Legislature(2001 - 2002)

03/28/2001 03:35 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
          SB 156-BEST INTEREST FINDING UNDER AK LAND ACT                                                                    
CHAIRMAN  JOHN  TORGERSON  called  the  Senate  Resources  Committee                                                          
meeting  to order at  3:35 p.m. and  announced SB  156 to be  up for                                                            
SENATOR  PEARCE said  that  SB 156  amends the  Alaska  Land Act  to                                                            
clarify  the requirement  that the Department  of Natural  Resources                                                            
prepare  a single, written  Best Interest  Finding for multi-phased                                                             
development  projects.  In 1994, the  Legislature  passed SB 308  to                                                            
amend the Alaska Land Act  in response to several unfavorable Alaska                                                            
Supreme  Court  decisions   that  threatened  the  state's   leasing                                                            
program. She explained:                                                                                                         
     We  have a "catch-22"  situation with  offshore leases  on                                                                 
     the North  Slope where the court  tried to require a  Best                                                                 
     Interest  Finding to discuss  or lay out what the impacts                                                                  
     would  be on onshore animals  as a result of the offshore                                                                  
     sale. This is when they  instituted phasing, because there                                                                 
     was really  no way to guess what  those might be, because                                                                  
     they didn't  know if and where  the development might  be.                                                                 
     The  legislation explicitly  allowed  project phasing  and                                                                 
     precisely  defined the scope of the Best Interest  Finding                                                                 
     determination.  Since its passage, recent court  decisions                                                                 
     have  continued to  threaten  the program  and the courts                                                                  
     have said  that the Department  is obliged, at each  phase                                                                 
     of    development,    to   issue    a    best   interests                                                                  
     finding…relating   to  that  phase  before  the  proposed                                                                  
     development may proceed.                                                                                                   
     Under  SB 308, the original legislation,  the Legislature                                                                  
     intended  that a Best Interest  Finding would be prepared                                                                  
     for the  first phase, the disposal  and subsequent phases                                                                  
     would  be subject  to  the Department's  approval  and  to                                                                 
     separate  reviews by extensive  permitting processes  that                                                                 
     include public  input and scrutiny of other agencies.  The                                                                 
     Legislature  did not intend the approval to be  defined as                                                                 
     a Best Interest  Finding determination as the  courts have                                                                 
     misinterpreted.  The Legislature  intended the Department                                                                  
     to exercise  their discretion to impose conditions  in the                                                                 
     Best  Interest  Finding  determination,   issued  for  the                                                                 
     disposal,    which   would   minimize   future   impacts.                                                                  
     Preparation  of a Best Interest Finding determination  for                                                                 
     every  phase would  be a  very costly  and time-consuming                                                                  
     SB  156 elaborates  the legislative  findings for phasing                                                                  
     under  the Alaska Land Act and  amends AS 38.05.035  so it                                                                 
     becomes  clear  that DNR  is required  to issue  a single                                                                  
     written  Best Interest Finding  for the disposal of  state                                                                 
     land.  It  also ensures  the  public  the  opportunity  to                                                                 
     comment at the exploration,  production and transportation                                                                 
     phases  of  a project.  By  clarifying  the Legislature's                                                                  
     original   intent,  SB  156  will  overturn  the  courts'                                                                  
     erroneous  interpretation. It  provides clear guidance  to                                                                 
     the courts  regarding the e legislature's policy  and will                                                                 
     result  in  the avoidance  of  protracted  litigation  and                                                                 
     associated  delays or disruptions  of the state's leasing                                                                  
     program and development of already leased acreage.                                                                         
SENATOR PEARCE explained that the concern is if a Best Interest                                                                 
Finding  is required at  every phase,  the cost  and time delay  for                                                            
both the  state and  the industry  would be enormous.  They  want to                                                            
make sure that doesn't happen.                                                                                                  
SENATOR  KELLY  asked if  a  public meeting  was  part  of the  Best                                                            
Interest Finding.                                                                                                               
SENATOR  PEARCE said it  is a very  long and  involved process.  The                                                            
permitting  processes in  later phases also  have opportunities  for                                                            
public comment.                                                                                                                 
MS. JUDY  BRADY, Executive  Director, Alaska  Oil and Gas  Alliance,                                                            
supported SB 156.  It makes it clear what the Department  of Natural                                                            
Resources'  obligation is to prepare  one Best Interest Finding  for                                                            
disposal of oil and gas  lease lands. The only problem they see with                                                            
the bill  is on page 5,  lines 21 - 25,  the public notice  section.                                                            
They don't understand what  that section is trying to accomplish and                                                            
that would be important.                                                                                                        
MS. MARTY  RUTHERFORD, Deputy  Commissioner,  Department of  Natural                                                            
Resources, said:                                                                                                                
     As Senator  Pearce noted, in  a Supreme Court decision  in                                                                 
     Kachemak  Bay  Conservation   vs. Department   of Natural                                                                  
     Resources  2000, the court spoke to the necessity  for DNR                                                                 
     to take  a continuing hard look  at future development  on                                                                 
     lease sale  lands and to issue a Best Interest  Finding on                                                                 
     each phase  of a project before  the proposed development                                                                  
     may proceed. DNR believes  this interpretation was not the                                                                 
     intent  of the legislature  and this  bill clarifies  that                                                                 
     conclusion  by specifying  that additional  Best Interest                                                                  
     Findings  are  not  required  in subsequent  phases  of  a                                                                 
     project.  Therefore,  the  administration   supports  this                                                                 
     bill. However, we would  propose one amendment. On page 5,                                                                 
     line  21,  add,  "If  the  disposal  is  an  oil  and  gas                                                                 
     disposal."  We  recommend  this  amendment,   because  the                                                                 
     primary  focus of this legislation  is on the oil and  gas                                                                 
     activities.  We believe that  a public notice requirement                                                                  
     should  be focused  upon oil  and gas and  not upon  other                                                                 
     disposal activities  that do not currently require  public                                                                 
Number 800                                                                                                                      
CHAIRMAN TORGERSON noted that an amendment would be offered that                                                                
would take care of the public notice concern.                                                                                   
SENATOR ELTON  asked where they get the most public  involvement and                                                            
does it  come mostly  through the  permit processes  or through  the                                                            
Best Interest Findings.                                                                                                         
MS. RUTHERFORD  answered that it depends on whether  it's an oil and                                                            
gas activity or some other type of disposal.                                                                                    
SENATOR ELTON asked to start with oil and gas.                                                                                  
MR. MARK MEYERS, Director,  Division of Oil and Gas, said he thought                                                            
they  had a good  public  input throughout  the  whole process,  but                                                            
there  is great opportunity  during  the Best  Interest Finding.  He                                                            
said there is public input prior to development, also.                                                                          
SENATOR ELTON asked how  close this bill comes to the constitutional                                                            
provision that  requires public notice  and other safeguards  in the                                                            
public interest in the disposal of state assets.                                                                                
MS.  RUTHERFORD  answered  that  she  believed  it  was  within  the                                                            
constitution  and she believed  that this  amendment would  continue                                                            
what  has  been  the  status  quo  for  the  Department  of  Natural                                                            
Resources' public processes.                                                                                                    
SENATOR  ELTON  asked  if  she  had  gotten  an  analysis  from  the                                                            
Department of Law.                                                                                                              
MS. RUTHERFORD said the  Attorney General told the Director that the                                                            
constitution  requires  public  notice  prior to  a disposal  of  an                                                            
interest  in state  lands  and this  provision actually  deals  with                                                            
public notice of later permitting activities.                                                                                   
SENATOR  ELTON noted language  on page  4, lines  9 - 11, "The  Best                                                            
Interest  Finding   shall  be  based   upon  known  information   or                                                            
information that  is made available to the director."  He asked what                                                            
happens if  there is known information  that the developer  has, but                                                            
doesn't give to the director.                                                                                                   
MS.  RUTHERFORD  answered  that the  director  is only  required  to                                                            
consider known information  or information that is made available to                                                            
him through the public  process. It does not require the director to                                                            
seek out additional information.                                                                                                
SENATOR  ELTON   asked  what  happens   in  a  situation   in  which                                                            
information isn't transmitted  to the director that could affect the                                                            
Best Interest  Finding, specifically  if the developer doesn't  give                                                            
pertinent  information  to the director.  "Does that  void the  Best                                                            
Interest Finding process?"                                                                                                      
MS. MARY LUNDQUIST, Assistant Attorney General, answered:                                                                       
        A failure of industry to provide information to the                                                                     
         director could not void a disposal or void a Best                                                                      
     Interest  Finding.  The requirement  is placed  on DNR  to                                                                 
     consider  known information  or information  that is  made                                                                 
     available  to the director. The  Alaska Supreme Court  has                                                                 
     recognized  that there is no requirement placed  on DNR to                                                                 
     actively go  out and solicit information. A Best  Interest                                                                 
     Finding  would not  be overturned  based  on not actively                                                                  
     going out  and seeking information. However, DNR's  method                                                                 
     of operation  is currently to  widely publicize the  lease                                                                 
     sales or other  disposals and to consider all  information                                                                 
     that is made available to them.                                                                                            
Number 1200                                                                                                                     
MR.  KEN BOYD  said  he  was one  of  the former  directors  of  the                                                            
Division of Oil  and Gas. He explained that a Best  Interest Finding                                                            
is really for  the disposal of state  land and at that phase  of the                                                            
process they are just issuing  a lease. There is a huge process that                                                            
follows  the issuance  of that lease;  the lease  itself is  a paper                                                            
transaction.  This was clearly recognized  by the legislature  in SB                                                            
308. The director  has to consider  only those things that  he knows                                                            
at that time. MR. BOYD continued:                                                                                               
     To  me, this  is  an extraordinarily  important  piece  of                                                                 
     legislation.  I believe the courts  have misconstrued  the                                                                 
     meaning of the legislature  by saying that we have to do a                                                                 
     Best  Interest Finding  in every phase.  Truly, the  first                                                                 
     phase,  when you're  just issuing  a lease,  you are  just                                                                 
     doing a paper  transaction. At subsequent phases,  I think                                                                 
     it's important  to realize that the state is,  through all                                                                 
     its  many agencies and  all its many  powers, gathering  a                                                                 
     lot  more information.  All the  agencies,  not just  DNR,                                                                 
     have the  opportunity to have  any questions they need  to                                                                 
     have answered, especially at subsequent phases.                                                                            
MR. JIM EASON,  another former Director for the Division  of Oil and                                                            
Gas, said he was  speaking on behalf of himself today.  He wanted to                                                            
shed some  historical  perspective  on any questions  the  committee                                                            
might  ask.  He was  director  during  the  time  when many  of  the                                                            
lawsuits were  spawned that led to SB 308. He was  also working with                                                            
Senator  Pearce and others  in the  legislature in  1994 to  try and                                                            
correct that problem. He said further:                                                                                          
     I am  embarrassed to  say that we obviously  didn't do  it                                                                 
     well  enough for the  Supreme Court,  but hopefully,  this                                                                 
     time it  will work. It was the  intent of the legislature                                                                  
     originally  to  have  a  Best  Interest  Finding  for  the                                                                 
     disposal of  state interests and that is how the  statutes                                                                 
     read  before we  became involved  in 1994  and that's  how                                                                 
     they  read today.  But the  Court, including  the Supreme                                                                  
     Court,  apparently has  made the judgment  in a couple  of                                                                 
     cases  that  in  their  reading  of  the amendments   that                                                                 
     occurred  in 1994,  (the ones  that are  before you  now),                                                                 
     that there  is an implication that the subsequent  process                                                                 
     after the disposal would  include a detailed Best Interest                                                                 
     Finding at each phase. In  other words, at exploration and                                                                 
     at development, if you're  lucky enough to find something.                                                                 
     Based  upon my experience, we  were trying not to require                                                                  
     additional  Best Interest  Findings and  I believe it  was                                                                 
     the legislature's intent that that not be required.                                                                        
     Under  the  amendments  that are  proposed  in SB  156,  I                                                                 
     believe  that you will  correct that  problem and make  it                                                                 
     clear that  one single Best Interest Finding is  required.                                                                 
     And I believe  that Senator Pearce has pointed  out, and I                                                                 
     agree,  that a number  of things will  be accomplished  if                                                                 
     you  do that. You  will avoid some  extraordinarily  time-                                                                 
     consuming  and very  expensive and  costly processes  that                                                                 
     the state would be required  to undertake if it were to be                                                                 
     required to  do Best Interest Findings at each  phase. You                                                                 
     would  have  additional  delay   and uncertainty   in  the                                                                 
     development of resources  and, important to each of you, I                                                                 
     believe,  delay  in  the  receipt  of  state  revenues  to                                                                 
     support the  programs that are important to all  Alaskans.                                                                 
     I encourage you to take  up SB 156 and pass it. I think it                                                                 
     will be to the state's benefit.                                                                                            
SENATOR  ELTON  said  he appreciated  Mr.  Eason's  and  Mr.  Boyd's                                                            
participation,  because they are nonaffiliated experts.  He asked if                                                            
the words:  "This act is intended  to make clear that public  notice                                                            
and the opportunity  to comment shall  be provided at each  phase of                                                            
the project." on page 4,  line 12 was already covered under existing                                                            
regulations  that govern  permits or  is this going  to require  new                                                            
regulations on the part of the Department.                                                                                      
MR. EASON replied that  he believed all the operations that occur on                                                            
oil and gas leases are in the coastal zone. He elaborated:                                                                      
     First  of  all  in the  preliminary  phase  and  the  Best                                                                 
     Interest  Finding phase, there  certainly is detailed  and                                                                 
     prescribed  public notice and  process for response.  As a                                                                 
     matter  of fact, the  Best Interest  Finding requires  not                                                                 
     only public  notice and meeting, but the preparation  of a                                                                 
     preliminary  finding and  then public  notice of that  and                                                                 
     its  availability   and the  opportunity   for  people  to                                                                 
     comment and  suggest changes, which then produces  a final                                                                 
     Best  Interest  Finding  for  each  disposal.   Since  the                                                                 
     disposals   are  occurring  in   the  coastal  zone,   any                                                                 
     activity,  including geophysical prospecting,  drilling of                                                                 
     wells  or building  of facilities  and structures  if  you                                                                 
     find something,  all go through a review for coastal  zone                                                                 
     consistency which involves a detailed public process.                                                                      
     I think  that, at least  in my reading,  the sponsors  are                                                                 
     trying  to make clear  on page 5, lines  21 - 25, through                                                                  
     some  amendment  language  they  are  proposing,  that  if                                                                 
     there's  any question,  it's reaffirmed  here that public                                                                  
     notice  will  take place  on those  subsequent  phases  in                                                                 
     either of two situations.  Either, if you're proceeding to                                                                 
     the next phase,  the Department will require notice  under                                                                 
     regulations, which it will  adopt, if it is not covered by                                                                 
     noticing  provisions  of  the  Alaska Coastal  Management                                                                  
     Program.  My  perception,   at  least,  is  that  this  is                                                                 
     intended  to make clear that  there will be notice and  if                                                                 
     it is not provided for now,  it will be provided for under                                                                 
     this amendment.                                                                                                            
SENATOR ELTON  asked if he  just gave the  long answer of,  "No, you                                                            
don't think that new regulations will be required?"                                                                             
MR. EASON responded, "I  believe today, noticing is occurring on all                                                            
leases in every  instance and it hasn't  required new regulations."                                                             
SENATOR  PEARCE noted  a zero  fiscal note  from  the Department  of                                                            
Natural Resources and that she had two amendments.                                                                              
SENATOR PEARCE  offered a  technical correction  to amendment  #1 on                                                            
page  5, line  18 to  delete "a"  and insert  "to".  She then  moved                                                            
amendment  #1.  There  was  objection  for  an  explanation  of  the                                                            
SENATOR PEARCE explained:                                                                                                       
     This answers  and the second and third piece,  I hope will                                                                 
     help  alleviate Ms.  Brady's and AOGA's  concern. When  we                                                                 
     passed SB  308, it was our intent that the phases  - We do                                                                 
     a disposal  or lease sale; then you've got an  exploration                                                                 
     phase;  you've  got  a  development   phase;  you  have  a                                                                 
     transportation  phase whether  you're building a pipeline                                                                  
     or some  way to get  the product to  market. So those  are                                                                 
     the phases. I understand  Judy's concern that the language                                                                 
     on page 5  might be now interpreted by laws meaning  every                                                                 
     little thing that might  be done might be a new phase. But                                                                 
     that's certainly not the  legislature's intent and I think                                                                 
     this amendment helps clarify  that. That was our intent in                                                                 
     SB 308. The  other pieces of this amendment frankly  speak                                                                 
     to drafting  errors and small  changes we needed to  make.                                                                 
SENATOR LINCOLN  asked the committee to consider the  meaning of the                                                            
proposed language if "or" was deleted on page 5, line 23.                                                                       
MR. PATRICK COUGHLIN, Consultant  to the Senate Resources Committee,                                                            
said he  wanted to  comment on  Senator Elton's  question  regarding                                                            
whether regulations would have to be adopted. He explained:                                                                     
     Today  everything  that  we're  leasing  has been  in  the                                                                 
     coastal  zone  and  therefore,  new  phases  are publicly                                                                  
     noticed  pursuant to  those regulations.  However, we  are                                                                 
     now  issuing leases  outside of  the coastal  zone and  we                                                                 
     have  a lease sale  coming up  in May  for the Foothills.                                                                  
     Some of that acreage is  outside the coastal zone. So, the                                                                 
     purpose of  this was to insure that for leases  that might                                                                 
     fall out of  the coastal zone and, therefore,  wouldn't be                                                                 
     subject   to  public   notice  under   the  coastal   zone                                                                 
     provisions,   there  would  be  public  notice   for  such                                                                 
     activities   and  those  would  be  the  regulations   the                                                                 
     Department would have to adopt.                                                                                            
     The  reason   for  changing  "or"  to  "unless"  [Senator                                                                  
     Lincoln's  question] was because  it's really meant  to be                                                                 
     either or,  not both. When some people read the  "or" they                                                                 
     were confused  and the suggestion  was you either give  it                                                                 
     by the  regulations adopted  by the  agency unless it  was                                                                 
      begin given under the coastal zone management program.                                                                    
SENATOR PEARCE  moved to amend the amendment on page  5, line 23, to                                                            
delete "or, if" and insert "unless".                                                                                            
SENATOR  ELTON  noted  that  the  answer  also  indicated  that  new                                                            
regulations  are going  to be necessary  if this  falls outside  the                                                            
coastal zone. "So, the short answer has changed a little bit."                                                                  
CHAIRMAN TORGERSON  said that amendment #1 had been  noted and asked                                                            
if there was any  further discussion.  There were  no objections and                                                            
amendment #1 was adopted.                                                                                                       
SENATOR PEARCE  said she understands  AOGA's concern that  there not                                                            
be  a new  definition  of what  every  little  piece is  that  might                                                            
require a public notice.  She agrees with Mr. Eason that any leasing                                                            
and further  phases  are happening  now without  public notice.  She                                                            
explained further:                                                                                                              
     However, and I hope I get  a little latitude here, I never                                                                 
     would have  imagined that the Railroad could have  managed                                                                 
     to build a  terminal at the Anchorage Airport  that had no                                                                 
     EIS,  no  environmental   assessment,  no  public  notice                                                                  
     requirements,  because it fell  through all of the cracks                                                                  
     in  all of  the programs…There   was never  public notice                                                                  
     before  the project was actually  happening and so,  there                                                                 
     are situations  out there where we find we don't  have the                                                                 
     blanket that  we think we have. I understand the  interest                                                                 
     of the folks in Cook Inlet  of making sure, and all of the                                                                 
     state,  that they have public  notice as these phases  are                                                                 
     moving forward so they have  an opportunity to testify and                                                                 
     provide comments. I would  like to have that prescribed in                                                                 
     law as  this does as opposed  to have systems such as  the                                                                 
     stake  holders process  that  the governor  followed on  a                                                                 
     previous  Cook  Inlet  lease  sale  that  I  think didn't                                                                  
     accomplish  much and,  on the other  hand, was completely                                                                  
     outside  of the law. So, I'm  happy to see we are calling                                                                  
     for specific opportunities for that to happen.                                                                             
SENATOR  PEARCE  offered amendment  #2  that  was requested  by  the                                                            
Department  on  page 5,  line  21 which  points  out that  this  new                                                            
section is for those disposals that are oil and gas disposals.                                                                  
SENATOR  LINCOLN  apologized  to Senator  Pearce  with  a  technical                                                            
amendment deleting "if".                                                                                                        
MS. RUTHERFORD said she was comfortable with that change.                                                                       
CHAIRMAN TORGERSON  announced there  were no further objections  and                                                            
the amendment was adopted.                                                                                                      
SENATOR  HALFORD asked  if there was  any limitation  on how  long a                                                            
Best Interest Finding lasts.                                                                                                    
MS. LUNDQUIST  answered  that there  is a provision  in 035(e)  that                                                            
deals with oil and gas lease sales releasing under 180.                                                                         
MR. MEYERS replied Best Interest Findings last for 10 years.                                                                    
MS. LUNDQUIST  added, "Unless  substantive  new information  becomes                                                            
available. Then they would have to do an amendment prior…"                                                                      
SENATOR HALFORD  said at some point you go back and  review the Best                                                            
Interest Finding on the  original gas line or  the application for a                                                            
refining  plant and,  "it's sold  to somebody  else  and it goes  on                                                            
forever." I just  wanted to make sure there was a  limitation on it.                                                            
SENATOR ELTON  noted that Senator Pearce said this  would save a lot                                                            
of time and energy  in the Department for doing this  and the fiscal                                                            
note doesn't  reflect any  savings and he  was assuming it  would be                                                            
potential savings,  because they are  not now doing what  the courts                                                            
suggested they ought to be doing.                                                                                               
MS. RUTHERFORD replied that was a correct interpretation.                                                                       
SENATOR PEARCE  moved to  pass CSSB 156 (RES)  with the fiscal  note                                                            
with individual  recommendations.  There were  no objections  and it                                                            
was so ordered.                                                                                                                 

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