Legislature(1993 - 1994)
01/28/1994 12:30 PM House O&G
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL & GAS
January 28, 1994
12:30 p.m.
MEMBERS PRESENT
Representative Joe Green, Chairman
Representative Pete Kott, Vice Chairman
Representative Harley Olberg
Representative Gary Davis
Representative Sitton
Representative Sanders
MEMBERS ABSENT
Representative Jerry Mackie
COMMITTEE CALENDAR
Briefing on Superior Court's Stay of Lease Sale 78
WITNESS REGISTER
RAGA ELIM
Special Staff Assistant to the Governor
Capitol Building, Third Floor
Juneau, Alaska 99811
Phone: 465-3500
KYLE PARKER
Assistant Attorney General
Civil Division
1031 West Fourth Avenue, Suite 200
Anchorage, Alaska 99501-1994
Phone: 269-5100
JAMES EASON, Director
Division of Oil & Gas
Department of Natural Resources
3601 C Street, Suite 1380
Anchorage, Alaska 99510-0734
Phone: 762-2547
BARBARA FULLMER
Assistant Attorney General
Civil Division
1031 West Fourth Avenue, Suite 200
Anchorage, Alaska 99501-1994
Phone: 269-5100
ACTION NARRATIVE
TAPE 94-2, SIDE A
Number 002
CHAIRMAN JOE GREEN called the meeting to order at 12:33 p.m.
Number 011
CHAIRMAN GREEN stated that as he understood the issues,
several environmental, fishing and other interests had sued
the Department of Natural Resources Commissioner Harry Noah,
for impermissible lack of consideration of various things,
such as conflicts between oil and gas, the fisheries,
subsistence use, environmental degradation, and water
dependent/water related issues. Chairman Green said that
Judge Cranston had found that Commissioner Noah did have a
best interest finding. Judge Cranston then denied the stay
of the best interest finding, but citing 6 AAC 80.040 (a),
Judge Cranston decided that the Alaska Coastal Policy
Council's administration of the Alaska Coastal Management
Program must consider the following activities in
preferential order: water dependent activities, water
related activities, and those activities which are neither
water dependent nor water related, but could not be
performed from an inland location. In addition, there were
three other criteria. One was that all reasonable and
prudent steps have been taken to safeguard, and that there
was no showing of a significant public need. Chairman Green
comented that Judge Cranston's decision upset him and it
apparently upset the Governor. He asked the Governor's
office for an overview of what it is doing in response to
the situation and that the Department of Law would give its
position from a legal standpoint of what precedent may be
established from this and what may happen to the efforts of
the House Committee on Oil and Gas in their efforts to
further the development of Alaska's resources.
Number 045
RAGA ELIM, SPECIAL STAFF ASSISTANT TO THE GOVERNOR,
expressed the concern of the Hickel administration about
Judge Cranston's opinion, and how it may jeopardize the
state leasing program. He said that on January 25, 1994, in
response to the opinion, the Governor asked Shelby Stastny,
Director of the Office of Management & Budget, to convene a
group to look at the situation in a very quick fashion. He
stated that Mr. Stastny convened a cabinet-level discussion
involving the Division of Governmental Coordination,
Department of Environmental Conservation, Department of Fish
& Game, Department of Natural Resources (DNR) and Department
of Commerce and Economic Development. He said the
commissioners met on January 25 to figure out what to do.
He indicated the commissioners have a tight time frame to
work with the issue, and they want to work with the
legislature on a fix, however they currently do not have a
solution. He stated that Shelby Stastny had indicated he
wanted to come to the legislature with ideas and then
collectively figure out how to proceed within one or two
weeks.
Number 088
KYLE PARKER, ASSISTANT ATTORNEY GENERAL, CIVIL DIVISION,
stated Judge Cranston's decision is indicative of a pattern
that has been developing since the Alaska Supreme Court's
initial decision on Lease Sale 50 in 1987, which
specifically regarded and addressed the Title 38 best
interest finding requirements. Since that time, the supreme
court has issued two opinions on Lease Sale 50, both
remanding to DNR for additional findings on the best
interest finding and the coastal consistency determination.
He said the most recent decision was on Lease Sale 55, where
they remanded to DNR for additional findings in regards to
the best interest finding. He stated that in early 1994,
there was a decision in a mining case, Kutzarik Corp v.
State of Alaska, where the Alaska Supreme Court again
remanded for additional findings in regard to the best
interest finding. He said that Judge Cranston's recent
decision is just a continuation of that trend of losses for
the State of Alaska. He indicated that Commissioner Noah
and the other resource agencies are taking these decisions
into consideration as they look for solutions, not only in
the oil and gas sector, but in timber and mining, as well.
Number 111
CHAIRMAN GREEN invited Representative Mike Navarre,
Representative Gail Phillips and Senator Suzanne Little to
sit at the committee table. He announced to the
teleconference network that the following committee members
were present: Representatives Gary Davis, Jerry Sanders,
Pete Kott, and Joe Sitton.
Number 124
REPRESENTATIVE GARY DAVIS said it appears the courts are
taking a stance toward certain directions and have since
1987. He stated that Kyle Parker had indicated that in 1987
best interest findings and Coastal Management Plans were
being scrutinized. It is his understanding that in this
case the basis for the stay was based on Coastal Management
Plans.
KYLE PARKER said that was correct.
Number 133
REPRESENTATIVE DAVIS said the court assumed the state should
have recognized that the Coastal Management Plan was an
issue. He asked if the state presented its defense related
to the Coastal Management Plan.
Number 137
CHAIRMAN GREEN stated that question might be better directed
to Jim Eason in Anchorage. He said he knows the state has
taken the same safeguards and precautions on Lease Sale 78
as they have done on many other lease sales. He indicated
that it seems as if the courts are finding different
problems, even though many prior lease sales have been held.
Number 144
JAMES EASON, DIRECTOR OF THE DIVISION OF OIL & GAS (via
Anchorage), said Lease Sale 78, as with all other sales in
the coastal zone, had a conclusive consistence determination
written and issued for it. The Division of Oil & Gas, as
the issuing agency, all other resource agencies, and the
Division of Governmental Coordination reviewed the
consistency determination and approved it. He stated the
consistency determination is a written document that looks
at the proposed sale and the mitigating measures intended to
be used, pairs those with the standards of the Coastal
Management Plan and finds the proposed sale to be consistent
based upon the selection of mitigating terms and conditions
that are applied. He indicated this procedure was
consistent with what the state has been doing since the
Coastal Management Program was adopted. He said that as
found in previous cases, the court is substituting its
judgment for that, not only of the Division of Oil & Gas or
DNR, but for the combined resource agencies and the Division
of Government Coordination in their certification of
consistency.
MR. EASON said the court is taking the opportunity to give
the state administration additional responsibilities that he
believes are simply not provided for in the law, and Judge
Cranston's decision provides a very graphic example of that.
He stated there were three points on which Judge Cranston
found that the Division of Oil & Gas' consistency
determinations failed. One of them was Judge Cranston's
belief that one cannot condition, with mitigating measures,
a sale and find it to be consistent without understanding
and knowing beforehand all of the activities that are likely
to occur during the development of those leases that result
from the sale. He indicated it was obvious from his reading
of the statutes and regulations that not only is that not a
requirement, but it is also an impossibility because no one
knows when a lease sale is conducted whether there will be
many wells drilled, a thousand wells drilled, or whether
there will be production or no production. Yet the court
seems to be telling the state the only way they can certify
that the selected terms actually make a sale consistent with
the Coastal Management Program, is to know all the things
that will happen over the next ten or twenty years. He said
the state simply cannot do that and the courts are telling
it that it must.
Number 180
REPRESENTATIVE NAVARRE asked if the state had just run into
a rash of antidevelopment judges with these cases. He said
that judging from the Governor's press release, the Governor
feels this particular judge is not exercising his
responsibility as a judge, and that he needs to understand
what the judicial system's rule is when it comes to
developing the state's resources. He asked if that is the
court's responsibility or if it is interpreting the laws and
the responsibilities that DNR has under the law.
Number 190
KYLE PARKER said he believes the courts have been eroding
the discretion, both in regards to the best interests
finding and the coastal consistency determination, that the
legislature intended the commissioner of DNR and the
different coordinating agencies to have. He said the courts
are not recognizing the intent, and one can look back at the
legislative history and see where the legislature did intend
to vest the directors and the commissioners in the
administrative agencies with the discretion to determine
what is in the best interest of the state, and whether a
particular project is consistent with the Alaska Coastal
Management Plan.
Number 204
REPRESENTATIVE NAVARRE asked if the legislative intent was
part of the state's argument in court.
Number 205
KYLE PARKER said legislative intent has been a part of the
state's argument before the supreme court and the superior
court in each oil and gas lease sale that has been heard.
Number 208
REPRESENTATIVE NAVARRE responded that in fact the state has
lost. He asked if legislation has been introduced in the
past to clarify the statutes with respect to what exactly
the legislative intent is. He said he didn't mind
clarifying the statutes, and the legislature definitely
needs to do that, but he was upset because he knows Judge
Cranston and he's very well respected in the legal
community. He stated that he took exception to the remarks
of the Governor in this particular case. With respect to
what is required by DNR, he thought there were mistakes made
by DNR that actually lead to a number of the parties joining
in the lawsuit. He stated this loaded on to the case a
number of people in opposition that would not have been
involved had additional steps been taken by DNR to
accommodate some of their concerns or at least spend a
little more time in discussion with them.
Number 226
KYLE PARKER stated he did not believe there was any intent
to direct any pointed spears at Judge Cranston. He said
what the state was looking to was the court not recognizing
the discretion. He stated that not since the initial Lease
Sale 50 decision came down and the legislature amended Title
38 to add Title 38.05.035(g), had the state seen legislation
with respect to intent. He said the legislation apparently
did not go far enough. He indicated the courts are still
left wondering who has the discretion to make these
decisions, so they have been substituting their judgment for
that of the agencies.
REPRESENTATIVE NAVARRE stated that while he agreed with Mr.
Eason's assessment that one cannot possibly know everything
that will take place in a lease sale, he thought one could
know some things that would not be specifically allowed with
respect to the development of those lease sales. He
commented that some of those activities could have been
articulated better.
Number 247
CHAIRMAN GREEN stated, based on his previous employment with
DNR, he knows there are discretions that are exercised by
DNR, quite often to the chagrin of the applicants, because
they seem somewhat oppressive and overbearing with respect
to things that have happened in the past. He did not think
the legislature will ever be able to legislate the specifics
of what has to be or has not to be done in a lease sale;
those specifics were going to have to stay at the discretion
of the department.
Number 259
REPRESENTATIVE NAVARRE agreed with the chairman in that
there were good people within DNR. He said that one has a
right to get to the lease and to develop it in a certain
fashion, but one sets oneself up on the other end when
attempts are made at restrictions and one ends up with a
lawsuit from the people who bought the leases. He stated
this has to be realized from the beginning.
Number 275
REPRESENTATIVE SANDERS asked Mr. Parker if, in his opinion,
the rulings handed down since 1987, in any way indicate a
relaxed attitude on the part of DNR with regards to
preparation for these lease sales.
KYLE PARKER said that he did not believe so, and he thought
it was the exact opposite. He stated that since the Lease
Sale 50 decision, the time and resources dedicated toward
creating the best interest findings, as well as doing the
coastal consistency determinations, has expanded. He
thought the staff of the Division of Oil & Gas and the .035
staff (a staff dedicated toward working on best interest
findings), have been working closely with the Department of
Law prior to issuing the findings and determinations. He
believes that DNR is doing more now than they ever have. He
thought Jim Eason could probably speak even more to that.
Number 292
JAMES EASON (via Anchorage) stated he believes the Division
of Oil & Gas is doing a credible and good job. He thought
if one were to look at the decision more closely in Judge
Cranston's case, one would see the problem that the state is
running up against. He said in that particular decision the
judge looked at whether he thought the plaintiffs would
ultimately prevail in their challenge to the state's best
interest finding and that he agreed that they would not, in
other words, the judge indicated he believes that ultimately
the best interest finding for Lease Sale 78 will be upheld
by the courts. He said the judge could not find a reason to
allow an injunction in the Lease Sale 78 case, but then the
judge turned to the issue of whether or not the state's
consistency determination was likely to sustain a challenge.
He stated the state believed that the issue of whether or
not the plaintiffs even had a right to raise the consistency
determination was one that the plaintiffs had lost. He said
the plaintiffs had 30 days to challenge the consistency
determination beyond the time that it was issued as a
conclusive determination and the plaintiffs failed to do
that. As he recalled, it was about 15 days beyond the
deadline the plaintiffs appealed the best interest finding,
which was issued after the consistency determination. He
believes that Judge Cranston should not have allowed the
plaintiffs to raise the issue. He went on to say the court
then based its injunction decision on arguments that were
not raised by the plaintiffs in their brief or in their oral
arguments. He stated the state essentially found itself in
a court where the judge allowed the plaintiffs to approach
an appeal, which technically they should not have been
allowed to do because of the time line, and then constructed
the arguments, which were not the plaintiffs arguments,
which the judge believed should have granted the injunction.
He said that against those kind of odds, he certainly did
not know how the state could defend.
Number 324
CHAIRMAN GREEN asked Mr. Parker if Mr. Eason's statement was
his understanding from a legal point of view.
Number 326
KYLE PARKER stated that Mr. Eason had articulated the
situation the state faced with Lease Sale 78 very well.
CHAIRMAN GREEN expressed that the situation posed a very
serious threat.
Number 329
REPRESENTATIVE NAVARRE asked whether or not Judge Cranston
had ruled on the appeal issue. He said the state had
indicated that the plaintiffs did not appeal in time and the
plaintiffs had said the Coastal Management finding was part
of the best interest finding; therefore could not be
separated from the appeal.
Number 336
KYLE PARKER stated that Judge Cranston did rule on the
appeal issue. He said the Department of Law feels the judge
was wrong, and that was one of the points they plan to
appeal in the supreme court.
Number 341
SENATOR LITTLE said she had spoken with Mr. Eason recently
regarding the Governor's press release, which stated that
changes had been directed regarding the Coastal Management
Planning Process in order to rectify the situation. She
commented that at that point, Mr. Eason did not know what
direction DNR was headed. She asked if someone had that
information at this point.
Number 352
RAGA ELIM said the administration has convened a cabinet-
level group, chaired by Shelby Stastny, which is looking
into the situation. He stated the time frame was very tight
because the problem requires legislation and the legislature
is very busy. He indicated that their proposal would
probably reach the legislature within two weeks.
Number 362
SENATOR LITTLE expressed her concern, as she had just
administered a Coastal Management Plan. She indicated that
she saw the value of the Coastal Zone Management Program,
but was very frustrated at the borough level, seeing the
lack of detail coming out of the borough in their
consistency determination, and also seeing the state
depending upon the local entities' consistency determination
as support for their consistency determination. She would
hate to see the Coastal Management Planning Process gutted
to make development happen more easily. She thought that
the Coastal Management Planning Process, if done well, is a
process that works well. She stated that although the
process will never identify all of the conceivable problem
areas, she does believe it can identify some areas that
should not be in a lease sale. She said to that extent, she
agreed with Judge Cranston that the planning process was not
followed. She believes if the Coastal Management Planning
Process had been done thoroughly, the findings from the
court may have been different. She said it was a concern of
hers that the process not be gutted, because she believes
that it does serve a good purpose.
Number 404
REPRESENTATIVE SANDERS stated that he only heard the first
reason why the state lost the lawsuit and he would like to
hear the other two.
Number 410
JAMES EASON (via Anchorage) stated, the first issue was that
under the regulations implementing the Coastal Management
Act, there is a hierarchy or a prioritization of activity
types that is presumed. He said the activity types are
those that are dependent on water, those that are related to
water, and those that are neither dependent nor related to
water. He mentioned that when projects are proposed in the
coastal zone there needs to be a determination as to whether
they are water dependent, water related, or neither. He
stated the hierarchy is designed so that if you have a water
related activity that is competing with a water dependent
activity, water dependent activity is presumed to deserve
deference. He said in the Lease Sale 78 case, Judge
Cranston indicated he could not tell whether or not
offshore oil and gas leasing and development was water
dependent or water related. He said the state believes the
document does make clear that in certain cases offshore
leasing and offshore development is water dependent. He
stated that as a practical matter, anyone who looks out on
the Cook Inlet has to recognize that in some cases where
those platforms are located, those are water dependent
activities in the coastal zone. He said that Judge Cranston
determined it was not clear from the record whether the
activities related to Lease Sale 78 were water dependent or
not; therefore, the judge was not clear on whether it
deserved priority over fishing and other activities that are
water dependent in the coastal zone.
MR. EASON said the second basis was the judge quoted one
sentence from the state's findings and consistency
determination and claimed that was all the state had said
about the benefits of oil and gas leasing, in general. Mr.
Eason said that was incorrect and there was considerably
more in the record that dealt with that issue, but measured
upon the judge's belief that there was one sentence dealing
with the issue, the judge said the state had not
demonstrated there was a significant public benefit from
offshore oil and gas leasing.
MR. EASON stated those two issues, coupled with the
determination that in order to be consistent with the plan,
the state has to know what is going to happen later to be
sure that the mitigating measures that are selected are
appropriate, are the three basis for the decision.
Number 455
REPRESENTATIVE PETE KOTT asked, if this decision is upheld
by the supreme court, what would the effect be of that
decision on the state's leasing program.
Number 460
JAMES EASON (via Anchorage) stated he was speaking on his
own behalf and the commissioner may or may not have a
different view. He said the state has two separate lines of
decisions that have come in on the issue of whether or not
one needs to know what will happen in the development stage
before one can be sure that the consistency determination is
correct. He stated that the Alaska Supreme Court decision
from Goodnews Bay, as well as Lease Sale 55, presumes that
one needs to know what is going to happen in order to make a
best interest claim. He said the state finds itself in a
strange position because Judge Cranston seems to have
rejected the supreme court's recent declaration and has
ruled that is not the case in the best interest claim, but
it is the case on a consistency determination side. He
said that it was his belief that under the current law the
state cannot, since they cannot predict the future, draft a
best interest finding or a consistency determination that
will pass the Alaska Supreme Court, possibly the superior
court's approval. He stated that if that is correct, it
means the state cannot hold a lease sale that will survive a
legal challenge, presuming anyone wants to challenge it.
Number 494
REPRESENTATIVE NAVARRE asked what the current status of the
appeal was, how soon would the court take it up, and what
does the decision do specifically to Lease Sale 78 and the
time line that it is on.
Number 501
KYLE PARKER said the Department of Law is planning to file
in Alaska Supreme Court a Petition for Review of Judge
Cranston's decision on January 28, 1994.
Number 505
BARBARA FULLMER, ASSISTANT ATTORNEY GENERAL (via Anchorage)
stated that was correct.
Number 506
KYLE PARKER stated there is no time line for the supreme
court. He said the state has requested expedited
consideration of their Petition for Review, so the state can
better understand what is going to happen with Lease Sale
78. He said that because the Division of Oil & Gas must
hold the lease sale within 90 days of the quarter in which
it was scheduled, the drop dead date for the lease sale is
June 29, 1994. He indicated that if Judge Cranston's
decision to stay the lease sale has not been overturned by
that date, the lease sale will have to go back on the five
year plan.
Number 522
CHAIRMAN GREEN said it was his understanding that DNR
received a fairly significant number of bids on Lease Sale
78, and the state is holding these until the June 29 drop
dead date.
Number 526
KYLE PARKER indicated that was the case, but Jim Eason could
address the situation further.
Number 529
JAMES EASON (via Anchorage) said on the morning of the sale,
the state announced the bidders had two options. The first
was that all of the bidders were free to pick up their
unopened bids. The second was that the bidders could leave
their unopened bids sealed in the state's custody until the
court made its decision, so if the bidders wanted to take
the opportunity to preserve whatever rights they may have
had if the sale had been able to happen that day, the state
was willing to hold those bids as long as they could, which
under the law is June 29. He stated that if the sale is
not held by June 29, the state cannot hold the sale. He
said presently those unopened bids are in the Division of
Oil & Gas's custody, and as a matter of law, he cannot
describe or tell the committee who the bidders were. He
added the sale did have some significant interest and that
approximately one-third of the tracks received bids.
Number 554
CHAIRMAN GREEN said his purpose for stating that, was to
confirm that procedurally the state would be ready to
continue with the sale up until June 29, if it gets a
favorable ruling from the court.
Number 556
JAMES EASON said that was correct.
Number 558
REPRESENTATIVE NAVARRE asked about the likelihood of the
supreme court taking the case on an expedited basis in light
of the June 29 date.
Number 563
KYLE PARKER said he would not presume to guess.
Number 566
REPRESENTATIVE NAVARRE stated one of his concerns is the
injunction is ordered on the last day before the lease sale
and it throws the sale into a legal system which is not very
expeditious, and so the net result is that it delays the
whole lease process for a significant period of time. He
did not think that it was in the state's interest and the
issue might be something that the legislature wants to look
at, particularly with regard to the statutory 90-day time
line.
Number 585
CHAIRMAN GREEN said he had been told that should this issue
go until June 30, the state goes back to ground zero and it
will be at least two years, maybe more, before this location
can come back up again.
NUMBER 590
RAGA ELIM said the Governor's office shares Representative
Navarre's concerns. He stated that last year when the
state faced this situation with respect to the Camden Bay
Lease Sale, one of the statutory changes that the Governor's
office proposed was dropping the 90-day drop dead date off
of Title 38. He indicated the Governor's office will be
coming back to the legislature with the same proposal.
Number 607
REPRESENTATIVE SANDERS stated he did not mean in any way to
encourage the oil companies involved to do anything like the
following, but as more of a warning to the people who
encourage this type of legal action. He said, if he were an
oil company in Alaska today and he had all of his money in a
computer the way the oil companies do, he would have it
transferred and he would not be available to bid this sale
when it comes up.
CHAIRMAN GREEN stated as a member of the Federal Energy
Council of States, he has been informed that Latin America
is ready for investment dollars. He said it is not in a
risk mode, it is a guarantee that they need significant sums
of money to process gas that is currently ready and
available. He added it is only one of several areas in the
world looking for that kind of capital. He said
Representative Sanders made a very good point that industry
may start to look elsewhere.
Number 633
SENATOR LITTLE said she wanted to clarify with the
Governor's office that there might be some legislation
coming forward within two to three weeks.
Number 639
RAGA ELIM said that was correct. He said the resource
agencies have gathered together once and will be getting
together again when Shelby Stastny returns to Juneau to try
to craft some possible legislation that they could work with
the legislature on.
Number 645
SENATOR LITTLE said she would like to be involved in that
process and wanted to be kept informed of those meetings.
Number 648
RAGA ELIM said it was still a little early. He stated the
Governor's office has asked the agencies to work on the
issue, but the feeling is that once they have a sense of
what they want to do, they would be coming to the
legislature, not necessarily with a bill, but to have
discussions on how to proceed.
Number 654
CHAIRMAN GREEN stated that with the members of the Oil & Gas
Committee's indulgence, he had volunteered the committee's
services.
Number 657
REPRESENTATIVE JOE SITTON said he would like to give a
friendly reminder to the oil companies that while Latin
America might be appealing, they should also remember the
state in Latin America frequently seizes the property of oil
companies and other companies, and they should put that
into the equation as well.
Number 664
CHAIRMAN GREEN agreed and stated that what they are doing is
decentralizing and privatizing.
Number 666
REPRESENTATIVE NAVARRE stated he hoped that the oil
companies will bid when the lease sale does become
available. He said the Cook Inlet area was where oil was
first developed in the state and the state has had a
longstanding cooperative working relationship between the
oil industry and fishing interests. He indicated he has
worked in the oil industry, as a commercial fisherman, and
he is still a sport fisherman. He stated there needs to be
an attempt towards more cooperation. He thinks that the
members of the Oil & Gas Committee, and everybody in the
state, recognized the value of the oil industry to Alaska
and that the oil industry also recognized the value of
Alaska to the oil industry. He thinks the state needs to
encourage further development and hopefully, the legislature
can do that with some changes in the law, as well as with
the protections that need to remain in law.
Number 684
CHAIRMAN GREEN agreed with Representative Navarre, and
stated that Alaska does owe its livelihood to the oil
industry, because the discovery at Swanson River was one of
the major issues in whether or not Alaska became a state,
because that ushered in the era that Alaskans would then be
able to pay their own bills.
Number 702
CHAIRMAN GREEN adjourned the meeting at 1:20 p.m.
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