RES)-DOR-TAX-03-29-12.pdf SRES 3/30/2012 3:30:00 PM
SB 145