Legislature(1993 - 1994)
02/28/1994 08:15 AM House RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE RESOURCES STANDING COMMITTEE February 28, 1994 8:15 a.m. MEMBERS PRESENT Representative Bill Williams, Chairman Representative Bill Hudson, Vice Chairman Representative Con Bunde Representative Pat Carney Representative John Davies Representative Joe Green Representative Jeannette James Representative Eldon Mulder MEMBERS ABSENT Representative David Finkelstein COMMITTEE CALENDAR HJR 55: Relating to the importance to the economy of Southeast Alaska of continued timber harvests on the Tongass National Forest. ADOPTED CS HJR 55(RES) AND MOVED OUT OF COMMITTEE WITH INDIVIDUAL RECOMMENDATIONS HJR 56: Relating to an exemption for federal lands in Alaska from the federal PACFISH management strategy. ADOPTED CS HJR 56(RES) AND MOVED OUT OF COMMITTEE WITH INDIVIDUAL RECOMMENDATIONS *HB 426: "An Act establishing the Chickaloon Flats Critical Habitat Area." CSHB 426(O&G) MOVED OUT OF COMMITTEE WITH INDIVIDUAL RECOMMENDATIONS HB 199: "An Act providing for oil and gas exploration licenses, and oil and gas leases in certain areas of the state; and providing for an effective date." ADOPTED CSHB 199(O&G) AND MOVED OUT OF COMMITTEE WITH INDIVIDUAL RECOMMENDATIONS WITNESS REGISTER THYES SHAUB, Government Affairs Director Alaska Forest Association, Inc. 217 Second Street, Suite 206 Juneau, Alaska 99801 Phone: 463-3175 POSITION STATEMENT: Answered questions relating to HJR 55 REPRESENTATIVE CON BUNDE Alaska State Legislature State Capitol, Room 112 Juneau, Alaska 99801-1182 Phone: 465-4843 POSITION STATEMENT: Prime Sponsor HB 426 JACK HENDRICKSON, President Alaska Waterfowl Association State Chairman, Waterfowl U.S.A. 3105A Lakeshore Drive, Ste. 102 Anchorage, Alaska 99517 Phone: 266-4280 POSITION STATEMENT: Supported HB 426 ELLEN FRITTS, Deputy Director Division of Habitat and Restoration Alaska Department of Fish and Game P.O. Box 25526 Juneau, Alaska 99802-5526 Phone: 465-4105 POSITION STATEMENT: Answered questions relating to HB 426 REPRESENTATIVE JOE GREEN Alaska State Legislature State Capitol, Room 114 Juneau, Alaska 99801-1182 Phone: 465-4931 POSITION STATEMENT: Reviewed content of HB 199 KEN BOYD, Deputy Director Division of Oil and Gas Department of Natural Resources P.O. Box 107034 Anchorage, Alaska 99510-0734 Phone: 762-2548 POSITION STATEMENT: Supported HB 199 GEORGE FINDLING, Manager Government and Public Relations ARCO Alaska, Inc. P.O. Box 110360 Anchorage, Alaska 99510 Phone: 263-4174 POSITION STATEMENT: Supported HB 199 ARDIE GRAY, Public Service Manager Alaska Oil and Gas Association 121 W. Fireweed, Suite 207 Anchorage, Alaska 99503 Phone: 272-1481 POSITION STATEMENT: Supported HB 199 BECKY GAY, Executive Director Resource Development Council 121 W. Fireweed, Suite 250 Anchorage, Alaska 99503 Phone: 276-0700 POSITION STATEMENT: Supported HB 199 WALT FURNACE, General Manager Alaska Support Industry Alliance 4220 B Street Anchorage, Alaska 99503 Phone: 563-2226 POSITION STATEMENT: Supported HB 199 GREG GARRELS 1176 Broadview Drive Fairbanks, Alaska 99712 Phone: 457-3543 POSITION STATEMENT: Opposed HB 199 CLIFF BURGLIN 17 Adak Street Fairbanks, Alaska 99707 Phone: 452-5149 POSITION STATEMENT: Opposed HB 199 PREVIOUS ACTION BILL: HJR 55 SHORT TITLE: TONGASS NATIONAL FORST TIMBER HARVESTS SPONSOR(S): RULES BY REQUEST OF THE HOUSE ECONOMIC TASK FORCE JRN-DATE JRN-PG ACTION 02/11/94 2344 (H) READ THE FIRST TIME/REFERRAL(S) 02/11/94 2344 (H) RESOURCES 02/23/94 (H) RES AT 08:15 AM CAPITOL 124 02/23/94 (H) MINUTE(RES) 02/28/94 (H) RES AT 08:15 AM CAPITOL 124 BILL: HJR 56 SHORT TITLE: EXEMPT ALASKA FROM "PACFISH" REGS SPONSOR(S): RULES BY REQUEST OF THE HOUSE ECONOMIC TASK FORCE JRN-DATE JRN-PG ACTION 02/11/94 2344 (H) READ THE FIRST TIME/REFERRAL(S) 02/11/94 2344 (H) RESOURCES 02/23/94 (H) RES AT 08:15 AM CAPITOL 124 02/23/94 (H) MINUTE(RES) 02/28/94 (H) RES AT 08:15 AM CAPITOL 124 BILL: HB 426 SHORT TITLE: CHICKALOON FLATS CRITICAL HABITAT AREA SPONSOR(S): REPRESENTATIVE(S) BUNDE JRN-DATE JRN-PG ACTION 02/02/94 2219 (H) READ THE FIRST TIME/REFERRAL(S) 02/02/94 2219 (H) O&G, RES, FIN 02/16/94 (H) O&G AT 05:00 PM CAPITOL 124 02/18/94 2456 (H) O&G RPT CS(O&G) 3DP 2NR 02/18/94 2456 (H) DP: KOTT, SANDERS, SITTON 02/18/94 2456 (H) NR: G.DAVIS, MACKIE 02/18/94 2457 (H) -ZERO FISCAL NOTE (F&G) 2/18/94 02/18/94 2457 (H) REFERRED TO RESOURCES 02/28/94 (H) RES AT 08:15 AM CAPITOL 124 BILL: HB 199 SHORT TITLE: OIL & GAS EXPLORATION LICENSES/LEASES SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR JRN-DATE JRN-PG ACTION 03/05/93 549 (H) READ THE FIRST TIME/REFERRAL(S) 03/05/93 549 (H) OIL & GAS, RESOURCES, FINANCE 03/05/93 549 (H) -ZERO FISCAL NOTE (REV) 3/5/93 03/05/93 549 (H) GOVERNOR'S TRANSMITTAL LETTER 03/15/93 (H) O&G AT 05:00 PM CAPITOL 124 03/16/93 (H) O&G AT 08:00 AM CAPITOL 124 03/22/93 (H) O&G AT 05:00 PM CAPITOL 124 03/22/93 (H) MINUTE(O&G) 03/25/93 (H) O&G AT 05:00 PM CAPITOL 124 03/31/93 (H) O&G AT 05:00 PM CAPITOL 124 04/06/93 (H) MINUTE(O&G) 04/07/93 (H) O&G AT 05:00 PM CAPITOL 124 04/07/93 (H) MINUTE(O&G) 01/13/94 (H) O&G AT 05:00 PM CAPITOL 124 01/26/94 (H) O&G AT 05:00 PM CAPITOL 124 01/31/94 (H) O&G AT 05:00 PM CAPITOL 124 01/31/94 (H) MINUTE(O&G) 02/07/94 (H) O&G AT 05:00 PM CAPITOL 124 02/09/94 2312 (H) O&G RPT CS(O&G) NEW TITLE 3DP 2NR 02/09/94 2312 (H) DP: G. DAVIS, KOTT, GREEN 02/09/94 2312 (H) NR: OLBERG, SITTON 02/09/94 2312 (H) -ZERO FISCAL NOTE (DNR) 2/9/94 02/09/94 2312 (H) REFERRED TO RESOURCES 02/23/94 (H) RES AT 08:15 AM CAPITOL 124 02/28/94 (H) RES AT 08:15 AM CAPITOL 124 ACTION NARRATIVE TAPE 94-21, SIDE A Number #000 The House Resources Committee was called to order by Vice Chairman Bill Hudson at 8:30 a.m. Members present at the call to order were Representatives Hudson, Bunde, Davies, James and Mulder. Members absent were Representatives Williams, Carney, Finkelstein and Green. VICE CHAIRMAN BILL HUDSON announced there is a quorum present. HJR 55 - Tongass National Forest Timber Harvests VICE CHAIRMAN HUDSON said there is a committee substitute before the committee. The changes from the original resolution include page one, line four, through page two, line nine, eight new WHEREAS clauses have been added. These clauses strengthen the resolution and recognize other multiple uses of the Tongass and laws in place to protect those uses. He added that the Alaska Forest Association does approve the changes. He stated another change is on page three, line 28, the words "under current laws" have been added. VICE CHAIRMAN HUDSON noted for the record that REPRESENTATIVE CARNEY joined the committee at 8:32 a.m. Number 035 REPRESENTATIVE JOHN DAVIES felt the changes made are good, but is concerned about the numbers contained in the resolution. He said he would feel better if someone could testify as to where the numbers came from. He also is concerned about page two, lines 30-32 where the resolution says "a decline in the availability of timber to harvest..." and on page two, lines eight and nine, where HJR 55 says "the economy of Southeast Alaska was built around an expected annual harvest level of 450,000,000 board feet;". He felt economies are not built. REPRESENTATIVE DAVIES read portions of a recent report which reviews the economic impact of the wilderness designation of the Tongass National Forest. The report is required by the Alaska National Interest Land Conservation Act (ANILCA) every two years. "A concern of Congress in passing ANILCA was the impact of the wilderness designation on three major industries in Southeast Alaska: Forest products, fisheries, and tourism. The changes in employment levels in these three major industries in Southeast Alaska are linked to changes in demand, supply and institution variables as well as changes in wilderness designations. Thus far, an economic effect on employment and personal earnings of designating this land as wilderness cannot be distinguished from the effects of other economic forces which have continued to change between 1981 and 1991." He pointed out that later in the report it shows that major changes in the industry were driven by the change in the price of the dollar on the world market in the early 1980s. REPRESENTATIVE DAVIES stressed there are considerations other than the availability of timber which cause significant changes and to date, the effects have not been determined between the availability and the actual production. He felt the report contradicted what is stated in HJR 55, page two, lines 30-32. Number 087 REPRESENTATIVE ELDON MULDER said, reality is a mill has been shut down and another mill is temporarily closed because of a lack of availability of timber. He felt the WHEREAS clause is quite appropriate for 1994 as opposed to 1991. He agreed with Representative Davies in regard to page two, lines eight and nine regarding "built around". He thought perhaps "relies upon" might be better language. VICE CHAIRMAN HUDSON noted for the record that REPRESENTATIVE GREEN joined the committee at 8:35 a.m. Number 105 REPRESENTATIVE JEANNETTE JAMES said she did not oppose the words "built around", especially since there are huge amounts of capital infused to build an industry. She also accepts using the words "relies upon." Regarding the report which Representative Davies referred to, she commented many events have happened since 1991 which have caused the price of lumber to skyrocket. She said the pulp mills situation is due to a balance between the lack of timber and worldwide pulp prices. She stated she is comfortable with the numbers contained in the resolution. VICE CHAIRMAN HUDSON reminded committee members that when the last hearing on HJR 55 concluded, the original draft was before the committee and there was a motion on the table. He stated the committee must vote on the amendment. He read the proposed amendment: Remove the language on page one, line 15, "and the near completion of the first harvest" and the second WHEREAS on page two. VICE CHAIRMAN HUDSON asked for a roll call vote. Voting in favor of the amendment was Representative Davies. Voting against the amendment were Representatives Carney, Bunde, Green, James, Mulder and Hudson. The motion was DEFEATED. REPRESENTATIVE PAT CARNEY made a motion to ADOPT CS HJR 55(RES). VICE CHAIRMAN HUDSON asked if there were any objections. Hearing none, the MOTION PASSED. REPRESENTATIVE DAVIES MOVED to AMEND CS HJR 55(RES) on page two, line eight, deleting the words "was built around" and insert the words "would benefit from." VICE CHAIRMAN HUDSON stated the most significant point regarding the work draft is the appeal for a timber harvest level which allows industries in Southeast Alaska to remain open. REPRESENTATIVE MULDER stated the only problem he has with the motion is that it almost insinuates "if we had it", as opposed to the fact that we have had 450 million board feet. He thought perhaps the statement was intended to say, this is what we are intending to have and this is what we are gearing toward. He asked if the harvest level is in fact 450 million board feet. THYES SHAUB, GOVERNMENT AFFAIRS DIRECTOR, ALASKA FOREST ASSOCIATION, INC., responded the harvest level has not been that high in the past couple of years. She stated she did not object to the proposed amendment. She commented that in 1978, when the compromise took place, because of the wilderness designation and the changes in the Tongass Land Management Plan at that time, written into the law was an intention there would be an average of 450 million board feet provided. Going back to the 1950s, the economy was built around that figure. Number 221 REPRESENTATIVE CON BUNDE felt it is more a level of intensity. REPRESENTATIVE JAMES said she liked the words "built around", especially because the word built indicates that money has been invested. REPRESENTATIVE DAVIES pointed out that the report he referred to earlier, lists the harvests from 1981 to 1991 and aggregates both the saw log and the utility in terms of million board feet harvested. The figures contained in that report are 387 million, 372 million, 250 million, 280 million, 232 million, 290 million, 336 million, 396 million, 444 million, 471 million, 364 million and 345 million board feet. He said in that decade, there appears to be only two years that approach the level called for in the resolution. Therefore, it is difficult for him to see when the economy has relied healthily on the timber industry for a decade since the harvest levels have been far below the 450 million board feet. REPRESENTATIVE CARNEY suggested amending CS HJR 55(RES), page two, lines eight and nine to read: "WHEREAS the timber industry of Southeast Alaska was developed based on an expected annual harvest level of 450,000,000 board feet;" REPRESENTATIVE JAMES felt it is important to understand why the resolution is at hand. If there is a desire to say that the timber industry is not needed, then it is easy to single out the timber industry and say that is what is being talked about. She felt there is a need to emphasize that the economy of Southeast is based on the timber industry. If the committee focuses on the timber industry only and the 450 million board feet, the committee is saying it is not a problem, the industry can be lost and picked up in tourism and fishing. She did not feel that is true. She stressed the economy in Southeast is definitely dependent upon the timber industry, and if the timber industry was eliminated, Southeast would feel a deficit. REPRESENTATIVE JAMES supported the words "developed around," but stated she wants it understood there has been a lot of economic input over the years in developing an economy which is very important to Southeast. REPRESENTATIVE MULDER speaking to the amendment suggested by Representative Carney, stated the amendment is quite appropriate when the following four WHEREAS clauses are considered because they do talk about how many jobs are created, what type of employment is created, how much the annual income is, what the payroll does for the overall region. He supported the proposed amendment. Number 296 REPRESENTATIVE CARNEY felt it is important to stress that action was taken by the timber industry based on expectations. He thought the term "economy" is a stretch of the imagination to think the economy of Southeast Alaska is totally dependent upon the timber industry. He said by stressing the industry was developed based on expectations will indicate to people reading the resolution that the Alaska timber industry extended itself based on federal promises and that could be important to how the resolution is viewed. REPRESENTATIVE JAMES pointed out the two previous WHEREAS clauses are related to the economy and felt if the committee changes the term economy to the timber industry, the intent of the resolution is destroyed. REPRESENTATIVE DAVIES noted the two previous WHEREAS clauses refer to the broader economy. He said he would accept Representative Carney's amendment as a substitute for his. REPRESENTATIVE DAVIES WITHDREW his motion to amend CS HJR 55(RES). REPRESENTATIVE CARNEY MOVED to AMEND CS HJR 55(RES) on page two, lines eight and nine to read, "WHEREAS the timber industry of Southeast Alaska was developed based upon an expected annual harvest level of 450,000,000 board feet;" VICE CHAIRMAN HUDSON asked for a roll call vote. Voting in favor of the amendment were Representatives Green, Carney, Hudson, Bunde, Davies, and Mulder. Voting against the amendment was Representative James. The AMENDMENT was ADOPTED on a vote of six to one. Number 384 REPRESENTATIVE DAVIES commented in regard to page two, lines 27-29, part of the problem with the resolution is the push for 450 million board feet. He said one of the basic issues is what the Tongass can really yield on a sustained yield basis. The assessment of what is truly available in that forest has changed in the past decade. He noted there had been testimony indicating that the original inventory was significantly overstated. He said while it may be true the industry was developed based on that expectation, he felt that expectation may have been an error due to the inventory being incorrect. REPRESENTATIVE DAVIES felt uncomfortable voting to support the resolution because there is no reliable testimony as to what the current inventory is in the Tongass, and thought it is quite possible that production on private land was far in excess of the sustained yield. He stated for the committee, to make up a cut rate which was beyond sustained yield principles on private land and increasing resources from public lands is not good. REPRESENTATIVE JAMES stated resolutions are made up of WHEREAS and RESOLVE clauses and felt the RESOLVE clauses are the most important. She said in this resolution, it indicates in a RESOLVE clause to manage the Tongass National Forest in order to provide maximum opportunity for timber harvest under current law. She felt that particular RESOLVE protects the committee from anything the committee is asking for and the problems referred to by Representative Davies will be admitted in that statement. She said disagreeing with the WHEREAS clauses is not as critical as disagreeing with the RESOLVE clauses. Number 441 REPRESENTATIVE CARNEY wondered whether the language on page one, lines 13-16, "WHEREAS regeneration on harvested land in the Tongass National Forest has demonstrated that second growth yields can reach the 23,000 board feet per acre necessary to sustain a harvest of 450,000,000 board feet per year as designated in the Tongass Land Management Plan;" is accurate. VICE CHAIRMAN HUDSON responded the committee had as much testimony for it as they did against it. REPRESENTATIVE CARNEY felt there is a need to be accurate and he assumes the statement is correct. REPRESENTATIVE JAMES pointed out that HJR 55 came as a recommendation from the House Economic Task Force. She stated a lot of testimony was heard and the resolution currently before the committee is the direct result of a request which came from the timber industry and all of the other information received. She believed there is back up in House Economic Task Force testimony to support every statement in the resolution. Number 465 REPRESENTATIVE DAVIES said his motivation is to speak to important issues raised in the resolution including what is meant by multiple use forests, what is meant by sustained yield and whether or not the resolution is calling for a reasonable thing. He pointed out that in the second RESOLVE clause, there is a request for an increase in the amount of timber available. He stressed there is not sufficient information to know whether or not the Tongass can sustain an increase over what is currently offered and furthermore, he stated he is not convinced that the current decline in the economy in Southeast Alaska is directly related to the availability of timber. He felt it is more related to market forces and independent decisions on private investments. VICE CHAIRMAN HUDSON said while in Ketchikan, he had a long discussion with Martin Pihl, the Chief Executive Officer of the Ketchikan Pulp Company, discussing the availability of trees and the impact it has on the company's ability to operate. Vice Chairman Hudson stated the company is very concerned about the cutback and proposed cutbacks and believed when the original act was passed, the harvest of 450 million board feet was, in fact, a part of the arrangement. Now they are being asked to take less. Number 518 REPRESENTATIVE MULDER made a motion to MOVE CS HJR 55(RES) with a zero fiscal note out of committee with INDIVIDUAL RECOMMENDATIONS. VICE CHAIRMAN HUDSON asked if there were any objections to the motion. Hearing none, the MOTION PASSED. HJR 56 - Exempt Alaska From "PACFISH" Regulations VICE CHAIRMAN HUDSON explained the new material to be added to the resolution. On page one, line four through page two, line two, six new WHEREAS clauses have been added. On page two, at the end of line 25 and at the beginning of line 26, the words "and mining" have been added. On page three, lines four-seven, a new WHEREAS clause was added. On page three, lines eight and nine, the words "Chugach National Forest, and on Bureau of Land Management land" was added. On page three, line 25, after "exclude" the word "all" was added. REPRESENTATIVE CARNEY MOVED to ADOPT CS HJR 56(RES). VICE CHAIRMAN HUDSON asked if there were any objections to the motion. Hearing none, the MOTION PASSED. REPRESENTATIVE JAMES made a motion to MOVE CS HJR 56(RES) with a zero fiscal note out of committee with INDIVIDUAL RECOMMENDATIONS. VICE CHAIRMAN HUDSON asked if there were any objections to the motion. Hearing none, the MOTION PASSED. Number 600 HB 426 - Chickaloon Flats Critical Habitat Area REPRESENTATIVE CON BUNDE, PRIME SPONSOR, said there is a committee substitute for HB 426 before the committee. He added that the committee folders contain a map showing the location of the area, as there has been confusion on where the Chickaloon Flats are actually located. He said the Chickaloon Flats are the mud flats directly across and south of the Anchorage Potter Creek area. HB 426 adds the Chickaloon Flats area to two areas which have already been declared critical habitat areas. REPRESENTATIVE BUNDE stated the Chickaloon Flats area is a waterfowl nesting, feeding and resting area, which is a particularly important area in the fall when great numbers of duck, geese and swan migrate through and Portage Pass is closed. It becomes vital that waterfowl have this resting area until the Pass is open. He stressed the legislation is not intended to withdraw more lands from public use and lock them up in any way. He explained HB 426 provides one more step of protection. Currently, public lands are opened to development without a permit. HB 426 will require a permit from the Alaska Department of Fish and Game (ADF&G) before development can take place. If exploration for resources is compatible with the purpose of the critical habitat, it will be allowed. Number 683 JACK HENDRICKSON, PRESIDENT, ALASKA WATERFOWL ASSOCIATION AND STATE CHAIRMAN, WATERFOWL U.S.A., testified via teleconference, and stated his group has been involved in getting protection for waterfowl in the Susitna Flats State Game Refuge, which is 301,000 acres; Trading Bay State Game Refuge, 186,000 acres; Redoubt Bay Critical Habitat Area, 201,000 acres; Goose Bay State Game Refuge, 14,000 acres; Palmer Hay Flats State Game Refuge, 38,000 acres; and Anchorage Coastal Refuge, 14,000 acres. Number 700 MR. HENDRICKSON said the Chickaloon Flats is one of the remaining spots in Cook Inlet needing oversight; not to the extent that it needs to be declared a refuge, but to the extent that ADF&G has some oversight. He felt critical habitat area is a good designation and it will not cost any more money than is already appropriated for ADF&G to have oversight. He explained the Chickaloon Flats is very important to waterfowl both in the spring and fall. If Portage Pass is closed and waterfowl cannot go any further south, they have to have places to rest and feed. The Chickaloon Flats has been very popular with duck and geese who get into that situation. He added that although the Anchorage Coastal Refuge is also of assistance, waterfowl seem to prefer the Chickaloon Flats. Number 730 MR. HENDRICKSON stated that in addition to small populations of nesting duck, the flats are also valuable to migrating shore birds who also use the area. Designating the Chickaloon Flats as a critical habitat area is not costly, is thoughtful and puts together almost an entire Cook Inlet package of waterfowl refuges which is the largest, best and least costly in the world. Number 752 REPRESENTATIVE JAMES stated she is not familiar with the other state refuges and critical habitat areas which have been mentioned and what is permitted in those areas. She wondered if the Chickaloon Flats Critical Habitat Area will be different than the other refuges and habitat areas in terms of development. TAPE 94-21, SIDE B Number 000 MR. HENDRICKSON responded it is not the intent of ADF&G to stop development when an area has been designated. HB 426 provides for desirable oversight and is the kind of caution an intelligent conservationist would use in setting up land designations. If there is no development in the Chickaloon Flats area in the next 20-30 years, it will not make any difference whether the area was designated or not. However, if large structures are going to be built there and the development is not compatible with the fish or waterfowl there, ADF&G could stop the development with the oversight they have. He added that oil and gas development is one of the least intrusive kinds of development on land because most of it is done underground. Number 023 REPRESENTATIVE JAMES asked if it is correct that state game refuges and critical habitat areas do not have permission to do other things. She expressed concern that if oil development and other development is allowed by permit in the other areas and not in the Chickaloon Flats, it will be contradictory. On the other hand, if development by permit is not allowed in the other areas but will be allowed in the Chickaloon Flats, she does not see the need to set up two different kinds of protection for migratory waterfowl. MR. HENDRICKSON responded refuges suggest a higher degree of concern. He said ADF&G has more care and examination at refuges than critical habitat areas. He did not believe ADF&G has a single person assigned to work on the refuges, but ADF&G does watch refuges more because there is a higher level of protection needed due to the larger number of wildlife. REPRESENTATIVE BUNDE told committee members they have a copy of Alaska Statute 16.20.605 which lists critical habitat areas and discusses what is allowed. HB 426 requires a permit before development is allowed to ensure oversight. Number 060 REPRESENTATIVE DAVIES pointed out the statute says Redoubt Bay is a critical habitat area and it also has a similar oil and gas permit clause. ELLEN FRITTS, DEPUTY DIRECTOR, DIVISION OF HABITAT AND RESTORATION, ADF&G, stated there are 32 critical habitat areas located throughout the state. What can and cannot happen within the areas is determined when the legislature designates the area. In the proposed work draft on HB 426, it lists specifically not only what kinds of things the public will want to have happen there and what the legislature thinks should happen there, but also states what the area will specifically be set aside for. She pointed out the Chickaloon Flats Critical Habitat Area will be set aside for waterfowl. She stressed the purpose of the elevated scrutiny is to look carefully at what the resources are in the area, look at the activity which is proposed and perhaps condition the activity so it can go forward while still meeting the purpose of the area. Number 095 REPRESENTATIVE JAMES pointed out the Chickaloon Flats area is another 22,000 acres and there is a zero fiscal note. She asked if ADF&G is stating there will not be a significant fiscal impact when adding that many more acres to the responsibility of ADF&G in maintaining the habitat. MS. FRITTS said that is correct. ADF&G has permitters in the Anchorage area who will review any applications for the area and accomplish it as a part of their regular duties. REPRESENTATIVE BUNDE added there are no known or proposed requests for permits currently. There might be a fiscal impact if a large number of requests were received. REPRESENTATIVE BUNDE said HB 426 is a feel good type of legislation which does not cost anything, either in lost resources or actual dollars. He commended the Alaska Waterfowl Association as they were the driving force behind the other habitat areas which were mentioned. Number 117 REPRESENTATIVE JAMES asked if there will be a blank permit for uses of the area, based on a decision made by ADF&G rather than issuing individual permits for activities whereby a fee could be charged. MS. FRITTS replied no fees are charged for any of ADF&G's permits. She added that many of the activities included are the types of activities which ADF&G does not review on any of the refuges or critical habitat areas. She stated for many of the special habitat areas, ADF&G does prepare a management plan, asking members of the public to be a part of a planning committee. Those management plans are more specific on activities if there is a concern expressed by the committee with that particular special area. Number 148 REPRESENTATIVE MULDER made a motion to MOVE CSHB 426(O&G) with a zero fiscal note out of committee with INDIVIDUAL RECOMMENDATIONS. VICE CHAIRMAN HUDSON asked if there were any objections. Hearing none, the MOTION PASSED. HB 199 - Oil and Gas Exploration Licenses/Leases REPRESENTATIVE BUNDE made a motion to ADOPT CSHB 199(O&G). VICE CHAIRMAN HUDSON asked if there were any objections. Hearing none, the MOTION PASSED. Number 175 REPRESENTATIVE GREEN said since the Department of Natural Resources (DNR) representative had not dialed in yet, he would review HB 199. He told committee members that in their folder was a chart showing the revenues to the state from the petroleum industry. It shows, contrary to a belief which many people have, the lease bonus does not supply a very large portion of oil revenue. He pointed out that the state's wealth from the oil industry comes primarily from royalties received and the severance tax applied to all barrels. REPRESENTATIVE GREEN stated, referring to two maps contained in members' folders, that HB 199 does not apply to any land north of the Umiat Base Line or the developed portion of Cook Inlet. HB 199 does not impact conventional, competitive leasing which is conducted every year by DNR. He stressed HB 199 encourages companies remaining in the state and perhaps encourages other worldwide companies to return to the state or come to the state for the first time. He said these worldwide companies are familiar with concession type leasing which occurs in foreign countries and noted this country has nothing like that, but rather develops the oil industry in the U.S. based on private ownership. He stated in the U.S., an oil company goes to a private landowner and requests that a certain royalty be arranged if the landowner allows drilling. REPRESENTATIVE GREEN stated HB 199 allows competitive lease bidding which is currently ongoing and is similar to the conventional oil company operations within the U.S. He explained that HB 199 supplements competitive lease bidding with what is known as worldwide tract leasing or large concession leasing with a licensing from the state on large tracts of land. He noted the minimum amount of acreage to exercise HB 199 is 20,000 acres and the maximum is 500,000 acres. REPRESENTATIVE GREEN reminded committee members there are large amounts of acreage in the state which have not been developed, tapped, or even drilled upon. HB 199 will make that acreage available by allowing a company or a combination of companies to suggest to the commissioner of DNR that they would like to exercise their license agreement with the state for a particular area. He explained if the commissioner finds it would be in the best interest of the state to have activity looking for hydrocarbons to replace the state's dwindling reserves, he would then publicly announce that a competitive bid will take place for the license privilege within the area which has been designated. Representative Green said hopefully at that time, several individual companies or combinations of companies will submit sealed bids similar to the competitive lease sales which occur in Cook Inlet and the North Slope. REPRESENTATIVE GREEN added that when the commissioner agrees the activity should happen, he will assign some blanket conditions. Once those conditions are determined, they will be listed in the licensing bidding. Therefore, when companies bid, they are completely aware there are certain restrictions. He explained the licensing agreements then go on the block. The successful bidder will be chosen by a sealed bid arrangement, similar to the competitive lease selling. If the commissioner finds at that time the bids are not satisfactory, the sale is cancelled. If it is determined that there has been a satisfactory license bid, that bid is accepted. REPRESENTATIVE GREEN gave an example: Company A comes to the commissioner and expresses an interest in a tract; the lease sale is held and companies bid; company A bids $100 million and the bid is accepted. Company A is then committed to the state to spend $100 million over a ten year period to try and find hydrocarbons, with the restrictions imposed in the area which company A has received a designation on. Company A then has an exclusive ability to look for oil anywhere in this concession. He pointed out there are some restrictions. If company A has not committed and spent at least 25 percent of their bid by the fourth year, the commissioner relinquishes that license agreement. Number 298 VICE CHAIRMAN HUDSON asked if their bond would be forfeited. REPRESENTATIVE GREEN responded, yes the company would and added that is a yearly commitment. He stated HB 199 says company A has an up front requirement from a regulation saying they have to commit or lose their bond. Current leasing does not have that restriction. He continued that if a company gets a ten year lease on a competitive basis, it can wait nearly until the tenth year before it does anything. He said HB 199 forces a company to do something earlier which is to the state's benefit. He added that if a company completes 50 percent and has actually spent $50 million in ground truth before the fourth year, there will be no restriction of the land back to the state and the company is allowed to continue to develop. If a company commits more than 25, but less than 50 percent; for example, a company commits 40 percent on a very expensive well within the fourth year but then sits on their laurels and thinks about it, the company begins to lose part of its acreage by that time. The company loses 25 percent and ten percent every year thereafter, up to 75 percent total. He stressed the company has committed what is needed to hold but has lost 75 percent of the land designated since it has not committed to doing the work agreed to. REPRESENTATIVE GREEN explained further that even though there is a bond requirement or an environmental safeguard for any petroleum activity within the state, a company either has to show that it is capable or buy an actual performance bond saying that if its drilling messes up the countryside, that company can be taken to task or their bond will be taken. That is a completely separate bond than the bond which is issued in relation to HB 199. The bond for HB 199 is a commitment to the state that a company will do some work and if it does not, it will sacrifice dollars to the state. REPRESENTATIVE GREEN gave an example: Company A has committed $100 million. HB 199 says that you take that amount of commitment and subtract the amount of work which the commissioner has approved as adequate, and then divide by the number of years remaining on the license agreement. He pointed out the first year it would be $100 million minus zero, divided by ten. A company would need to post a $10 million bond that if the company does not do anything in that year, the state gets $10 million. The second year, the company does 55 percent or $55 million - $100 million minus $55 million, leaving $45 million yet to be divided by nine, meaning the company needs to commit to a $5 million bond. It works that way progressively down until the company has spent $100 million. He stated at that point there is no more bonding to the state, but there would still be environmental bonding needed through the Department of Environmental Conservation (DEC). REPRESENTATIVE GREEN continued with the example. Company A finds an oil field in its 500,000 acres. The company then goes to the commissioner and states that the remaining land seems to be a goat pasture and desires to convert the area around the indicated oil field to a lease. He stressed there is a provision in HB 199 to accomplish that. At that time, the company goes on the same leasing program which it would have done if it had gone through competitive leasing. The lease area which the company commits to, will draw $3 an acre rental until it can actually develop an economic stream of oil from there. He added that it is up to the company to develop a way to get that oil to market. REPRESENTATIVE GREEN stated HB 199 is designed to get activity in other parts of the state, probably remote parts of the state, meaning there is no existing method of getting there. The company will possibly incur pipelines, barges, etc. The company needs to consider in their bid that once oil is found, the company has to get the oil to market. HB 199 does not circumvent any biological, environmental or economic problems which will incur after a company finds oil. Number 378 KEN BOYD, DEPUTY DIRECTOR, DIVISION OF OIL AND GAS, DNR, testified via teleconference, and explained that HB 199 dates back to the second session of the seventeenth legislature. The commissioner of DNR at that time was challenged by the legislature to determine a way to allow Alaska to remain competitive with the international oil market. The commissioner came up with two ideas; one is before the committee today, and the second is exploration incentive credits which the committee will hear later in the week. He stated the exploration licensing bill was generated late in that session and (indiscernible) the concession provisions of about 100 countries, putting together a package suitable for Alaska. MR. BOYD said the exploration licensing bill was introduced late in the session, had very few hearings, and languished during the interim. He noted much work was done to the bill between sessions resulting in a bill that was heard last session in both the House and the Senate. He stated on the Senate side, the bill was heard several times and was heavily amended. It ended in the Senate as a result of different groups having various ideas as to what the bill should look like. He explained on the House side, the bill was heard several times in the Oil and Gas Committee, was not amended and sat until this session. MR. BOYD pointed out that DNR and the industry knew there was not a consensus on the bill. The one thing that gave them hope, however, was that everyone wanted the concept of exploration licensing. It was important and needed as an incentive for companies to get out into the remote areas of Alaska to explore. He pointed out that too many companies were leaving the state. He said over the interim, DNR met with approximately 20 companies of all sizes and took the bill apart, reviewed each piece and reached a consensus. Mr. Boyd stressed it is important that the committee consider that HB 199 as it is written, is the bill that had a consensus. Number 447 REPRESENTATIVE BUNDE asked Representative Green if the four years he used in his example is a firm four years or does that vary with the length of the lease. REPRESENTATIVE GREEN responded four years is included in the bill. REPRESENTATIVE JAMES said she is very supportive of any activity to be done in the state which enhances economic activity and encourages industry to take a part in the development of the state's resources. She asked when 550,000 acres has been licensed to an oil company to drill for oil and the company does the projected activity they committed to do, what is the possibility of them using that 550,000 acres for any other resource development, such as timber, mining, coal, etc. She also questioned if the exploration license is given and the oil company subsequently enters into a lease, how does that compete with development of other natural resources. Number 479 MR. BOYD replied all of the current provisions in regulation and statute apply to licensing. He said just as it is with the leasing program currently, the same is true for licensed lands; every other activity is allowed, and added that this includes the public access provision. REPRESENTATIVE DAVIES stated there seems to be three distinct land use decisions which get made if HB 199 was to pass. The first decision would be the commissioner making a preliminary written determination on state land, which is subject to the provisions of HB 199. There would be a blanket designation of a lot of land which may be entered into licenses. He said the second land use decision which might get made would be where a company applies for a license on a subset of the land which was designated. The third action would be to convert a portion of that licensed land to a lease. He asked if the provisions for licensing are exactly those which are in present law. REPRESENTATIVE GREEN replied the law says there will be restrictions put on a lease once it is converted, and added that those restrictions could be in a blanket form or could be site specific. MR. BOYD added that the lease is actually tied to the licensing. The lease received is already in place. He stressed all the provisions in place currently apply and gave an example. He said companies will have no surprises when they convert to a lease. They will know there are certain constrained areas within the licensed area which will need to be addressed. Number 558 REPRESENTATIVE DAVIES said taking a best interest finding as an example, does that process occur at the time the commissioner considers the issuance of the license or at the time he considers the issuance of the lease. MR. BOYD responded at the time of the license and stressed everything has to be completed prior to issuing the license. VICE CHAIRMAN HUDSON noted for the record that REPRESENTATIVE WILLIAMS joined the committee at 9:40 a.m. GEORGE FINDLING, MANAGER, GOVERNMENT AND PUBLIC RELATIONS, ARCO ALASKA, testified via teleconference, and expressed support of HB 199. He pointed out the strengths of HB 199, including the provision of a level playing field for potential competitors for licenses. First, the bonding formulation strikes an appropriate balance among the variety of interests, provides equal financial footing for bidders and solid protection for the state's interest. Second, leases are achieved only after the entire work commitment is completed which minimizes the chances for speculation. Third, the bonding and relinquishment provisions provide incentives to conduct work early and vigorously. Fourth, the bonding provision allows the licensee maximum flexibility to pursue a work program which makes sense. Fifth, the licensing supplements and also dovetails into the proven state licensing system, providing licensees with maximum certainty of the long-term rule. And finally, the winning bid in any competition is selected based upon objective standards of total dollar amounts by using sealed bids. He stressed that ARCO strongly supports HB 199. Number 646 ARDIE GRAY, PUBLIC SERVICE MANAGER, ALASKA OIL AND GAS ASSOCIATION (AOGA), testified via teleconference, and said AOGA believes that large oil and gas exploration licensing is an attractive addition to the state's leasing program, to accelerate exploration and financial development of Alaska's frontier areas. She stated AOGA supports a large block licensing program which does not apply to lands north of the Umiat Base Line; lands south of the Umiat Base Line which are within proposed competitive oil and gas lease sales 80, 87, and 88 prior to the initial sale; and in the vicinity of Cook Inlet that are within the area bounded by the north boundary of township 17 north Seward meridian, the Seward Meridian, the south boundary of township 7 south Seward meridian, and the west boundary range 19 west Seward meridian. MS. GRAY stated that AOGA supports a program in which a license is conditioned upon posting of an annual bond or other security in favor of the state and in which the annual bond or other security is calculated as the entire work commitment expressed in dollars less the cumulative expenditures as of the last day of the most recent project year, divided by the remaining years of the exploration license. She said AOGA supports a competitive program in which all licenses are awarded on the basis of written, sealed bids for total dollar work commitment. The commissioner should adopt regulations to evaluate competing proposals. MS. GRAY stressed that AOGA supports a program in which conversion from license to lease is under existing state leasing statutes AS 38.05.180 (j)-(m), (o)-(u), and (x)-(z), and upon conversion, such a lease is subject to the acreage chargeability of AS 38.05.140(c). She stated AOGA supports a program in which any relinquishment of the license area does not occur before the fourth anniversary of the license and each year thereafter is a percentage relinquishment of the remaining license area, not to exceed 50 percent of the original license area. As an incentive for early evaluation of a license area, AOGA believes no relinquishment should be required if the licensee has expended 50 percent of the approved work commitment by the fourth anniversary of the license. MS. GRAY stated the House Oil and Gas Committee Substitute for HB 199 is consistent with the AOGA position on exploration licensing legislation. AOGA supports HB 199. TAPE 94-22, SIDE A Number 000 BECKY GAY, EXECUTIVE DIRECTOR, RESOURCE DEVELOPMENT COUNCIL (RDC), testified via teleconference, and said RDC strongly supports HB 199 and believes it will augment the present oil and gas leasing program. She stressed that many hours of work have gone into building the exploration licensing from a concept into a workable program, which should help encourage exploration of Alaska's vast resource potential. Most people think of resources already in production or under development, but she felt exploration is the key to the future of resource development. Just as the state cannot afford to wait for megatons like Prudhoe Bay, to fill its coffers, neither can exploration companies afford to rest on their laurels of past successes in looking for new oil and gas lease areas. MS. GAY stressed exploration is the lifeblood of the industry and anything which will help encourage more exploratory work in Alaska, particularly on state lands, should be supported. This legislation will not supplant the ongoing lease program, but it should enhance it. Many compromises allowing small companies to pursue exploration licensing have been made, but noted in any event, exploration in Alaska is costly, very risky in regard to success, and even more difficult because of the huge areas off-limits, and the lack of infrastructure to support exploration activities. RDC urged the committee to move HB 199 on to the next committee. Number 036 WALT FURNACE, GENERAL MANAGER, ALASKA SUPPORT INDUSTRY ALLIANCE, testified via teleconference, and said the board of directors of the Alliance reviewed HB 199 and supports the intent of the legislation. The Alliance's position is that as Alaska's known oil and gas fields are depleted, there is a need to take aggressive steps to encourage companies to explore areas of the state which may not be of prime capacity. In reviewing the legislation, the Alliance noted that it does provide (indiscernible) vehicle. The Alliance also endorses the bonding mechanism contained in the bill and supports the concept that when companies explore, the financial responsibility must be in place. MR. FURNACE stressed the Alliance supports HB 199 because the oil and gas industry is the lifeblood of Alaska and urges the rapid passage of HB 199. Without its passage, Alaska will no longer be able to provide this source of revenue which is so crucial to the development of its resources. He reminded committee members that under the state's Constitution, legislators are charged with developing Alaska's resources to the maximum benefit of the state's citizens. Number 063 GREG GARRELS, FAIRBANKS, testified via teleconference, and stated he had not heard anyone mention the fact that what this bill amounts to is an option on a lease. He felt HB 199 gives the large, powerful corporations the ability to lock up an area equivalent to 50 percent of all private lands in Alaska with very little oversight. He wondered if anyone had considered the possibility that with large discoveries being made all over the world, and with oil companies, in general, moving many of their operations overseas, what the oil companies may be looking for is a cheap and efficient way to lock the door behind them on their way out. MR. GARRELS noted that he had heard the words level playing field mentioned and he felt there is only a level playing field if you are a multi-billion dollar corporation, not a small company located in Alaska. He stated the whole thing is going to be overseen by one ex-oil company employee. He asked if the provisions are going to be enforced through the same diligence which has resulted in $6 billion in back taxes. He felt HB 199 was written by a major oil company and that it is in the interest of the major oil companies, not in the interest of the state. Number 098 CLIFF BURGLIN, FAIRBANKS, testified via teleconference, and said British Petroleum (BP) is Alaska's major producing corporation. He stated in the last year, BP has had discoveries in Columbia and in the last two weeks, BP has announced findings of 500 million to one billion barrels of oil in the North Sea. He mentioned that BP produces about 600,000 barrels of Alaska oil a day and it appears they are headed elsewhere. He stated companies are already sitting on finds which will produce two billion barrels a day, close to infrastructures and he named the fields. He stressed the fields have been discovered, but not yet developed in addition to about two million acres that companies are also sitting on in leases, which have not been developed or are only partially developed. Mr. Burglin asked what makes the legislators think these companies are going to do anymore than they have already done if they get exploration licensing. He expressed opposition to passage of HB 199. REPRESENTATIVE GREEN said when the House Oil and Gas Committee reviewed HB 199, Mr. Burglin stated he had several questions to ask the committee and was requested to send the written questions to the committee. Representative Green noted he had not received them to date. MR. BURGLIN responded he had sent the questions and he would like to have his concerns addressed in writing. He added there is trouble brewing in the Mid-East and when it comes to fruition, Arabs do not care about oil fields and 15 billion barrels a day could come off the market just like it did in 1973 and 1974. Alaska will be the only place where the U.S. can pick up additional production easily like they did during the Gulf War. If the land in Alaska is allowed to be locked up by big oil companies, he hoped that people are prepared to freeze and wait in long gas lines. Number 183 REPRESENTATIVE MULDER made a motion to MOVE CSHB 199(O&G) with a zero fiscal note out of committee with INDIVIDUAL RECOMMENDATIONS. VICE CHAIRMAN HUDSON asked if there were any objections to the motion. Hearing none, the MOTION PASSED. ANNOUNCEMENTS VICE CHAIRMAN HUDSON announced the committee will meet on Wednesday, March 2 at 8:15 a.m. to hear HB 238. ADJOURNMENT There being no further business to come before the House Resources Committee, Vice Chairman Hudson adjourned the meeting at 10:17 a.m.