03/30/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB145 | |
| SB215 | |
| SB219 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 145 | TELECONFERENCED | |
| += | SB 215 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 219 | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
March 30, 2012
3:33 p.m.
MEMBERS PRESENT
Senator Joe Paskvan, Co-Chair
Senator Thomas Wagoner, Co-Chair
Senator Bill Wielechowski, Vice Chair
Senator Hollis French
Senator Gary Stevens
MEMBERS ABSENT
Senator Bert Stedman
Senator Lesil McGuire
OTHER LEGISLATORS PRESENT
Senator Cathy Giessel
Senator Joe Thomas
COMMITTEE CALENDAR
SENATE BILL NO. 145
"An Act providing for a credit against the oil and gas
production tax for costs incurred in drilling certain oil or
natural gas exploration wells in the Nenana Basin."
- HEARD & HELD
SENATE BILL NO. 215
"An Act requiring the Alaska Gasline Development Corporation to
construct a natural gas pipeline to deliver Cook Inlet natural
gas to Fairbanks and other communities between Cook Inlet and
Fairbanks that do not have access to a natural gas pipeline."
- HEARD & HELD
SENATE BILL NO. 219
"An Act relating to the Alaska Land Act, including certain
lease, sale, and other disposal of state land and materials;
relating to production royalties from miners; relating to rights
to use state water; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 145
SHORT TITLE: OIL/GAS PRODUCTION TAX CREDITS: NENANA
SPONSOR(s): SENATOR(s) WAGONER, COGHILL
01/17/12 (S) PREFILE RELEASED 1/6/12
01/17/12 (S) READ THE FIRST TIME - REFERRALS
01/17/12 (S) RES, FIN
03/28/12 (S) RES AT 3:30 PM BUTROVICH 205
03/28/12 (S) Heard & Held
03/28/12 (S) MINUTE(RES)
03/30/12 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SB 215
SHORT TITLE: GASLINE DEV. CORP: IN-STATE GAS PIPELINE
SPONSOR(s): SENATOR(s) THOMAS
02/21/12 (S) READ THE FIRST TIME - REFERRALS
02/21/12 (S) RES, FIN
03/19/12 (S) RES AT 3:30 PM BUTROVICH 205
03/19/12 (S) Heard & Held
03/19/12 (S) MINUTE(RES)
03/23/12 (S) RES AT 3:30 PM BUTROVICH 205
03/23/12 (S) Heard & Held
03/23/12 (S) MINUTE(RES)
03/26/12 (S) RES AT 3:30 PM BUTROVICH 205
03/26/12 (S) Heard & Held
03/26/12 (S) MINUTE(RES)
03/28/12 (S) RES AT 3:30 PM BUTROVICH 205
03/28/12 (S) Scheduled But Not Heard
03/30/12 (S) RES AT 3:30 PM BUTROVICH 205
BILL: SB 219
SHORT TITLE: DISPOSALS OF STATE RESOURCES
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/29/12 (S) READ THE FIRST TIME - REFERRALS
02/29/12 (S) RES, FIN
03/28/12 (S) RES AT 3:30 PM BUTROVICH 205
03/28/12 (S) Heard & Held
03/28/12 (S) MINUTE(RES)
03/30/12 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
JOHN LARSEN, Audit Master
Department of Revenue (DOR)
Anchorage, AK
POSITION STATEMENT: Answered tax questions relating to SB 145;
had no position.
CARL HANNEMAN
International Tower Hill Mines, Ltd.
Fairbanks, AK
POSITION STATEMENT: Supported SB 215.
MICHAEL LAMB, CFO
Fairbanks Northstar Borough
Fairbanks, AK
POSITION STATEMENT: Supported SB 215.
GENE THERRIAULT, Vice President
Resource Development and External Affairs
Golden Valley Electric Association (GVEA)
Fairbanks, AK
POSITION STATEMENT: Supported SB 215.
FRED PARADY, Executive Director
Alaska Miners Association
Barrow, AK
POSITION STATEMENT: Supported SB 215.
JERRY CLEWORTH, Mayor
City of Fairbanks
Fairbanks, AK
POSITION STATEMENT: Supported SB 215.
BILL WALKER, Attorney
Walker & Levesque
Representing the Alaska Gasline Port Authority (AGPA)
Anchorage, AK
POSITION STATEMENT: Supported SB 215.
SENATOR JOE THOMAS
State Capitol Bldg.
Alaska State Legislature
Juneau, AK
POSITION STATEMENT: Sponsor of SB 215.
WYN MENEFEE, Chief of Operations
Division of Mining, Land and Water
Department of Natural Resources (DNR)
Anchorage, AK
POSITION STATEMENT: Explained water use and temporary water use
authorizations as applied in the DNR relative to SB 219.
CAMERON LEONARD, Assistant Attorney General
Department of Law (DOL)
Anchorage, AK
POSITION STATEMENT: Answered legal questions about water use
temporary water use authorizations and water rights on SB 219.
JOE BALASH, Deputy Commissioner
Department of Natural Resources (DNR)
Anchorage, AK
POSITION STATEMENT: Commented on SB 219.
ACTION NARRATIVE
3:33:49 PM
CO-CHAIR THOMAS WAGONER called the Senate Resources Standing
Committee meeting to order at 3:33 p.m. Present at the call to
order were Senators French, Wielechowski, Stevens, Co-Chair
Wagoner and Co-Chair Paskvan.
SB 145-OIL/GAS PRODUCTION TAX CREDITS: NENANA
3:34:45 PM
CO-CHAIR WAGONER announced consideration of SB 145 and said that
he had objected to adoption of Version D for discussion
purposes. Today the committee would ask questions of the
Department of Law, the Department of Revenue and the Division of
Oil and Gas.
He asked if anyone wanted to testify on SB 145 and finding none,
closed the public hearing.
SENATOR WIELECHOWSKI asked if a combination of tax deductions
and credits add up to be more than 100 percent if the state-wide
progressivity rate were to be reduced.
3:37:12 PM
JOHN LARSEN, Audit Master, Department of Revenue (DOR),
Anchorage, AK, said to properly answer that question, two
different scenarios would have to be considered. In the case of
costs incurred from a segment that was currently in production,
a lease expenditure deduction under a net tax system would be a
tax benefit and a combination of lease expenditure deductions,
progressivity rate and tax credits could possibly exceed the
amount of the investment. However, it wouldn't be possible for
costs incurred from a segment that was not currently producing,
because there would be no revenues in the segment with which to
offset the lease expenditures. Under the proposed language in
the bill, there are no credits available for carry forward loss
credits or any other credit under [AS 43.55.025].
CO-CHAIR WAGONER asked if there was any production in the
geographic area that SB 145 relates to.
MR. LARSEN replied no and they commonly refer to that area -
south of 68 degrees north latitude - as "Middle Earth."
SENATOR WIELECHOWSKI asked if he meant that the state couldn't
exceed 100 percent for companies that aren't producing right now
as well as existing companies that are producing.
MR. LARSEN answered that a company in current production could
not exceed the 100 percent, because the lease expenditures for a
certain segment are ring-fenced while a tax credit can be
exported and applied against any tax liability in the state.
SENATOR WIELECHOWSKI said the lease expenditures are ring
fenced, but what about the reduction of the tax rate due to the
reduced per barrel profits.
MR. LARSEN replied the answer was still no. The lease
expenditures under the bill basically end right there and won't
affect anyone's progressivity. Typically, when lease
expenditures exceed the gross value at the point of production,
the excess is allowed to be a carry forward annual loss credit
under AS 43.55.023(b), but the language of the bill specifically
precludes any credits under AS 43.55.023 or any other section of
AS 43.55.025.
3:41:42 PM
SENATOR WIELECHOWSKI asked if this bill would apply to any oil
and gas producing fields north of 68 degrees latitude.
MR. LARSEN answered that was his understanding.
CO-CHAIR WAGONER recognized that Senator Cathy Giessel was in
attendance.
SENATOR WIELECHOWSKI asked him to talk about the public
information the state would get under this bill in exchange for
providing credits.
MR. LARSEN answered that the information that would be made
public through this bill would be the seismic and well data; the
provisions in the bill expedite its release above what is
ordinarily prescribed in other statutes.
3:43:10 PM
SENATOR WIELECHOWSKI asked where it says "ring-fenced."
MR. LARSEN responded that was just how the tax basically worked.
SENATOR WIELECHOWSKI asked if a company could write off lease
expenditures and capital credits from production elsewhere,
resulting in a negative tax.
MR. LARSEN replied no; lease expenditures from one segment
cannot be exported to another segment - the idea of the ring-
fencing. A credit can be used anywhere in the state a tax
liability is due to the state. So a producer could apply tax
credits from other areas of the state to the tax liability of
production in the Middle Earth area if it would have any. The
reciprocal is also true that tax credits from the Middle Earth
area could be exported and applied against a tax liability from
other segments in the state.
CO-CHAIR PASKVAN asked him why a company would pick the system
under this section as compared to the current structure of
credits.
3:46:16 PM
MR. LARSEN answered that the benefit in SB 145 would allow a
credit under AS 43.55.025 and that would allow a credit of $22.5
million or 80 percent of the total exploration expenditures for
a well, no more than two of which could be within any one basin
area. Under AS 43.55.025, the producers or explorers are
eligible for credits up to 40 percent depending on the location
of the exploration, which would apply, given that there is no
production within the Middle Earth area. But the remaining
sections of AS 43.55.025 have caps or limitations on the amount
of the expenditures to which credits could be earned against.
SENATOR WIELECHOWSKI asked if the DOR had modeled any scenarios
on how this would impact the treasury if there were to be fields
of 10/25/100 thousand barrels/day of production.
MR. LARSEN answered no.
SENATOR WIELECHOWSKI asked if he could do that.
MR. LARSEN said he would be happy to do that if he could be a
little more definitive about what he wanted modeled.
SENATOR WIELECHOWSKI asked if the DOR had concerns about the
state losing money with a large oil find.
MR. LARSEN answered yes; it was his absolute fiduciary duty for
the state as a certified public accountant.
3:50:06 PM
SENATOR WIELECHOWSKI asked if the administration supported this
bill.
MR. LARSEN replied no; this is not the administration's bill and
they have no position on it. He asked for parameters for the
modeling he wanted him to provide saying that he would forward
that to the appropriate people and try to get it done for him.
SENATOR WIELECHOWSKI said he would get him something.
CO-CHAIR WAGONER, finding no further questions, closed the
public hearing on SB 145 and held it in committee.
3:52:01 PM
At ease from 3:52 to 3:53 p.m.
CO-CHAIR WAGONER passed the gavel to CO-CHAIR PASKVAN.
SB 215-GASLINE DEV. CORP: IN-STATE GAS PIPELINE
3:53:34 PM
CO-CHAIR PASKVAN announced consideration of SB 215 and that the
committee had invited testimony.
3:54:51 PM
CARL HANNEMAN, International Tower Hill Mines, Fairbanks, AK,
thanked the committee for the opportunity to offer their
comments in support of their efforts to bring more cost
effective energy to the Interior as soon as possible. He said
that Tower Hill Mines is new and is conducting a feasibility
study on the potential development of the Livengood Gold project
located by paved highway 70 miles north of Fairbanks. With a
gold resource of over 20 million ounces, he said this project is
ranked in the top tier of undeveloped gold deposits in the
world. The project is planned as a large surface mine with a
capital investment in excess of $1.6 billion, a mine life of 23
years, over 1,000 jobs during construction and approximately 500
long term jobs for generations of Alaskans.
MR. HANNEMAN said they didn't have enough of the facts to be
able to choose between specific projects or legislation, but he
said they support the work legislators are going to bring real
solutions to the high cost of energy in Interior Alaska. Tower
Hill had been working with the Fairbanks Chamber of Commerce to
develop a unified position that recognizes the need for both
short-term and long-term solutions, and resolution of those
challenges could make a meaningful difference to a long-term
project like the one in Livengood.
He said they believe the community could benefit from a short
term project like natural gas trucking that could result in up
to $40 million in annual energy savings and allow the community
to begin preparing for a permanent natural gas pipeline project.
The Healy Clean Coal project could create similar savings if it
could ever come on line; it is now struggling through the
permitting process. Mr. Hanneman said the community should
aggressively support both of these projects, because they can
provide real meaningful relief in the two-to-three year time
period.
MR. HANNEMAN said mid-term solutions are significant, too, and
the gasline in SB 215 is one of those. They believe that tariffs
could be adjusted and incorporated so that the Interior could
achieve long-term fair pricing stability that would "open up"
the community.
In conclusion, he said they support the gasline proposals with
the necessary engineering and environmental work on an expedited
basis. The state should also continue to pursue the economic
long-term energy solutions such as Susitna/Watana. All together
the short-term, mid-term and long-term solutions could make a
meaningful difference.
3:58:37 PM
MICHAEL LAMB, CFO, Fairbanks Northstar Borough, Fairbanks, AK,
said he was pleased to hear Mr. Hanneman's comments and that he
also supported SB 215.{ When the gas pipeline gets built, it
will actually allow for gas to flow in both directions, which is
a long-term win-win conclusion. The cost of heating fuel is
dramatic in the Interior and hundreds of millions of dollars
leave the community because of it. This is the only project that
is really doable in the near-term timeframe, and he would
support it in any way he could.
MR. LAMB said many discussions had taken place about how the
cost of energy impacts the Department of Defense facilities and
it has become even more critical in looking at what is happening
to the federal budget.
4:02:21 PM
CO-CHAIR WAGONER asked how the bases get their power now.
MR. LAMB replied that they use coal generation, but a lot more
was getting done by diesel. In addition, Fairbanks has issues
with federal PM2.5 requirements and clean air. There are a lot
of reasons that getting clean energy, including converting
existing coal to natural gas, makes a lot of sense.
CO-CHAIR WAGONER asked if the federal government is committed to
taking the coal-fired generation of their power generation off
line and installing gas generation or buying it from somewhere
else in the immediate area.
MR. LAMB replied that he couldn't speak for the federal
government, but he understood that four power plants were in the
process of being switched in Eielson and it looked like things
in general were going in that direction.
4:05:17 PM
At ease from 4:05 to 4:06 p.m.
4:06:47 PM
GENE THERRIAULT, Vice President, Resource Development and
External Affairs, Golden Valley Electric Association (GVEA),
Fairbanks, AK, supported SB 215 and said as a large industrial
consumer, they are anxiously watching proposals that can deliver
gas to the Interior. He said GVEA provides electric service to
44,000 individual customer accounts in Interior Alaska going
from Fairbanks to Fort Greely on the Richardson Highway and
Fairbanks to Cantwell on the Parks Highway, an area that is home
to approximately 100,000 Alaskans.
MR. THERRIAULT said they are also closely monitoring
announcements regarding gas development in the Cook Inlet basin
whose preliminary results have the potential to assist with the
energy needs if surplus quantities of gas are available at an
affordable price and for a long-enough period of time. If these
parameters are met, GVEA would be very interested in switching
as much of their oil fired generation as possible to natural
gas.
MR. THERRIAULT said to facilitate meeting that goal, GVEA
supported state participation in the development of a pipeline
system and an associated tariff structure that would assure
Interior residents would be able to access the state natural gas
resources. To that end, they support the efforts of Senator Joe
Thomas on SB 215 and appreciated that the legislation proposes
to use a portion of the right-of-way.
To ensure that a pipeline will have the largest possible natural
gas market to serve immediately upon completion, GVEA is
currently working on a project to transport gas to the region
via trailer. Such a project will allow industrial and
residential use in the Interior to develop now, which will
improve the economics of a future pipeline. While GVEA still
believes that a large-volume pipeline may still be constructed
to serve an export market under AGIA, it is prudent to undertake
pipeline efforts that are focused on serving in-state needs. If
the governor's request that North Slope producers align under a
new effort to build a large pipeline to tidewater results in
moving forward, the infrastructure proposed by SB 215 would be
of tremendous value to continue serving in-state needs or to
potentially transport Cook Inlet or Nenana Basin gas to the
export line. In closing, he said that GVEA believed that
pipeline infrastructure supported by SB 215 will be important
infrastructure no matter how natural gas ultimately gets
developed across the state. As a result, they encourage the
passage of SB 215 from the committee today so that the matter
may be considered by the Senate Finance Committee.
4:10:22 PM
CO-CHAIR PASKVAN asked what the potential for gas would mean to
GVEA in providing power to the Tower Hill Mine, Pogo or some
other major development in the Interior.
MR. TERRIAULT answered because of some work they have already
done on trucking, GVEA knew if a gas product were to be
delivered to the turbine (a 12 bcf/plant that serves space heat
and some industrial needs) in North Pole that the price of gas
could be brought down to $8 to $10 and that would result in a an
overall savings of $30-40 million to current customers. New
generation might have to be brought on to serve a large new
project like Tower Hill Mine, but the existing plant was
designed specifically to be able to double its capacity. He
explained that it is basically a large aircraft engine with a
heat capture unit on the back end that generates steam that in
turn generates additional electricity. This backend unit was
oversized so that an additional jet engine, basically, could be
added to that facility; gas could fire it, too. The potential
savings, even though the plant would have to be upsized for a
100 megawatt mine coming on line, but they would hopefully still
be able to continue those savings.
CO-CHAIR PASKVAN thanked him and went to the invited testimony
saying they would have public hearings on SB 215 on Monday.
4:13:23 PM
FRED PARADY, Executive Director, Alaska Miners Association,
Barrow, AK, said SB 215 could bring gas to the Interior market
sooner than any other line. He said the association was
established in 1939 to represent the mining industry in Alaska
and they are composed of more than 1,400 individual prospectors,
geologists, engineers, vendors, suction dredge miners, small
family mines, junior mining companies and major mining
companies. They produce gold, silver, platinum, diamonds, lead,
zinc, copper, coal, limestone, sand and gravel, crushed stone,
armor rock and other materials who work throughout the state in
each of their legislative districts.
Based on the potential new finds showing up to 19 tcf/gas
modeled by the USGS, Mr. Parady said that SB 215 could bring gas
to the Interior sooner than any other line. It has the clear
advantage of 305 miles versus 737 miles for the ASAP line.
Because it's a shorter distance, the construction timeline is
shorter, too. It's cheaper to build, has better access to
transportation, supplies, infrastructure like railroads and
housing, and well-maintained roads. He said that many mines
along the way - Donlin and International Tower Hill - would have
access to gas sooner. The operating life of Pogo and Fort Knox
could be extended with more affordable energy on the GVEA grid.
MR. PARADY said that creating a larger market for Cook Inlet gas
would incentivize development and increase the economic
viability of bringing new finds on line. SB 215 helps to create
this larger market and it works with any pipeline being
discussed today and is not an either/or situation. Coming from
another western mining state, he could say that Alaska is
resource rich and infrastructure poor and they should load as
many options into the legislative pipeline as possible.
CO-CHAIR PASKVAN announced that Senator Thomas, sponsor of SB
215, was in attendance.
4:17:22 PM
JERRY CLEWORTH, Mayor, City of Fairbanks, Fairbanks, AK, said he
was encouraged by all of their efforts including the ones in SB
215. Everyone realizes there is a crisis in Interior Alaska and
the Bush community in terms of staggering fuel costs that take
any wealth out of it. If they are ever going to be compliant
with the PM2.5 (particle pollution) requirement, it will
probably be gas that will do it for them and they are working on
getting the distribution system in place.
CO-CHAIR WAGONER asked if he was talking about the distribution
system for just Fairbanks or the whole geographic area.
MAYOR CLEWORTH replied that the original distribution study
broke it down into the urbanized area where it would be simpler
to put down lines and the more questionable areas for private
companies. They want to get it to the most homes possible. The
Fairbanks Economic Development Corporation (FEDC) is
spearheading that along with the borough.
4:20:54 PM
BILL WALKER, Attorney, Walker & Levesque, representing the
Alaska Gasline Port Authority (AGPA), Anchorage, AK, brought
their attention to a big book he brought saying it was Volume 1
of two volumes of gasline announcements that have happened since
1987. Thinking about gas going north from Cook Inlet is the same
thought process as going south from Prudhoe Bay; everyone agrees
the best way to get more oil in the pipeline is to have a
gasline coming south. The same can be true for a Cook Inlet line
going north. A bigger market will work for either route, and if
you're looking for oil you can find oil or gas or both.
He related that the president of Buccaneer said Alaska is the
best place in the world to do business. He was very aggressive
about what was going to happen in Cook Inlet and the market
opportunities there were good for everybody. The obvious
positive for gas going from south to north was no need for gas
conditioning facility because gas is dryer.
He said they might want to consider a different route going
north. Some time ago, the Fairbanks Economic Development
Corporation did an analysis of the Parks Highway v. the
Richardson Highway and found a significant difference in the
population of the two; about 10,000 going north on the Parks and
about 18,000 going by way of Glennallen. But the analysis didn't
anticipate that Glennallen was the power generation hub for that
region and already had a transmission line between it and
Valdez. Power could be pushed through it into the Alyeska Marine
Terminal where they preferred using electricity for unloading
the tankers to using heavy sulfur diesel.
MR. WALKER said he found the Mining Association's conclusion
interesting in comparing the developable resources going up the
Parks v. the Richardson and concluded that the difference was
that the Richardson route would have between 53 million and 30
billion more resources available for development. He applauded
their efforts to get gas north sooner rather than later. He
concluded by saying that even though this route is about 100
miles longer, it would deliver more bang for the buck and bring
energy to another 10 or 15,000 people in homes that are having a
tough time surviving.
4:26:07 PM
He also had Yukon Pacific Corporation's final environmental
impact statement (EIS) for the Richardson Highway with him, one
of about 12 permits they had received. The military bases were
important pieces and Ahtna had conducted about $20 million worth
of gas exploration in the Copper River Basin. This line would
provide an opportunity for an outlet for their gas finds.
CO-CHAIR PASKVAN thanked him and said that concluded invited
testimony. He asked Senator Thomas if he had any remarks.
4:27:47 PM
SENATOR JOE THOMAS, sponsor of SB 215, Alaska State Legislature,
Juneau, AK, said he didn't prepare comments, but wanted to say
that gas pipelines had been talked about for a long time and it
was hard to believe that one of them hadn't happened yet,
because it would provide so many benefits to the Interior. He
thanked them for taking public testimony today and he looked
forward to answering any questions now and into the future.
CO-CHAIR PASKVAN said the USGS announced a likely discoverable
19 tcf/gas in Cook Inlet and that created the potential for
serious consideration of this line along with not needing a gas
treatment facility. This line could also serve as a lateral for
a large diameter line because the gas can flow either way in the
pipeline.
[SB 215 was held in committee.]
4:31:29 PM
At ease from 4:31 to 4:32 p.m.
CO-CHAIR PASKVAN transferred the gavel to CO-CHAIR WAGONER.
SB 219-DISPOSALS OF STATE RESOURCES
4:32:32 PM
CO-CHAIR WAGONER called the meeting back to order and announced
consideration of SB 219, version A, recounting that he had
objected for discussion purposes. Finding no one to testify, he
closed public testimony. He asked if any committee members
wanted a briefing as to the development of SB 219.
SENATOR FRENCH asked what this statute does to temporary water
use authorizations and if they were first put into statute in
2001.
4:34:25 PM
WYN MENEFEE, Chief of Operations, Division of Mining, Land and
Water, Department of Natural Resources (DNR), Anchorage, AK,
said he but didn't know the date they were put in statute.
SENATOR FRENCH said the idea then was instead of having
permanent water rights assigned to someone, an individual would
just get a temporary permit. His concern was that the temporary
permits were getting to be permanent since they are extended for
five years. He asked how many were out there.
MR. MENEFEE replied 672 temporary water use permits were
administered in 2011. He explained that the reason they aren't
permanent is because a permanent water right is actually a
property right that goes with the property regardless of
ownership. A temporary water use authorization is not a right to
water; it's the management of that water. So, it can be changed,
revoked, additional conditions can be added like reduction in
water quantities or use periods can be suspended to protect the
public interest. None of that can be done with a water right
without the consent of the water right appropriator or the
abandonment of that water use. Therefore, a temporary water use
permit is designed to allow the Division of Mining, Land and
Water to manage the water use in Alaska, whereas the water right
is more of a process where the company or an individual can
protect their water source from others from adversely affecting
their use. They have different purposes.
4:37:00 PM
SENATOR FRENCH said maybe it was an issue of semantics, but it
seemed funny to have something they called a "temporary water
use authorization" that one can get for as long as five years
and then get a reauthorization for another five years. Now it's
been in existence for 10 or more years and its being called
temporary. It doesn't seem temporary.
MR. MENEFEE replied that each five-year renewal is a new
authorization even if they call it a renewal, and the state can
decide to issue it for only one year if there are other needs
for the water.
SENATOR FRENCH recalled that these authorizations were being
issued without the same level of public notice as other permits.
MR. MENEFEE answered that was correct and explained that because
it is actually a property right, they go through a more
formalized public notice procedure. The temporary water
authorizations, although they don't do a "public notice" in the
sense of going out and advertising in newspapers, are on a
public website that shows all the temporary water use
authorizations that have been issued. People can look at the
site which allows querying anywhere in Alaska by meridian,
township and range to find out if an authorization had been
issued.
SENATOR FRENCH asked if the website would convey when the
authorization expires and when the opportunity to provide input
into the renewal would ripen.
4:40:54 PM
MR. MENEFEE replied that he would have to research that.
SENATOR WIELECHOWSKI asked the standard of review on appeal in
one of these cases.
CAMERON LEONARD, Assistant Attorney General, Department of Law
(DOL), Anchorage, AK, said he agreed that most of these cases
would use an abusive discretion standard, but the standard of
review the court uses depends upon how the appeal is framed. So,
if for example, someone were claiming that the commissioner had
misapplied either the regulations or the statutes, then a less
deferential standard would apply. For a typical case of someone
objecting to the renewal of a temporary water use authorization,
he would argue on behalf of DNR that the standard of review
should be abusive discretion.
SENATOR WIELECHOWSKI asked if it's hard to overcome an abusive
discretion standard.
MR. LEONARD answered yes; it's probably the most deferential of
the various standards the courts use. He explained that in
general, the court will make sure the agency has taken a hard
look at the relevant factors and no obvious mistake in judgment
had occurred.
SENATOR FRENCH asked how often that happens.
MR. LEONARD replied that he found only one reported decision
brought by Greenpeace against a temporary water use
authorization for building an ice road on North Slope; it was a
procedural challenge to the way DNR's appeal procedures worked.
Because it was a question of law, the standard of review was
substitution of judgment, which means the judge doesn't defer to
DNR at all on how the law should be interpreted.
CO-CHAIR PASKVAN asked if there is a concern as to any capacity
for water volumes that will be needed on the North Slope at this
time.
MR. MENEFEE answered that his research revealed that Pioneer
wanted to receive some water from the ConocoPhillips
desalination facility. When ConocoPhillips' needs are low they
could provide more water to Pioneer, but if they need the whole
amount, then they are not required to supply that water to
Pioneer as per an agreement between companies. The solution is
either ConocoPhillips decides to expand their facility or
Pioneer builds their own.
Will there be water shortages? He said they don't know of any
places where water shortage would prevent development. However,
they recognized there are certain areas of the North Slope that
have less water in the surface systems and until they drill,
they aren't sure whether the subsurface systems have any. But
development companies regularly incorporate water use into their
planning for the North Slope, because it is in their best
interest to seek and obtain a water right versus a temporary
water use authorization. At this point, it isn't known if a
situation would actually restrict development.
4:46:10 PM
CO-CHAIR PASKVAN asked if there is a limitation at this time on
any company's capacity to obtain water rights from the State of
Alaska and if temporary water use permits can be used to force
people into bad competitive circumstances.
MR. LEONARD said that was a challenging question and what he
could tell him was that there are instances where because of a
lake's depth, the company could only pull so much from water
from it and had to maybe go to a different lake or stream to
pull that water. That influences development, but at this point
it appears that at any time they have had a reduction in the
amount of water that someone could take from an area, another
way was found to address the issue although it might mean that
it's more expensive. But at this point, he was not aware of
anything that had prevented development or had adversely hurt an
independent from coming in because of a water issue.
CO-CHAIR PASKVAN asked if this is a priority for the division,
why the legislation was not introduced until Feb 29, 2012.
4:48:50 PM
JOE BALASH, Deputy Commissioner, Department of Natural Resources
(DNR), Anchorage, AK, replied that the department has had a
backlog from the transition in 2010. The work had largely been
done with the assistance of the legislature in terms of
appropriations to increase staffing in the Division of Mining,
Land and Water. They have taken on the task of maintaining the
workload and at the same time tackling the analysis and the
reconstruction of the system. To manage the land and the water
in the division they undertook an internal review and conducted
a series of public hearings and meetings all across the state
during the late summer and fall to gather input from interested
parties. The information was put together and analyzed about how
to make their processes more efficient. That was "the low
hanging fruit and noncontroversial." That is what is in front of
the committee now. There is also a sentiment that this will be a
process of improvement that will take place over many years.
They are attempting to resolve many things through regulatory
packages that will be put out to public comment.
CO-CHAIR PASKVAN asked if the holder of a temporary water use
permit could sell a portion of it or all of it.
MR. MENEFEE answered that the temporary water use authorization
is not sellable. If, for instance, ConocoPhillips was using a
well instead of a desalination plant and wanted to sell part of
it, they could do that as part of their business plan. The
department doesn't issue a temporary water use authorization or
a water right for using salt water, because there is so much of
it. They can, but they don't.
CO-CHAIR PASKVAN asked if there is a way a company could
improperly use a temporary water use permit and block someone
from access to a water resource on the central North Slope.
4:54:05 PM
MR. MENEFEE replied that is not an issue, because the renewal is
not automatic. The staff reviews and decides. Other things
having demand on the water will be considered before issuing
another temporary water use authorization to the same company
for that use. The authorizations are revocable and can be
changed.
4:55:18 PM
CO-CHAIR PASKVAN remarked that a book by James Michener, named
"Centennial," told how an economic interest focused on all the
areas that had water, because that was going to control tens of
thousands of miles. He wanted to make sure this was not creating
that type of situation where you allow an economic interest to
essentially dominate an entire region by just owning a few
little pinch points.
MR. MENEFEE said temporary water use authorizations will not do
that. But he wouldn't say that water rights couldn't be used
toward that end. You can't diminish a water use right; it's
first come first served.
SENATOR WIELECHOWSKI said they probably will see this play out
on the North Slope at some point, particularly with shale gas,
and asked if the dominant right exist only during the time of
the permit. Does it expire and they have to renew it? Or do they
have a dominant right forever for that water?
MR. MENEFEE clarified that a temporary water use authorization
is not a water right. Water rights are where you get the right
to the water and the first in line gets the dominant right.
Temporary water use authorizations have nothing to do with that;
it is the division deciding to give them water to use for their
intended purpose. So, therefore, if a company chooses to apply
for the water right, 5,000 gallons for instance, if historically
they show they only used 1,000 and don't really need the 5,000,
you could argue to reduce it. But as long as they use the amount
they said they would, that stays with the land in perpetuity
even if it gets sold.
4:59:06 PM
SENATOR WIELECHOWSKI said his dominant concern was they see the
issue of water rights playing out in western states. Alaska is
fortunate because it has a lot of water, but he thought it would
play out on the North Slope because shale oil needs huge amounts
of water. He was very concerned about giving companies what
appears to be de facto permanent right to water use and he
wanted to make sure this bill wasn't doing that, because it
takes away the notice and the opportunity to oppose, and the
standard for appeal is abuse of discretion, which is virtually
impossible to overturn.
MR. MENEFEE explained in order to have a water right you have to
have ownership control of the land. On the North Slope, an oil
and gas lease is the right to the land. As long as that oil and
gas lease stays in place, they have the water rights. If the oil
and gas lease goes away and they don't have it any more, then
the water right does not stay. It disintegrates on the point of
the land ownership control. So, as long as someone has an
ownership interest, then the water right stays perpetual, but
there is a difference between a temporary water use
authorization and a water right, because every five years or
even three years into the permit and someone comes along and
needs to share the water, the division has to make a management
decision at that point in time and there is nothing stopping
them from changing that person's water use.
He said a situation might come up when a company might use all
the existing water and someone else wants to come along and
there is no more water left; a decision would be made somewhere
along the line to share the water or make the other company haul
water from farther away.
MR. BALASH sought to assure him about the department's plans for
managing water on the central North Slope saying they requested
a geo-hydrologist position for the Division of Geologic
Geophysical Surveys, because it is critically needed to
understand the water resource there, particularly as the state
is on the leading edge of shale development. He used an example
of work the division had done from the MatSu area where a number
of businesses, community wells and home owners rely on shallow
water wells to provide their water supply. As that population
has mushroomed over the last couple of decades, it's got to be a
bigger and bigger deal. The division has its arms around it now
and has a good understanding of where the demand and production
are - and they want a similar understanding on the central North
Slope.
5:04:15 PM
CO-CHAIR PASKVAN repeated his concern with water rights issues
and creating pinch points.
CO-CHAIR WAGONER commented that he came from a state where water
rights are treated like mineral rights; they have battles and
wars and lawsuits. He then concluded saying amendments needed to
be in his office by 9 am on Monday and that other amendments
would conform this bill to HB 361. He thanked the presenters.
[SB 219 was held in committee.]
5:05:39 PM
CO-CHAIR WAGONER adjourned the Senate Resources Committee
meeting at 5:05 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB145CS(RES)-DNR-DOG-03-29-12.pdf |
SRES 3/30/2012 3:30:00 PM |
SB 145 |
| SB145CS(RES)-DOR-TAX-03-29-12.pdf |
SRES 3/30/2012 3:30:00 PM |
SB 145 |