Legislature(1995 - 1996)
04/12/1995 03:40 PM Senate RES
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SENATE RESOURCES COMMITTEE
April 12, 1995
3:40 P.M.
MEMBERS PRESENT
Senator Loren Leman, Chairman
Senator Robin Taylor
Senator Georgianna Lincoln
Senator Lyman Hoffman
COMMITTEE MEMBERS ABSENT
Senator Drue Pearce, Vice Chairman
Senator Rick Halford
Senator Steve Frank
COMMITTEE CALENDAR
SENATE BILL NO. 97
"An Act declaring the dragonfly as the official state insect."
CS FOR HOUSE BILL NO. 239(STA)
"An Act declaring the four spot skimmer dragonfly as the official
state insect."
Tesoro Royalty Oil Contract Briefing
Confirmation Hearing: Frank Rue, Commissioner, Department of Fish
and Game
SENATE BILL NO. 130
"An Act relating to marine pilots and the Board of Marine Pilots;
extending the termination date of the Board of Marine Pilots; and
providing for an effective date."
SENATE RESOLUTION NO. 2
Opposing a proposed international convention classifying coal as a
hazardous and noxious material.
PREVIOUS SENATE COMMITTEE ACTION
SB 97 - No previous action to record.
HB 239 - No previous action to record.
SB 130 - See Resources minutes dated 3/20/95. See
Resources Subcommittee minutes dated 3/23/95 and 4/6/95.
SR 2- No previous action to record.
WITNESS REGISTER
Representative Irene Nicholia
State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 239
Melanie Matter, 5th Grade
Dana Diehl, 6th Grade
Andrea Gusty, 6th Grade
Rachael Boelens, 7th Grade
Bruck Clift, 7thGrade
Derek Aluia, 7th Grade
Deidre Bush, 8th Grade
Rainy Diehl, 8th Grade
Ruth Bradford, Teacher
Claudia Aluia, Chaperone
Mary Nicoli Elementary School
Aniak, AK 99557
POSITION STATEMENT: Commented on HB 239 and SB 97
Commissioner Designee, John Shively
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801-1796
POSITION STATEMENT: Commented on Tesoro Royalty Oil Contract.
Kevin Banks
Division of Oil and Gas
Department of Natural Resources
3601 C St., Ste. 1380
Anchorage, AK 99503-5948
POSITION STATEMENT: Commented on Tesoro Royalty Oil Contract.
Bernie Smith
Alaska Government Affairs
Tesoro Alaska
P.O. Box 3369
Kenai, AK 99611
POSITION STATEMENT: Commented on Tesoro Royalty Oil Contract.
Jon Tillinghast
Tesoro Alaska
P.O. Box 3369
Kenai, AK 99611
POSITION STATEMENT: Commented on Tesoro Royalty Oil Contract.
Frank Rue, Commissioner Designee
Department of Fish and Game
P.O. Box 25526
Juneau, AK 99802-5526
POSITION STATEMENT: Confirmation Hearing
Jeff Bush, Deputy Commissioner
Department of Commerce and Economic Development
P.O. Box 110800
Juneau, AK 99811-0800
POSITION STATEMENT: Supported SB 130.
Richard Monkman
Alaska Coastwise Pilots Association
350 N. Franklin
Juneau, AK 99801
POSITION STATEMENT: Supported SB 130.
Doug McPherson, President
Alaska Coastwise Pilots Association
P.O. box 7855
Ketchikan, AK 99901
POSITION STATEMENT: Supported SB 130.
Larry Cotter
Alaska Steamship Association
234 Gold Street
Juneau, AK 99801
POSITION STATEMENT: Supported SB 130 with the maximum tariff
amendment.
Stephan Moreno
Alaska Marine Pilots
P.O. Box 730
Dutch Harbor, AK
POSITION STATEMENT: Supported SB 130.
Hans Antonson
Southeast Alaska Pilots Association
P.O. Box 6100
Ketchikan, AK 99901
POSITION STATEMENT: Supported SB 130 in its current form.
Peter Lee Nielsen
P.O.Box 22708
Juneau, AK 99801
POSITION STATEMENT: Commented on SB 130.
Eric Eliassen, President
Southwest Alaska Pilots Association
P.O. Box 977
Homer, AK 99603
POSITION STATEMENT: Supported SB 130.
ACTION NARRATIVE
TAPE 95-43, SIDE A
Number 001
HB 239 DRAGONFLY AS STATE INSECT
SB 97 DRAGONFLY AS STATE INSECT
CHAIRMAN LEMAN called the Senate Resources Committee meeting to
order at 3:40 p.m and announced that the committee would consider
two bills together HB 239 and SB 97.
REPRESENTATIVE IRENE NICHOLIA, sponsor of HB 239, said this bill
amends Alaska Statute 44.09 to designate the four spot skimmer
dragon fly as the official state insect. This suggestion was first
brought to her attention by students from Aniak. Other nominations
for the official state insect were the unmarked slender mosquito,
morning cloak butterfly, and the bumble bee. Ballots were sent to
every public school in the state. The four spot skimmer dragon fly
won the nomination with an 879 vote margin.
SENATOR LINCOLN invited the students to join the committee and give
brief statements. They were Rainy Diehl, Deidre Bush, Derek Aluia,
Bruck Clift, Rachael Boelens, Andrea Gusty, Dana Diehl, Melanie
Matter, and the teacher, Ruth Bradford with the chaperone, Claudia
Aluia.
SENATOR LEMAN thanked them all for joining the committee.
Number 281
SENATOR LINCOLN moved to pass CSHB 239(STA) from committee with
individual recommendations and $0 fiscal note. There were no
objections and it was so ordered.
SENATOR LEMAN announced the next order of business would be the
Tesoro Royalty Oil Contract Briefing.
COMMISSIONER JOHN SHIVELY said he would brief them on the royalty
oil contract the state has negotiated with Tesoro for which there
would be a bill introduced later in the session. He said Tesoro
has had a number of contracts since 1980. The current one was
extended for one year by the previous commissioner, but couldn't be
extended further without a vote of the legislature. He said the
Royalty Oil Board met last week and recommended unanimously the
adoption of the contract. They propose roughly 40,000 barrels of
oil per day. In addition they have another contract for $35,000
barrels per day with Mapco. That leaves them approximately 108,000
barrels of royalty oil that is sold for the state on the market.
The contracts provide that the royalty amount can be reduced on a
percentage basis that can go no higher than 30% of our total
royalty oil. They have negotiated a west coast price with Exxon.
In addition, there is a 75-day letter of credit to protect the
state should Tesoro default on payments for the royalty oil.
He believes the royalty oil sale to Tesoro has increased
competition in southcentral and in Fairbanks and thought that has
a positive economic impact on the state.
SENATOR LEMAN asked if there were any items that were different
between this contract and the one they are operating under right
now. MR. SHIVELY answered that the letter of credit is longer by
15 days and it's a different pricing scheme. MR. KEVIN BANKS,
Division of Oil and Gas, explained that we used a volume weighted
average of all west coast placements which includes BP's west coast
price.
SENATOR HOFFMAN asked if any of their refined product was consumed
or sold outside of the railbelt. MR. SHIVELY said he didn't know
the answer to that.
SENATOR LINCOLN asked what is meant, "If the state and Exxon
renegotiate the royalty value under the terms of the ANS royalty
settlement, Tesoro may terminate the contract, if the price is not
to its liking." COMMISSIONER SHIVELY said that basically they
would have to give us appropriate notice that the price was too
high and they would attempt to get their oil elsewhere and we would
sell that oil with the rest of our royalty oil that is currently
marketed by the other producers. It allows them, if there's a
major change in the price of oil, to go seek another source of oil.
MR. BANKS explained that we have an arrangement with the Exxon
producer - a set of reopener clauses in the agreement - should the
market change or should there be some government action, like the
export ban which would permit us to renegotiate a price. Tesoro,
under this agreement, is not allowed to participate in that
negotiation. So they have to accept a fait accompli and hope that
Exxon negotiates hard with the state.
Number 402
SENATOR LINCOLN asked what is meant by their local hire language.
MR. BANKS responded in the agreement it says "residents." He
commented that they already have a pretty stable work force; it's
not like we're creating a lot of new jobs. SENATOR LINCOLN said
she would like to know how many Tesoro employees are Alaska
residents and how many are not.
SENATOR TAYLOR commented he thought the only definition of an
Alaska resident was someone who has lived here for 30 days and
registered to vote.
COMMISSIONER SHIVELY said the bill approving the contract should be
ready sometime between the 22nd and the 24th of March.
BERNIE SMITH, Manager, Government Affairs for Tesoro, and JON
TILLINGHAST, Council for Tesoro, joined the committee.
MR. SMITH said that the state is selling roughly 27% of all the
state royalty entitlement from Prudhoe Bay to Tesoro Alaska
Petroleum. The contract term would be only three-years and require
at least 80% of the oil purchased to be processed at the Tesoro
Nikiski Refinery. The contract requires legislative approval.
MR. SMITH said that royalty oil is the principal feed stock for the
Tesoro refinery. This oil would represent 80% of the refinery's
crude supply. There is no other stable, long-term source of crude
for the refinery in Tesoro's current one-year contract with the
state that expires December 31, 1995. If the legislature is unable
to act on this proposed contract before it adjourns in 1995, Tesoro
would loose that much of their supply and continued operation of
the refinery would be in peril.
Tesoro would be obligated under the proposed contract to pay a
substantial premium above the price the state receives from either
the North Slope producers for royalty oil taken in value or other
in-state refineries. In January 1995 this premium would have been
19 cents a barrel or $2.77 million on an annual basis.
MR. SMITH said there were other economic disadvantages with other
in-state refineries, because Tesoro has to actually ship their
crude supply from Valdez to Nikiski where the other in-state
refineries pick it up off the pipeline. They also have the
advantage of putting their heavy residuals back into the pipeline
and Tesoro has to actually ship it out.
Number 455
JON TILLINGHAST, Council for Tesoro, explained what they mean when
they say they are paying a premium over what the state gets on
average for its North Slope oil (19 cents a barrel higher than the
volume weighted average price).
SENATOR HOFFMAN asked if any of their product was sold out of the
railbelt. MR. TILLINGHAST replied, "Absolutely." They sell their
product in the western part of Alaska and sometimes into Southeast.
SENATOR LINCOLN asked how many of their 552 statewide employees are
state residents of one year or more. MR. SMITH guessed
approximately 99.9% are one-year residents or longer. Refinery
people work one week on, one week off, but they are required to
stay in state, he said.
SENATOR LEMAN commented that he was visited earlier by the Dean of
the School of Mining Engineering at the University of Alaska,
Fairbanks, who told him they are producing very good petroleum and
chemical engineers. MR. SMITH said they had hired one.
SENATOR LEMAN said they would take the bill up when they received
it and thanked everyone for their participation.
SENATOR LEMAN announced an at ease at 4:25 p.m. - 4:28 p.m.
Number 568
SENATOR LEMAN announced the committee would next have the
confirmation hearing for Frank Rue, Commissioner, Department of
Fish and Game.
COMMISSIONER FRANK RUE said the mission of the department is to
manage, protect, maintain, and improve our fish and wildlife
resources and the habitat it depends on on a sustained yield basis
for the benefit of people. He said it was important to keep in
mind that the resources should be managed for people.
He said his last seven years he has been the director of the
Habitat Division. His management philosophy which he brought with
him is respecting the employees who work for him, their
professionalism, asking them to meet a high standard of
professionalism, give them responsibility and involve them in
decisions so that he makes a more informed decision and so they
understand the policies of the commissioner's office so the
employees feel they are a part of the department.
In his position as commissioner he hoped to emphasize willingness
and desire to find solutions to difficult problems.
TAPE 95-43, SIDE B
COMMISSIONER RUE thought that both Boards were looking for that
kind of help and guidance from the department.
SENATOR LEMAN asked for a general sketch of the status of
commercial fisheries around the state.
COMMISSIONER RUE said some of the most difficult issues are the
king salmon in Southeast treaty negotiations and the Endangered
Species Act. The effects of the Northwest hydropower and depletion
on runs down there and how they affect trollers up here is another
very difficult issue. He said he was not real optimistic. He
thought the problems the lower 48 are having with salmon would
continue to be exported up here, but we have filed an intent to sue
National Marine Fisheries Service on its recovery plan.
Unfortunately, if you plan to sue the federal government, you have
to file an intent 60 days before you sue them and by that time the
season is over. But, he said, the state is trying to send the
message.
COMMISSIONER RUE said we are doing a lot of scientific work to
argue against some of the propositions being put forward by the
lower 48 and the federal government on recovery of Snake River fall
chinook.
In Southcentral, Cook Inlet is a very big issue. There is a
referendum starting up, because people think they did not get a
fair shake from the Board of Fisheries.
Another big issue is the Area M/Arctic-Yukon-Kuskokwim (AYK), he
said.
SENATOR LEMAN asked him about stock health. COMMISSIONER RUE said
he felt our chinook stocks in Southeast are in good health. We
have done a good job of managing our fisheries since statehood. We
have done a good job of protecting our habitat through the Forest
Practices Act. The Upper Susitna has a good rebuilding program and
there will be about a 50% reduction in harvest. In the AYK area
they thought they had a crisis last year, but the runs came back
better than they had expected. They still need to rebuild the chum
stocks.
SENATOR LEMAN asked if the hatchery in Kotzebue was still
operating. COMMISSIONER RUE said the Bering Sea Fisherman's
Association is financing a final close out of that while trying to
find other funding. It is one of the more difficult hatcheries to
convert to a private non-profit, because it's not an easy cost
recovery fishery.
SENATOR LINCOLN asked what he was doing to ensure that we have
accurate data on which to make good decisions. She also asked if
he was afraid to try something innovative, but if it doesn't work,
move on so we can have a healthy resource for future generations.
COMMISSIONER RUE said no organization is beyond improvement. He
thought we should be looking for innovative ways of getting data,
particularly with budgets going down. In terms of management, he
thought the Board just made an interesting management decision on
Round Island with a subsistence hunt of walrus.
SENATOR LINCOLN asked what he was going to do different under his
leadership than what has and has not been done in the past.
COMMISSIONER RUE thought a lot of good things had been done in
previous administrations. What we need to do in fisheries, though,
is to make sure our area managers, the people closest to the
fishery, are given a lot of responsibility to make decisions. He
said he would not be intervening in management decisions which are
more appropriately made at the area level.
SENATOR HOFFMAN said that could be carried one step farther in that
the fishermen might know more about what's going on in the fishery
than some of the people in the department. COMMISSIONER RUE agreed
they need to learn to work with people in the regions.
SENATOR TAYLOR asked to what he attributed the significant increase
in deer population on Prince of Wales Island. COMMISSIONER RUE
attributed it to mild winters and early successional stages based
on logging.
SENATOR TAYLOR asked why his division has fought and denied that
that existed. He commented that every report he has read from his
division predicts that the deer populations will crash in decades
to come, because of the harvesting of timber.
COMMISSIONER RUE said research shows that if you have early
successional stages of shrubs next to old growth forest and low
snow, you can get more deer use of the clear cut area. The forage
is not as nutritious; the deer don't do as well; and, if there is
deep snow, you'll have poor deer survival. You then have to look
at when those early successional stages close over and you lose the
forage. That's when you get a second growth forest that's managed
for timber over the long term and the deer numbers decline,
especially in hard winters.
SENATOR TAYLOR asked if he had any evidence of that. COMMISSIONER
RUE said they have seen experiments on thinning where you can
extend the shrub stage a little bit. Eventually you will get a
canopy closure.
SENATOR TAYLOR said they have intensively harvested timber on
Prince of Wales Island for 30 years and during that entire time
they have had an ever-expanding deer population on the areas
managed by the U.S. Forest Service and private land owners. On
areas managed by the state or where no management has occurred,
they have seen cyclic decline so serious in the deer population,
that his department ceased harvest of all deer in the islands that
surround his communities for seven years. It did no predator
control in that time, either, he added.
COMMISSIONER RUE said he was sure he could go through the record
and find things the Department of Fish and Game, or a particular
division, didn't do well. Overall, however, they come up with
solutions for thousands of issues a year. It doesn't mean that
people are happy about all of them.
SENATOR LEMAN asked COMMISSIONER RUE if they could reschedule
another time to continue the briefing, because the committee needed
to act on a number of bills, COMMISSIONER RUE agreed.
SR 2 OPPOSE COAL AS HAZARDOUS/NOXIOUS SUBSTNCE
SENATOR LEMAN announced SR 2 to be up for consideration. No one
was available to testify on it, so SENATOR LEMAN said they would
reschedule it.
SB 130 MARINE PILOTS
SENATOR LEMAN announced SB 130 to be up for consideration.
SENATOR LEMAN announced an at ease from 5:10 p.m. - 5:15 p.m.
JEFF BUSH, Deputy Commissioner, Department of Commerce and Economic
Development, said he was a member of the Marine Pilots Board and
supported SB 130 in its current form. He didn't have any
recommended changes. He said their position on maximum tariffs is
that they take no position on it. He thought there might be some
anti-trust concerns if there is no maximum tariff, but he had meant
with the association's attorneys and they felt confident there were
no anti-trust problems.
RICHARD MONKMAN, Alaska Coastwise Pilots Association, said he was
available for questions. He supported Mr. Bush's comments about
the maximum tariffs saying it did not affect his client in
Southeast.
DOUG MCPHERSON, President, Alaska Coastwise Pilots Association,
supported SB 130 in its current form. He didn't see where the
protection of a maximum tariff is required. The track record of
the state's involvement in maximum tariffs tends to be very
involved and somewhat costly. There is the question of whether it
is in the public's best interest to be involved.
LARRY COTTER, Alaska Steamship Association, supported a maximum
tariff. The law requires use of pilots and that sets up a
situation where they use pilots and it is absolutely critical that
they develop a relationship with the pilots that allows for the
commerce to flow freely and on time. He thought the proposed
amendment limiting the maximum tariff to only areas where there is
one association should be applied to all areas regardless of the
number of associations that are in that area. The role of the
state is to ensure that commerce flows. That is best accomplished
by having some state oversite regarding the maximum tariff that can
be charged by any association.
TAPE 95-44, SIDE A
Number 001
He noted that people who live in Juneau have discovered that two
airlines can operate a monopoly almost as effectively as one
company. Maximum tariff language has been in existence for the
last four years and there have been no problems with it.
STEPHAN MORENO, Alaska Marine Pilots, said they support the bill as
it is. In the western region things have stabilized without the
maximum tariff. He couldn't think of an example of where anyone
has charged an exorbitant amount for a particular pilot move.
HANS ANTONSON, Southeast Alaska Pilots Association, supported SB
130 as it came out of the subcommittee and said they don't have a
problem with the maximum tariff in a region that doesn't have
competition, but not in an area that has competition where market
factors are working.
Number 115
PETER LEE NIELSEN, representing himself, said he works for Alaska
Coastwise Pilots. In 1991 when the legislature provided for
competition in marine piloting he thought it was good for Alaska
and marine piloting. Having observed first hand the management
dynamics of both SEPA as a guild and ACP as an aggressive
competitor, he thought there were advantages to both methods.
However, competition has sharply divided and alienated southeast
pilots as a peer group, resulting in litigious actions costing
individuals and the Board of Marine Pilots considerable effort,
time, and expense, increased pilot license fees, raised concerns
and questions about pilot training, qualifications, and marine
safety issues. As a result, he thought the guild system provided
for stability, better trained pilots, and more qualified pilots,
and keeps safety of lives, vessels, and our shorelines and wildlife
foremost.
A true guild system of pilotage cannot exist in a competitive
market place, MR. NIELSEN said. Competition drives tariffs. A
maximum tariff pushes competing pilot associations into difficult,
and at times, last minute tariff negotiations with their principals
in order for them to stay in business and ensure employment for
their members. It's common knowledge that the low bidder in tariff
and contract negotiations usually gets the business. Therefore,
industry is in a favorable position. A state-fixed tariff
periodically visited by an appointed rate review commission would
bring structure and stability to a chaotic situation.
SENATOR LEMAN asked him to explain the guild system. MR. NIELSEN
explained it's the historical system of pilotage where people join
together to benefit themselves and it's become accepted that it
also benefits an area. When it first started there was pure
competition. His great-great-grandfather was one of those in
Norway who lost his life doing that. Later, because competition
disrupted commerce, pilots banded together for their own safety,
for their countries' commerce in a peer-guild system. Members of
the guild join together for the betterment of pilotage, the skills
and safety concerns of the state, and environmental concerns.
SENATOR LEMAN asked if he knew of an area where there was a true
guild system. MR. NIELSEN said there are true guild systems in the
United States, one is in Florida.
Number 237
ERIC ELIASSEN, President, Southwest Alaska Pilots Association, said
this bill incorporates the recommendations of the Alaska State
Pilots Alliance draft. In Southcentral they would accept the
maximum tariff amendment as opposed to fixed tariffs. He said they
could go either way and they were willing to go with arbitration in
those regions that did have competition.
SENATOR LEMAN said they would hold the bill until next Wednesday
and adjourned the meeting at 5:40 p.m.
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