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
+ 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.].
| Document Name | Date/Time | Subjects |
|---|