Legislature(2017 - 2018)BARNES 124

03/27/2017 01:00 PM RESOURCES

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Audio Topic
01:08:13 PM Start
01:08:49 PM Confirmation Hearing(s):|| Alaska Gasline Development Corporation Board of Directors
01:52:56 PM Commissioner-designee - Department of Natural Resources
02:43:04 PM HB155
03:09:01 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Confirmation Hearings: TELECONFERENCED
- AK Gasline Development Corporation Board of
Directors
-- Public Testimony --
- Commissioner, AK Dept. of Natural Resources,
Andy Mack
-- Public Testimony --
*+ HB 155 AK MENTAL HEALTH TRUST LAND EXCHANGE TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
**Streamed live on AKL.tv**
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         March 27, 2017                                                                                         
                           1:08 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Andy Josephson, Co-Chair                                                                                         
Representative Geran Tarr, Co-Chair                                                                                             
Representative Dean Westlake, Vice Chair                                                                                        
Representative Harriet Drummond                                                                                                 
Representative Justin Parish                                                                                                    
Representative Chris Birch                                                                                                      
Representative DeLena Johnson                                                                                                   
Representative George Rauscher                                                                                                  
Representative David Talerico                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mike Chenault (alternate)                                                                                        
Representative Chris Tuck (alternate)                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
CONFIRMATION HEARING(S):                                                                                                        
                                                                                                                                
Alaska Gasline Development Corporation Board of Directors                                                                     
                                                                                                                                
     Warren Christian - North Pole, Alaska                                                                                      
     Hugh Short - Girdwood, Alaska                                                                                              
                                                                                                                                
COMMISSIONER-DESIGNEE - Department of Natural Resources                                                                       
                                                                                                                                
     Andrew T. Mack - Anchorage, Alaska                                                                                         
                                                                                                                                
     - CONFIRMATION(S) ADVANCED                                                                                                 
                                                                                                                                
                                                                                                                                
HOUSE BILL NO. 155,                                                                                                             
"An  Act authorizing  a  land exchange  in  which certain  Alaska                                                               
mental  health  trust  land is  exchanged  for  certain  national                                                               
forest  land and  relating  to  the costs  of  the exchange;  and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                              
BILL: HB 155                                                                                                                  
SHORT TITLE: AK MENTAL HEALTH TRUST LAND EXCHANGE                                                                               
SPONSOR(s): REPRESENTATIVE(s) ORTIZ                                                                                             
                                                                                                                                
03/06/17       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/06/17       (H)       RES, FIN                                                                                               
03/27/17       (H)       RES AT 1:00 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
WARREN CHRISTIAN, Appointee                                                                                                     
Board of Directors                                                                                                              
Alaska Gasline Development Corporation                                                                                          
North Pole, Alaska                                                                                                              
POSITION STATEMENT:  Testified as appointee to the Alaska                                                                     
Gasline Development Corporation Board of Directors.                                                                             
                                                                                                                                
HUGH SHORT, Appointee                                                                                                           
Board of Directors                                                                                                              
Alaska Gasline Development Corporation                                                                                          
Girdwood, Alaska                                                                                                                
POSITION STATEMENT:  Testified as appointee to the Alaska                                                                     
Gasline Development Corporation Board of Directors.                                                                             
                                                                                                                                
ANDREW T. MACK, Commissioner-Designee                                                                                           
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified as appointee to the position of                                                                
commissioner of the Department of Natural Resources.                                                                            
                                                                                                                                
REPRESENTATIVE DAN ORTIZ                                                                                                        
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  As the prime sponsor, introduced HB 155.                                                                 
                                                                                                                                
WYN MENEFEE, Deputy Director                                                                                                    
Alaska Mental Health Trust Land Office                                                                                          
Office of the Commissioner                                                                                                      
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided a PowerPoint presentation                                                                       
entitled, "HB 155 - Alaska Mental Health Trust Land Exchange                                                                    
with the USFS."                                                                                                                 
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:08: 13 PM                                                                                                                   
                                                                                                                                
CO-CHAIR  GERAN   TARR  called   the  House   Resources  Standing                                                             
Committee meeting  to order at  1:08 p.m.   Representatives Tarr,                                                               
Josephson, Birch, Parish, Talerico,  and Westlake were present at                                                               
the  call  to  order.   Representatives  Drummond,  Johnson,  and                                                               
Rauscher arrived as the meeting was in progress.                                                                                
                                                                                                                                
                   ^CONFIRMATION HEARING(S):                                                                                  
   ^Alaska Gasline Development Corporation Board of Directors                                                               
                                                                                                                              
                                                                                                                                
1:08:49 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR  announced that the  first order of  business would                                                               
be  confirmation   hearings  for   the  appointments   of  Warren                                                               
Christian  and  Hugh  Short to  the  Alaska  Gasline  Development                                                               
Corporation (AGDC) Board of Directors.                                                                                          
                                                                                                                                
1:09:23 PM                                                                                                                    
                                                                                                                                
WARREN CHRISTIAN,  Appointee, Board of Directors,  Alaska Gasline                                                               
Development Corporation (AGDC), testified  he has lived in Alaska                                                               
for  40  years,  is  currently  living in  North  Pole,  and  has                                                               
previously lived  in Fairbanks, Anchorage,  and Nenana.   He said                                                               
he has  worked in  the oil  and gas industry  for over  30 years,                                                               
starting as  a welder helper and  working his way up  through the                                                               
company to  becoming president [of  Doyon Associated, LLC].   For                                                               
the last 10 years he has  worked for Doyon Associated, LLC, (DAL)                                                               
a  partnership  between  Doyon   [Oilfield  Services,  Inc.]  and                                                               
Associated  Pipe  Line [Contractors,  Inc.]    Prior to  that  he                                                               
worked  for, and  was president  of, Houston  Contracting Company                                                               
[Alaska,  Ltd.],  a  pipeline  company   owned  by  Arctic  Slope                                                               
Regional Corporation (ASRC).  He noted  that he has worked on the                                                               
planning and development  of many pipeline projects  on the North                                                               
Slope,  such  as  Alpine,  Badami,  Northstar,  Meltwater,  Tarn,                                                               
Exxon's Point Thomson Project, and  Conoco Phillips' CD5 Project,                                                               
to name a  few.  He also  worked on the nine-mile  reroute of the                                                               
48-inch Trans Alaska Pipeline System (TAPS) in Atigun Pass.                                                                     
                                                                                                                                
MR. CHRISTIAN further testified that  he has been involved in the                                                               
training of  Alaskans.   He said  he is a  trustee of  the "Joint                                                               
Apprenticeship   Training   Committee   for  the   Plumbers   and                                                               
Pipefitters,"  and  is  a  trustee  and  the  secretary  for  the                                                               
Fairbanks  Pipeline Training  Center.    He is  a  member of  the                                                               
[Alaska  Support Industry]  Alliance,  the [Resource  Development                                                               
Council  for   Alaska]  (RDC),  and  the   Fairbanks  Chamber  of                                                               
Commerce.   He added  that he is  a certified  project management                                                               
professional and  a certified welding  inspector.   Currently, he                                                               
serves on  the Technical  Committee for  AGDC, where  he actively                                                               
engages with the management team.                                                                                               
                                                                                                                                
REPRESENTATIVE BIRCH  asked what  Mr. Christian  sees as  the top                                                               
three challenges facing the [Alaska  Liquefied Natural Gas (LNG)]                                                               
Project (Alaska LNG).                                                                                                           
                                                                                                                                
MR. CHRISTIAN replied  that the commercial side  is the challenge                                                               
that will be most heard about,  which is the cost of the project,                                                               
the  market, and  the financing.   If  this first  hurdle can  be                                                               
overcome,  he said,  another  major challenge  for  the state  is                                                               
going to  be the  training of Alaskans.   The  project's schedule                                                               
ramps up extremely quickly and most  of the crafts that will work                                                               
on the project  cannot be mastered in a year,  but rather several                                                               
years.  Therefore,  the overall plan for  training Alaskans needs                                                               
to  be  thought  of  and  developed  far  in  advance,  otherwise                                                               
Alaskans won't  be trained in time  to work on the  project.  The                                                               
third challenge,  he continued,  is the  safety of  the workforce                                                               
and the  public.   Thirty-two people lost  their lives  when TAPS                                                               
was built and that will  not be acceptable building this project.                                                               
The  highest  safety  standards and  safety  procedures  must  be                                                               
implemented  not only  in the  execution  part, but  also in  the                                                               
planning and permitting phase.                                                                                                  
                                                                                                                                
1:14:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON   asked  what  Mr.  Christian   sees  as  the                                                               
project's  viability at  this point  in time.   He  further asked                                                               
what future  investments the legislature should  continue to make                                                               
in the project.                                                                                                                 
                                                                                                                                
MR. CHRISTIAN answered  that the project's viability  is based on                                                               
the Wood Mackenzie report  [entitled, "Alaska LNG Competitiveness                                                               
Study -  DRAFT," dated 21  August 2016]  in which a  path forward                                                               
was given  to get this  project into  the commercial range.   The                                                               
items on that path are  third party tolling, third party finance,                                                               
and federal exemption for taxes  for state ownership, and this is                                                               
the path AGDC is on right now, he  said.  The model that is being                                                               
created to represent  that path and the  assumptions around those                                                               
items will be  disseminated to the legislature.  There  is a path                                                               
forward, it's challenging  and there is a lot of  work to do, but                                                               
AGDC can get there.  The  future investment - the permitting - is                                                               
going to take some time, he  pointed out, a Record of Decision is                                                               
issued,  which will  take  AGDC beyond  its  current funding  and                                                               
budget that goes to the end of  fiscal year 2018.  After that, he                                                               
advised,  AGDC is  probably going  to need  some more  funding to                                                               
complete the permitting process.                                                                                                
                                                                                                                                
REPRESENTATIVE  PARISH inquired  whether Mr.  Christian sees  any                                                               
viable  alternatives  to  a  gas pipeline  in  terms  of  getting                                                               
Alaska's gas to market.                                                                                                         
                                                                                                                                
MR. CHRISTIAN replied he is relatively  new to the AGDC board and                                                               
all the data,  and is therefore swamped with  binders and binders                                                               
of information to get  up to speed.  The amount  of work that has                                                               
been done on  the project is massive, he said.   An excellent job                                                               
has  been   done  on   the  routing,   the  estimates,   and  the                                                               
assumptions.   At this  time, he  continued, he  does not  see an                                                               
alternative that AGDC  would get complete in time to  be near the                                                               
middle of the 2020 range.                                                                                                       
                                                                                                                                
REPRESENTATIVE  RAUSCHER  noted that  Mr.  Christian  sat on  the                                                               
board of  the Alaska Natural  Gas Development  Authority (ANGDA).                                                               
He asked how  Mr. Christian views what he learned  while at ANGDA                                                               
versus where things are headed now.                                                                                             
                                                                                                                                
MR.  CHRISTIAN responded  that his  term on  the ANGDA  board was                                                               
short, about nine  months.  He said ANGDA's  approach was selling                                                               
-  trying to  market  just gas  without  an LNG  plant  or a  gas                                                               
treatment plant (GTP)  - whereas the AGDC project  is much larger                                                               
in  scope  and  is  a  completely  different  path.    The  owner                                                               
companies that  formed [Alaska  LNG] have done  quite a  bit more                                                               
work  than was  done  on  any other  project  to date,  including                                                               
optimization  studies.   From  his  perspective,  he stated,  the                                                               
project  under AGDC  is  much farther  along  than anything  done                                                               
before.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  RAUSCHER  remarked  that  the  project's  current                                                               
challenges are big.  He  inquired whether Mr. Christian sees that                                                               
these challenges can be overcome, and, if so, how.                                                                              
                                                                                                                                
MR. CHRISTIAN  agreed the project currently  has many challenges.                                                               
From the  short amount of  time that he  has been with  AGDC, his                                                               
perspective is that  the most important thing is  to complete the                                                               
Federal Energy  Regulatory Commission  (FERC) process.   There is                                                               
$600 million  worth of data, he  said, and the FERC  process will                                                               
validate that  data.  The  permit will  be good for  three years,                                                               
plus  AGDC can  probably get  a two-year  extension.   That would                                                               
give  a  shelf-ready  project.    If  AGDC  cannot  validate  its                                                               
assumptions in  the model in  the next  year and the  market does                                                               
change three years from now, the  project could be pulled off the                                                               
shelf and be ready to go.   The challenges are there, he allowed,                                                               
and by the  end of next year  AGDC will know for  sure whether it                                                               
can validate the assumptions that are in the new model.                                                                         
                                                                                                                                
1:20:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAUSCHER  asked  how   Mr.  Christian  views  the                                                               
state's current position strategically,  and knowing the partners                                                               
that the state has had.                                                                                                         
                                                                                                                                
MR. CHRISTIAN  answered that based  on the [2016]  Wood Mackenzie                                                               
report, a  state-led project is  strategically the only  path the                                                               
State of Alaska can take right  now to accomplish the things that                                                               
are  needed to  be done.   It  must be  a state-owned,  state-run                                                               
project to file for the federal  tax exemption, he advised.  Many                                                               
of the  Lower 48  pipeline projects go  to third  party financing                                                               
and have  the tolling method  and tariff.   A producer's  cost of                                                               
equity is  much higher than  going out to third  party financing.                                                               
He opined  the model that  AGDC is  following now is  the correct                                                               
model  for getting  to the  next stage  to find  out whether  the                                                               
project is commercial.                                                                                                          
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  about the  necessity of  having an                                                               
office in Houston, Texas, and  the spending of monies to maintain                                                               
personnel there.                                                                                                                
                                                                                                                                
MR. CHRISTIAN  deferred to  AGDC president,  Keith Meyer,  for an                                                               
answer, but noted Mr. Meyer has  told the AGDC board that Houston                                                               
is the  oil and  gas capital of  the U.S.   He related  Mr. Meyer                                                               
feels   that  having   the  Houston   office  staffed   with  key                                                               
individuals,  one  full-time  and   the  others  part-time,  will                                                               
benefit this project.  He offered  his belief that the budget for                                                               
the Houston office is $400,000 through fiscal year 2018.                                                                        
                                                                                                                                
REPRESENTATIVE JOHNSON inquired as to  when the FERC process will                                                               
be completed.                                                                                                                   
                                                                                                                                
MR. CHRISTIAN  replied that AGDC  originally planned to  file the                                                               
FERC permit [application]  on June 30 [2017], but  is now looking                                                               
to move that up.  Once  the permit [application] is filed, FERC's                                                               
review process will take 18 months  and then a Record of Decision                                                               
(ROD) will be  issued, which AGDC anticipates will be  at the end                                                               
of 2018.   After the Record of Decision, he  continued, FERC will                                                               
issue  a  draft environmental  impact  statement  (EIS) and  take                                                               
public testimony.   So, from right now it will  be at least 18-24                                                               
months before AGDC has a FERC permit in hand.                                                                                   
                                                                                                                                
REPRESENTATIVE PARISH asked for AGDC's ultimate goal.                                                                           
                                                                                                                                
MR. CHRISTIAN  responded that  there are  several goals,  but the                                                               
two main goals are  to get Alaska's gas to market  and to get gas                                                               
to Alaskans.   Another goal is ensuring  that Alaska contractors,                                                               
tenders, and suppliers are used.                                                                                                
                                                                                                                                
CO-CHAIR TARR  inquired whether  Mr. Christian  sees his  role as                                                               
being on the  workforce side of things.  She  further inquired as                                                               
to whether  there are things  the legislature should  be thinking                                                               
about or looking at right now related to workforce development.                                                                 
                                                                                                                                
MR. CHRISTIAN answered yes, and  said the Department of Labor and                                                               
Workforce Development is looking at  those things.  Before coming                                                               
to the  AGDC board, he  said, the department contacted  him about                                                               
how to train people  in the short period of time  and he has been                                                               
invited several times  to speak to the department's  task team in                                                               
this regard.   Now, as an AGDC board member,  he looks forward to                                                               
having more communications around that specific topic.                                                                          
                                                                                                                                
1:25:43 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  whether  Mr.  Christian sees  this                                                               
project as  being multiple construction projects  integrated into                                                               
one, or as being one large construction project.                                                                                
                                                                                                                                
MR. CHRISTIAN replied that all  three segments of the project put                                                               
together  - the  LNG  plant,  the gas  treatment  plant, and  the                                                               
pipeline -  are what make this  a mega-project.  Each  segment on                                                               
its own  is not a mega-project.   All three must  be coordinated,                                                               
he explained,  because once construction  is started it  needs to                                                               
be done  as quickly  as possible  for the return  on equity.   An                                                               
effort will be  made to compress the schedule, so  it is the most                                                               
optimum.  The key  is to balance the workforce, he  said.  If the                                                               
pipeline is not  the critical path then the LNG  facility is, and                                                               
so  the  key is  to  try  to  schedule  the pipeline  around  the                                                               
workforce that will  be required to do the  other two facilities.                                                               
This will best  manage the manpower, so it is  not spiking way up                                                               
and then coming  way down again, he noted.   Each segment will be                                                               
treated differently with a different  type of contractor for each                                                               
one; but, overall,  a lot of the same manpower  could work on any                                                               
one of the three projects.                                                                                                      
                                                                                                                                
REPRESENTATIVE  RAUSCHER  inquired  whether  Mr.  Christian  sees                                                               
himself as  contributing to something  the AGDC board  is lacking                                                               
or as a complement to what already exists.                                                                                      
                                                                                                                                
MR. CHRISTIAN  responded he  is very pleased  with the  makeup of                                                               
the board  because it includes people  with financial background,                                                               
labor  background,  construction  background,  and  oil  and  gas                                                               
background.   The board  is well-balanced,  and members  work off                                                               
each other  and have very good  discussions with each other.   He                                                               
said  he is  pleased with  the direction  in which  the board  is                                                               
currently going and thinks the makeup is correct.                                                                               
                                                                                                                                
CO-CHAIR JOSEPHSON  stated he is  impressed with  Mr. Christian's                                                               
qualifications because  they cover  many facets, and  this speaks                                                               
well of the governor for appointing Mr. Christian.                                                                              
                                                                                                                                
REPRESENTATIVE  TALERICO  said  he  appreciates  Mr.  Christian's                                                               
introductory  remarks  about  safety because  ineffective  safety                                                               
programs are one of the most costly things on any project.                                                                      
                                                                                                                                
REPRESENTATIVE  JOHNSON asked  whether Mr.  Christian anticipates                                                               
the pipeline being rerouted to Valdez.                                                                                          
                                                                                                                                
MR.  CHRISTIAN answered  that  based on  the  information he  has                                                               
seen, doing a  reroute at this point would delay  the project for                                                               
some time, putting it into a 2030 timeframe.                                                                                    
                                                                                                                                
1:30:03 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  TARR   opened  public  testimony  on   Mr.  Christian's                                                               
appointment  and, after  ascertaining no  one wished  to testify,                                                               
public testimony was closed.                                                                                                    
                                                                                                                                
1:30:18 PM                                                                                                                    
                                                                                                                                
HUGH  SHORT,  Appointee,  Board   of  Directors,  Alaska  Gasline                                                               
Development  Corporation, testified  he is  currently serving  as                                                               
vice  chair of  the AGDC  Board of  Directors, having  first been                                                               
appointed in  February 2015.  He  said he was born  and raised in                                                               
Bethel  and currently  resides in  Girdwood.   His profession  is                                                               
running  Pt Capital,  a private  equity firm  based in  Anchorage                                                               
that  currently  has  investments across  the  Arctic,  including                                                               
Alaska  and Iceland.    He spends  much of  his  time working  on                                                               
identifying good  investment opportunities across the  top of the                                                               
globe, he continued.  Before Pt  Capital, he spent seven years at                                                               
Alaska  Growth Capital,  five  years  of which  he  spent as  the                                                               
president  and  chief executive  officer  (CEO).   He  left  that                                                               
position in  2013.  From 2011-2014  he served as the  chairman of                                                               
the  board  of  the  Alaska  Industrial  Development  and  Export                                                               
Authority (AIDEA), the Alaska  Energy Authority (AEA), Department                                                               
of Commerce,  Community & Economic  Development.  He said  it has                                                               
been an honor to serve on the AGDC board.                                                                                       
                                                                                                                                
MR. SHORT  advised that the  Alaska LNG Project  is significantly                                                               
challenged right  now.   In a recent  presentation by  the Alaska                                                               
State Chamber  of Commerce,  he related, it  was stated  that the                                                               
confidence   of  Alaskans   in   this  project   has  gone   down                                                               
significantly over  the past  two years.   One of  the challenges                                                               
being faced right now is  a significant headwind in the commodity                                                               
prices that  drive the price of  natural gas and ultimately.   An                                                               
added stressor, he  explained, is that the three  partners in the                                                               
project  did not  elect to  move into  Front-End Engineering  and                                                               
Design  (FEED).   The  companies made  their  decisions based  on                                                               
their "baskets"  of investments  in capital  expenditures (CAPEX)                                                               
globally.  Each  company looked at its spend and  made a decision                                                               
as to  what is, and  what is not,  going to go  forward globally.                                                               
[The  Alaska Gasline  Development  Corporation] does  not have  a                                                               
basket across  the globe,  it has  Alaska's gas.   He said  he is                                                               
proud of  the leadership  of Chairman Dave  Cruz, and  proud that                                                               
over the past  eight months the board  negotiated agreements with                                                               
BP, Conoco,  and Exxon to be  able to take a  leadership position                                                               
within  the project  and  to also  look at  this  project from  a                                                               
third-party tolling  perspective, which would reduce  the cost of                                                               
capital  for  the total  project  so  that  the tariff  could  be                                                               
reduced and ultimately the price to Asian customers.                                                                            
                                                                                                                                
1:34:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH inquired about how  much latitude is had [by                                                               
the  AGDC board]  for looking  at other  opportunities, or  other                                                               
means of monetizing the state's gas asset.                                                                                      
                                                                                                                                
MR. SHORT  replied that the  board has  focused on Alaska  LNG as                                                               
has been  conceived over the course  of the last four  years.  By                                                               
the time  the studies are  done, a  total of around  $700 million                                                               
will have  been spent  to prepare  for the  FERC submission.   He                                                               
said he  has brought conversations  to the board; for  example, a                                                               
project  in  Russia  is  now using  icebreaking  LNG  vessels  to                                                               
transport LNG  directly from the source  to Asia.  There  are all                                                               
sorts of  different projects with global  climate change thinning                                                               
the ice  and potentially opening  up opportunities in  the North.                                                               
Currently, he  continued, that is  not a viable  alternative that                                                               
has been looked at by the  board.  He offered his assumption that                                                               
the board probably wouldn't look  at such an alternative prior to                                                               
making  a decision  to pause,  or to  discontinue the  pursuit of                                                               
Alaska LNG as is currently conceived.                                                                                           
                                                                                                                                
REPRESENTATIVE PARISH  asked whether careful consideration  of an                                                               
alternative to the  LNG pipeline as currently  conceived would be                                                               
a useful  prerequisite in deciding  whether to pause  the current                                                               
project.                                                                                                                        
                                                                                                                                
MR. SHORT responded  that a number of viable  alternatives to the                                                               
800-mile gas  pipeline, the  gas treatment  plant (GTP),  and the                                                               
LNG facility  were looked at in  the process of Alaska  LNG.  The                                                               
FERC  process  requires  alternative  proposals to  what  is  the                                                               
primary proposal.   He agreed with Mr. Christian  that spending a                                                               
significant amount of time, effort,  or resources on alternatives                                                               
at this point might result in  missing the window of 2023/2025 to                                                               
be able to hit the market.                                                                                                      
                                                                                                                                
MR. SHORT added that his efforts for  2017 are:  How much can the                                                               
tariff be  reduced?  How much  can the wellhead cost  be reduced?                                                               
How much can the cost of the GTP  be reduced?  Can one train, two                                                               
trains, three  trains be  staged and  leveraged into  the project                                                               
over a period  of time, versus building the large  project all at                                                               
once?   If this can be  done, can customers/buyers be  added, and                                                               
the math  made to work?   He said the  big question right  now is                                                               
whether the  math can be made  to work on the  large project, and                                                               
losing focus on  that at this point potentially puts  at risk the                                                               
total  project.   Therefore,  his  recommendation  has been,  and                                                               
probably will  continue to be, to  focus on pushing hard  to make                                                               
Alaska LNG, the 800-mile pipeline,  the GTP, and the LNG facility                                                               
work as an infrastructure system.                                                                                               
                                                                                                                                
REPRESENTATIVE PARISH  inquired whether  it is possible  that Mr.                                                               
Short, or any  member of his family, will  benefit financially by                                                               
decisions being made by the AGDC board for which he is applying.                                                                
                                                                                                                                
MR. SHORT  answered no,  and pointed out  that all  board members                                                               
must  submit  a  financial  disclosure.   He  said  Alaskans  are                                                               
probably going to benefit significantly  from the construction of                                                               
this pipeline  and ultimately  that will  drive the  economy, but                                                               
there is no direct benefit [to himself].                                                                                        
                                                                                                                                
REPRESENTATIVE  RAUSCHER  asked  whether   Pt  Capital  would  be                                                               
inclined to invest in this pipeline in the future.                                                                              
                                                                                                                                
MR. SHORT replied  that the private equity fund  he manages would                                                               
not be  inclined as [the  pipeline] does not meet  the parameters                                                               
of his  company's investors.   Plus, he said, his  company's fund                                                               
is about  $125 million, and  the pipeline  has a few  more zeroes                                                               
behind it  than that.   Regarding that  point, he noted  that the                                                               
AGDC board  is very focused  on ensuring there  are opportunities                                                               
for Alaskans to  invest directly, such as by  an election through                                                               
the  permanent fund.   Also,  he related,  the AGDC  board thinks                                                               
there is an  important and excellent opportunity  to partner with                                                               
Alaska Native corporations.                                                                                                     
                                                                                                                                
REPRESENTATIVE  RAUSCHER asked  from  where the  bulk of  funding                                                               
would eventually come.                                                                                                          
                                                                                                                                
MR.  SHORT  responded  that  a  two-stage  process  is  currently                                                               
ongoing.  The  first stage was an  investor/buyer conference that                                                               
was held in  Girdwood about three weeks ago.   Attendees included                                                               
the  Korea Gas  Corporation (KOGAS),  and representatives  of the                                                               
largest buyers of  gas in the world.   Those representatives also                                                               
flew to  Prudhoe Bay  and gained an  understanding of  the Arctic                                                               
nature  of  Alaska.   Since  then  there  has been  an  exhibited                                                               
interest  by large  buyers to  take  another deeper  look at  the                                                               
opportunity  to  participate in  purchasing  Alaska's  gas.   The                                                               
second stage,  he said, requires  a third-party investor  to come                                                               
in  alongside  the State  of  Alaska  and provide  infrastructure                                                               
finance.    Today,  he   explained,  insurance  companies,  large                                                               
pension  funds,  and  sovereign   wealth  funds  primarily  drive                                                               
infrastructure finance.   These large pools of  money are looking                                                               
for infrastructure-type  investment returns for a  long period of                                                               
time,  as   well  as  looking   for  very  low  risk   for  those                                                               
infrastructure returns.   Over the  last 5-10 years,  the biggest                                                               
area  of focus  of large  sovereign  and pension  funds has  been                                                               
infrastructure  investment.   He  said  the  AGDC board  believes                                                               
there are institutions  that, if there is a  customer and willing                                                               
sellers, would finance the project if the numbers work.                                                                         
                                                                                                                                
1:43:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER  asked whether the large  buyers that are                                                               
exhibiting interest  were part of  the group from  the conference                                                               
that went to the North Slope.                                                                                                   
                                                                                                                                
MR.  SHORT  answered  that  [AGDC]  initially  put  together  the                                                               
conference,  but  the conference  was  100  percent paid  for  by                                                               
sponsors, including all [AGDC's] partners.   Since then, he said,                                                               
a number  of parties  have asked for  more information  about the                                                               
project, so he thinks the  interaction between those participants                                                               
and  the  participants  on  behalf   of  the  state  has  led  to                                                               
additional follow-up.   These  are long-term  relationships doing                                                               
business in  Asia, he noted,  and it takes a  lot of trust  and a                                                               
lot of  time.   While there  is lots of  variability in  that, he                                                               
said he believes there is a  lot of interest in this project from                                                               
conference attendees.                                                                                                           
                                                                                                                                
REPRESENTATIVE WESTLAKE commented that  in looking at the resumes                                                               
of the  appointees he is  very impressed.   He said he  has known                                                               
Mr. Short for  a while, knows the investment firm  that Mr. Short                                                               
is  talking about,  and  has spoken  at length  with  one of  the                                                               
associates.  He expressed his wish  that Mr. Short worked for the                                                               
state, but understands there is  more money in the private world.                                                               
Alaska's problem, he  posited, is that it is  just a one-resource                                                               
state -  oil.  Oil and  gas and resource development  are needed,                                                               
he continued, so  he is glad Mr.  Short is here.   He thanked Mr.                                                               
Short and Mr. Christian for their work.                                                                                         
                                                                                                                                
REPRESENTATIVE  BIRCH offered  his understanding  that [Resources                                                               
Energy  Inc.  (REI),  a  consortium  of  Japanese  companies  and                                                               
municipal governments,]  [has withdrawn  from] a proposed  LNG in                                                               
Cook Inlet.   He inquired whether lessons were  learned from this                                                               
and  whether  Mr. Short  has  a  reading  on  what that  says  or                                                               
portends for the future for the state and this industry.                                                                        
                                                                                                                                
MR. SHORT replied  that the differentiation between  what REI was                                                               
pursuing  and  what  Alaska  LNG  is pursuing  is  that  the  REI                                                               
proposal  was strictly  a  Cook  Inlet play  and  a fairly  small                                                               
production plant  of about a million  tons per year.   The Alaska                                                               
LNG Project is  about 20 million tons, so 20  times the size, and                                                               
the gas is  stranded up on the  North Slope.  He  said looking at                                                               
REI and Alaska  LNG is like looking at apples  and oranges, so he                                                               
would not make  any assumptions specifically to  Alaska LNG based                                                               
on  REI's  decision.    However,   he  continued,  hanging  above                                                               
everyone is the over two-year-long  downturn in commodity prices,                                                               
a recession  in Alaska, and  [AGDC's] partners that  have reduced                                                               
their CAPEX  spending significantly  across the  board.   All the                                                               
foregoing issues  put "downward pressure," but  when getting down                                                               
to the nuts and bolts they are two different types of projects.                                                                 
                                                                                                                                
1:48:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PARISH, regarding  Mr. Short's  capacity as  CEO,                                                               
chairman, and co-founder  of Pt Capital, noted  that Andrew Mack,                                                               
appointee  to  the  position   of  Commissioner-Designee  of  the                                                               
Department of  Natural Resources,  was previously an  employee of                                                               
Mr.  Short's.    He  requested   Mr.  Short  to  provide  further                                                               
explanation about Pt Capital's primary  investments, and what are                                                               
some of the more important elements in its portfolio.                                                                           
                                                                                                                                
MR. SHORT responded  that he left Alaska Growth  Capital in 2013.                                                               
He  realized at  the time  that no  institutional private  equity                                                               
firms  had been  created,  run, or  headquartered within  Alaska.                                                               
Looking elsewhere  in the U.S.,  he continued, private  equity is                                                               
anywhere between 20 and 40 percent  of the capital in any market,                                                               
while Alaska did  not have an institutional  private equity firm.                                                               
So, he  raised a seed round  of funding to be  able to capitalize                                                               
the  company; after  that,  [his  company] was  able  to raise  a                                                               
private equity  fund, which  is about $125  million.   From there                                                               
three investments  were made, he said,  two in Alaska and  one in                                                               
Iceland.   A  fairly large  investment  was closed  last week  in                                                               
Reykjavik, Iceland, and [his company]  now owns 50 percent of the                                                               
largest mobile phone company in Iceland.                                                                                        
                                                                                                                                
MR. SHORT  added that [his firm]  is proud of its  investments in                                                               
Alaska and is focused on continuing  to make Alaska a place where                                                               
it invests.   The  types of companies  invested in  are operating                                                               
companies - companies that do  boring things and are in business.                                                               
[Pt Capital]  is not a venture  capital firm, he pointed  out, it                                                               
doesn't  invest in  start-ups, and  it also  doesn't invest  into                                                               
large  infrastructure projects  as  those are  not  the types  of                                                               
returns that  [his firm's]  investors would  like.   [Pt Capital]                                                               
has nine  employees in  Anchorage and  is proud  to be  the first                                                               
institutional private equity fund built  in Alaska, he said.  His                                                               
hope is that it is the  beginning of many more financial services                                                               
to be created within the state.                                                                                                 
                                                                                                                                
1:51:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR opened public testimony  and, after ascertaining no                                                               
one wished to testify, public testimony was closed.                                                                             
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
    ^COMMISSIONER-DESIGNEE - Department of Natural Resources                                                                
                                                                                                                                
1:52:56 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR  announced that the  committee would now  hear from                                                               
Andrew Mack,  [designee] to the  position of commissioner  of the                                                               
Department of Natural Resources (DNR).                                                                                          
                                                                                                                                
1:53:25 PM                                                                                                                    
                                                                                                                                
ANDREW  T.  MACK,  Commissioner-Designee, Department  of  Natural                                                               
Resources (DNR), testified he took  the position of commissioner-                                                               
designee of the Department of  Natural Resources on July 1, 2016.                                                               
Born  and  raised in  Soldotna,  he  said  he went  to  Concordia                                                               
College and  then to  law school.   Upon  returning to  Alaska he                                                               
worked in  a private law firm  as a criminal defense  lawyer, and                                                               
then went on  to work as an employee of  the North Slope Borough,                                                               
and later he became a  resource development consultant.  He noted                                                               
that prior to taking his  current position as commissioner he was                                                               
a managing director for Pt Capital.                                                                                             
                                                                                                                                
COMMISSIONER-DESIGNEE MACK addressed a  question about Pt Capital                                                               
that  was  asked  by Representative  Parish  during  the  earlier                                                               
confirmation hearing  for Hugh Short,  appointee to the  board of                                                               
directors of  the Alaska Gasline Development  Corporation (AGDC).                                                               
He said  he has known  Mr. Short for  three decades and  said Mr.                                                               
Short is  one of the  most innovative,  hardworking, intelligent,                                                               
and business-like  persons he  knows in Alaska.   When  Mr. Short                                                               
was building his  new company, the business model  was to attract                                                               
investment from  outside of Alaska  and bring that  investment to                                                               
Alaska to generate wealth in the  state and to make sure that all                                                               
the fees  and the business was  done in the state.   He expressed                                                               
his pride in having been a part of Mr. Short's team.                                                                            
                                                                                                                                
COMMISSIONER-DESIGNEE MACK  noted that [while  at Pt  Capital] he                                                               
his  clients worked  on  some  of the  largest  public issues  in                                                               
Alaska,  namely   the  state's  relationship  with   the  federal                                                               
government, and the hard-to-get-to places  in the state that have                                                               
significant  resources.     These   places  included   the  outer                                                               
continental shelf (OCS), the National  Petroleum Reserve - Alaska                                                               
(NPR-A),  and  the 1002  area  of  the Arctic  National  Wildlife                                                               
Refuge (ANWR).   Having  worked in  that space,  he said,  he has                                                               
spent  quite a  bit of  time  understanding how  to most  clearly                                                               
identify priorities  and get  to those  objectives as  quickly as                                                               
possible while working with folks in the state.                                                                                 
                                                                                                                                
1:56:33 PM                                                                                                                    
                                                                                                                                
COMMISSIONER-DESIGNEE MACK stated  he views his role at  DNR as a                                                               
promoter  of the  development of  Alaska's resources.   It  is an                                                               
obvious role  and is  embedded in  the state's  constitution, its                                                               
statutes, and  its regulations, he  continued.   The commissioner                                                               
of DNR  is a  person who tries  to see what  is happening  in the                                                               
next 5-10  years and  place Alaska in  the strongest  position to                                                               
get  there.    The  department  has  an  unbelievable  team  that                                                               
includes Mark  Wiggin, Ed Fogels, and  Ed King, so there  is very                                                               
significant  support and  help  from  DNR's team.    He said  the                                                               
commissioner's job is  to be the long-term protector  of the many                                                               
important agreements held  by the state.   These agreements start                                                               
with  the  [Alaska Statehood  Act],  flowing  through the  Alaska                                                               
Native  Claims Settlement  Act (ANCSA),  and  through the  Alaska                                                               
National Interest  Lands Conservation  Act (ANILCA), and  all the                                                               
principles that are built into  those important documents.  As it                                                               
matures, he  added, the state is  trying to find the  best way to                                                               
manage  its   affairs,  protect   its  interests,  and   to  work                                                               
collaboratively,  although sometimes  issues are  settled by  the                                                               
courts.                                                                                                                         
                                                                                                                                
COMMISSIONER-DESIGNEE MACK stated that the  first thing to happen                                                               
after  he took  his  job  was Alaska  LNG  transitioning from  an                                                               
equity-based investment as envisioned  in Senate Bill 138 [passed                                                               
in the 28th Alaska State  Legislature] and being refocused as the                                                               
[partner]  companies downsized  their  teams and  handed off  the                                                               
project to the state.   This was also done at DNR,  he said.  The                                                               
very  specific   and  dedicated   team  at  the   department  was                                                               
[restructured]  and the  "spend"  was  reduced while  maintaining                                                               
core competencies and the ability to  respond to what is going on                                                               
in the  project when needed.   It is a challenging  situation, he                                                               
continued, but  in most cases  DNR is  going to do  everything it                                                               
has done before,  although there may be "some  slippage in time,"                                                               
and, if there is, DNR will come to the legislature.                                                                             
                                                                                                                                
COMMISSIONER-DESIGNEE   MACK  pointed   out  that   recently  DNR                                                               
transitioned to  looking at opportunities within  the new federal                                                               
administration.   This includes looking  at ways to get  the best                                                               
outcomes  on a  range of  resource development  issues, he  said,                                                               
including  the  state's  relationship  with the  Bureau  of  Land                                                               
Management  (BLM), U.S.  Department  of the  Interior, and  BLM's                                                               
Eastern Interior Resource Management Plan.                                                                                      
                                                                                                                                
2:00:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE BIRCH stated  he is troubled by  the Department of                                                               
Revenue's (DOR)  domination in the ongoing  debate and discussion                                                               
related  to the  oil and  gas  industry in  Alaska.   He said  he                                                               
respects DOR,  but it seems  DOR has been missing  the engagement                                                               
that needs to happen with  industry partners regarding what needs                                                               
to  be  done  for  a  path  forward  that  attracts  and  retains                                                               
investment  needed in  the state  to continue  the uptick  in oil                                                               
throughput through the  Trans Alaska Pipeline System  (TAPS).  He                                                               
requested  Commissioner-Designee Mack's  perspective as  to where                                                               
he sees  the role and  the balance  between the revenue  side and                                                               
DNR,  since   DNR  is  tasked   with  tracking  those   types  of                                                               
investments,   putting  out   the  lease   sales,  and   managing                                                               
relationships with those partners.                                                                                              
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK  replied  that DNR  has  historically                                                               
done a  good job at  managing the leases  and units on  the North                                                               
Slope  and ensuring  the state  gets what  it is  owed under  the                                                               
contractual  terms of  the  leases.   Through  the management  of                                                               
units,  DNR often  requires work  commitments, he  explained, and                                                               
while  there is  some flexibility,  the  basic term  is that  the                                                               
lessee has an  obligation to the state to continue  to develop in                                                               
order to  maintain and continue  to operate  on the lease  and in                                                               
the  unit.   The  testimony  of  the  administration and  of  DOR                                                               
certainly is another  aspect of that revenue  base, he continued.                                                               
When testifying, [DNR]  has been abundantly clear  about what the                                                               
royalty revenues are,  and they are very significant.   The tools                                                               
and  the policies  that the  legislature puts  in place,  such as                                                               
production  tax and  credit systems,  historically have  not been                                                               
and  currently  are  not  the  function of  DNR  to  talk  about,                                                               
although DNR  is a big  believer that  everything must be  on the                                                               
table.   [The legislature]  is the policy  body that  makes these                                                               
important decisions, he said.  An  issue in [Senate Bill 138] was                                                               
the public's ability  and the legislature's ability  to know what                                                               
is going on.  In these situations,  he said, DNR is happy to work                                                               
with the body and to answer those types of questions.                                                                           
                                                                                                                                
2:04:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER inquired  as to DNR's role  in the [issue                                                               
of the  Klutina Lake Road access  and the revised statute  of the                                                               
Mining Act of 1866 known as R.S. 2477].                                                                                         
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK reiterated  his opening  comment that                                                               
one role of the DNR  commissioner is to understand the agreements                                                               
included  in the  Alaska Statehood  Act, ANCSA,  ANILCA, and  all                                                               
subsequent  agreements.   He said  the concept  at issue  here is                                                               
built into these agreements, and  that is access and particularly                                                               
access to public/state  lands and what historical  trails mean to                                                               
that.  A very  specific and very nuanced view taken  by DNR is to                                                               
understand what  this has  meant to  the state  historically, how                                                               
these  trails have  been used,  and what  it means  to the  state                                                               
today and how it places the  state as a practical, matter as well                                                               
as a legal matter, 10-20 years down the road.                                                                                   
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK   explained  that  in  the   case  of                                                               
Klutina, DNR  is one  of the  clients of  the Department  of Law,                                                               
along with  the Department of Transportation  & Public Facilities                                                               
(DOTPF), and the  Alaska Department of Fish and Game  (ADFG).  He                                                               
said  it is  DNR's  belief,  and his  personal  belief, that  the                                                               
Department of Law  is doing a very good job  of representing [the                                                               
state's] interests.  Something to  be cognizant of in the Klutina                                                               
case, he  said, is that  a piece  of litigation has  been ongoing                                                               
for eight years.   In a courtroom setting [the  state] would have                                                               
certain expectations and  would perhaps prevail, but it  is not a                                                               
bulletproof situation  in a legal sense.   He noted that  DNR has                                                               
let the Department of Law  know what its fundamental requests and                                                               
fundamental  needs  are in  this  case,  and  that DNR  has  been                                                               
advised as to [the position] of the other party.                                                                                
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK  related  that  DNR  believes  it  is                                                               
getting  good  representation  in  this complex  case,  which  is                                                               
complex because it is a mixture of  an R.S. 2477 case and a 17(b)                                                               
easement.  [17(b) easements are  rights reserved under the Alaska                                                               
Native Claims  Settlement Act  to provide  access to  public land                                                               
across  Native private  land.]   He explained  that an  R.S. 2477                                                               
extends  from the  Richardson Highway  to the  confluence of  the                                                               
Klutina River in Klutina Lake;  beyond that is private land owned                                                               
by  Ahtna, Incorporated,  [one of  the  thirteen Native  regional                                                               
corporations  established under  ANCSA]; and  beyond that  is BLM                                                               
land over  which [the state] can  assert a 17(b) easement  to get                                                               
to state land that is beyond  that federal land.  A benefit being                                                               
discussed in this, he continued, is  whether BLM can be taken out                                                               
of  the picture  and simply  have  a right-of-way  over the  land                                                               
owned  by Ahtna  to get  to  additional state  properties to  the                                                               
west.   There  are a  lot of  details and  about a  week ago  the                                                               
governor  made   a  statement   about  this.     There   is  some                                                               
misinformation, he  advised, and  DNR would  be happy  to provide                                                               
clarifications.  It has been a  difficult issue due to the nature                                                               
of the facts and the [the state's] procedural posture.                                                                          
                                                                                                                                
2:08:56 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE RAUSCHER asked how many  more of these joint 17(b)                                                               
and R.S. 2477 issues are left to settle.                                                                                        
                                                                                                                                
COMMISSIONER-DESIGNEE MACK responded  that the legislature passed                                                               
a  bill in  1999 that  identified 600  R.S. 2477s.   Regarding  a                                                               
combination of  R.S. 2477s  with some sort  of 17(b)  easement or                                                               
alternative solution, he said he  would get back to the committee                                                               
with an answer.   As to how  the state looks at  these issues, he                                                               
said an example  is Izembek National Wildlife Refuge,  which is a                                                               
federal  refuge through  which the  state would  like to  build a                                                               
road  connecting the  community  of  King Cove  to  the Cold  Bay                                                               
Airport.   [The state]  has proposed  a legislative  solution, he                                                               
explained,  but at  the  same  time there  is  a very  legitimate                                                               
ANILCA Title  11 claim which  would potentially get  that access.                                                               
Additionally, there is an R.S. 2477  claim.  [The state] has kept                                                               
all  three options  on the  table so  as not  to limit  its legal                                                               
options  in that  case, particularly  when  viewing things  long-                                                               
term.  On the question as to  whether what is being done today is                                                               
going to  affect similar situations  later, he said he  would get                                                               
back to the committee with a specific answer.                                                                                   
                                                                                                                                
REPRESENTATIVE  RAUSCHER   confirmed  he  is  asking   about  the                                                               
precedent  being  created  from  here  onward  and  what  is  the                                                               
department's position.   He inquired  whether there  is something                                                               
that  Commissioner-Designee  Mack wishes  DNR  could  do that  it                                                               
doesn't have the authority to do right now.                                                                                     
                                                                                                                                
COMMISSIONER-DESIGNEE   MACK   answered   that  one   thing   DNR                                                               
continually  bumps  up against  is  big,  complex, heavily  data-                                                               
driven  federal planning  documents.   He said  if he  could just                                                               
snap  his  fingers   he  would  make  some   changes  in  [DNR's]                                                               
relationship  with the  federal government  that would  place the                                                               
state in a stronger role as the manager of lands within Alaska.                                                                 
                                                                                                                                
REPRESENTATIVE  RAUSCHER noted  [the legislature]  is positioning                                                               
DNR for approving  expenditures for the oil  industry and posited                                                               
that  this is  almost starting  a new  department to  accommodate                                                               
that.  He asked how DNR views this new idea.                                                                                    
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK replied  that the  important question                                                               
is  what  is  [the  legislature's] ability  as  appropriators  to                                                               
understand  the  mechanics  of these  programs  as  it  discusses                                                               
budgets and proposes  lots of cuts.  Secondarily  is the public's                                                               
right to know  if there is a proposal to  deeply cut another area                                                               
of government  and there  is another  system in  play.   How much                                                               
should  the public  know under  those circumstances?   Those  are                                                               
very   important   concepts,   he   said,  and   folks   in   the                                                               
administration  have talked  about  the need  for legislators  to                                                               
know  and the  right  and need  for  the public  to  know.   [The                                                               
department]  would  like   to  work  on  that  to   get  as  much                                                               
information into the system as possible.                                                                                        
                                                                                                                                
2:14:05 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON  recalled Representative  Birch's  perception                                                               
that DOR is dominant,  and inquired whether commissioner-designee                                                               
Mack  believes   DNR's  role  is  satisfactory   when  there  are                                                               
overlapping operations between the  two agencies, particularly on                                                               
questions involving the North Slope.                                                                                            
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK   answered  that  as  owner   of  the                                                               
resource, DNR has the important  responsibility to ensure what is                                                               
the initial  agreement with a company  in a lease sale,  and then                                                               
what  the company  is encouraged,  or required,  to do  under the                                                               
lease terms to place the lease  in production or relinquish.  The                                                               
department  does  have  some flexibility;  for  example,  it  has                                                               
encountered and  evaluated requests for royalty  relief.  Another                                                               
example,  he  said,  is  the   Northstar  development  where  the                                                               
operator  of the  unit  came to  the State  of  Alaska saying  it                                                               
couldn't  get  to  production  under the  current  terms  of  the                                                               
leases, and therefore was requesting  changes to those terms.  It                                                               
went  through   a  very  public   legislative  process   and  was                                                               
eventually approved by this body in  the 1990s and there has been                                                               
significant  production.     So,  he  continued,   DNR  plays  an                                                               
incredibly important  role in what  is the revenue base,  from an                                                               
owner's   perspective,  in   the  development   of  the   state's                                                               
resources.                                                                                                                      
                                                                                                                                
COMMISSIONER-DESIGNEE MACK  said the question of  tax is slightly                                                               
different.   He pointed out that  any member of the  public could                                                               
easily  obtain a  copy of  the  leases and  understand the  lease                                                               
terms, the  royalty rate, the  work commitments, and  the timing.                                                               
The department  also views  its role as  being primary  - royalty                                                               
comes before  tax.  That money  is paid as a  matter of contract.                                                               
However, he continued, how to incent,  and how much to take, is a                                                               
separate question.   He said DNR works a lot  with DOR on various                                                               
issues,  the  most  recent  example  being  that  historically  a                                                               
contractor was hired to do some  of the front-end modeling on the                                                               
production forecast, but  DNR now does that in-house.   Mr. King,                                                               
who used to  work at DOR and  is now at DNR, has  been engaged in                                                               
the  process   of  developing  the  production   forecast.    The                                                               
production  forecast  is  an  example of  where  DNR  works  very                                                               
fluidly in  a process to come  up with what is  presented to [the                                                               
legislature] and the  Alaska public.  So, he  continued, there is                                                               
quite a  bit of  communication and cross-pollination  between DNR                                                               
and DOR and the two agencies understand what is being done.                                                                     
                                                                                                                                
2:18:30 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON, returned attention  to the Klutina issue,                                                               
and  asked whether  commissioner-designee  Mack  agrees with  the                                                               
recommendation for  settlement from  the current  acting attorney                                                               
general.                                                                                                                        
                                                                                                                                
COMMISSIONER-DESIGNEE MACK  described the way the  process works.                                                               
Early in  the case,  he explained,  DNR provided  its perspective                                                               
and its "must-haves."  This  case has many different elements, he                                                               
said,  the  R.S.  2477  part   and  the  17(b)  access  over  the                                                               
privately-owned  Ahtna land.   As  a  client, DNR  is working  in                                                               
consort with and advising the Department of Law lawyers.                                                                        
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK   noted  that  the   must-haves  were                                                               
identified  in a  press release  from the  governor where  it was                                                               
explained that one of DNR's requirements  is that there be a full                                                               
100-foot  right-of-way within  the  R.S. 2477  space between  the                                                               
Richardson  Highway  and  the  confluence  of  Klutina  Lake  and                                                               
Klutina River,  which is in  the settlement documents  right now.                                                               
Another  requirement,  he said,  is  that  Alaska residents  have                                                               
access beyond that and the preference  that the BLM not be in any                                                               
way involved  in the  17(b) area,  which is  the area  beyond the                                                               
R.S.  2477  claim and  state  land  to  the southwest  along  the                                                               
northern  shore  of  the  lake.   Also,  he  continued,  DNR  has                                                               
insisted there  be multiple access  points to the river  and that                                                               
there be  access to the  river where the  right-of-way intersects                                                               
the  actual river  itself.   Additionally, places  are identified                                                               
for  use of  trailers to  launch boats,  to launch  boats without                                                               
motors  and without  trailers,  and for  fishing  access.   Other                                                               
must-haves are  that there be  places to pull out  and reasonable                                                               
access for camping.                                                                                                             
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK  explained  that  the  aforementioned                                                               
things were  locked into  the discussion  as must-haves  and said                                                               
DNR believes the discussions are  going reasonably well.  The way                                                               
the  process works,  he  continued, is  that  eventually a  final                                                               
proposed settlement will come back  to the clients - ADFG, DOTPF,                                                               
and DNR  - and  then there will  be further  discussion regarding                                                               
whether the clients agree.   Thus far a final proposed settlement                                                               
has not yet been seen.                                                                                                          
                                                                                                                                
REPRESENTATIVE PARISH noted  that a term frequently  used in this                                                               
committee, and which  he thinks is a bit  misleading, is industry                                                               
"partners" when  in fact  they are  "customers" because  they are                                                               
purchasing the resource  from the people of Alaska.   He said the                                                               
resource is  held in  trust [by the  legislature] for  the people                                                               
and   distributed  for   the  people.      He  inquired   whether                                                               
Commissioner-Designee  Mack  would say  it  is  more accurate  to                                                               
describe industry in Alaska as partners or customers.                                                                           
                                                                                                                                
COMMISSIONER-DESIGNEE   MACK  replied   that  the   Alaska  State                                                               
Constitution and  state law drive what  is done by DNR.   He said                                                               
it ultimately  can be  boiled down  to a contract,  a lease  is a                                                               
contract,  and it  is a  contract between  the developer  and the                                                               
State of  Alaska.  In most  cases, it is viewed  as a contractual                                                               
relationship that DNR  has with the developers  and that probably                                                               
tends  more  towards  a   business  relationship.    Obligations,                                                               
duties,  and  expectations  are built  into  every  contract,  he                                                               
added.                                                                                                                          
                                                                                                                                
2:24:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PARISH  asked  whether  it  is  more  akin  to  a                                                               
contract where  one party is  a customer purchasing  something or                                                               
more akin  to a  contract in  which there  are two  partners with                                                               
more closely aligned roles.                                                                                                     
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK  responded  that  in  every  contract                                                               
there are  duties and  obligations and  failure to  perform under                                                               
the contract will  extinguish the contract.  In this  case no one                                                               
will get  the benefit  of the  agreement and  [DNR] will  have to                                                               
start the process again to lease  [the state's] land on the North                                                               
Slope.                                                                                                                          
                                                                                                                                
REPRESENTATIVE PARISH  quipped that  he appreciates  the artistry                                                               
of the  dodge, but is asking  again whether Commissioner-Designee                                                               
Mack would say it is more  of a customer-seller relationship or a                                                               
relationship between partners.                                                                                                  
                                                                                                                                
COMMISSIONER-DESIGNEE MACK  answered, "Clearly we  own a  part of                                                               
the oil, that's our royalty share of  the oil, so … we are in the                                                               
role of selling that oil for  the highest value and … that's what                                                               
we get hopefully … with folks  who are in the production sphere."                                                               
He looks  at it as a  very business-like agreement, he  said.  As                                                               
well, he looks  at it as a  lawyer - here's the  contract for the                                                               
lease and "we're gonna as owners  enforce the terms of that lease                                                               
just  like any  business,  if  you want  to  call  it a  business                                                               
partner, would."                                                                                                                
                                                                                                                                
REPRESENTATIVE  RAUSCHER inquired  about  how to  get more  money                                                               
from the state's oil production  and other resources, and whether                                                               
there  is a  way to  streamline the  permitting system  and other                                                               
variables that are stopping potential  investors and instead make                                                               
Alaska more inviting.                                                                                                           
                                                                                                                                
COMMISSIONER-DESIGNEE MACK opined Alaska  lacks capital to invest                                                               
and  develop  these projects.    Whether  [an investor]  goes  to                                                               
Canada  or  another country,  he  said,  it takes  an  incredible                                                               
amount of capital  and intensity to develop  and produce products                                                               
from mines or  from oil production.  He advised  that people must                                                               
be cognizant that what is said  publicly may go across the globe,                                                               
which is happening with Alaska LNG.   What is said in the capitol                                                               
building matters to people who are  in the market to buy LNG, who                                                               
are in mining, and who are in  oil.  While there is nothing wrong                                                               
with healthy  dialogue and  debate, at some  point there  must be                                                               
talk about  the opportunity and communication  with folks outside                                                               
of Alaska.   The amount of  capital that it takes  is incredible,                                                               
he reiterated.   About $6.5 billion is spent annually  in the oil                                                               
business on  the North Slope,  and it  should be an  objective of                                                               
the State  of Alaska  to spend  that much or  more in  the mining                                                               
industry.                                                                                                                       
                                                                                                                                
2:29:35 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAUSCHER  offered   his  understanding  that  the                                                               
permitting process takes about eight  years for starting a mining                                                               
operation and said  the investor must hope  that commodity prices                                                               
are still  good after  that amount  of time  and investment.   He                                                               
asked what could  be done in this regard [to  keep investors from                                                               
going to another country instead].                                                                                              
                                                                                                                                
COMMISSIONER-DESIGNEE MACK  replied that the aforementioned  is a                                                               
good question and is partly  why the Office of Project Management                                                               
and  Permitting  (OPMP)  is  within  the  Department  of  Natural                                                               
Resources.   He explained  that OPMP  helps people  to understand                                                               
what  the permit  challenges are  and to  bring timelines  into a                                                               
reasonable amount of time.  He  offered his belief that with some                                                               
of the major  oil plays on the North Slope  the timeline could be                                                               
shortened, and  production brought  online more quickly  than has                                                               
been done  historically.  It  takes a tremendous amount  of focus                                                               
and significant amount of resources,  he continued, and he is not                                                               
suggesting that  there is  a magic  wand.  He  said he  hopes the                                                               
State of Alaska is  never in a role where it  is slowing down the                                                               
process of  evaluating a prospect,  and he doesn't think  that is                                                               
happening because DNR moves faster than do other agencies.                                                                      
                                                                                                                                
REPRESENTATIVE RAUSCHER  inquired whether more could  be done for                                                               
the timber industry.                                                                                                            
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK answered  that he  was very  happy to                                                               
sign the  sale for some  footage from Southeast  Alaska's Coffman                                                               
Cove.   Plus, he noted, a  couple of other timber  sales on state                                                               
land  are  on the  tee  and  there  are  other resources  in  the                                                               
Matanuska-Susitna  Valley and  the Interior  that have  some high                                                               
prospects.                                                                                                                      
                                                                                                                                
REPRESENTATIVE BIRCH noted that HB 111,  an oil and gas tax bill,                                                               
has  a provision  that proposes  the  pre-approval of  production                                                               
cost before  that cost could  be written  off.  He  recalled that                                                               
DNR's fiscal  note describing the cost  went from inconsequential                                                               
to  substantial.   He asked  how Commissioner-Designee  Mack sees                                                               
this provision functionally working as last proposed.                                                                           
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK, regarding  the provision  in HB  111                                                               
that would require pre-approval  of basic expenditures, said, "we                                                               
as an  administration" have talked  about the  legislature's need                                                               
to know and  more specifically what companies  are thinking about                                                               
doing and how that affects tax  and whether there is a qualifying                                                               
credit  that might  be reimbursable.   To  the extent  it doesn't                                                               
violate  tax  code  or  confidences,   he  continued,  it  is  an                                                               
important issue  for legislators  to know  as appropriators.   He                                                               
said he thinks that [DNR]  supports the provision and the concept                                                               
behind it.   As to functionally  how that happens, he  said [DNR]                                                               
hopes to get to a point  where it can understand "what people are                                                               
coming  in the  door with."   According  to testimony,  the House                                                               
Finance Committee  is going to  look at that provision  and [DNR]                                                               
will  be happy  to offer  suggestions on  how this  provision can                                                               
best be  accomplished.  [The  department] didn't put  much detail                                                               
into the fiscal  note, he advised, due to  uncertainty about what                                                               
would  be required  of [DNR]  at  the front  end and  uncertainty                                                               
about how industry  might respond to this.  As  the process moves                                                               
along there  will probably be  some better detail on  which [DNR]                                                               
can offer some insights.                                                                                                        
                                                                                                                                
2:35:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TALERICO  relayed the administration  probably had                                                               
the same  issues as  he did  with BLM's  approval of  the Eastern                                                               
Interior Resource Management Plan.   He offered his understanding                                                               
that it  started out  as a calving  migration question  along the                                                               
upper Yukon River and then grew  into an enormous tract that goes                                                               
all  the  way down  to  Northway  and encompasses  a  traditional                                                               
mining area in Alaska that includes  Chicken and Eagle.  He said,                                                               
"It walked right  over the top of the Fortymile  River area," and                                                               
that  area's  management  plan,  which   in  his  opinion  was  a                                                               
violation  of  ANILCA.   If  it  were up  to  him,  he said,  the                                                               
legislature would  make the  decision with DNR  and then  let the                                                               
federal government know  what [the state] is doing.   The Eastern                                                               
Interior Resource  Management Plan has  the upper portion  of the                                                               
Yukon  in it,  he  noted,  yet [BLM]  created  the Central  Yukon                                                               
Resource  Management Plan,  which goes  over Atigun  Pass up  the                                                               
pipeline  corridor  to the  North  Slope.    It is  insulting  to                                                               
everyone in  Alaska to think  that anything north of  Atigun Pass                                                               
is part of the Yukon system,  he opined.  He inquired whether DNR                                                               
plans to  push forward to  get a  change in the  Eastern Interior                                                               
Resource  Management Plan  [Eastern Interior  plan] and  turn the                                                               
Yukon  plan into  "everything in  the  Yukon."   He assumed  that                                                               
given the change  in [federal] administration there  might now be                                                               
people who will listen more closely to the state's concerns.                                                                    
                                                                                                                                
COMMISSIONER-DESIGNEE  MACK responded  that [DNR]  is considering                                                               
all its  options with respect to  the Eastern Interior plan.   He                                                               
said he thinks  [the administration's] favored option  is to join                                                               
in  part with  the Fortymile  Mining  District and  in part  with                                                               
Doyon  [Limited], which  has slightly  different concerns  on the                                                               
same  plan, and  press  forward  in litigation.    He said  [DNR]                                                               
believes  that  the preferred  alternative  in  that plan  did  a                                                               
number of  things that  were harmful and  unnecessary.   Parts of                                                               
the final preferred alternative were  not considered in the draft                                                               
environmental  impact statement  (EIS); parts  and pieces  of the                                                               
different alternatives  were combined  and then some  things were                                                               
added.  It is a disservice to  Alaskans on a number of fronts and                                                               
that is  [DNR's] preferred position  today, he opined.   While he                                                               
doesn't want  to get  ahead of [the  administration], he  said he                                                               
thinks [DNR] will likely end up  asking that that be rolled back.                                                               
He was very unhappy with the  Eastern Interior plan, and with the                                                               
Central Yukon  plan, that covers  the North Slope and  extends to                                                               
the boundaries  of the state  ownership interest, which  is three                                                               
miles  seaward of  the mean  high tideline  in the  Beaufort Sea.                                                               
Also, it  weaves together, potentially, the  management plan that                                                               
exists  in the  Arctic National  Wildlife Refuge  (ANWR) and  the                                                               
management plan that exists in the  NPR-A, with another plan.  It                                                               
has significant  potential negative  consequences, he said.   The                                                               
comment period just ended on  3/17/17, and it is very concerning,                                                               
so  [DNR] is  going to  do everything  it can  to ensure  that it                                                               
works for Alaska.                                                                                                               
                                                                                                                                
2:40:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR opened  public testimony on the  appointment of Mr.                                                               
Mack as Commissioner of the  Department of Natural Resources and,                                                               
after  ascertaining no  one wished  to testify,  public testimony                                                               
was closed.                                                                                                                     
                                                                                                                                
2:40:29 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON [moved  to advance  the confirmations  of Mr.                                                               
Short, Mr.  Christian, and Mr. Mack.]   He stated that  the House                                                               
Resources Standing  Committee has reviewed the  qualifications of                                                               
the governor's appointees Hugh Short  and Warren Christian to the                                                               
Alaska Gasline  Development Corporation [Board of  Directors] and                                                               
recommends  their  names be  forwarded  to  a joint  session  for                                                               
consideration.  He  advised that this does not  reflect intent by                                                               
any  of the  members to  vote  for or  against these  individuals                                                               
during  any further  sessions for  the purposes  of confirmation.                                                               
Additionally,   he  continued,   the  House   Resources  Standing                                                               
Committee  has  reviewed  the qualifications  of  the  governor's                                                               
appointee Mr.  Andy Mack  for commissioner  of the  Department of                                                               
Natural Resources and recommends that  his name be forwarded to a                                                               
joint session for consideration.   Again, he said, this would not                                                               
mean or reflect  the intent by any member to  vote for or against                                                               
Mr.  Mack  during   any  joint  sessions  for   the  purposes  of                                                               
confirmation.   There  being no  objection, the  confirmations of                                                               
Mr. Short, Mr. Christian, and Mr. Mack were advanced.                                                                           
                                                                                                                                
2:41:22 PM                                                                                                                    
                                                                                                                                
[CO-CHAIR TARR passed the gavel to Co-Chair Josephson.]                                                                         
                                                                                                                                
The committee took an at-ease from 2:41 p.m. to 2:43 p.m.                                                                       
                                                                                                                                
          HB 155-AK MENTAL HEALTH TRUST LAND EXCHANGE                                                                       
                                                                                                                                
2:43:04 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON announced  that the  final order  of business                                                               
would be HOUSE BILL NO. 155,  "An Act authorizing a land exchange                                                               
in which  certain Alaska  mental health  trust land  is exchanged                                                               
for certain  national forest  land and relating  to the  costs of                                                               
the exchange; and providing for an effective date."                                                                             
                                                                                                                                
2:43:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DAN ORTIZ, Alaska  State Legislature, as the prime                                                               
sponsor, introduced  HB 155.   He explained  that the  bill would                                                               
authorize a land exchange between  the Alaska Mental Health Trust                                                               
Authority  ("Trust") and  the U.S.  Forest Service  (USFS).   The                                                               
bill would  be a triple  win, he  said, because it  would protect                                                               
viewsheds,  enhance  the  timber  industry,  and  help  fund  the                                                               
Trust's mental  health programs.   Lands vital to  the recreation                                                               
and tourism  industries would be  protected, such  as Ketchikan's                                                               
Deer Mountain,  while at  the same time  the exchange  would make                                                               
available  other   lands  of  comparable  value   to  the  timber                                                               
industry.   Projects would be  created, he continued,  that would                                                               
act as  a "bridge" in  the industry until young-growth  timber is                                                               
ready   to  be   logged,  which   would  address   Representative                                                               
Rauscher's question about  what can be done  to stimulate logging                                                               
in the  state.  Because  the bill would allow  for time-sensitive                                                               
logging  it would  help  sustain the  timber  industry, which  is                                                               
beneficial to Southeast  Alaska's economy.  The  Trust would gain                                                               
resources and revenue  from the timber industry  to fund programs                                                               
that  serve some  of the  most  vulnerable people  in Alaska,  he                                                               
said.    The Trust  provides  funding  to programs  and  services                                                               
across  the  state  that  benefit  people  with  mental  illness,                                                               
developmental disabilities, Alzheimer's  disease, traumatic brain                                                               
injuries,  and substance  abuse  disorders.   He  noted that  the                                                               
Alaska Mental Health Trust Land  Office has been working with the                                                               
U.S. Forest Service, communities,  and interest groups to conduct                                                               
an administrative land  exchange between the Trust  and the USFS.                                                               
Additionally, he explained, U.S.  Senator Lisa Murkowski and U.S.                                                               
Senator Dan  Sullivan have introduced similar  legislation in the                                                               
U.S. Congress with  Senate Bill 131, and  U.S. Representative Don                                                               
Young introduced  [House Resolution] 513.   Also, Senator Stedman                                                               
has introduced parallel  legislation [SB 88] in  the Alaska State                                                               
Senate.   Overall,  he said,  HB 155  would increase  revenue for                                                               
mental  health  programs and  the  timber  industry, while  still                                                               
protecting iconic lands used for recreation and tourism.                                                                        
                                                                                                                                
REPRESENTATIVE BIRCH  asked whether an assessment  of the mineral                                                               
value and other economic assessments  have been done on the lands                                                               
that would be exchanged.                                                                                                        
                                                                                                                                
REPRESENTATIVE ORTIZ  assured the  committee the Trust  would not                                                               
trade away lands for less valuable lands.                                                                                       
                                                                                                                                
2:48:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHNSON  requested the  sponsor to expound  on why                                                               
he thinks the Trust would not trade for lands of lesser value.                                                                  
                                                                                                                                
REPRESENTATIVE  ORTIZ responded  that the  Trust was  established                                                               
initially with  land grants across  the state and  its activities                                                               
are funded  through the monetization  of these lands.   The Trust                                                               
is bound  to act  in its own  best interest, he  said, so  it can                                                               
further  the goals  for  which  it was  founded.    If the  Trust                                                               
currently controls lands that  offer large monetization potential                                                               
through  mining, he  wouldn't think  the Trust  would trade  away                                                               
that land  because it would  go against the Trust's  basic tenant                                                               
to maximize the potential of the lands it has been given.                                                                       
                                                                                                                                
REPRESENTATIVE RAUSCHER drew attention  to the bill, beginning on                                                               
page 1, line 14, and continuing  to page 2, lines 1-2, which name                                                               
the  Southeast communities  of  Wrangell,  Sitka, Juneau,  Meyers                                                               
Chuck, Petersburg, and  Ketchikan.  He inquired  whether the bill                                                               
is specific to "an area only."                                                                                                  
                                                                                                                                
REPRESENTATIVE ORTIZ  answered it  is his understanding  that the                                                               
lands that  would be exchanged  with USFS are primarily  lands in                                                               
Southeast Alaska and so in that  sense it is region specific.  In                                                               
further  response to  Representative Rauscher,  he said  the bill                                                               
could not  apply to other lands  in the state, but  affects lands                                                               
illustrated by maps in the  committee packet describing the lands                                                               
that are  part of this  exchange.   He said his  understanding is                                                               
that all the  lands described on those maps  are within Southeast                                                               
Alaska.                                                                                                                         
                                                                                                                                
REPRESENTATIVE TALERICO  offered his  understanding that  for the                                                               
exchange to  happen, a bill  must be  passed by the  Alaska State                                                               
Legislature  as well  as an  action by  Congress to  authorize an                                                               
exchange between USFS and the Trust.                                                                                            
                                                                                                                                
REPRESENTATIVE ORTIZ  responded yes, the legislature  needs to do                                                               
what it  needs to do on  the state's end, but  the exchange won't                                                               
happen  unless Congress  also passes  federal legislation.   They                                                               
both must happen for this exchange to take place.                                                                               
                                                                                                                                
REPRESENTATIVE TALERICO  opined moving HB 155  forward would help                                                               
with the decision-making in Congress.                                                                                           
                                                                                                                                
REPRESENTATIVE ORTIZ agreed.                                                                                                    
                                                                                                                                
2:53:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  RAUSCHER inquired  whether this  has been  vetted                                                               
through all the important channels.                                                                                             
                                                                                                                                
REPRESENTATIVE ORTIZ said yes.                                                                                                  
                                                                                                                                
REPRESENTATIVE PARISH  noted the letters of  opposition propose a                                                               
federal  buyout  of  the  land  [instead  of  an  exchange],  but                                                               
observed  that a  buyout  would  not create  jobs  in the  timber                                                               
industry, which is  one of the primary benefits of  the bill.  He                                                               
asked whether  there is something  the legislature would  need to                                                               
do  to accommodate  a  buyout option  if at  a  federal level  it                                                               
became a possibility.                                                                                                           
                                                                                                                                
REPRESENTATIVE ORTIZ  replied he is  not prepared to  answer that                                                               
question at  this time.   He  agreed that  a buyout  option might                                                               
help  the Trust  and the  tourism  industry, but  not the  timber                                                               
industry, which is the third part of his "win-win-win."                                                                         
                                                                                                                                
REPRESENTATIVE PARISH inquired  as to how many  "job years" would                                                               
be enabled  under the  bill, job  years meaning  one job  for one                                                               
year.                                                                                                                           
                                                                                                                                
REPRESENTATIVE ORTIZ deferred  to Mr. Wyn Menefee  for an answer.                                                               
The bill is about making  timber offerings more of a possibility,                                                               
he said, but it is out of his realm to quantify how much.                                                                       
                                                                                                                                
CO-CHAIR JOSEPHSON announced that a  sectional analysis of HB 155                                                               
will be presented at the bill's  next hearing and that a proposed                                                               
committee substitute  will also  be discussed at  that time.   He                                                               
then invited Mr. Menefee to provide a presentation on the bill.                                                                 
                                                                                                                                
2:55:50 PM                                                                                                                    
                                                                                                                                
WYN  MENEFEE, Deputy  Director, Alaska  Mental Health  Trust Land                                                               
Office,  Office  of  the   Commissioner,  Department  of  Natural                                                               
Resources  (DNR), provided  a  PowerPoint presentation  entitled,                                                               
"HB  155 -  Alaska Mental  Health  Trust Land  Exchange with  the                                                               
USFS."  Displaying  slide 2, he explained that  the Alaska Mental                                                               
Health Trust ("Trust")  is a perpetual trust with  the purpose of                                                               
improving  the  lives  of  its  beneficiaries.    The  Trust  has                                                               
programs that it funds to  help create a comprehensive integrated                                                               
mental health  program in  Alaska, as  the enabling  Act dictated                                                               
for it  to do.   For example, he said,  the Trust puts  about $20                                                               
million a year  in projects and activities at  state agencies and                                                               
nonprofits, has  provided about $3  million in grants  since 2013                                                               
in Southeast Alaska, approved $10  million to help fund Medicare,                                                               
and a sundry of other things.                                                                                                   
                                                                                                                                
MR. MENEFEE turned to slide 3,  and noted that the Trust puts out                                                               
money to  help mental health.   It needs money to  do that, which                                                               
leads to the  Alaska Mental Health Trust Land  Office (Trust Land                                                               
Office).  The job  of the Trust Land Office, he  said, is to make                                                               
money off  the non-cash assets  of the  Trust and to  improve the                                                               
lives of  the beneficiaries.   The  land office  manages multiple                                                               
asset  classes  and  timber  is   one  of  those  asset  classes.                                                               
Although he  is within the  Department of Natural  Resources, the                                                               
Trust Land  Office basically acts  as a contractor to  the Alaska                                                               
Mental Health Trust Authority and manages the Trust's lands.                                                                    
                                                                                                                                
MR. MENEFEE  provided slide 4,  that illustrated Trust  lands are                                                               
managed according  to [four] principles  as follows:   make money                                                               
by  maximizing  long-term  revenue  from the  land;  protect  and                                                               
improve the  corpus; encourage diverse revenue-producing  uses of                                                               
trust land;  manage trust land.   He said timber harvest  is just                                                               
one aspect  of a  diverse portfolio, and  the land  exchange will                                                               
help  diversify the  Trust's portfolio  and increase  the Trust's                                                               
revenue stream,  which will directly benefit  beneficiaries.  The                                                               
land exchange will protect the  corpus by not allowing the timber                                                               
assets  to become  devalued, which  could happen  "if the  timber                                                               
industry goes  away."  The Trust  cannot sell timber if  there is                                                               
nobody to  buy it,  he said,  and revenue would  be lost  at that                                                               
point.  It is very important  to sell timber to a timber industry                                                               
while it still exists.                                                                                                          
                                                                                                                                
MR. MENEFEE displayed slide 5,  "Land Distribution," and said the                                                               
map  depicts  the  Trust's approximate  land  holdings  that  are                                                               
located throughout Southeast Alaska.                                                                                            
                                                                                                                                
MR. MENEFEE addressed slide 6, that  was a map showing that about                                                               
18,000 acres  of Trust lands  are adjacent to the  communities of                                                               
Wrangell,   Petersburg,  Sitka,   Juneau,   Meyers  Chuck,   [and                                                               
Ketchikan].  The  Trust also holds land in No  Name Bay, he said.                                                               
The U.S. Forest Service has about  20,000 acres of remote land on                                                               
Prince of  Wales Island  and Shelter  Cove.   The reason  for the                                                               
different  acreages, he  explained,  is that  it  is an  expected                                                               
amount  of acreages  that are  being offered;  however, it  is an                                                               
equal value land  exchange, which means that after  the lands are                                                               
appraised, an  equal value exchange  must be  done and so  at the                                                               
end it won't be those acreages.   Those acreages are being put on                                                               
the table and it  is specific to just those parcels.   It is done                                                               
in  two phases,  he  continued.   The  first  phase is  exchanged                                                               
within one year.   The key about rushing through  the first year,                                                               
giving a  smaller amount exchange, is  the need to get  timber to                                                               
market.  The rest is exchanged  within two years and this is when                                                               
parcels may be adjusted to equalize the value.                                                                                  
                                                                                                                                
MR. MENEFEE brought attention to  slide 7 depicting two maps, one                                                               
entitled, "Trust Land  To Be Exchanged in  Southeast Alaska," and                                                               
one  entitled, "National  Forest Service  Land to  be Exchanged."                                                               
He  said  the   exchange  is  a  consolidation   [of  Trust  land                                                               
ownership].                                                                                                                     
                                                                                                                                
3:00:55 PM                                                                                                                    
                                                                                                                                
MR. MENEFEE  turned to slide  8, and  stated that the  Trust Land                                                               
Office expects  to receive between  $40 and $60 million  over the                                                               
next 20  years from timber sales  from these parcels if  they are                                                               
acquired through  this exchange.   Right now, he  advised, trying                                                               
to cut timber on the lands  currently owned by the Trust does not                                                               
go well  - last  year's Deer Mountain  episode being  an example.                                                               
The communities do  not want the Trust cutting  timber.  However,                                                               
he  continued, the  resources of  the  Trust are  supposed to  be                                                               
managed solely  for the interests  of the Trust, which  means the                                                               
public can be ignored in that sense.   Even if the public says it                                                               
doesn't like  it, if it  is in the  best interests of  the Trust,                                                               
the Trust is  supposed to still do  it.  But, he  said, the Trust                                                               
is trying  to work it out  by doing this exchange,  so timber can                                                               
be cut where there is no opposition.                                                                                            
                                                                                                                                
MR. MENEFEE stated that the Trust  sees the land exchange and the                                                               
selling of the  timber as a sustainable thing  because trees grow                                                               
back, and  another harvest  will provide  revenue in  the future.                                                               
The land exchange will protect  the timber and tourism industries                                                               
because  it  protects  the  viewsheds  while  giving  the  timber                                                               
industry  the capability  of having  timber to  market, which  is                                                               
critical right  now, because the  timber industry is  failing due                                                               
to lack  of timber.   He  said the  timber industry  has multiple                                                               
layers of  great economic impact because  it includes stevedores,                                                               
equipment rental, maintenance,  purchases, transportation, timber                                                               
fellers, and  cruisers.   Timber harvest  on the  exchanged lands                                                               
would  be  done  in  an environmentally  responsible  manner,  he                                                               
maintained,  because  the Trust  must  follow  the Alaska  Forest                                                               
Resources and Practices Act.                                                                                                    
                                                                                                                                
MR. MENEFEE addressed  slide 9.  He explained that  the Trust has                                                               
been working on  this exchange for 10 years.   The Trust tried to                                                               
do it administratively and entered  into an agreement to initiate                                                               
with USFS  to exchange these very  lands.  The problem,  he said,                                                               
is that USFS's estimate of how much  it would cost to get it done                                                               
and  how long  it  would  take goes  well  past  when the  timber                                                               
industry would fail in Alaska.   "We're the only ones with timber                                                               
that  potentially could  be brought  to market  right now  in any                                                               
amount that will keep the timber  industry alive," he stated.  He                                                               
reiterated  that  he  is  concerned  about  the  timber  industry                                                               
because  if the  timber industry  is  not viable,  the Trust  has                                                               
nobody to  sell its timber to,  and that is the  devaluing of its                                                               
asset.                                                                                                                          
                                                                                                                                
MR. MENEFEE stated  that the Tongass Futures  Roundtable [a group                                                               
of stakeholders  convened by  USFS, Alaska  Region] had  about 35                                                               
entities,   everything   from    governments   to   boroughs   to                                                               
conservation groups,  and they  all came out  with the  same idea                                                               
that the exchange is a good  idea for the communities, the timber                                                               
industry, and the  Trust.  In working through  this exchange, the                                                               
Trust has  worked with conservation  groups and  other interested                                                               
parties.    The  Trust  has  modified  boundaries  and  addressed                                                               
concerns to try to make the  exchange successful.  The only group                                                               
that  has expressed  concern  in  recent time,  he  said, is  the                                                               
Southeast Alaska  Conservation Council (SEACC).   Primarily SEACC                                                               
has expressed concern  about a litigation it has on  No Name Bay.                                                               
He assured  the committee that  the Trust  has clear title  in No                                                               
Name Bay,  can go forward  with the  exchange, and that  there is                                                               
nothing  in  the  litigation  that would  stop  the  Trust  going                                                               
forward.   He  related  that  in its  testimony  on  SB 88,  [the                                                               
companion bill] in  the other body, SEACC said it  wanted No Name                                                               
Bay to go to  USFS.  He further related that  SEACC has stated it                                                               
would  like to  have the  Trust's lands  purchased.   However, he                                                               
continued, $40 million-$60 million  doesn't seem to be available,                                                               
and the Trust  does not have other options that  compare with the                                                               
proposed exchange.                                                                                                              
                                                                                                                                
3:05:34 PM                                                                                                                    
                                                                                                                                
MR.  MENEFEE continued  to  slide  10, and  noted  USFS owns  the                                                               
majority of  land [in Southeast  Alaska].   He said the  areas on                                                               
the map  colored in  brown or  tan cannot be  cut, and  the areas                                                               
colored in  green could be cut,  which is a small  portion of the                                                               
forest.   The U.S. Forest Service  used to be the  primary seller                                                               
of timber  in Southeast  Alaska; however, when  USFS cut  back on                                                               
the amount of timber sold  each year, the timber industry started                                                               
failing  and  the  number  of   jobs  declined.    The  Trust  is                                                               
attempting  to bridge  the interim  while USFS  transitions to  a                                                               
sustainable young-growth  harvest.  It  is critical right  now to                                                               
get timber to  market during that two-year period,  he added, and                                                               
that  is why  the  state  and federal  legislation  needs to  get                                                               
through.                                                                                                                        
                                                                                                                                
MR.  MENEFEE moved  to  slide  11, and  explained  that both  the                                                               
federal and  state legislation need  to pass and  are compatible.                                                               
The federal  legislation directs  USFS to complete  the exchange,                                                               
he  said,  and the  state  legislation  allows  the Trust  to  go                                                               
forward with  the exchange.     Passage of  both the  federal and                                                               
state  legislation would  enable consummation  of this  exchange,                                                               
get the  lands appraised and  surveyed, and get timber  to market                                                               
within the two-year timeframe.                                                                                                  
                                                                                                                                
MR.  MENEFEE  turned  to  slides  12 and  13,  and  concluded  by                                                               
pointing out that there are many  supporters of the exchange.  He                                                               
reiterated  that  the  bill   is  a  positive  revenue-generating                                                               
exchange that would  help improve the lives  of beneficiaries and                                                               
would help  communities by preserving jobs,  economies, viewsheds                                                               
and watersheds.   He urged for the passage of HB 155.                                                                           
                                                                                                                                
REPRESENTATIVE BIRCH  asked whether an appropriate  assessment of                                                               
minerals has been done on the  lands currently owned by the Trust                                                               
to assure that there is not another gold mine within.                                                                           
                                                                                                                                
MR.   MENEFEE  acknowledged   assessing   mineral  potential   is                                                               
difficult.   However, to the  best of the Trust's  knowledge from                                                               
surveys that  have been  done, there is  not a  mineral potential                                                               
that would be lost.                                                                                                             
                                                                                                                                
3:09:01 PM                                                                                                                    
                                                                                                                                
HB 155 was held over.                                                                                                           
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 3:09 p.m.                                                                 
                                                                                                                                

Document Name Date/Time Subjects
HB155 Invited Testimony-Wyn Menefee.pptx HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Sectional Analysis 03.07.17.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Sponsor Statement 03.07.17.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Summary of Changes ver O to ver U.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 ver. O 03.07.17.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 ver. U 3.8.17.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Invited Testimony-Wyn Menefee.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Supporting Document-Bob Weinstein Letter.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Additional Document-AMHTFA Fact Sheet.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Supporting Document-AFA Letter.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Supporting Document-Federal Legislation.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Supporting Document-Letters Compiled.pdf HRES 3/27/2017 1:00:00 PM
HB 155
Andy Mack Resume' June 2016. AM1_Redacted.pdf HRES 3/27/2017 1:00:00 PM
Hugh Short_Redacted.pdf HRES 3/27/2017 1:00:00 PM
Warren Christian_Redacted.pdf HRES 3/27/2017 1:00:00 PM
HB 155 Public Comments.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB 155 Letter of Comment - Knight.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB 155 Letter of Comment- Slenkamp.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Additional Document-AMHTFA Fact Sheet.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Additional Document-SEACC Comments on No Name Bay.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Opposing Document-Doug Rhodes Letter.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Additional Document-Maps as of 3.3.17.pdf HRES 3/27/2017 1:00:00 PM
HB 155
HB155 Fiscal Note - DNR-MHTLA 3.27.17.pdf HRES 3/27/2017 1:00:00 PM
HB 155