Legislature(2003 - 2004)

03/22/2004 03:30 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                         March 22, 2004                                                                                         
                           3:30 p.m.                                                                                            
                                                                                                                                
TAPE(S) 04-26, 27                                                                                                             
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Scott Ogan, Chair                                                                                                       
Senator Thomas Wagoner, Vice Chair                                                                                              
Senator Fred Dyson                                                                                                              
Senator Ralph Seekins                                                                                                           
Senator Ben Stevens                                                                                                             
Senator Kim Elton                                                                                                               
Senator Georgianna Lincoln                                                                                                      
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All Members Present                                                                                                             
                                                                                                                                
OTHER MEMBERS PRESENT                                                                                                         
                                                                                                                                
Senator Donny Olson                                                                                                             
Representative Vic Kohring                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 355                                                                                                             
"An Act relating  to the protection of land and  water from waste                                                               
disposal;  providing  for  the regulation  of  waste  management;                                                               
making  conforming amendments;  and  providing  for an  effective                                                               
date."                                                                                                                          
                                                                                                                                
     HEARD AND HELD                                                                                                             
                                                                                                                                
SENATE BILL NO. 312                                                                                                             
"An Act relating  to natural gas exploration  and development and                                                               
to  nonconventional gas,  and amending  the  section under  which                                                               
shallow natural  gas leases may  be issued; and providing  for an                                                               
effective date."                                                                                                                
                                                                                                                                
     HEARD AND HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 355                                                                                                                  
SHORT TITLE: WASTE MANAGEMENT/DISPOSAL                                                                                          
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
02/27/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/27/04       (S)       CRA, RES                                                                                               
03/10/04       (S)       CRA AT 1:30 PM FAHRENKAMP 203                                                                          
03/10/04       (S)       Moved  SB 355 Out of Committee                                                                         
03/10/04       (S)       MINUTE(CRA)                                                                                            
03/12/04       (S)       CRA RPT 1DP 3NR                                                                                        
03/12/04       (S)       DP: STEDMAN; NR: LINCOLN, STEVENS G,                                                                   
03/12/04       (S)       ELTON                                                                                                  
03/22/04       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
BILL: SB 312                                                                                                                  
SHORT TITLE: CONVENTIONAL & NONCONVENTIONAL GAS LEASES                                                                          
SPONSOR(s): RESOURCES BY REQUEST                                                                                                
                                                                                                                                
02/09/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/09/04       (S)       RES, FIN                                                                                               
02/23/04       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/23/04       (S)       Heard & Held                                                                                           
02/23/04       (S)       MINUTE(RES)                                                                                            
03/05/04       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/05/04       (S)       <Above Bill Hearing Postponed>                                                                         
03/22/04       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Commissioner Ernesta Ballard                                                                                                    
Department of Environmental Conservation (DEC)                                                                                  
410 Willoughby                                                                                                                  
Juneau, AK 99801-1795                                                                                                           
POSITION STATEMENT: Commented on SB 355.                                                                                      
                                                                                                                                
Mr. Dan Easton, Director                                                                                                        
Division of Water                                                                                                               
Department of Environmental Conservation (DEC)                                                                                  
410 Willoughby                                                                                                                  
Juneau, AK 99801-1795                                                                                                           
POSITION STATEMENT: Commented on SB 355.                                                                                      
                                                                                                                                
Mr. Jack Chenoweth                                                                                                              
Legislative Legal and Research Services Division                                                                                
Legislative Affairs Agency                                                                                                      
Alaska State Capitol                                                                                                            
Juneau, AK  99801-1182                                                                                                          
POSITION STATEMENT: Commented on SB 312.                                                                                      
                                                                                                                                
Mr. Mark Myers, Director                                                                                                        
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
POSITION STATEMENT: Commented on SB 312.                                                                                      
                                                                                                                                
Ms. Michelle Church                                                                                                             
Friends of the Mat-Su                                                                                                           
HCO1, Box 6218                                                                                                                  
Palmer AK 99645                                                                                                                 
POSITION STATEMENT: Commented on SB 312.                                                                                      
                                                                                                                                
Mr. Myrl Thompson, Chairman                                                                                                     
Ogan Is So Gone Recall                                                                                                          
PO Box 877189                                                                                                                   
Wasilla AK 99687                                                                                                                
POSITION STATEMENT: Commented on SB 312.                                                                                      
                                                                                                                                
Mr. John Vanduska                                                                                                               
Palmer AK 99645                                                                                                                 
POSITION STATEMENT: Commented on SB 312.                                                                                      
                                                                                                                                
Ms. Robin McLean                                                                                                                
Glenn Hwy.                                                                                                                      
Sutton AK 99674                                                                                                                 
POSITION STATEMENT: Commented on SB 312.                                                                                      
                                                                                                                                
Ms. Kathryn Franzenburg                                                                                                         
Palmer AK 99645                                                                                                                 
POSITION STATEMENT: Commented on SB 312.                                                                                      
                                                                                                                                
Ms. Patricia Mack                                                                                                               
Palmer AK 99645                                                                                                                 
POSITION STATEMENT: Commented on SB 312.                                                                                      
                                                                                                                                
Mr. Bob Shavelson                                                                                                               
Homer AK 99603                                                                                                                  
POSITION STATEMENT: Commented on SB 312.                                                                                      
                                                                                                                                
Mr. Pete Praetorius                                                                                                             
Palmer AK 99645                                                                                                                 
POSITION STATEMENT: Commented on SB 312.                                                                                      
                                                                                                                                
Mr. Mike McCarthy                                                                                                               
Kachemak Bay Property Owners' Alliance                                                                                          
Homer AK 99603                                                                                                                  
POSITION STATEMENT: Commented on SB 312.                                                                                      
                                                                                                                              
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-26, SIDE A                                                                                                            
                                                                                                                                
                SB 355-WASTE MANAGEMENT/DISPOSAL                                                                            
                                                                                                                                
CHAIR SCOTT  OGAN called the Senate  Resources Standing Committee                                                             
meeting  to  order at  3:30  p.m.  Present were  Senators  Thomas                                                               
Wagoner,  Ben  Stevens, Fred  Dyson,  Ralph  Seekins, Kim  Elton,                                                               
Georgianna  Lincoln and  Chair  Scott Ogan.  The  first order  of                                                               
business to come before the committee was SB 355.                                                                               
                                                                                                                                
COMMISSIONER   ERNESTA  BALLARD,   Department  of   Environmental                                                               
Conservation  (DEC),  said  this bill  came  from  Administrative                                                               
Order 202, issued in December 2002.  The order asks DEC to review                                                               
its  programs   to  make  sure   they  are  compliant   with  its                                                               
constitutional  and statutory  responsibilities. She  briefed the                                                               
committee:                                                                                                                      
                                                                                                                                
     We found  that our water  program had some holes  in it                                                                    
     -  that   both  its   statutory  authorities   and  its                                                                    
     regulatory   implementation    did   not    provide   a                                                                    
     comprehensive,  what  we   call  raindrops  to  oceans,                                                                    
     protection  of  the  waters  in  the  state.  The  bill                                                                    
     doesn't provide any new  statutory authorities for DEC.                                                                    
     It    does,    however,   make    fairly    significant                                                                    
     opportunities  for improvement  in the  way we  protect                                                                    
     water. I'd like to review those very briefly....                                                                           
                                                                                                                                
     The most  important change  that the  bill makes  is in                                                                    
     the  method   of  permitting.   We  currently   have  a                                                                    
     statutory requirement  to permit and the  word 'permit'                                                                    
     is  specifically  used.  This  bill  will  change  that                                                                    
     requirement   to   the   ability   to   provide   prior                                                                    
     authorization. That  will allow us to  use a risk-based                                                                    
     spectrum of  tools. We can  use for  riskier situations                                                                    
     more   precise  permitting   tools;   for  less   risky                                                                    
     situations,  we can  use  new  tools, particularly  one                                                                    
     called 'Permit By Rule....'                                                                                                
                                                                                                                                
     The  handout raised  the permitting  tool that  we will                                                                    
     intend to  use starting with individual  permits, which                                                                    
     we  have  now   -  in  which  we   have  an  individual                                                                    
     relationship  with a  specific discharger  and in  that                                                                    
     relationship  we  categorize   the  characteristics  of                                                                    
     their effluent  and specifically identify those  in the                                                                    
     permit -  a general permit  we use when we  authorize a                                                                    
     number  of smaller  activities in  a single  geographic                                                                    
     area.                                                                                                                      
                                                                                                                                
     A permit  by rule  is one  of the  new tools  that this                                                                    
     bill will  allow us to  use. A  permit by rule  tool we                                                                    
     would  use to  permit relatively  low risk  activities,                                                                    
     but to  assure that the  people engaged in them  - such                                                                    
     as bilge pumping  would be a good example  - that there                                                                    
     are  rules,  which  they must  follow,  which  we  have                                                                    
     promulgated through  notice and comment  rulemaking. We                                                                    
     also will  have statutory  authority through  this bill                                                                    
     to  issue plan  approvals,  which we  do  use now,  and                                                                    
     finally, the  new statutory language  will allow  us to                                                                    
     use  an integrated  waste management  permit for  large                                                                    
     projects  that  have  multiple discharge  streams  that                                                                    
     could be  handled now with  the new bill with  a single                                                                    
     permit  instead of  with  multiple individual  permits.                                                                    
     The bill  also allows us  to use a very  important tool                                                                    
     called  administrative  extension   of  permits.  If  a                                                                    
     permit  has  expired,  this  bill   will  allow  us  to                                                                    
     administratively extend  it to be sure  that the person                                                                    
     holding  the  permit is  still  covered  if we've  been                                                                    
     unable  to attend  timely to  renewing or  changing the                                                                    
     permit.                                                                                                                    
                                                                                                                                
     It also allows us to  expand the requirements for proof                                                                    
     of   financial   responsibility.  This   is   important                                                                    
     particularly in the  case of mining in  Alaska where we                                                                    
     have  a  large   discharger  with  potential  long-term                                                                    
     implications for waste management -  that we be able to                                                                    
     require evidence  of financial  ability to  manage that                                                                    
     waste long  into the future  and, particularly,  in the                                                                    
     event that the company defaults.                                                                                           
                                                                                                                                
     Finally,  the  bill   modifies  some  fairly  important                                                                    
     definitions.  The  present  definition of  solid  waste                                                                    
     requires us to determine  the intent of the discharger.                                                                    
     If  the  waste is  not  wanted,  it's considered  solid                                                                    
     waste. I  don't think it should  be up to the  state to                                                                    
     have to  determine what the  intent is.  The definition                                                                    
     of solid waste in this  bill runs to the common English                                                                    
     concept of  garbage and refuse  and the bill  allows us                                                                    
     to  differentiate  between  municipal solid  waste  and                                                                    
     other solid  waste - municipal  solid waste  being that                                                                    
     waste  discharged by  municipalities, common  household                                                                    
     waste. With  this new definition  we'll be able  to use                                                                    
     simple permit by rule  permitting for rural communities                                                                    
     who  now would  be  required to  go  through a  complex                                                                    
     individual  permit program.  The  combined benefits  of                                                                    
     the new  municipal solid waste definition  and the plan                                                                    
     approvals  will allow  us to  handle the  rural Alaskan                                                                    
     situation  with  much  better  results  and  much  more                                                                    
     effectively  and  efficiently  for  those  communities.                                                                    
     That  in  a quick  summary  is  what SB  355  provides.                                                                    
     There's  no  fiscal  note because  there  would  be  no                                                                    
     additional    staff   required    to   fulfill    these                                                                    
     responsibilities. It simply allows  us to use the staff                                                                    
     we have more efficiently.                                                                                                  
                                                                                                                                
CHAIR  OGAN noted  that all  the  members of  the committee  were                                                               
present.                                                                                                                        
                                                                                                                                
SENATOR ELTON asked if he intended to move the bill.                                                                            
                                                                                                                                
CHAIR OGAN said he didn't intend  to move it today, but wanted to                                                               
get it on the record.                                                                                                           
                                                                                                                                
SENATOR BEN STEVENS asked if language  on page 2, line 22, saying                                                               
"Department authorization  shall be obtained for  direct disposal                                                               
and for  disposal, other than  of domestic sewage,  into publicly                                                               
owned or operated sewerage systems" was existing language.                                                                      
                                                                                                                                
MR. DAN  EASTON, Director, Division  of Water, DEC,  replied that                                                               
that is existing language.                                                                                                      
                                                                                                                                
SENATOR  STEVENS asked  if language  on page  3, lines  11 -  13,                                                               
saying, "The  department may require the  submission of plans..."                                                               
was existing language as well.                                                                                                  
                                                                                                                                
COMMISSIONER BALLARD replied yes.                                                                                               
                                                                                                                                
SENATOR  STEVENS   requested  a   sectional  analysis   from  the                                                               
department to see how section 3 was changed.                                                                                    
                                                                                                                                
SENATOR SEEKINS asked what "active  ranges" meant on page 4, line                                                               
21.                                                                                                                             
                                                                                                                                
COMMISSIONER BALLARD replied that is existing language.                                                                         
                                                                                                                                
CHAIR OGAN asked  if active ranges referred to  Eagle River Flats                                                               
where artillery is used.                                                                                                        
                                                                                                                                
SENATOR ELTON said the department  requested that language two or                                                               
three years  ago. He noticed that  section 5 on page  6 generally                                                               
reduces the amount  of public notification from two  notices in a                                                               
newspaper  of  general  circulation  to one  notice  and  he  was                                                               
contemplating  an  amendment  that   would  avoid  that  kind  of                                                               
situation that  had already happened  in the southern end  of the                                                               
Kenai Peninsula, where coalbed methane  (CBM) leases were noticed                                                               
in the Kenai paper, but not in the Homer paper.                                                                                 
                                                                                                                                
CHAIR  OGAN sought  other comments,  but there  were none  and he                                                               
held the bill for further work.                                                                                                 
                                                                                                                                
        SB 312-CONVENTIONAL & NONCONVENTIONAL GAS LEASES                                                                    
                                                                                                                                
CHAIR SCOTT OGAN announced SB 312  to be up for consideration. He                                                               
noted a conceptual amendment called  the "Alaska Property Owners'                                                               
Bill of Rights" that needed to be adopted for discussion.                                                                       
                                                                                                                                
             ALASKA PROPERTY OWNERS' BILL OF RIGHTS                                                                           
                                                                                                                                
WHEREAS, Alaskans cherish their private property rights; and                                                                    
                                                                                                                                
WHEREAS, coalbed methane (shallow  gas) development threatens the                                                               
rights of  private property owners  to enjoy the fruits  of their                                                               
labors; and                                                                                                                     
                                                                                                                                
WHEREAS, state law currently fails  to adequately protect private                                                               
property owners from the threats  of coalbed methane development;                                                               
and                                                                                                                             
                                                                                                                                
WHEREAS,   Alaskans  rely   on  public   lands  and   waters  for                                                               
subsistence,  recreation, and  the operation  of businesses  that                                                               
depend on the health of those lands and waters; and                                                                             
                                                                                                                                
WHEREAS, many Alaskans live adjacent  to public and private lands                                                               
that have been leased for coalbed methane development;                                                                          
                                                                                                                                
NOW, THEREFORE, BE IT RESOLVED  WE ALSKANS DEMAND THE ADOPTION OF                                                               
AN ALASKA  PROPERTY OWNERS' BILL  OF RIGHTS TO PROTECT  OUR CLEAN                                                               
AIR,  PURE  WATER, PLENTIFUL  FISH  AND  WILDLIFE RESOURCES,  AND                                                               
QUALITY OF LIFE FOR FUTURE GENERATIONS; AND                                                                                     
                                                                                                                                
BE  IT FURTHER  RESOLVED THAT  IN ORDER  TO PRESERVE  AND SUSTAIN                                                               
THESE  VALUES AND  OUR PRIVATE  PROPERTY  RIGHTS THE  LEGISLATURE                                                               
MUST  ADOPT  STATEWIDE  LEGISLATION  THAT  INCLUDES  ALL  OF  THE                                                               
FOLLOWING PROTECTIONS:                                                                                                          
                                                                                                                                
   1) PROPERTY OWNER CONSENT: Property owners must have the legal                                                               
      right to  say if,  when, where  and how  anyone comes  onto                                                               
      their private property  to explore, develop  and/or produce                                                               
      the subsurface  mineral estate.  The state  must provide  a                                                               
      legal fund, which  surface owners can access  to hire legal                                                               
      counsel. Private  property  owners must  also be  protected                                                               
      from retaliatory lawsuits from developers.                                                                                
                                                                                                                                
   2) BUYBACK AND MORATORIUM: The state must buy back all coalbed                                                               
      methane leases  already let  and halt  all further  coalbed                                                               
      methane leasing until  all the provisions of  this Property                                                               
      Owners' Bill of Rights are enacted.                                                                                       
                                                                                                                                
   3) PROPER NOTICE: The state must provide all landowners within                                                               
      five miles of a proposed coalbed methane lease with 90 days                                                               
      actual  written  notice  before  a  best  interest  finding                                                               
      process begins.  Notice  by registered  mail  must also  be                                                               
      provided  to  local, municipal  and  tribal  entities  with                                                               
      jurisdiction within  the  proposed lease  areas. Notice  by                                                               
      publication must also be provided at  local post offices in                                                               
      a local newspaper and a newspaper of statewide circulation.                                                               
      All  notices  described above  must  include,  among  other                                                               
      things, a  detailed map of  the affected area  proposed for                                                               
      lease.                                                                                                                    
                                                                                                                                
   4) BEST INTEREST FINDING: Prior to issuing any leases, the                                                                   
      state  must conduct  a  best  interest finding  process  to                                                               
      analyze the  economic, environmental  and social  costs and                                                               
      benefits of potential coalbed  methane operations including                                                               
      but not  limited to  the potential  diminution in  value of                                                               
      private and public properties.                                                                                            
                                                                                                                                
   5) BASELINE STUDIES AND BURDEN OF PROOF: The state must                                                                      
      measure baseline  water quality and  quantity in  all areas                                                               
      proposed  for   leasing   prior  to   granting  any   lease                                                               
      application, including all surface and well waters that may                                                               
      be affected. Prior  to granting any lease  application, the                                                               
      state must  also  measure baseline  conditions for  methane                                                               
      seepage,  as  well  as   for  hydrological  and  geological                                                               
      conditions in all areas proposed  for leasing. Finally, the                                                               
      state must conduct  baseline inventory studies  of existing                                                               
      fish  and wildlife  populations  to  identify sensitive  or                                                               
      critical wildlife areas to be excluded from coalbed methane                                                               
      leasing. If  a property owner's  water quality  or quantity                                                               
      diminishes  during  or  within  five  years  after  coalbed                                                               
      methane operations  on  or around  his/her property,  there                                                               
      shall  be  a   presumption  such  operations   caused  such                                                               
      diminishment or pollution and  the coalbed methane operator                                                               
      shall carry the burden of proving otherwise.                                                                              
                                                                                                                                
   6) LOCAL CONTROL: The state must ensure local governmental                                                                   
      entities have maximum powers of self government that enable                                                               
      them to regulate coalbed methane development to protect the                                                               
      health, safety,  general welfare  and quality  of  life for                                                               
      local residents.                                                                                                          
                                                                                                                                
   7) PROTECT CRITICAL HABITAT AND RECREATIONAL LANDS: The state                                                                
      must identify and  implement "no drill" zones  and prohibit                                                               
      coalbed methane  leasing  and development  in sensitive  or                                                               
      critical wildlife areas, particularly  those areas used for                                                               
      subsistence, hunting, fishing and recreational activities.                                                                
                                                                                                                                
   8) WATER PROTECTION: The state must prohibit coalbed methane                                                                 
      water  extraction  in groundwater  aquifers  that  are  the                                                               
      source of existing  or future water wells  and prohibit the                                                               
      use of toxic hydraulic  fracturing fluids. Furthermore, the                                                               
      state must require the deep-well underground reinjection of                                                               
      all liquids  and wastes  produced and  used during  coalbed                                                               
      methane  development  and  it  must   ensure  there  is  no                                                               
      hydrological connection  between the waste  injection zones                                                               
      and present or future drinking water sources.                                                                             
                                                                                                                                
   9) PROPERTY OWNER SAFEGUARDS: The state must promulgate by                                                                   
      December  2004  enforceable minimum  statewide  regulations                                                               
      that require  best  available technology  and practices  to                                                               
      ensure the health and  safety of citizens on  the issues of                                                               
      noise, air and water quality, setbacks, use and disposal of                                                               
      any  toxics,  surface  restoration   and  reclamation.  New                                                               
      standards  must  also  be  established  that  increase  the                                                               
      statewide and per incident bond requirement for all coalbed                                                               
      methane operators and developers to ensure full restoration                                                               
      of the surface. These amounts must be sufficient to provide                                                               
      the full  preleasing fair market  value of any  property or                                                               
      business damaged by coalbed methane development.                                                                          
                                                                                                                                
   10) COMPETITIVE BIDDING: In order to maximize the benefit of                                                                 
      our natural  gas resources,  the state  must reinstitute  a                                                               
      competitive  bidding   process  for  all   coalbed  methane                                                               
      (shallow gas) leases.                                                                                                     
                                                                                                                                
                 th                                                                                                             
Submitted this 18 day of March, 2004, to all Alaskans and the                                                                   
Alaska Legislature.                                                                                                             
                                                                                                                                
SENATOR THOMAS WAGONER moved to adopt the amendment for purposes                                                                
of discussion. There were no objections and it was so ordered.                                                                  
                                                                                                                                
MR. JACK CHENOWETH, drafting attorney, Legislative Legal and                                                                    
Research Services Division, said he spent quite a bit of time                                                                   
reviewing the conceptual amendment.                                                                                             
                                                                                                                                
CHAIR OGAN asked him to review the requirement in section 1.                                                                    
                                                                                                                                
MR. CHENOWETH replied:                                                                                                          
                                                                                                                                
     The  requirement  in section  1  is  that the  property                                                                    
     owners must  be in  a position to  give consent  to the                                                                    
     exploration,  development   and  production   from  the                                                                    
     subsurface  mineral  estate.  That in  my  judgment  is                                                                    
     contrary to  the constitutional  and legal  basis under                                                                    
     which  our  state has  framed  the  development of  the                                                                    
     subsurface resources.                                                                                                      
                                                                                                                                
     Beginning back  with the Statehood  Act -  Section 6(i)                                                                    
     of the Statehood Act has  language that speaks in terms                                                                    
     of the right in conveying  this land - the state having                                                                    
     the right to develop  these subsurface resources. We've                                                                    
     also  picked this  up in  the statutory  provision that                                                                    
     establishes the  reservation of  the mineral  estate in                                                                    
     AS  38.05.125  and  we've  captured  it,  as  well,  in                                                                    
     several   constitutional    provisions,   notably   the                                                                    
     provision  in   Article  XII,  that  talks   about  the                                                                    
     ratification of the clause, the  agreements that we had                                                                    
     in place at  the time of statehood  in three provisions                                                                    
     in [Title  38], which  talk about  leasing and  sale of                                                                    
     land.  All of  these provisions  talk in  terms of  the                                                                    
     right  to   have  access  to   and  to   develop  these                                                                    
     particular subsurface  resources. And when  you propose                                                                    
     to  allow  a  property  owner to  withhold  consent  to                                                                    
     obtain access for a lessee  or for the state's agent to                                                                    
     come  onto the  property and  develop that  resource, I                                                                    
     think you're  going to  run into  problems in  terms of                                                                    
     trying to get  that enforced when you lay  that kind of                                                                    
     proposition down against the  federal law and the state                                                                    
     constitutional provisions that I have identified.                                                                          
                                                                                                                                
CHAIR OGAN asked if changing  the statute to allow surface owners                                                               
the right to  "when, where and how anyone comes  on their private                                                               
property to  explore, develop or  produce the  subsurface mineral                                                               
estate" would take a constitutional amendment.                                                                                  
                                                                                                                                
MR. CHENOWETH replied:                                                                                                          
                                                                                                                                
     At  least  that, sir.  The  problem  goes back  to  the                                                                    
     [Section 6(i)]  provision in the  Statehood Act  and it                                                                    
     talks  about the  grant of  mineral  rights being  made                                                                    
     together  with  the right  to  prospect  for, mine  and                                                                    
     remove the  same. That's the  reservation given  to the                                                                    
     state.  I'm  not  sure  that   even  if  we  enact  the                                                                    
     provisions in  our state constitution that  amended the                                                                    
     kinds of  things that  I am  concerned about,  we still                                                                    
     would run into  a problem with the  language of section                                                                    
     6(i) that talks  about the right to  prospect for, mine                                                                    
     and remove these reserved subsurface minerals.                                                                             
                                                                                                                                
CHAIR  OGAN said  his studies  found  that when  Alaska became  a                                                               
state, the federal government quit  claimed the subsurface to the                                                               
state.  The [Section  6(i)] clause  also said  that if  the state                                                               
attempted to transfer that property  to anyone besides the state,                                                               
the U.S.  Attorney General has specific  instructions to litigate                                                               
in district court for Alaska  to take back the subsurface estate.                                                               
He  asked  if that  meant  just  the  subsurface that  the  state                                                               
attempted to transfer or surface, as well.                                                                                      
                                                                                                                                
MR. CHENOWETH replied:                                                                                                          
                                                                                                                                
     The [Section  6(i)] provision, beyond  the reservation,                                                                    
     talks in terms of 'mineral  deposits in such land shall                                                                    
     be  subject  to  lease  by   the  state  as  the  state                                                                    
     Legislature  may  direct,  provided that  any  land  or                                                                    
     minerals   hereafter  disposed   of  contrary   to  the                                                                    
     provisions of  this section, shall be  forfeited to the                                                                    
     United States by  appropriate proceedings instituted by                                                                    
     the Attorney  General -  I assume  that means  the U.S.                                                                    
     Attorney  General  -  for  that  purpose  in  the  U.S.                                                                    
     District Court  for the district  of Alaska.'  So, that                                                                    
     is  the   penalty  provision,  if  you   will,  if  the                                                                    
     Legislature  moves  too  far afield  of  violating  the                                                                    
     restrictions in Section 6(i).                                                                                              
                                                                                                                                
CHAIR OGAN  said he thought a  contract could be changed  if both                                                               
parties agreed and asked if that is correct.                                                                                    
                                                                                                                                
MR.  CHENOWETH replied  yes and  that Congress  could amend  this                                                               
provision to remove or modify that limitation.                                                                                  
                                                                                                                                
CHAIR OGAN  said, "So,  basically, to make  the first  section of                                                               
this  property owners'  consent, it  would take  a constitutional                                                               
amendment and  then a change  in the  federal law to  change that                                                               
part of the compact."                                                                                                           
                                                                                                                                
He  asked if  the compact  gets changed,  do the  voters have  to                                                               
ratify that as well.                                                                                                            
                                                                                                                                
MR. CHENOWETH replied:                                                                                                          
                                                                                                                                
     We  put a  provision in  the constitution  in the  last                                                                    
     decade or  so that  talks about  changes being  made to                                                                    
     the  compact,  to  the  Statehood   Act  and  to  other                                                                    
     relationships that  affect a  right given by  the state                                                                    
     have  to be  ratified  by the  voters.  I believe  they                                                                    
     do....                                                                                                                     
                                                                                                                                
CHAIR  OGAN summarized  that adopting  the first  section of  the                                                               
Alaska Property Owners' Bill of  Rights requires a constitutional                                                               
amendment  (which requires  a two-thirds  vote of  the House  and                                                               
Senate)  and  an act  of  Congress,  both  of  which have  to  be                                                               
ratified by the people.                                                                                                         
                                                                                                                                
MR. CHENOWETH replied, "I think that's correct, sir."                                                                           
                                                                                                                                
CHAIR OGAN concluded, "It sounds like a big project."                                                                           
                                                                                                                                
MR. CHENOWETH also pointed out:                                                                                                 
                                                                                                                                
     The  current  state of  the  law  in  the state,  as  I                                                                    
     understand  it,   is  that  property  owners   who  are                                                                    
     affected by potential leases that  are to be let by the                                                                    
     state are in a position  to sit down and negotiate with                                                                    
     the  state's  agent,  its  lessee,   who  come  on  the                                                                    
     property and barring that, if  the property owner fails                                                                    
     or refuses  to negotiate  in good  faith or  they can't                                                                    
     come to some  agreement, the lessee can go  down to the                                                                    
     Department  of Natural  Resources  and,  in a  process,                                                                    
     secure a  determination of  the amount  of a  bond that                                                                    
     would allow them to get  on the property to recover the                                                                    
     minerals under the  terms of the lease.  That goes back                                                                    
     to  1959 or  1960, right  after statehood  that we  put                                                                    
     that  into effect.  I think  that  what buttresses  the                                                                    
     view of the people back at  that point in time - of the                                                                    
     legislators  back at  that point  in time  - that  some                                                                    
     mechanism had to be put  in place that didn't impede or                                                                    
     didn't obstruct the ability of  the state to get at the                                                                    
     right  to  develop   the  retained  subsurface  mineral                                                                    
     estate.                                                                                                                    
                                                                                                                                
SENATOR  ELTON   said  he  understood   the  discussion   of  the                                                               
constitutional and  Section 6(i)  issues and  asked if  either of                                                               
them  get  in the  way  of  a  mediation or  arbitration  process                                                               
between  the leasing  entity  of the  subsurface  rights and  the                                                               
property owner  that is interested  in protecting  their property                                                               
rights that could be delineated in statute.                                                                                     
                                                                                                                                
MR. CHENOWETH replied:                                                                                                          
                                                                                                                                
     All  three  of the  provisions  I  have mentioned,  the                                                                    
     Statehood  Act  provision,   the  reservation  and  the                                                                    
     constitutional provisions  that I  would look  to speak                                                                    
     in terms of  the right to explore and  develop. I think                                                                    
     anything  that would  leave the  surface  owner in  the                                                                    
     position  of  preventing  the exercise  of  that  right                                                                    
     would be  challengeable. So, if  you could,  then, come                                                                    
     up with some  sort of a mechanism by  which the parties                                                                    
     were  required to  reach  an agreement  -  it could  be                                                                    
     compulsory  arbitration or  something  like  that -  as                                                                    
     long as there was some  mechanism in place by which the                                                                    
     right  could be  exercised,  I  think you've  fulfilled                                                                    
     both  the principles  at work  under the  Statehood Act                                                                    
     provision and the constitutional provisions.                                                                               
                                                                                                                                
SENATOR ELTON followed up asking  if the mediation process failed                                                               
and then  the issues went to  an arbitration process, as  long as                                                               
that didn't lead to a denial  of access to the subsurface mineral                                                               
rights, would that be okay.                                                                                                     
                                                                                                                                
MR. CHENOWETH replied, "I think that might survive."                                                                            
                                                                                                                                
SENATOR  RALPH  SEEKINS said  he  thought  some protections  were                                                               
already  in place  for  some of  the provisions  in  the Bill  of                                                               
Rights.  Article VIII,  Section  10 of  the Constitution  already                                                               
addresses  the public  notice issue  in  item 3  of the  Property                                                               
Owners' Bill of Rights.                                                                                                         
                                                                                                                                
MR. CHENOWETH  agreed and  added that  it is  fleshed out  in the                                                               
Alaska Lands  Act. Current  law requires 60  days notice  and the                                                               
Property Owners'  Bill of  Rights requests 90  days. It  asks for                                                               
additional notice to  people who are not now named  in statute as                                                               
entitled  to  that  notice, but  enacting  those  things  doesn't                                                               
require a constitutional change.                                                                                                
                                                                                                                                
SENATOR SEEKINS  said according  to page 135  in a  manual called                                                               
"The Citizens' Guide to the  Alaska Constitution," Alaskan voters                                                               
turned down  an amendment that  would have given  the Legislature                                                               
veto power  over all disposals  of state-owned  natural resources                                                               
in  1976 and,  at this  point,  it appears  that the  Legislature                                                               
could not effectively  veto a disposal of  natural resources that                                                               
was otherwise compliant with the law. He read:                                                                                  
                                                                                                                                
     The   proposed  amendment   stemmed  from   legislative                                                                    
     dissatisfaction  with certain  sales  of state  royalty                                                                    
     oil that  had been negotiated by  the executive branch.                                                                    
     At the time, many  proponents of the amendment believed                                                                    
     that its  failure at the  polls resulted from  a biased                                                                    
     summary  of the  proposition on  the ballot,  which was                                                                    
     written  by individuals  in  the  executive branch  who                                                                    
     they claimed were opposed to the measure.                                                                                  
                                                                                                                                
MR. CHENOWETH replied:                                                                                                          
                                                                                                                                
     Well,  in the  sense  of overriding,  you  do have  the                                                                    
     authority, and you  just exercised it here  a few weeks                                                                    
     ago, to  approve or  withhold approval  of the  sale of                                                                    
     royalty  oil   in  the  face   of  Williams.   Had  the                                                                    
     Legislature  not ratified  that,  we would  not have  a                                                                    
     contract, but a contract  having been executed and then                                                                    
     ratified, anything you do now  would raise questions on                                                                    
     impairment of that contract.                                                                                               
                                                                                                                                
SENATOR SEEKINS asked him to look  into the background on that to                                                               
clarify the issue.  He thought it meant that somehow  some of the                                                               
Legislature's authorities are limited.                                                                                          
                                                                                                                                
CHAIR OGAN said there are 70  or so shallow gas leases throughout                                                               
the  state now  and  he didn't  know if  certain  areas could  be                                                               
identified  for buyback  or  that  a buyback  program  had to  be                                                               
generally applied.  The state has  already entered into  a number                                                               
of  contracts  and it  would  be  violating  contract law  if  it                                                               
retroactively  passed a  law  that voided  a  lease contract.  He                                                               
jested that would be known as the Litigator's Employment Act.                                                                   
                                                                                                                                
MR.  CHENOWETH  replied  that  the  Chair  was  talking  about  a                                                               
contract impairment  provision under either the  federal or state                                                               
constitution. The second item under  the Property Owners' Bill of                                                               
Rights talks about a buyback of all coalbed methane leases                                                                      
already let.                                                                                                                    
                                                                                                                                
     If  the parties  agree,  you're not  going  to have  an                                                                    
     objection; but if  the parties don't agree -  if one of                                                                    
     the parties, the lessee, says  you're not offering us a                                                                    
     fair  price or  we think  there's  more to  be made  in                                                                    
     allowing  us to  go  forward with  the exploration  and                                                                    
     development of  any reserves or anything  we find under                                                                    
     this lease,  they are going  to not consent to  a state                                                                    
     buyback.  The  question  arose,  I  think,  in  another                                                                    
     context  in  this  session  about   what  would  be  an                                                                    
     adequate or  fair price to  support the buyback.  Is it                                                                    
     merely the  nominal amounts that have  been provided so                                                                    
     far  by the  lessees in  obtaining these  leases -  the                                                                    
     rent and  relatively low amounts that  are specified in                                                                    
     the statute or is there  something more than that? And,                                                                    
     I understand  the Department  of Natural  Resources may                                                                    
     have indicated,  perhaps not to this  committee, but in                                                                    
     another  context,  that the  costs  of  the amounts  of                                                                    
     recoverable  coalbed  methane  that might  be  captured                                                                    
     under  these   leases  have  to  be   factored  into  a                                                                    
     determination of how  much would have to  be offered as                                                                    
     a fair price  to recover these leases.  In other words,                                                                    
     where they  might have gotten  in for  nominal amounts,                                                                    
     it might cost  us substantially more than  that to meet                                                                    
     the  kind of  price  that the  lessees  would ask  for.                                                                    
     Rightly so,  I suppose,  in order  to make  these lease                                                                    
     buybacks work.                                                                                                             
                                                                                                                                
CHAIR OGAN said the buyback isn't just paying back the buck an                                                                  
acre lease price. It's the hard development costs and the                                                                       
possible loss of value of the profits or the aggregate value.                                                                   
                                                                                                                                
MR. CHENOWETH responded that it would be the value of one or the                                                                
other of those depending on what DNR represented. He hadn't seen                                                                
anything in writing regarding buyback of the Homer leases.                                                                      
                                                                                                                                
SENATOR ELTON stated that testimony in the Senate Community and                                                                 
Regional Affairs "was rather flabbergasting testimony."                                                                         
                                                                                                                                
     I think  the assumption had  been that a buyback  - you                                                                    
     pay back what the lessees  had paid for the lease. And,                                                                    
     in fact,  the testimony from the  Department of Natural                                                                    
     Resources  was that  you pay  back that  cost plus  the                                                                    
     potential  profit  from  the  resource  that  had  been                                                                    
     leased.  It raises  an  interesting  question and  that                                                                    
     question  being, if  that's the  case,  are we  leasing                                                                    
     these resources at fair market  value. If we lease them                                                                    
     at a  minimal X amount and  have to buy them  back at a                                                                    
     huge Y amount, have we  set an appropriate price on the                                                                    
     resource.  I think  it would  be interesting  to invite                                                                    
     the  Department of  Natural Resources  back before  the                                                                    
     committee,  if there's  going to  be any  discussion at                                                                    
     all of the  buyback, and have them talk  to that point,                                                                    
     because it is a rather startling point.                                                                                    
                                                                                                                                
CHAIR OGAN pointed out:                                                                                                         
                                                                                                                                
     The higher  the value, the  more royalty we all  get. I                                                                    
     guess we could  argue whether or not the  leases on the                                                                    
     North Slope are leased out  too cheap that have created                                                                    
     $70 billion worth of revenues  for the state.... It's a                                                                    
     wide-open subject.                                                                                                         
                                                                                                                                
SENATOR SEEKINS directed the committee's attention to Article                                                                   
VIII, Section 9 of the Alaska Constitution, which basically                                                                     
says:                                                                                                                           
                                                                                                                                
     The Legislature  may provide for  the sale or  grant of                                                                    
     state lands  or interest  therein, and  establish sales                                                                    
     procedures.  All sales  or  grants  shall contain  such                                                                    
     reservations to  the state of  all resources as  may be                                                                    
     required  by Congress  or the  state and  shall provide                                                                    
     for access  to these  resources. Reservation  of access                                                                    
     shall  not   unnecessarily  impair  the   owners'  use,                                                                    
     prevent   the   control   of  trespass,   or   preclude                                                                    
     compensation for damages.                                                                                                  
                                                                                                                                
He asked if this doesn't embody what the Alaska Property Owners'                                                                
Bill of Rights is asking for.                                                                                                   
                                                                                                                                
MR. CHENOWETH  replied that he  didn't think that  assumption was                                                               
wrong. Article  VIII, Section 9,  directs the state to  honor the                                                               
reservations that are made by the  Congress or by the state's own                                                               
laws and "shall provide for access to these resources."                                                                         
                                                                                                                                
     It's  a mandate  on  the Legislature  on formulating  a                                                                    
     mechanism  by which  the state's  agents, its  lessees,                                                                    
     shall have  access to  development of  these resources.                                                                    
     At  the  same  time,  in  order to  try  and  strike  a                                                                    
     balance, and  again, consistent very much  with Section                                                                    
     6(i), the  language says that  the state is  within its                                                                    
     rights to establish a mechanism  by which the access to                                                                    
     the  resource   'does  not  unnecessarily   impair  the                                                                    
     owners'  use,  prevent  the  control  of  trespass,  or                                                                    
     preclude compensation for damages.'                                                                                        
                                                                                                                                
     To date, through  the first 45 years  of statehood, our                                                                    
     statutory reservation,  AS 38.05.125, does  repeat some                                                                    
     of these  concepts and the next  section, AS 38.05.130,                                                                    
     does provide  a mechanism for compensation  for damages                                                                    
     by the posting of  a bond. My understanding...that this                                                                    
     is the first time with  the shallow natural gas leases,                                                                    
     this is  the first time the  state has in such  a large                                                                    
     way  encountered  a   situation  where  the  subsurface                                                                    
     resource  underlies private  land. And,  again, in  the                                                                    
     case of the North Slope and  in the case of Cook Inlet,                                                                    
     the development of  the resource has been  on land that                                                                    
     the state  has held both surface  and subsurface title.                                                                    
     In this  case, in the  areas that we're  talking about,                                                                    
     both  in Mat-Su  and  the Kenai,  extensive areas  have                                                                    
     been previously conveyed to  private ownership with the                                                                    
     reservation held by the state.  And the question is how                                                                    
     are  you going  to,  for example,  protect the  surface                                                                    
     owner in  his right to  use and claim  any compensation                                                                    
     for damages that may occur.  The mechanism that we have                                                                    
     in place  now is  simply the bonding  mechanism. Either                                                                    
     the  surface   owner  and  the  lessee   come  to  some                                                                    
     agreement as  to how compensation  shall be paid  or if                                                                    
     they  cannot  come  to  an  agreement  because  of  the                                                                    
     owners' refusal  to negotiate or  inability to  come to                                                                    
     some  kind of  a meeting  of  the minds,  then a  third                                                                    
     party, the DNR, will  determine what those damages are.                                                                    
     So, we  have some  mechanism in place  that is  I think                                                                    
     consistent with  Article VIII, Section  9. I  look here                                                                    
     and  under the  Property Owners'  Safeguard provisions,                                                                    
     the  ninth  element of  the  Property  Owners' Bill  of                                                                    
     Rights, the  proposal is to  take a little bit  quite a                                                                    
     bit farther  than what  we have in  place right  now in                                                                    
     terms of to insure full  restoration of the surface and                                                                    
     to  provide the  full preleasing  fair market  value of                                                                    
     any  property or  business damaged  by coalbed  methane                                                                    
     development.                                                                                                               
                                                                                                                                
     I'm not sure what standard  DNR uses, for example, when                                                                    
     it's called upon  to set the amount of  the bond. There                                                                    
     is  a requirement,  though, that  they  give notice  to                                                                    
     both parties, sit down at a  table and try to figure it                                                                    
     all out,  but my sense is  that the bond amount  set is                                                                    
     generally  on the  low side.  And although  the statute                                                                    
     talks in terms  of an amount to recover  all damages or                                                                    
     full damages,  I'm not  sure that  the amount  they set                                                                    
     would,  in fact,  do that  if  the lessee  subsequently                                                                    
     acts in a  way that is reckless and  indifferent of the                                                                    
     owners' improvements on the property.                                                                                      
                                                                                                                                
SENATOR  LINCOLN  asked who  authored  and  presented the  Alaska                                                               
Property  Owners'  Bill  of  Rights   and  if  Mr.  Chenoweth  is                                                               
explaining how it can be incorporated into SB 312.                                                                              
                                                                                                                                
CHAIR  OGAN explained  that  SB 312  was  previously noticed  and                                                               
could  be used  as  a  vehicle for  the  subject  matter that  is                                                               
covered  in  the  Bill  of  Rights,  especially  the  competitive                                                               
bidding, public notices and best  interest findings. A bill would                                                               
be  drafted in  proper  statute form,  but he  wanted  to have  a                                                               
discussion on the conceptual amendment  while the presenters were                                                               
in Juneau.                                                                                                                      
                                                                                                                                
SENATOR LINCOLN said she had no  objection to that, but she still                                                               
wanted to  know what organization presented  the Property Owners'                                                               
Bill of Rights.                                                                                                                 
                                                                                                                                
CHAIR   OGAN    quipped,   "I    think   the    organization   is                                                               
Oganissogone.org."                                                                                                              
                                                                                                                                
SENATOR  LINCOLN  asked  if  Property   Owners'  Bill  of  Rights                                                               
discussed  leasing as  it  pertains to  shallow  natural gas  and                                                               
coalbed methane.                                                                                                                
                                                                                                                                
MR.  CHENOWETH responded  that was  his interpretation,  although                                                               
the  property owner  consent was  intended to  be more  generally                                                               
applicable.                                                                                                                     
                                                                                                                                
CHAIR OGAN noted that the  state has no requirement for recording                                                               
deeds  and requiring  proper notice  to all  landowners might  be                                                               
problematic. He said  that the best interest  finding language in                                                               
the adopted CS would remain.  Paragraph 5 in the Property Owners'                                                               
Bill  of  Rights talks  about  a  presumption that  the  "coalbed                                                               
methane  operator shall  carry the  burden of  proving otherwise"                                                               
and asked if that burden of proof is very common.                                                                               
                                                                                                                                
MR. CHENOWETH  replied that in  this context  it is not  a common                                                               
mechanism in  law, although it  does exist. It might  be employed                                                               
in certain  matters relating  to evidence in  the Civil  Code and                                                               
maybe the Criminal Code  - that sort of thing.                                                                                  
                                                                                                                                
CHAIR OGAN  said the state  already has authority to  waive local                                                               
elections if an overriding state  interest existed and the Alaska                                                               
Oil  and Gas  Conservation  Commission (AOGCC)  has authority  to                                                               
prevent waste of the resource.  He asked if local regulation says                                                               
well  spacing can  be  every 360  acres and  the  AOGCC says  the                                                               
resource will be  wasted with the wells that far  apart, if AOGCC                                                               
would have authority to override the local regulation.                                                                          
                                                                                                                                
MR. CHENOWETH answered:                                                                                                         
                                                                                                                                
     The provisions  in HB 69  that caused  some controversy                                                                    
     that were  added last year  represent, in  my judgment,                                                                    
     something that could be  called an explicit preemption.                                                                    
     Under   certain  circumstances   the  commissioner   of                                                                    
     Natural Resources is  given the right to  set aside the                                                                    
     operation  of  any  local government  requirements  and                                                                    
     compel  adherence  to  whatever the  state  requirement                                                                    
     would be -  both as to how DNR would  operate under the                                                                    
     amendment  to   AS  38.05.177  and  as   to  the  AOGCC                                                                    
     provisions  under AS  31.05.  Take  away that  explicit                                                                    
     preemption provision,  repeal it, if you  will, and you                                                                    
     still have  operating in this  state a  doctrine called                                                                    
     preemption   by    implication.   It's    fairly   well                                                                    
     established; there  are a  handful of  court decisions.                                                                    
     And, essentially  where we come  down to in  this state                                                                    
     is  that if  you can  make an  accommodation between  a                                                                    
     state provision  and a provision  that's proposed  by a                                                                    
     general  law  municipality,  so that  the  two  can  be                                                                    
     harmonized, that they don't  conflict one another, that                                                                    
     the  local ordinance  does not  substantially interfere                                                                    
     with the  effective functioning of  a state  statute or                                                                    
     rule, then both can be  made to operate. But, where the                                                                    
     local ordinance  does substantially interfere,  it will                                                                    
     be preempted by  the state standard. In  the context of                                                                    
     oil and  gas development, we  don't have a lot  of law;                                                                    
     it's just  not something  that we  have come  to. Other                                                                    
     jurisdictions  do. I  looked at  Colorado, which  has a                                                                    
     history  of oil  and gas  development and  particularly                                                                    
     coalbed methane  development and  determined that  in a                                                                    
     couple  of  key cases,  the  court  has determined  the                                                                    
     provisions  of the  Colorado  Oil  and Gas  Association                                                                    
     (COGCC)  rules governing,  for  example, well  spacing,                                                                    
     would generally govern over [END OF TAPE]...                                                                               
                                                                                                                                
TAPE 04-27, SIDE B                                                                                                            
                                                                                                                              
MR. CHENOWETH continued:                                                                                                        
                                                                                                                                
     ...effort  by  a  local city  or  county  ordinance  to                                                                    
     require  a  greater  spacing -  because  the  state  of                                                                    
     Colorado does  direct that COGCC  take the lead  on the                                                                    
     protection against waste to conservation efforts, etc.                                                                     
                                                                                                                                
     Some of  the other  areas that  have been  addressed in                                                                    
     some of  these decisions include  setback requirements,                                                                    
     visual  impact, criminal  penalties that  might attach,                                                                    
     building permits,  requirement of access  roads, things                                                                    
     of this  sort. Those  are areas  where there  have been                                                                    
     conflicts.  In some  cases, the  COGCC rules  have been                                                                    
     treated  as presumptively  preempting the  operation of                                                                    
     tighter  local ordinances.  And some  of them,  such as                                                                    
     the requirement  of building  permits and  access roads                                                                    
     and emergency  response cost  disclosure and  things of                                                                    
     that  sort,  local  ordinances  have  been  allowed  to                                                                    
     function. Colorado  case law  and the Colorado  body of                                                                    
     rules  seems  to be  more  extensive  than anything  we                                                                    
     have,  but the  principles that  we have  are generally                                                                    
     heading in  the same direction as  what Colorado courts                                                                    
     have been doing.                                                                                                           
                                                                                                                                
CHAIR OGAN asked if the state or AOGCC has an implied authority                                                                 
constitutionally to override local ordinances.                                                                                  
                                                                                                                                
MR. CHENOWETH replied:                                                                                                          
                                                                                                                                
     Actually, in  this state, it's almost  contrary to what                                                                    
     we say  in our  constitution. We  give broad  powers to                                                                    
     local  governments under  the applicable  title in  the                                                                    
     constitution  and we  buttress  that  with some  fairly                                                                    
     broad  statements  of  authority   in  Title  29.  But,                                                                    
     despite that, the  courts in the state  have found that                                                                    
     preemption, either by  express legislative direction or                                                                    
     by  implication using  certain standards,  continues to                                                                    
     operate in this  state in a whole area  where there are                                                                    
     potential  land use  regulation  conflicts between  the                                                                    
     state  and local  governments. The  Eklutna decision  a                                                                    
     few  weeks ago  is  another example  of  that. This  is                                                                    
     where we are  in terms of the development  of our state                                                                    
     law.                                                                                                                       
                                                                                                                                
     So, to the extent that  this says the state must insure                                                                    
     local  government  entities  have  matching  powers  of                                                                    
     self-government  enabling  them   to  regulate  coalbed                                                                    
     methane development  to protect the health,  safety and                                                                    
     general  welfare and  quality  of life  of their  local                                                                    
     residents,   well,  hurray.   Our  provisions   in  the                                                                    
     appropriate  title  of   the  constitution  give  broad                                                                    
     powers   to  municipal   governments.   Our  Title   29                                                                    
     provisions   give   broad    authority   to   municipal                                                                    
     governments  and, nonetheless,  you should  expect that                                                                    
     there would  still be limitations put  on the operation                                                                    
     by the local governments  where they conflict with what                                                                    
     the Legislature has said  state agencies shall regulate                                                                    
     -  or have  implied  the state  agencies  shall have  a                                                                    
     preemptive right to regulate.                                                                                              
                                                                                                                                
CHAIR OGAN paraphrased:                                                                                                         
                                                                                                                                
     Basically,  the state  gives the  authority  to DNR  to                                                                    
     lease and  AOGCC to manage  and regulate the  waste and                                                                    
     down-hole operations  and those types of  things and so                                                                    
     those are authorities  that there is a lot  of case law                                                                    
     that says the state is dominant in that.                                                                                   
                                                                                                                                
MR. CHENOWETH  said that  is right. The  committee might  want to                                                               
look at  AOGCC authorities and  add or  take away from  them with                                                               
respect to  coalbed methane regulation  "where you might  want to                                                               
give local governments broader authority  without having them run                                                               
up against a preemption by implication argument...."                                                                            
                                                                                                                                
SENATOR SEEKINS said Article X of the Constitution says:                                                                        
                                                                                                                                
     1.  Purpose  and  Construction.  The  purpose  of  this                                                                    
         article is to provide for maximum local self-                                                                          
         government with a minimum of local government                                                                          
         units, and....                                                                                                         
                                                                                                                                
He  asked  if it  was  inconceivable  that  the state  could,  in                                                               
addition  to those  powers  that  are mentioned  in  the rest  of                                                               
Article X, provide for additional  levels of maximum self-control                                                               
to  a municipality  or is  there a  limit to  what powers  it can                                                               
give.                                                                                                                           
                                                                                                                                
MR. CHENOWETH replied:                                                                                                          
                                                                                                                                
     I think  the answer  to that  probably relates  to what                                                                    
     the Legislature does in writing  the law. The framework                                                                    
     in Title 10 spells out  the organization, the idea that                                                                    
     there  is a  home rule  concept that  operates in  this                                                                    
     state, the  notion that we  have boroughs  for regional                                                                    
     government and  cities as the  two forms  of government                                                                    
     that shall  operate -  the authority  for them  to levy                                                                    
     and collect taxes and things  of that sort. But, beyond                                                                    
     that  basic  outline,  the  authority  given  to  these                                                                    
     municipalities  is largely  laid out  in Title  29. The                                                                    
     dimensions of  what you grant  or withhold from  a home                                                                    
     rule  municipality are  laid out  in Title  29. All  of                                                                    
     that  then rubs  up against  what it  is that  you tell                                                                    
     state  agencies  to  do  and   how  that  may  come  to                                                                    
     interfere with  what the  municipalities would  like to                                                                    
     do.  It's  at  that  point  where  we  run  into  these                                                                    
     problems  in terms  of  which  entity, the  appropriate                                                                    
     state  agency or  the local  government, has  the final                                                                    
     authority in  this area. That's  where the  courts have                                                                    
     started to  lay down  some principles  in this.  And in                                                                    
     Colorado,  comparable principles  have been  identified                                                                    
     and they have been applied to oil and gas leasing.                                                                         
                                                                                                                                
SENATOR  SEEKINS asked  in that  regard, if  the state  wanted to                                                               
give  preemptive authority  to a  lower political  subdivision of                                                               
the state, could the Legislature  do that shy of a constitutional                                                               
amendment.                                                                                                                      
                                                                                                                                
MR. CHENOWETH  replied yes,  it could  simply take  the authority                                                               
away  from AOGCC  or take  it out  of the  Alaska Lands  Act. The                                                               
municipalities would presumably step up  to the plate and come up                                                               
with their own regulations and ordinances.                                                                                      
                                                                                                                                
CHAIR  OGAN referenced  item 6  of the  Property Owners'  Bill Of                                                               
Rights, which said:                                                                                                             
                                                                                                                                
     The state  must ensure  local government  entities have                                                                    
     maximum powers  of self government that  enable them to                                                                    
     regulate  coalbed methane  development  to protect  the                                                                    
     health, safety,  general welfare,  and quality  of life                                                                    
     for local residents.                                                                                                       
                                                                                                                                
He  interpreted that  to  mean  that some  of  DNR's and  AOGCC's                                                               
authority  would have  to  be delegated  to  local government  to                                                               
regulate  coalbed  methane development  and  they  would have  to                                                               
create  a division  and hire  some  experts or  have the  borough                                                               
assembly manage  the authority. He  was trying to figure  out how                                                               
the policy would be drafted.                                                                                                    
                                                                                                                                
CHAIR OGAN asked  Mr. Chenoweth how long he had  been an attorney                                                               
for the state.                                                                                                                  
                                                                                                                                
MR. CHENOWETH replied that he  has worked for Legislative Affairs                                                               
off and on for 26 years.                                                                                                        
                                                                                                                                
CHAIR OGAN  asked, "Have I  in any way asked  you to or  tried to                                                               
influence you on what your testimony is here today?"                                                                            
                                                                                                                                
MR. CHENOWETH replied:                                                                                                          
                                                                                                                                
     No, you have  directed my attention to this  and one of                                                                    
     your  colleagues had  previously  provided  it kind  of                                                                    
     under  the door  and so  I knew  what you  were talking                                                                    
     about. In  all honesty,  my living  with this  over the                                                                    
     weekend  came in  the  context of  drafting  a bill  to                                                                    
     carry this  out and trying to  get a handle on  what it                                                                    
     is that was  doable and my philosophy is  give 'em what                                                                    
     they want  but, if it's  going to cause  problems, send                                                                    
     them a  memo that  identifies what those  problems are.                                                                    
     And the  problems that I  see are with,  basically, the                                                                    
     property owner  consent provision  for the  reason that                                                                    
     we talked  about earlier  and with  the issue  of local                                                                    
     control and how that is to  play out. Those are the two                                                                    
     big ones.  We have a  head start because the  bill that                                                                    
     you've noticed  - is  it 312  in the  Senate -  and the                                                                    
     comparable  bill in  the House  were  based upon  DNR's                                                                    
     suggestions that  this could be handled  by competitive                                                                    
     bidding  and just  switch from  the particular  kind of                                                                    
     approach  here  to  a competitive  bidding  basis.  So,                                                                    
     drafting-wise I was just trying  to get a handle around                                                                    
     the  rest  of these  concepts  and  see what  could  or                                                                    
     should be done.                                                                                                            
                                                                                                                                
CHAIR OGAN asked if any other state had given surface                                                                           
owners dominance over the subsurface estate?                                                                                    
                                                                                                                                
MR CHENOWETH replied:                                                                                                           
                                                                                                                                
     Not  that I've  come  across. We  generally follow  the                                                                    
     rule  of  what is  happening  in  most of  the  western                                                                    
     states and put  the holder of the  subsurface rights in                                                                    
     the driver's  seat even as  against the person  who has                                                                    
     the surface estate ownership.                                                                                              
                                                                                                                                
CHAIR  OGAN said  he has  observed in  some states  where private                                                               
citizens own  subsurface estate  that often  a rancher  would get                                                               
fee  simple title  to property  with no  mineral reservation  and                                                               
then  sell off  the  surface  rights to  a  subdivision while  he                                                               
retains the  subsurface rights. A  couple of  transactions later,                                                               
some people  are a little  disturbed to  find that the  land they                                                               
bought  from the  rancher didn't  include the  subsurface rights.                                                               
"Everybody  should know  when  they buy  property  what they  are                                                               
buying.  It's  actually two  pieces  of  property. There  is  the                                                               
property  on  the surface  and  there's  property underneath  the                                                               
surface. There's two titles."                                                                                                   
                                                                                                                                
MR. CHENOWETH  said that information  should be disclosed  in the                                                               
title search. "If you  happen to get on land that  came by way of                                                               
the Statehood Act, you don't have it."                                                                                          
                                                                                                                                
SENATOR LINCOLN asked Mr. Chenoweth  to point out the sections of                                                               
the  Property Owners'  Bill of  Rights that  he thought  could be                                                               
incorporated into legislation.                                                                                                  
                                                                                                                                
MR. CHENOWETH replied:                                                                                                          
                                                                                                                                
     I think everything here could  be incorporated into the                                                                    
     legislation. That  legislation would  come with  a very                                                                    
     strong  caution  about  the  requirement  of  mandatory                                                                    
     property  owner  consent.   It  would  certainly  raise                                                                    
     questions  about where  the pivot  point  falls in  the                                                                    
     area of local control. And  the one area that I thought                                                                    
     at  this time  I could  draft  to would  be to  protect                                                                    
     critical  habitat  and   recreational  lands  -  simply                                                                    
     because  in  this state  the  ability  to identify  and                                                                    
     withdraw lands  from the public  domain for  a specific                                                                    
     purpose rests with DNR if  it's under 640 acres or with                                                                    
     DNR and  legislative approval if it's  greater than 640                                                                    
     acres  and, in  addition, as  far as  elements of  that                                                                    
     particular paragraph  are concerned, as part  of a best                                                                    
     interest finding, I  would assume that if  you had land                                                                    
     that  was identified  in the  best interest  finding as                                                                    
     having  a higher  best  use for  a  wildlife refuge  or                                                                    
     protection  for  purposes  of  subsistence  hunting  or                                                                    
     something  like that,  they would  simply omit  it from                                                                    
     the area  proposed for lease administratively.  So, I'm                                                                    
     not sure as  a drafting matter, what  would be required                                                                    
     there. But, I  think all of the rest  of this certainly                                                                    
     can be  drafted to  and then it  becomes a  question of                                                                    
     whether as a matter of policy you want to adopt it.                                                                        
                                                                                                                                
SENATOR  LINCOLN said  the Property  Owners' Bill  of Rights  was                                                               
handed to  her this  afternoon, but  she hasn't  had a  chance to                                                               
read it through  and asked if he had had  an opportunity to write                                                               
language on  any parts of it  that might be incorporated  into SB
312.                                                                                                                            
                                                                                                                                
MR. CHENOWETH  replied that he  had language, but he  didn't know                                                               
if the committee wanted to see it or not.                                                                                       
                                                                                                                                
SENATOR ELTON  suggested that however  the work product  is done,                                                               
it be  shared with  the people who  brought the  Property Owners'                                                               
Bill of Rights forward, the Friends  of the Mat-Su, DNR, AML, the                                                               
Mat-Su Borough  and the Kenai  Borough -  so that comments  on it                                                               
could come from the people who are affected by it.                                                                              
                                                                                                                                
SENATOR  DYSON said  he had  questions,  but he  would hold  them                                                               
until later  so that the people  who are visiting could  have the                                                               
time to testify.                                                                                                                
                                                                                                                                
CHAIR OGAN  asked the director  of the  Division of Oil  and Gas,                                                               
Mr. Mark Myers, if he  was available to testify regarding buyback                                                               
and moratorium.                                                                                                                 
                                                                                                                                
MR. MYERS, Director, Division of Oil and Gas, DNR, replied:                                                                     
                                                                                                                                
     Mr. Chairman,  we were  asked specifically  with regard                                                                    
     to  another bill  that looked  at just  buyback of  the                                                                    
     eight  leases in  the Homer  area and  under that  bill                                                                    
     there  are basically,  kind of,  three categories.  The                                                                    
     first  category  said  that   you  had  to  refund  the                                                                    
     purchase price of  the lease. And then,  if that wasn't                                                                    
     adequate  to, basically,  the lessee,  you had  to then                                                                    
     pay them any cost  they actually incurred in evaluating                                                                    
     the lease and  any work they did onsite.  And then, the                                                                    
     third element,  if that couldn't be  resolved, then the                                                                    
     state has the right to  take it back by eminent domain.                                                                    
     So if you  look at the cost of  those particular leases                                                                    
     in  the Homer  area,  in  our example,  it  was a  $500                                                                    
     application  fee at  the  time -  that  was for  leases                                                                    
     applied  for  before the  program  was  changed to  the                                                                    
     $5,000 fee structure.                                                                                                      
                                                                                                                                
     The specific  example we  looked at  was for  the eight                                                                    
     leases  in the  Homer area  because it  was germane  to                                                                    
     that particular piece of  legislation. Again, the first                                                                    
     thing was the cost of  acquiring the leases and if that                                                                    
     wasn't  satisfactory to  the lessee,  then the  cost of                                                                    
     any  activity that  had  been  performed in  evaluating                                                                    
     that lease.  Then the third  is, if that  couldn't have                                                                    
     been resolved,  then the  state had  the right  to take                                                                    
     the leases back  by eminent domain. So, in  the case of                                                                    
     the particular  Homer area, we  sort of did  a resource                                                                    
     assessment and  we looked at  it in terms of  the first                                                                    
     format. It was  no problem - $500  application fees for                                                                    
     those  particular  leases.   So,  that  was  relatively                                                                    
     inexpensive.  We don't  know what  work has  been done,                                                                    
     but we do  know no wells have been drilled  and maybe a                                                                    
     little bit of  surface work, but no  seismic data being                                                                    
     shot in  the area  - so,  probably not  a whole  lot of                                                                    
     cost.                                                                                                                      
                                                                                                                                
     The issue came  in, then, under eminent  domain, if the                                                                    
     applicant  protested, what  would  it cost  to buy  the                                                                    
     leases  back. And  our understanding,  when we  had the                                                                    
     lawyers  look  at  it,  was  that  the  eminent  domain                                                                    
     standards of  the state, and  there are  multiple ones,                                                                    
     and it  wasn't specified  which one,  but they  all use                                                                    
     the concept  of just compensation.  So, what we  did is                                                                    
     evaluate the resource potential  of the area; again, we                                                                    
     didn't do a full  evaluation. We did some hypotheticals                                                                    
     for the committee.                                                                                                         
                                                                                                                                
     So, in order to do that, and  we did as if you would be                                                                    
     an exploration company assumably  purchasing a lease or                                                                    
     looking at  whether you  are going  to expend  money to                                                                    
     drill.  The first  thing  you  look at  is  if you  are                                                                    
     successful  in exploring,  how much  gas in  this case,                                                                    
     would you  be able  to recover and  then what  was your                                                                    
     cost of  recovery and then  what was your  profit after                                                                    
     you sold it into the market.                                                                                               
                                                                                                                                
     So, you look  at your basically, the  potential size of                                                                    
     the resource and then the  netback you would receive on                                                                    
     the value  of that if  you spent your  money developing                                                                    
     it. So,  when you do  those sorts of  calculations, you                                                                    
     have to  do another thing.  You have to assume  so much                                                                    
     gas and  since you  haven't done the  exploration work,                                                                    
     you  have to  guess at  that using  scientific methods.                                                                    
     Your  quality  of  guess  will   be  dependent  on  the                                                                    
     qualities of  data you have  in the area and  that will                                                                    
     help confine  it somewhat  and then  geologic analogues                                                                    
     you might use,  your distance from market  and then the                                                                    
     size and  shape of  the accumulation and  obviously the                                                                    
     cost of development.                                                                                                       
                                                                                                                                
CHAIR OGAN asked him to get to the bottom line.                                                                                 
                                                                                                                                
MR. MYERS continued:                                                                                                            
                                                                                                                                
     The  bottom line  was we  used a  hypothetical in  that                                                                    
     case of  20 to 100 BCF  of gas. We low-balled  what our                                                                    
     resource estimate  might be  and then  we kind  of low-                                                                    
     balled development costs  and came up with  a dollar an                                                                    
     MCF  netback,  because  it's  pretty  typical  of  what                                                                    
     people will  require. Anyway that comes  in at millions                                                                    
     of  dollars, basically  -  if you  have  to assess  the                                                                    
     resource.  That  was  for  conventional  gas  and  that                                                                    
     didn't  include  any  coalbed  methane  potential.  The                                                                    
     methodology  we  would have  to  use  to evaluate  just                                                                    
     compensation, I  believe, we would have  to contemplate                                                                    
     what the risk  resource base is and the  netback if the                                                                    
     development  cost went  forward.  That's how  companies                                                                    
     assess  for  projects and  that's  again  how we  would                                                                    
     attempt  to  do that.  It  would  certainly be  debated                                                                    
     about  how good  the  resource potential  is and  there                                                                    
     would  be  some  sort  of  legal  settlement  once  you                                                                    
     finally got  sorted through it.  The bottom line  is if                                                                    
     you  have  to  go  to   eminent  domain,  the  cost  of                                                                    
     acquiring  the leases,  if they're  in a  good geologic                                                                    
     area,  are   significant.  If  the   area  is   of  low                                                                    
     potential,   low   probability  areas,   difficult   to                                                                    
     develop, those costs are considerably less.                                                                                
                                                                                                                                
CHAIR OGAN asked how much that was.                                                                                             
                                                                                                                                
MR. MYERS estimated acquiring the leases would cost millions of                                                                 
dollars and he would have to do a similar analysis for the Mat-                                                                 
Su Valley. The coal is there, but how commercial it is is not                                                                   
known. There would be a wide range of values.                                                                                   
                                                                                                                                
     But if  you go into  the resource  base and you  have a                                                                    
     company,  say, like  Evergreen that's  shot core  holes                                                                    
     and worked  on the ground, on  those particular leases,                                                                    
     you  would have  to minimally  compensate them  for the                                                                    
     hundreds  of  thousands   of  dollars,  or  potentially                                                                    
     millions of dollars, they might  have spent to evaluate                                                                    
     those leases and then you  would have to take some look                                                                    
     at  what  you  felt  the potential  resource  base  was                                                                    
     economically.  So, that  would be  hypothetical, but  I                                                                    
     would guess  in the Valley  also, it would  probably go                                                                    
     into the  millions of dollars.  I don't have  the solid                                                                    
     number on that  one. I don't know  the commerciality of                                                                    
     coalbed methane in the area.                                                                                               
                                                                                                                                
CHAIR OGAN asked if there were further questions of Mr. Myers.                                                                  
There were none, but Mr. Myers added that there are 72 leases                                                                   
currently  issued statewide  and  26 applications  that have  not                                                               
been granted.                                                                                                                   
                                                                                                                                
MS.  MICHELLE   CHURCH,  Friends   of  Mat-Su,   appreciated  the                                                               
opportunity to  speak. She  was heartened  to hear  Mr. Chenoweth                                                               
say that the Property Owners' Bill  Of Rights can be written into                                                               
law.  She felt  that now  is the  time to  do a  buyback, because                                                               
significant  dollars  had  not yet  been  invested  by  industry.                                                               
However, she also said:                                                                                                         
                                                                                                                                
     Senator Elton's  comment was excellent  in that  if you                                                                    
     sold these leases  for a few tens  of thousands, maybe,                                                                    
     a  couple  hundred  thousand dollars  and  they're  now                                                                    
     claiming they're  valued at a hundred  thousand dollars                                                                    
     or a  hundred million dollars  or whatever it  is, then                                                                    
     you  have vastly  undersold our  resources and  I think                                                                    
     that's  something that  you guys  really  need to  look                                                                    
     at.... The  other thing is  that if those  leases, that                                                                    
     coal potential  is worth millions  of dollars,  then it                                                                    
     should be taxed at millions  of dollars. You can't have                                                                    
     it  both  ways.  Our  suggestion   would  be  that  you                                                                    
     institute a  buyback now and certainly  compensate them                                                                    
     for the core  holes that they've done and  for the work                                                                    
     they have put in and then  make them come back in under                                                                    
     new regulations  in a  competitive bidding  process and                                                                    
     then if they  can make millions of  dollars under those                                                                    
     regulations, then so  be it. At this  point, there's no                                                                    
     real harm done.                                                                                                            
                                                                                                                                
The point  that doesn't sit  well with her  is the whole  idea of                                                               
arbitration.                                                                                                                    
                                                                                                                                
     If the property owner cannot say  no and the oil or the                                                                    
     gas company  knows that that property  owner cannot say                                                                    
     no, then  they are never  going to offer them  the best                                                                    
     deal that that property owner could get....                                                                                
                                                                                                                                
MS. CHURCH supported taking control  from the AOGCC and giving it                                                               
to local government, because:                                                                                                   
                                                                                                                                
     We can walk  into their offices any day;  we don't have                                                                    
     to get  on a  plane and  come down  and deal  with this                                                                    
     kind of  an entity.  That kind  of development  is very                                                                    
     intensive on the  surface and it's going  to affect our                                                                    
     community enormously and my only  last comment would be                                                                    
     that I ask  that you figure out a way  to incorporate a                                                                    
     severance tax  or allow the municipalities  or whatever                                                                    
     needs to happen on that,  because the Mat-Su Borough is                                                                    
     going to do  nothing but bear the brunt of  this and we                                                                    
     need  to be  able to  benefit from  it. That  should be                                                                    
     part of the cost benefit best interest finding.                                                                            
                                                                                                                                
SENATOR  WAGONER  said  he thought  AOGCC  was  headquartered  in                                                               
Anchorage.                                                                                                                      
                                                                                                                                
MS. CHURCH responded:                                                                                                           
                                                                                                                                
     Well, our experience with the  AOGCC has been less than                                                                    
     exemplary  and so  I think  that we  would really  like                                                                    
     again  to have  our local  legislators who  are elected                                                                    
     from our neighborhoods, who also  live in our community                                                                    
     and are  going to be  impacted by the same  things that                                                                    
     we're all  going to be  impacted by to have  that final                                                                    
     say over that  local control. I would  much rather have                                                                    
     that.  They  could work  in  concert,  of course,  with                                                                    
     AOGCC, but the  AOGCC, as it currently  is put together                                                                    
     is  a political  party; it  is a  politically appointed                                                                    
     board  and  that  does  not   give  us  any  amount  of                                                                    
     confidence.                                                                                                                
                                                                                                                                
SENATOR WAGONER replied that all  politics are local and it seems                                                               
that she  is asking  for local  control at  the borough  level to                                                               
supercede  the state's  right  to develop  its  resources in  all                                                               
cases.                                                                                                                          
                                                                                                                                
MS. CHURCH replied, "Well, yeah."                                                                                               
                                                                                                                                
CHAIR  OGAN  thanked  her  for  her  comments  and  invited  Myrl                                                               
Thompson to testify.                                                                                                            
                                                                                                                                
MR. MYRL  THOMPSON, Chairman, Ogan  Is So Gone  Recall, suggested                                                               
if Mr.  Myers' concern  about the buyback  being so  expensive is                                                               
due to  the potential loss of  gas revenues, why not  trade those                                                               
leases out. He contended:                                                                                                       
                                                                                                                                
     You have  no loss, whatsoever,  of the gas  because the                                                                    
     gas potential here  could be argued as just  as well as                                                                    
     the gas potential  over there and that  would take that                                                                    
     part of the equation totally  out of there and then you                                                                    
     would just have to give  back the money that they spent                                                                    
     for the  core holes and moving  their equipment around.                                                                    
     Plus   that  would   take  this   stuff   out  of   our                                                                    
     neighborhoods, which  it should  have never been  in to                                                                    
     begin with.  You guys  have 99 percent  of the  rest of                                                                    
     Alaska that nobody  has ever said boo to  when you guys                                                                    
     wanted  to go  for  gas  or for  oil  or anything.  The                                                                    
     problem  arose  when  you  guys  came  on  our  private                                                                    
     property....                                                                                                               
                                                                                                                                
     Another thing, we don't have  protections for our water                                                                    
     in  place. What  if an  aquifer goes  down? What  if it                                                                    
     gets  polluted   by  salinity  or  polluted   by  other                                                                    
     elements? I'm  going to explain  this to you as  best I                                                                    
     can. Water does  not rise from the center  of the earth                                                                    
     and  go  up to  3,000  ft.  That  water came  from  the                                                                    
     surface and worked  its way down to 3,000  ft. When you                                                                    
     go down  and you pump this  water up the coal  seams to                                                                    
     release the  gas, you've got  processed water  that has                                                                    
     to  be reinjected  into a  disposal, class  2, disposal                                                                    
     well.                                                                                                                      
                                                                                                                                
MR. THOMPSON  used the disposal well  on Vine Road as  an example                                                               
of one that  is in the middle of a  large aquifer. Sixty thousand                                                               
gallons  of  water was  taken  out  and  1.2 million  gallons  of                                                               
production  water,  from  Church  Road to  Houston,  was  getting                                                               
pumped back  in. There is  a chance that the  additional pressure                                                               
could  make the  dirty  water  raise back  up  and,  "What if  it                                                               
pollutes your well?"                                                                                                            
                                                                                                                                
MR.  THOMPSON said  his  parents'  house is  right  next to  that                                                               
disposal well and their house  is worth more than $250,000. "What                                                               
if you ruined their water? How are we going to remedy that?"                                                                    
                                                                                                                                
He said there are about 80 water  wells in that area and a lot of                                                               
the houses are  worth over $200,000. There  is nothing protecting                                                               
the owners. He asked:                                                                                                           
                                                                                                                                
     What's  more important,  Evergreen's  profits or  these                                                                    
     people's  livelihoods?  There's   no  remedy  for  that                                                                    
     whatsoever.... Who are we going  to sue? We're going to                                                                    
     sue  you  guys; we're  going  to  sue Evergreen.  Who's                                                                    
     going to take care of that?                                                                                                
                                                                                                                                
CHAIR OGAN  responded that  there are  constitutional protections                                                               
in  Article  VIII,  Section  9,  that  are  similar  to  what  is                                                               
mentioned in the Property Owners' Bill of Rights.                                                                               
                                                                                                                                
SENATOR WAGONER  asked how deep  the wells are in  Mr. Thompson's                                                               
area.                                                                                                                           
                                                                                                                                
MR.  THOMPSON answered  that the  average  well in  that area  is                                                               
between 168  - 186 ft.  and the aquifer could  go down as  far as                                                               
300 ft.  The problem is that  the water that was  pumped out from                                                               
3,000 ft. well below the aquifer, originated from the surface.                                                                  
                                                                                                                                
     If it had a route  down and you're applying pressure to                                                                    
     water that's down  there, it could very  easily rise up                                                                    
     and mix  in to  the bottom  of the  aquifer, therefore,                                                                    
     polluting this aquifer and there's  nothing in place to                                                                    
     protect the  folks.... I believe  this is  a sweetheart                                                                    
     deal  so that  Evergreen could  maximize their  profits                                                                    
     using our  infrastructure that we  pay the taxes  on or                                                                    
     have paid the taxes on for years.                                                                                          
                                                                                                                                
SENATOR WAGONER asked what infrastructure he is talking about.                                                                  
                                                                                                                                
MR.  THOMPSON   replied  roads  and   whatever.  He   asked  what                                                               
objections  there would  be to  taking the  gas exploration  to a                                                               
land where people don't live.                                                                                                   
                                                                                                                                
CHAIR OGAN said there were a  lot of people who wanted to testify                                                               
and  he would  give the  ones  who were  going to  catch a  plane                                                               
priority.                                                                                                                       
                                                                                                                                
SENATOR SEEKINS asked how deep the gas wells are.                                                                               
                                                                                                                                
CHAIR OGAN replied the deepest one is 3,750 ft.                                                                                 
                                                                                                                                
MR. THOMPSON asked again why the leases couldn't be relocated.                                                                  
                                                                                                                                
CHAIR OGAN replied because they were already leased.                                                                            
                                                                                                                                
MR. THOMPSON asked how they were leased.                                                                                        
                                                                                                                                
CHAIR  OGAN replied  they became  available  through the  state's                                                               
leasing program.                                                                                                                
                                                                                                                                
MR. THOMPSON asked who made that available.                                                                                     
                                                                                                                                
CHAIR OGAN replied that he did nine years ago.                                                                                  
                                                                                                                                
MR. THOMPSON said, "My suggestion to  you, Mr. Ogan, is fix it or                                                               
we'll fix it."                                                                                                                  
                                                                                                                                
SENATOR SEEKINS interrupted to explain  that it takes 11 votes in                                                               
the Senate and 21 votes in the House to get anything passed.                                                                    
                                                                                                                                
CHAIR OGAN recalled  that last year's bill passed 19  to 1 in the                                                               
Senate.                                                                                                                         
                                                                                                                                
SENATOR SEEKINS said, as a point  of order, that Senator Ogan did                                                               
not pass the bill, the Legislature did.                                                                                         
                                                                                                                                
MR. THOMPSON  said, "Let me rephrase  that. The body did  it; let                                                               
the body fix it."                                                                                                               
                                                                                                                                
CHAIR OGAN responded, "It's always about policy around here."                                                                   
                                                                                                                                
MR. JOHN  VANDUSKA, Palmer resident,  supported Ms.  Church's and                                                               
Mr. Thompson's comments.  He said that Senator Ogan had  a lot of                                                               
influence on the way the shallow  gas issue was formed and really                                                               
believed it was to provide cheap energy to the Bush communities.                                                                
                                                                                                                                
SENATOR SEEKINS interrupted to say  that the governor at the time                                                               
[Tony Knowles] didn't veto it, either.                                                                                          
                                                                                                                                
MR. VANDUSKA  continued saying that  he thought  Evergreen didn't                                                               
want to develop gas in the  Bush because it didn't have the roads                                                               
and  relatively close  infrastructure that  the Kenai  and Mat-Su                                                               
have. Somehow, the state made  a mistake and industry was allowed                                                               
to come  into the fastest growing  area in the state,  the Mat-Su                                                               
Valley.                                                                                                                         
                                                                                                                                
     The  surface  owner needs  to  have  priority over  the                                                                    
     subsurface...and  I believe  that isn't  giving up  the                                                                    
     state's rights to  the subsurface. A lot  of the people                                                                    
     in this  room would  negotiate a  deal.... But,  to sit                                                                    
     here and say that 'Oh,  we've had this since the 1800S.                                                                    
     You're going to have to live  with it.' That is what is                                                                    
     going  to  destroy  a  lot   of  your  guys'  political                                                                    
     careers, because we  won't go away. It's  just going to                                                                    
     get worse and worse.                                                                                                       
                                                                                                                                
SENATOR  SEEKINS  interrupted  saying   that  he  understood  Mr.                                                               
Vanduska to say that a few  dollars would make this issue go away                                                               
and  he is  trying  to use  it  as the  primary  issue to  recall                                                               
Senator Ogan.                                                                                                                   
                                                                                                                                
MR. VANDUSKA replied  that that wasn't true and  there were other                                                               
reasons for recalling him.                                                                                                      
                                                                                                                                
SENATOR LINCOLN  raised the  point that the  recall is  not under                                                               
discussion, but rather the Property Owners' Bill of Rights.                                                                     
                                                                                                                                
SENATOR SEEKINS said  he is worried that testimony  he is hearing                                                               
is disingenuous because it is  being suggested that a few dollars                                                               
could make  this issue  go away.  He is  also concerned  with the                                                               
comment about everyone's career if they don't go along with it.                                                                 
                                                                                                                                
SENATOR  ELTON felt  they were  straying  way off  the topic  and                                                               
pointed out that  he hadn't heard anyone testify, "Give  me a few                                                               
dollars  and  this  issue  goes away."  He  has  heard  testimony                                                               
directed toward the Bill of Rights,  some of which may or may not                                                               
be  able   to  be   implemented  because   of  Section   6(i)  or                                                               
constitutional concerns.                                                                                                        
                                                                                                                                
SENATOR SEEKINS  justified his remarks  saying he heard  a veiled                                                               
threat  about their  careers when  only public  policy was  being                                                               
discussed.                                                                                                                      
                                                                                                                                
MR.  VANDUSKA said  the  property subsurface  rights  issue is  a                                                               
small part  of the bill. All  of the safeguards [in  the Property                                                               
Owners' Bill of Rights] need to be put in place.                                                                                
                                                                                                                                
TAPE 04-27, SIDE A                                                                                                            
                                                                                                                                
4:50 p.m.                                                                                                                       
                                                                                                                                
MR. VANDUSKA concluded  saying that he thought  the state leasing                                                               
program was designed  for the Bush area and  somehow industry did                                                               
some fast dealing and got it into his area.                                                                                     
                                                                                                                                
SENATOR WAGONER  said he  heard the  public testifying  that they                                                               
felt  more  comfortable with  the  borough  handling the  coalbed                                                               
methane and shallow gas issue than  the state and AOGCC. He asked                                                               
if the public knew that the  borough manager and mayor were fully                                                               
aware of the bill that went through the Legislature last year.                                                                  
                                                                                                                                
Someone from the audience stood up and started shouting.                                                                        
                                                                                                                                
SENATOR OGAN  gaveled the person out  of order and asked  for the                                                               
Sergeant at Arms to be called.                                                                                                  
                                                                                                                                
MR. VANDUSKA responded to Senator  Wagoner's question saying that                                                               
some officials  did know  about it and  at first  coalbed methane                                                               
sounded like  a good  deal, but  after looking  into it  a little                                                               
deeper, it looked like a really bad deal.                                                                                       
                                                                                                                                
     That's why these people are  upset. When you get a tiny                                                                    
     bit  of the  story, which  a lot  of you  guys probably                                                                    
     don't know  half of  what we  know, already,  it sounds                                                                    
     good - until you realize  what it actually does and how                                                                    
     little  power   you've  got.   I  have   thousands  and                                                                    
     thousands of dollars, hundreds  of thousands of dollars                                                                    
     invested in property.  I have 120 acres  next to Scott.                                                                    
     All of a  sudden I've been paying taxes on  that for 30                                                                    
     years and  all of a  sudden some company  from Colorado                                                                    
     can  come on  that property  and I'm  just some  little                                                                    
     peon that  doesn't have a  single thing and  he's going                                                                    
     to be there for 30  years. That's why these people like                                                                    
     Michelle are really upset and justifiably so.                                                                              
                                                                                                                                
CHAIR OGAN  asked if  he was  aware when  he bought  the property                                                               
that [he didn't have the subsurface rights].                                                                                    
                                                                                                                                
MR.  VANDUSKA replied,  "Totally  aware..., but  you would  think                                                               
that you  would have some negotiating  power to get some  kind of                                                               
compensation. You don't realize that you have nothing."                                                                         
                                                                                                                                
CHAIR OGAN countered, "Actually, you do."                                                                                       
                                                                                                                                
SENATOR WAGONER repeated that the  borough mayor and manager were                                                               
aware of the bill and its ramifications.                                                                                        
                                                                                                                                
SENATOR DONNY  OLSON said he is  a Bush legislator and  wanted to                                                               
know if the  Property Owners' Bill of Rights  intended to include                                                               
the  Native Corporations  as private  property  owners for  which                                                               
"the state  must provide  a legal  fund [Item  1 in  the Property                                                               
Owners' Bill of Rights]."                                                                                                       
                                                                                                                                
MR. VANDUSKA replied, "Everybody in  this room knows that my part                                                               
in this Bill  of Rights is the property owners'  rights.... I'm a                                                               
little weak on that."                                                                                                           
                                                                                                                                
SENATOR OLSON said he just wanted that cleared up.                                                                              
                                                                                                                                
MR. VANDUSKA said private citizens did  not want to be put in the                                                               
position  of taking  a multibillion-dollar  company to  court and                                                               
that  the little  guys need  more leverage.  "Everything in  this                                                               
whole thing has been to tromp  us down and just give the industry                                                               
everything."                                                                                                                    
                                                                                                                                
SENATOR  SEEKINS   said  he   understood  the   property  owners'                                                               
concerns,  because he  is a  property  owner also,  but today  he                                                               
wanted to  hear why  what they  are doing is  good or  bad public                                                               
policy.  "As far  as I  know, it  isn't us  against them;  it's a                                                               
matter of what is good public policy."                                                                                          
                                                                                                                                
MS.  ROBIN MCLEAN,  Sutton resident,  said she  is on  the Sutton                                                               
Community Council, which is very  concerned about coalbed methane                                                               
development. She  was representing herself today  and thanked the                                                               
committee for bringing Mr. Chenoweth  to the meeting and said she                                                               
was heartened  to know that  the Property Owners' Bill  of Rights                                                               
can be drafted in a way that could become law.                                                                                  
                                                                                                                                
She  accused  "our  leaders"  for   trying  to  use  the  state's                                                               
constitution  against  property  owners saying  the  constitution                                                               
states  "may  lease"  which  is  language  that  also  gives  the                                                               
Legislature the  discretion not to  lease "subject  to reasonable                                                               
concurrent uses." The bill that  passed last year did not provide                                                               
an  opportunity  to consider  those  concurrent  uses. She  said,                                                               
"Well,  I   have  a   reasonable  concurrent   use.  I   have  an                                                               
unreasonable concurrent use with the coalbed methane lease."                                                                    
                                                                                                                                
She pointed  out that it is  Mark Myers' job, as  director of the                                                               
Division  of Oil  and  Gas, to  make  reasonable decisions  about                                                               
where to develop our natural resources.                                                                                         
                                                                                                                                
     So, we sort  of have a problem here,  because for years                                                                    
     and  years it's  gone  along just  fine  - leasing  our                                                                    
     resources  in places  where  nobody  lives. But  what's                                                                    
     happened  here  is  that  we   have  the  principle  of                                                                    
     maximizing  our resources,  which  we  all believe  in,                                                                    
     running head on with  property rights, which, hopefully                                                                    
     we all  believe in.  This particular industry,  when it                                                                    
     happens  on private  land is  an  anti property  rights                                                                    
     industry, because of the way  our laws are written. So,                                                                    
     what you have  to do is basically let  this industry go                                                                    
     into residential areas. It does not work.                                                                                  
                                                                                                                                
     There are 12,396 individual pieces  of land in the Mat-                                                                    
     Su  that  are  leased under  this  program.  Ninety-six                                                                    
     percent of them  are private property. I  say that this                                                                    
     is a  jobs bill - this  coalbed methane bill is  a jobs                                                                    
     bill,  but it  is a  jobs  bill for  lawyers -  because                                                                    
     you're  going to  have 12,396  lawsuits in  the Mat-Su.                                                                    
     You're going to have  people fighting and spending good                                                                    
     money to  protect what  they have and  if they  lose in                                                                    
     court, because  their land has  been leased  away, then                                                                    
     that is shame on our  system. What should have happened                                                                    
     is this land never should have been leased.                                                                                
                                                                                                                                
     In  the  very  first  meeting of  the  coalbed  methane                                                                    
     meetings back  this summer in  Sutton, on August  18, a                                                                    
     man  was looking  at  the  map and  he  said on  public                                                                    
     radio,  'I just  learned that  I just  rent my  land; I                                                                    
     don't own my land.' I  don't think that's anything that                                                                    
     people in Alaska really believe  in. This is a property                                                                    
     rights issue and  it needs to be corrected  or there is                                                                    
     just worlds of trouble that are  going to come and I am                                                                    
     really  very  encouraged to  hear  that  the state  can                                                                    
     draft the  Alaska Property Owners'  Bill of  Rights, to                                                                    
     make it law. I encourage you  to do it and I don't want                                                                    
     to take up any more of  your time. That's all I have to                                                                    
     say.                                                                                                                       
                                                                                                                                
SENATOR WAGONER asked how many  people don't want coalbed methane                                                               
or shallow gas  development [of the 96 percent  of 12,396 private                                                               
property owners].                                                                                                               
                                                                                                                                
MS. MCLEAN replied  that most of them still don't  know about the                                                               
issue. Most  of them haven't seen  the maps. She said  that there                                                               
were no maps  to look at during their  borough assembly meetings.                                                               
On  August 18,  2003, the  Sutton Assembly  created the  "meeting                                                               
map" so people could finally see where the leases are.                                                                          
                                                                                                                                
     When  you  see where  the  leases  are, it  takes  your                                                                    
     breath.... The  DNR now has available  these little map                                                                    
     books  where  you  can see  the  entire  core  area....                                                                    
     Industry  is interested  in the  hinterlands, too,  but                                                                    
     they're interested  right in  the center of  the Mat-Su                                                                    
     Valley. There  is $230 million  in assessed  value that                                                                    
     has already been leased.                                                                                                   
                                                                                                                                
     Now for schools, some of  our money for schools in Mat-                                                                    
     Su  comes from  property values  and we  know from  the                                                                    
     Lower 48  that if you  get one  of these wells  on your                                                                    
     land, your  property values drop by  22 percent. That's                                                                    
     going to have a huge  impact on the Mat-Su Borough. Our                                                                    
     Mat-Su  Borough is  very much  in favor  of controlling                                                                    
     this  industry and  we  hope that  they  are sending  a                                                                    
     message  of the  resolutions  and that  you folks  down                                                                    
     here respect  the local control  of the Mat-Su  and the                                                                    
     Kenai Boroughs  and you also  respect our wish  for you                                                                    
     guys to get  this anti property rights  industry out of                                                                    
     the private property  area and to the  other 99 percent                                                                    
     and we hope you can do that.                                                                                               
                                                                                                                                
CHAIR OGAN commented  he had just watched a TV  program about oil                                                               
wells in  downtown Los Angeles where  a derrick was set  up right                                                               
next  to skyscrapers.  He  thanked Robin  for  her testimony  and                                                               
asked Kathryn Franzenburg to testify.                                                                                           
                                                                                                                                
MS.  KATHRYN FRANZENBURG,  private property  owner, endorsed  the                                                               
others' testimony.  She also believed  that when  the legislation                                                               
passed last year, it was with  the best of intentions, but she is                                                               
concerned that her  land is part of the one  percent of privately                                                               
owned land that has been  leased. She encouraged the committee to                                                               
honor  the moratorium  until  all  perspectives and  implications                                                               
could be  fully investigated.  She felt the  leases needed  to be                                                               
bought  back or  traded for  others so  that 100  years from  now                                                               
people would feel good about the decisions that were made.                                                                      
                                                                                                                                
SENATOR SEEKINS  asked questions  about maps  of San  Juan County                                                               
she had handed out.                                                                                                             
                                                                                                                                
MS.  FRANZENBURG clarified  that the  maps showed  the additional                                                               
roads that had been put in to make access for coalbed methane.                                                                  
                                                                                                                                
SENATOR SEEKINS  said he  researched the  Farmington area  of San                                                               
Juan County [New  Mexico], which has 115,000  people, and nothing                                                               
indicates that the roads access coalbed methane development.                                                                    
                                                                                                                                
MS. FRANZENBURG  responded that's  exactly why the  moratorium is                                                               
needed -  so the  situation can be  studied. She  maintained that                                                               
the roads came with the  coalbed methane development in that area                                                               
and  that  will happen  in  the  Mat-Su  Borough, too.  When  the                                                               
industry leaves, the  property owners and taxpayers  will be left                                                               
to pay for maintenance of all the roads.                                                                                        
                                                                                                                                
SENATOR SEEKINS didn't think the map was credible.                                                                              
                                                                                                                                
CHAIR OGAN  said, in  looking at  other maps of  the area  he was                                                               
able  to obtain  on  short notice,  that some  of  the roads  are                                                               
actually  in national  parks and  other  federal properties  that                                                               
aren't  open   to  coalbed  methane  development   and  many  are                                                               
subdivision roads.                                                                                                              
                                                                                                                                
SENATOR WAGONER cautioned that the  Kenai Peninsula has thousands                                                               
of acres  of private land  currently under lease that  are having                                                               
conventional  gas produced  on them.  He said  the whole  City of                                                               
Kenai is under lease for gas production.                                                                                        
                                                                                                                                
SENATOR  LINCOLN  asked how  long  Ms.  Franzenburg envisioned  a                                                               
moratorium lasting.                                                                                                             
                                                                                                                                
MS. FRANZENBURG replied until they  can agree that all the issues                                                               
have  been  researched. She  thanked  the  committee and  Senator                                                               
Ogan, particularly, for taking the time to hear this out.                                                                       
                                                                                                                                
CHAIR  OGAN responded  that rural  Alaska  has tremendously  high                                                               
energy costs  and many people depend  on the shallow gas  Red Dog                                                               
Mine.  He noted  that the  committee is  not just  speaking about                                                               
their  "backyard," but  the whole  state, and  it was  up to  the                                                               
Legislature to make a policy call.                                                                                              
                                                                                                                                
MS. PATRICIA  MACK, Palmer  resident, said  she is  very familiar                                                               
with the Red Dog project and  did not think that anyone in Alaska                                                               
is against  coalbed methane, but she  just didn't want it  in her                                                               
backyard. Before  Alaska became  a state,  people knew  the state                                                               
had reserved the mineral rights  and why. She stated that shallow                                                               
gas venting produces brown smog,  which is a public health hazard                                                               
that is directly linked to cardiac failure and asthma.                                                                          
                                                                                                                                
CHAIR OGAN  said his experience is  that the stuff that  comes up                                                               
the vent is methane gas and  that's what they put in the pipeline                                                               
and sell.                                                                                                                       
                                                                                                                                
MS. MACK replied  that is true, but in the  process of developing                                                               
the well, a lot of the gas escapes.                                                                                             
                                                                                                                                
5:40 p.m.                                                                                                                       
                                                                                                                                
MR.  BOB SHAVELSON,  Homer resident,  said he  was encouraged  to                                                               
hear Mr. Chenoweth's comments about  the Property Owners' Bill of                                                               
Rights.  He  wanted  to  highlight  that  this  is  a  first-time                                                               
conflict with  coalbed methane, not conventional  gas. He thought                                                               
everyone needed  to get  educated about  its development  and how                                                               
much it would  really cost to buy back the  leases. He noted that                                                               
the subsurface  under Homer's drinking  water reservoir  had been                                                               
leased for  coalbed methane and  he rhetorically asked  what that                                                               
would be worth.                                                                                                                 
                                                                                                                                
He said that Evergreen Resources  circulated a letter on February                                                               
25  to  the  residents  of  Willow  that  included  a  number  of                                                               
misstatements, one  of which asserted  a state law says  that all                                                               
waste waters  produced in coalbed  methane had to  be reinjected.                                                               
He encouraged the committee to  get sound information to base its                                                               
decisions upon. He pointed out  that the Property Owners' Bill of                                                               
Rights  embodies property  owner  consent and  local control  and                                                               
that  those are  two, red  meat, conservative,  Republican issues                                                               
and he hoped  a way could be  found to embrace them  in some type                                                               
of intelligent  policy. He  concluded saying,  "I don't  think we                                                               
can ignore  this problem;  it's too  big and I  hope we  can find                                                               
some solutions rather than look for an excuse not to act."                                                                      
                                                                                                                                
SENATOR LINCOLN thanked  him for his comments and  asked if Homer                                                               
supported the leasing of lands for coalbed methane projects.                                                                    
                                                                                                                                
MR.  SHAVELSON  replied,  "Emphatically  no." There  are  over  a                                                               
thousand signatures on  a petition requesting that  the leases in                                                               
the  Homer area,  over 22,000  acres, be  bought back.  There was                                                               
even vociferous  opposition to leasing  conventional oil  and gas                                                               
wells in the Homer area out to Anchor Point. He said:                                                                           
                                                                                                                                
     I think  the Homer  area has been  very clear  that oil                                                                    
     and  gas development  in any  shape  or form  conflicts                                                                    
     with  the  fishing  and   tourism  economies  that  are                                                                    
     important to the area.                                                                                                     
                                                                                                                                
SENATOR  LINCOLN asked  specifically  if the  Homer City  Council                                                               
supported it.                                                                                                                   
                                                                                                                                
MR.  SHAVELSON  replied,  "No."  He  thought  there  was  also  a                                                               
resolution  from  the Kenai  Peninsula  Borough  opposing it,  as                                                               
well.                                                                                                                           
                                                                                                                                
SENATOR SEEKINS asked him to  clarify his comment about state law                                                               
saying shallow well water has to be reinjected.                                                                                 
                                                                                                                                
MR. SHAVELSON  replied that a  February 25 letter  from Evergreen                                                               
Resources to  every box holder  in the Willow area  asserted that                                                               
the wastewater produced in coalbed  methane development had to be                                                               
reinjected and that it was state law to do so.                                                                                  
                                                                                                                                
SENATOR SEEKINS asked if that wasn't the case.                                                                                  
                                                                                                                                
MR. SHAVELSON replied that is not the case.                                                                                     
                                                                                                                                
CHAIR  OGAN  responded  that  the water  they  are  producing  is                                                               
required  to  be  reinjected  because  it's  not  drinking  water                                                               
quality and has large amounts of  dissolved solids in it - mainly                                                               
sodium  and  other  minerals. Surface  discharge  is  allowed  in                                                               
Alaska with  a permit saying the  water is good enough  and won't                                                               
pollute anything.  "We have  the toughest  water quality  laws in                                                               
the nation."                                                                                                                    
                                                                                                                                
All the  produced water Evergreen  has encountered so far  is not                                                               
drinking water quality,  so by law they are  required to reinject                                                               
it.                                                                                                                             
                                                                                                                                
SENATOR SEEKINS  sought clarity asking  if Senator Ogan  said all                                                               
the wastewater  that Evergreen Resources  has encountered  so far                                                               
must be reinjected by law.                                                                                                      
                                                                                                                                
CHAIR OGAN replied  that is correct and the reason  is because it                                                               
is not high enough quality to be discharged on the surface.                                                                     
                                                                                                                                
MR. SHAVELSON  clarified that DEC Commissioner  Ballard confirmed                                                               
to  him that  there is  a  loophole in  the law  that allows  the                                                               
surface discharge of coalbed methane produced water.                                                                            
                                                                                                                                
CHAIR OGAN said there is  a difference between produced water and                                                               
water from drilling  operations and, "That's the  loophole she is                                                               
talking about."                                                                                                                 
                                                                                                                                
CHAIR  OGAN said  he didn't  have a  problem with  clarifying the                                                               
intent.                                                                                                                         
                                                                                                                                
MR. PETE  PRAETORIUS, Palmer resident,  said he would  talk about                                                               
two issues, the moratorium and local  control. He felt that a lot                                                               
more studies were  needed about coalbed methane  issues before it                                                               
was  allowed into  their neighborhoods.  About local  control, he                                                               
said:                                                                                                                           
                                                                                                                                
     It doesn't start with local  government; it starts with                                                                    
     good sound  regulations from the  state. Then  if local                                                                    
     government   deems  that   regulations  aren't   strict                                                                    
     enough,  they can  step  in and  put  in some  stricter                                                                    
     regulations.   I  don't   think  local   control  means                                                                    
     weakening   state  regulations.   That  wouldn't   make                                                                    
     sense....  Local  control   doesn't  mean  more  excess                                                                    
     burden   and  good   state  regulations   will  prevent                                                                    
     that....                                                                                                                   
                                                                                                                                
MR.  MIKE  MCCARTHY,  retired  geologist   from  Homer,  said  he                                                               
represented the  Kachemak Bay Property  Owners' Alliance,  one of                                                               
the most intensive oil and gas  producing areas of the state, and                                                               
that Kenai  Peninsula Borough Resolution  2003-1.9 was  passed by                                                               
the Assembly in opposition to coalbed methane development.                                                                      
                                                                                                                                
     If   they  can   see  that   coalbed  methane   is  not                                                                    
     appropriate for their area, then  I certainly think the                                                                    
     Senate can  see the same  thing. This resolution  was a                                                                    
     difficult  thing  to  pass.   It  took  more  than  one                                                                    
     meeting,  but  it   did,  in  fact,  pass.   It  was  a                                                                    
     resolution   requesting    additional   public   notice                                                                    
     requirements and  requesting the state to  buy back the                                                                    
     south peninsula shallow gas leases.  There is a similar                                                                    
     resolution [2003-12a] from the  City of Kachemak, which                                                                    
     is  an area  that  is almost  totally impacted....  The                                                                    
     City  of Homer  passed  a  resolution, 03-147s....  The                                                                    
     potential adverse  impacts of  CBM development  may far                                                                    
     outweigh the beneficial benefits.                                                                                          
                                                                                                                                
He read a portion of a  letter, dated March 17, from Ann Whitney,                                                               
a realtor who tried to  sell property where subsurface rights had                                                               
been  leased,  saying  that  buyers   were  getting  to  be  more                                                               
difficult to find because of  the leasing issue. However, he felt                                                               
it was still  possible to find a  way out of the  dilemma. He was                                                               
just told  by an  attorney that  contracts against  public policy                                                               
can be voided and offered to research that issue more.                                                                          
                                                                                                                                
SENATOR LINCOLN asked him when the resolutions were dated.                                                                      
                                                                                                                                
MR.  MCCARTHY answered  Homer on  December 1,  2003, the  City of                                                               
Kachemak on  December 10, 2003,  and the Kenai  Peninsula Borough                                                               
on December 16, 2003.                                                                                                           
                                                                                                                                
5:58 p.m.                                                                                                                       
                                                                                                                                
TAPE 04-27, SIDE B                                                                                                            
                                                                                                                              
An unidentified  person from Senator Seekins'  district commented                                                               
from the audience, but it was indiscernible.                                                                                    
                                                                                                                                
SENATOR LINCOLN stated  that she represents a great  deal of Bush                                                               
Alaska  and  hoped  people didn't  think  her  constituents  were                                                               
saying to  come on out  and put it in  their front or  back yard,                                                               
because that's not the case.  She hoped the public would remember                                                               
her  small communities  when they  are trying  to stop  something                                                               
from coming  into their  area. "You will  remember Bush  Alaska -                                                               
that it isn't just a problem that occurs in urban Alaska."                                                                      
                                                                                                                                
CHAIR OGAN concluded:                                                                                                           
                                                                                                                                
     This committee  is about policy,  always will  be about                                                                    
     policy.   We  will   grapple  with   these  issues.   I                                                                    
     personally  see some  almost insurmountable  obstacles,                                                                    
     especially the  property rights issues that  would take                                                                    
     a  constitutional amendment  and  an  amendment of  the                                                                    
     Statehood Compact....                                                                                                      
                                                                                                                                
     I wanted  to be very clear  for the record that  I have                                                                    
     committed to make  this about policy and  we'll work on                                                                    
     it. Beyond  that, I can't  promise anything,  because I                                                                    
     don't control  the members of  this committee nor  do I                                                                    
     control  the members  of the  Legislature.... Sometimes                                                                    
     there  is the  law  of unintended  consequences and  we                                                                    
     deal with  those all  the time  around here  and that's                                                                    
     why we  have a  legislative process  that allows  us to                                                                    
     review these things and work  on them.... Thank you for                                                                    
     the committee  members' patience  in hanging  there and                                                                    
     thanks for coming down today.  We're adjourned [at 6:00                                                                    
     p.m.].                                                                                                                     

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