Legislature(2005 - 2006)SENATE FINANCE 532

01/18/2006 01:00 PM RESOURCES

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01:08:53 PM Start
01:10:13 PM Overview: Department of Natural Resources
02:35:54 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Time and Location Change --
+ Joint w/(H) Resources TELECONFERENCED
Overview: Department of Natural Resources
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
              SENATE RESOURCES STANDING COMMITTEE                                                                             
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                        January 18, 2006                                                                                        
                           1:08 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
SENATE RESOURCES                                                                                                                
 Senator Thomas Wagoner, Chair                                                                                                  
 Senator Ben Stevens                                                                                                            
 Senator Bert Stedman                                                                                                           
 Senator Kim Elton                                                                                                              
HOUSE RESOURCES                                                                                                                 
 Representative Jay Ramras, Co-Chair                                                                                            
 Representative Jim Elkins                                                                                                      
 Representative Kurt Olson                                                                                                      
 Representative Paul Seaton                                                                                                     
 Representative Harry Crawford                                                                                                  
MEMBERS ABSENT                                                                                                                
SENATE RESOURCES                                                                                                                
 Senator Ralph Seekins, Vice Chair                                                                                              
 Senator Fred Dyson                                                                                                             
 Senator Albert Kookesh                                                                                                         
HOUSE RESOURCES                                                                                                                 
 Representative Ralph Samuels, Co-Chair                                                                                         
 Representative Carl Gatto                                                                                                      
 Representative Gabrielle LeDoux                                                                                                
 Representative Mary Kapsner                                                                                                    
OTHER MEMBERS PRESENT                                                                                                         
 Representative Mike Kelly                                                                                                      
 Representative David Guttenberg                                                                                                
 Representative Mark Neuman                                                                                                   
COMMITTEE CALENDAR                                                                                                            
Overview:  Department   of  Natural  Resources   by  Commissioner                                                               
Michael Menge                                                                                                                   
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
COMMISSIONER MICHAEL MENGE                                                                                                      
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
POSITION STATEMENT: Presented DNR overview.                                                                                   
DICK MYLIUS, Director                                                                                                           
Division of Mining, Land and Water                                                                                              
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
POSITION STATEMENT: Answered questions on state lands issues.                                                                 
ACTION NARRATIVE                                                                                                              
CO-CHAIR JAY  RAMRAS called the  joint meeting of the  Senate and                                                             
House Resources  Standing Committees to  order at 1:08:53  PM. He                                                             
announced that  Chair Wagoner would arrive  shortly. Present were                                                               
Representatives Elkins, Crawford and  Seaton, Senator Stedman and                                                               
Co-Chair Ramras.                                                                                                                
^OVERVIEW: Department of Natural Resources                                                                                    
1:10:13 PM                                                                                                                    
MICHAEL  MENGE,  Commissioner,  Department of  Natural  Resources                                                               
(DNR)   introduced  Ed   Fogel  and   Ken  Griffin,   DNR  Deputy                                                               
Commissioners, William  Van Dyke,  Director, Division of  Oil and                                                               
Gas,  Chris  Maisch,  Director, Division  of  Forestry  and  Dick                                                               
Mylius, Director, Division of Mining, Land and Water.                                                                           
COMMISSIONER MENGE  said he takes  his job seriously and  said he                                                               
doesn't tolerate  lack of accountability. His  department has the                                                               
dual   responsibility  of   marketing   Alaska's  resources   and                                                               
protecting them.                                                                                                                
1:19:29 PM                                                                                                                    
He  expressed that  the department  needs  to encourage  resource                                                               
development across the entire state and  not in just one spot. He                                                               
looks  at  what  can  be  done in  areas  that  are  particularly                                                               
underdeveloped. An example of this  is the development of the Red                                                               
Dog mine. He  emphasized that development ideas must  be based on                                                               
good science as well as sustainability.                                                                                         
He  said  the state  manages  its  resources through  its  sales,                                                               
leases  and   permitting  functions  and  while   competition  is                                                               
important, partnerships, especially  concerning the gasline, must                                                               
be  based on  the concept  of finding  common ground  and working                                                               
together to make  a project happen rather than  taking stands and                                                               
1:27:46 PM                                                                                                                    
CHAIR WAGONER arrived and took up the gavel.                                                                                    
1:27:59 PM                                                                                                                    
COMMISSIONER  MENGE  related  that  oil supplies  in  Alaska  are                                                               
declining and  noted that the state's  regulatory structure could                                                               
allow more  oil to go into  the pipeline using the  concept known                                                               
as minimum  economic field size. He  explained that historically,                                                               
wells were  drilled outside of Prudhoe  Bay in which oil  and gas                                                               
were found, but if enough oil  wasn't found to make a stand-alone                                                               
prospect,  that well  was shut  down and  written off  as a  non-                                                               
discovery. If the  gasline is brought on line now,  the fact that                                                               
there is both oil  and gas will allow the oil  to be developed by                                                               
virtue of the gas being there.                                                                                                  
1:32:15 PM                                                                                                                    
He  reflected how  the Joint  Federal  State Pipeline  Monitoring                                                               
Office was created in the 1980s  to deal with the complexities of                                                               
state and  federal regulations by  bringing them together  in one                                                               
place,  but  not  trying  to seat  authority  within  one  single                                                               
individual.  Each  agency  was  recognized  has  having  its  own                                                               
statutory responsibilities  and common ground was  developed over                                                               
different issues.                                                                                                               
COMMISSIONER  MENGE explained  that the  state's resource  issues                                                               
are often wrapped in controversy  and that often manifests itself                                                               
in  agencies becoming  gridlocked.  He has  tried  to spread  the                                                               
common ground  concept into  DNR agencies so  they do  not become                                                               
gridlocked and  afraid to act.  He philosophized that there  is a                                                               
remedy for  an agency that  takes wrong  action, but there  is no                                                               
remedy for  an agency  that refuses  to take  action at  all. The                                                               
department's large  project management team gets  together and if                                                               
one agency  has a problem, they  all figure out how  to solve it.                                                               
This concept is a core  element in accomplishing the partnerships                                                               
the state is putting together.                                                                                                  
He  complimented   Randy  Bates,  Director,  Office   of  Project                                                               
Management  and  Permitting,  for  working on  the  Coastal  Zone                                                               
Management  Program  with  coastal   communities  so  they  could                                                               
understand  what their  roles  and authorities  would  be and  to                                                               
assist them in succeeding.                                                                                                      
1:36:01 PM                                                                                                                    
He highlighted  how the  Division of Habitat  was moved  from the                                                               
Alaska Department  of Fish and  Game (ADF&G)  to DNR a  few years                                                               
ago  and  it  now  has   the  responsibility  of  protecting  the                                                               
resources as  well as for establishing  the partnerships involved                                                               
with developing them.  The division has created a  forum in which                                                               
to work  on contentious projects. Multinational  corps can afford                                                               
to  hire  the   brightest  and  the  best  and   he  thanked  the                                                               
legislature  for   providing  the  resources  necessary   to  the                                                               
Division  of Oil  and  Gas to  build its  staff  and their  skill                                                               
1:39:26 PM                                                                                                                    
SENATOR BEN STEVENS arrived.                                                                                                    
1:39:56 PM                                                                                                                    
COMMISSIONER MENGE  continued relating  that the Division  of Oil                                                               
and Gas has a remarkable  track record in successfully backing up                                                               
their  contentions in  court. It  recently brought  an additional                                                               
$22  million  to  the  state coffers  through  the  Exxon  Valdez                                                               
reopener, for example.                                                                                                          
He explained  how the  first oil fields  brought in  a tremendous                                                               
amount of  money relative to  the oversight they needed.  But the                                                               
now smaller reserves  outside of Prudhoe Bay take  more energy to                                                               
manage, because their economic viability is so marginal.                                                                        
1:43:22 PM                                                                                                                    
He said that  oil and gas development in Bristol  Bay is new. One                                                               
of the Governor's major initiatives  is to bring new explorers to                                                               
Alaska and  smaller companies  are now coming  in to  explore the                                                               
Basin. Smaller companies  are less risk averse.  He reported that                                                               
fourteen  independent  and  two  major oil  companies  and  eight                                                               
individuals participated in the last lease sale.                                                                                
1:46:35 PM                                                                                                                    
Lack of  development guidelines on  the North Sloped  had plagued                                                               
the department in  the past and the Division of  Mining, Land and                                                               
Water recently completed the first  comprehensive analysis of the                                                               
appropriate snow  cover and temperature to  allow off-road travel                                                               
there lengthening the exploration period by six weeks a year.                                                                   
1:49:38 PM                                                                                                                    
COMMISSIONER  MENGE  said  that  Alaska has  only  scratched  the                                                               
surface of developing its mineral  resources and while mining had                                                               
been drying up  in the Lower 48,  Alaska is embracing it  - as in                                                               
development of the Pogo Mine.  Mining contributed $1.6 billion to                                                               
Alaska's economy last year.                                                                                                     
1:56:54 PM                                                                                                                    
He  mentioned  that  his department  has  the  responsibility  of                                                               
coordinating fire fighting and timber  management with the Bureau                                                               
of Land  Management (BLM). But  the Division of Mining,  Land and                                                               
Water's  key responsibility  is receiving  land from  the federal                                                               
government  as per  the Statehood  Compact and  making that  land                                                               
available for municipalities to select.                                                                                         
2:04:04 PM                                                                                                                    
He  stated  that  ownership  of   navigable  waters  is  still  a                                                               
challenging  issue  and that  the  department  has just  received                                                               
disclaimers for  26 rivers  and 15 lakes,  which clears  up those                                                               
titles. RS2477s  is one of  the most contentious  federal issues.                                                               
He  explained that  unlike the  rest  of the  country, Alaska  is                                                               
still  putting  in  infrastructure.  Our roads  are  trails  that                                                               
miners used,  but they are no  less valid than wagon  trails that                                                               
were used  down south.  The burden of  proof is  very significant                                                               
and  DNR  has  to  continue   to  develop  the  record  for  that                                                               
2:06:27 PM                                                                                                                    
CO-CHAIR RAMRAS asked where the department is on that project.                                                                  
COMMISSIONER MENGE deferred that question  to the director of the                                                               
Division of Mining, Land and Water.                                                                                             
DICK  MYLIUS,  Director,  Division  of  Mining,  Land  and  Water                                                               
answered  that  quiet  title  was  filed  on  two  routes,  which                                                               
required a  lot of research  and the  Division of State  Parks is                                                               
performing  that  function. It  has  contracted  with a  firm  to                                                               
locate where the trail is.                                                                                                      
2:08:46 PM                                                                                                                    
He explained that  to file quite title, the  department must file                                                               
on all  property owners,  but his  goal is  to assert  the RS2477                                                               
against  the  federal  government  only. Thirty  or  forty  other                                                               
parties  had  property  interests  and  for  the  last  year  the                                                               
division had been  working on getting those  dismissed. Of those,                                                               
three are remaining  - an owner of property on  Chandalar Lake, a                                                               
private  corporation  that  has  land selection  rights  and  the                                                               
federal government.                                                                                                             
2:10:09 PM                                                                                                                    
CHAIR WAGONER commented  that most mine production  is being done                                                               
by companies  that are based in  Canada and asked what  the State                                                               
of Alaska can do to encourage  Alaska and other U.S. companies to                                                               
participate in its mining ventures.                                                                                             
MR.  MYLIUS responded  that a  company needs  lots of  capital to                                                               
develop a mine and most of  those big companies are based outside                                                               
of the U.S.                                                                                                                     
2:12:06 PM                                                                                                                    
CHAIR WAGONER asked  what revenues the state  receives from mines                                                               
that are on state lands like the Pebble Mine.                                                                                   
MR. MYLIUS replied that it is  hard to tell, because the Pebble's                                                               
production size is not known yet,  but the state's main source of                                                               
revenue is  royalty. The state  doesn't have a lot  of experience                                                               
with major mines because right  now all the major producing mines                                                               
are not on  state land. Pogo is  the first one on  state land and                                                               
he didn't anticipate  receiving a lot of revenue from  it for the                                                               
first few  years at least because  of its large capital  start up                                                               
costs.  The  largest  source  of   mining  revenue  currently  is                                                               
property taxes paid  to local governments. When  companies show a                                                               
profit, the state receives its royalties.                                                                                       
2:14:07 PM                                                                                                                    
CO-CHAIR  RAMRAS asked  how the  University's 250,000-acre  land-                                                               
transfer with the federal government is proceeding.                                                                             
MR. MYLIUS  answered that  the transfer of  the 250,000  acres of                                                               
state land  to the University is  being worked on since  the bill                                                               
passed last year.  An RFP is being worked on  for the title work.                                                               
Two parcels have  access issues. But there is no  movement on the                                                               
University lands bill in Congress.                                                                                              
The BLM has ramped up its  land transfer program to the state and                                                               
the state  has received  91 million out  of its  105-million acre                                                               
entitlement.  He recently  submitted his  revised land  selection                                                               
priorities to the BLM.                                                                                                          
2:16:29 PM                                                                                                                    
CHAIR WAGONER  asked if they  are shooting for completion  by the                                                               
year 2008.                                                                                                                      
MR.  MYLIUS  replied  that  his calculation  comes  out  to  2010                                                               
through 2012, but substantial progress is being made.                                                                           
2:17:16 PM                                                                                                                    
REPRESENTATIVE  PAUL SEATON  said  he heard  that some  companies                                                               
were going  to try to escape  paying corporate tax by  using LLCs                                                               
or sub S structures and asked  how prevalent that would be in the                                                               
COMMISSIONER MENGE  responded that  that action  would not  be in                                                               
the  best  interests  of  a  good  partner  relationship  and  he                                                               
wouldn't stand by and let that happen.                                                                                          
REPRESENTATIVE SEATON  clarified that  he wasn't  accusing anyone                                                               
of wrongdoing  since those  structures are  specifically provided                                                               
for in law.                                                                                                                     
2:20:36 PM                                                                                                                    
COMMISSIONER  MENGE responded  that he  believes in  partnerships                                                               
that are fair and  if he sees a problem, he will  bring it to the                                                               
legislature and lay it on the table.                                                                                            
COMMISSIONER MENGE  moved his discussion  to state parks  that he                                                               
summarized are  suffering from benign neglect.  Over four million                                                               
people visit  Alaska's parks every  year and 80 percent  of those                                                               
are   Alaskans.  The   division  has   tried  to   innovate  with                                                               
privatization, but that has had  limited success. The park system                                                               
has  had no  strategic plan  since 1971  and is  in need  of some                                                               
serious  attention. He  said we  can't ignore  them or  the parks                                                               
will become liabilities  instead of assets. He  will be embarking                                                               
on providing a new strategic plan.                                                                                              
2:23:38 PM                                                                                                                    
COMMISSIONER  MENGE   said  the   Division  of   Agriculture  has                                                               
diminishing stature within  the state and he  wants to strengthen                                                               
those programs.                                                                                                                 
2:27:05 PM                                                                                                                    
REPRESENTATIVE  HARRY   CRAWFORD  asked  if  he   is  considering                                                               
alternative   and  renewable   energy   like   wind,  water   and                                                               
geothermal. He urged the commissioner to be forward-looking.                                                                    
2:28:52 PM                                                                                                                    
COMMISSIONER  MENGE  replied that  he  is  working on  geothermal                                                               
energy projects  at Chena Hot  Springs and in the  Aleutians. The                                                               
department is  also working on  a methane hydrate project  on the                                                               
North Slope  where as much as  33 TCF of hydrates  are capable of                                                               
being produced  using conventional  technology. The wind  farm at                                                               
Kotzebue is at the forefront of that technology.                                                                                
2:31:34 PM                                                                                                                    
REPRESENTATIVE MARK NEUMAN  asked him if there would  be a smooth                                                               
transition of  Mt. McKinley Meat  and Sausage into  private hands                                                               
relative to its being a USDA certified packaging plant.                                                                         
COMMISSIONER MENGE  replied that two  of his staff would  go over                                                               
the plan with him regarding that issue on the following day.                                                                    
2:33:10 PM                                                                                                                    
CHAIR WAGONER  asked what he  thought of  the "one-stop-shopping"                                                               
for permitting bill introduced by Senator Guess.                                                                                
COMMISSIONER MENGE  replied that  he had not  looked at  the bill                                                               
and that while  one-stop-shopping is an important  concept, it is                                                               
unwise  to give  one  agency authority  over  other agencies.  He                                                               
promised to examine the issue carefully.                                                                                        
2:34:12 PM                                                                                                                    
REPRESENTATIVE SEATON asked  him to comment on  the proposed Farm                                                               
Service Agency office closings in Homer and Wasilla.                                                                            
COMMISSIONER MENGE replied that he  was not aware of the closures                                                               
and would check into them.                                                                                                      
2:35:11 PM                                                                                                                    
SENATOR ELTON arrived.                                                                                                          
CHAIR WAGONER  thanked the commissioner  and his staff  for their                                                               
comments and adjourned the meeting at 2:35:54 PM.                                                                             

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