Legislature(2011 - 2012)BARNES 124
03/05/2012 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB361 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 361 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 5, 2012
1:06 p.m.
MEMBERS PRESENT
Representative Eric Feige, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Alan Dick
Representative Neal Foster
Representative Cathy Engstrom Munoz
Representative Berta Gardner
Representative Scott Kawasaki
MEMBERS ABSENT
Representative Bob Herron
COMMITTEE CALENDAR
HOUSE BILL NO. 361
"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: HB 361
SHORT TITLE: DISPOSALS OF STATE RESOURCES/ROYALTIES
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/29/12 (H) READ THE FIRST TIME - REFERRALS
02/29/12 (H) RES, FIN
03/05/12 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
DAN SULLIVAN, Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Presented HB 361 on behalf of the governor.
WYN MENEFEE, Chief of Operations
Central Office
Division of Mining, Land and Water
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Reviewed the objectives of HB 361 on behalf
of the governor.
CAMERON LEONARD, Senior Assistant Attorney General
Natural Resources Section
Civil Division (Fairbanks)
Department of Law
Fairbanks, Alaska
POSITION STATEMENT: Answered questions regarding HB 361.
PAUL VERHAGEN, Staff
Representative Alan Dick
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding HB 361.
ACTION NARRATIVE
1:06:32 PM
CO-CHAIR ERIC FEIGE called the House Resources Standing
Committee meeting to order at 1:06 p.m. Representatives Dick,
Kawasaki, Gardner, Foster, Munoz, Seaton, and Feige were present
at the call to order. Representative P. Wilson arrived as the
meeting was in progress.
HB 361-DISPOSALS OF STATE RESOURCES/ROYALTIES
1:06:54 PM
CO-CHAIR FEIGE announced that the only order of business would
be HOUSE BILL NO. 361, "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."
1:07:11 PM
DAN SULLIVAN, Commissioner, Department of Natural Resources,
explained that HB 361 is one part of the process for dealing
with the issue of broad permitting reform across a number of
fronts critical to the state. The administration's effort on
permitting reform has strong bipartisan support; the bill is the
beginning of a process and the administration is open to more
ideas. Over the last year the Department of Natural Resources
(DNR) has travelled the state asking for and encouraging input
on permitting reform.
1:09:42 PM
COMMISSIONER SULLIVAN said the department has focused on five
different areas with regard to permitting reform. The focus of
HB 361 is to improve the agency's internal permitting structure
so that it is efficient, timely, and certain, which will reduce
the backlog. The department is working to enhance coordination
within different state departments and with different entities
and stakeholders throughout the state. The department has also
sought input from the public about the permitting process,
including input from localities, municipalities, industry, and
non-governmental organizations. The department has held eight
meetings throughout the state with different groups to get good
ideas, some of which are reflected in HB 361. Another focus is
improving coordination between state and federal government
because even on state lands federal permitting issues have a
strong nexus to what the state is trying to do. Additionally,
there has been focus on anticipating and planning for permitting
in the next phases of resource development that the state has
yet to see, one example of this being the shale oil task force.
1:12:21 PM
COMMISSIONER SULLIVAN shared that the department is part of a
national effort, with Alaska in many ways leading efforts that
others are joining for addressing the problem of getting large-
and small-scale resource development projects done in a timely
manner. The large network of complex federal and state
regulatory systems almost ensures the delay of any significant
projects. The department's own backlog of 2,500 permits is an
example and it is not helping the state's economic or job
prospects. Other examples are the Kensington Gold Mine, the
Shell Oil exploration wells, and timber sales. Broad bi-
partisan consensus has emerged across the U.S. that this big
problem needs to be tackled. For example, last week The
Economist carried a cover story entitled, "Over-Regulated
America". Former president Bill Clinton wrote an article in
Newsweek this past fall where he mentioned that a way to
jumpstart the economy is to make the approval and regulatory
process faster and more efficient. In today's Wall Street
Journal the governor of Massachusetts is making the cutting of
red tape a huge focus of his state government efforts. Governor
Brown of California has put out the "permittee's bill of
rights".
1:15:25 PM
COMMISSIONER SULLIVAN posited that the federal government has a
schizophrenic approach. President Obama issued an executive
order to make energy development more efficient, yet agencies
like the National Marine Fisheries Service did not seem to get
that memorandum, so last week the state sent comments to the
agency. Consensus is building on the recognition that overly
burdensome regulations, or regulations that served a purpose 20
years ago, are strangling economic opportunity and inhibiting
job growth across the U.S., which is also the case in Alaska.
1:17:06 PM
COMMISSIONER SULLIVAN said that while DNR thinks it important to
focus on efficiency, timeliness, and certainty, the department
does not want to cut corners. The state has some of the highest
standards for environmental protection and stewardship and the
department wants to keep them. He said HB 361 is one piece of a
multi-pronged approach that the department looks forward to
discussing with the committee.
1:19:42 PM
WYN MENEFEE, Chief of Operations, Central Office, Division of
Mining, Land and Water, Department of Natural Resources (DNR),
drew attention to the briefing paper in the committee packets
outlining the objectives that HB 361 would accomplish. He said
DNR's focus in this first round is to find things that will
increase certainty, timeliness, and efficiency, as well as
litigation-proofing certain aspects of the state's statutes.
MR. MENEFEE discussed the first objective of HB 361, which would
give the department more flexibility to use negotiated leases
when possible, rather than a competitive bid process. This
would not throw away the bid process, but would allow the use of
a shorter, less exhaustive process for those times when the
department has determined that there is no competition. He
explained that in the competitive bid process of an auction, the
department must prepare an auction brochure and go through extra
steps, which increases time and cost to the applicant. This
provision would raise the monetary caps on negotiated leases
[from $5,000 to $10,000], which would allow a few more
negotiated leases to come under negotiation. The department
would still have to do a final decision and public notice, but
the auction procedure would not have to be set up and the lease
amount for the tract could instead be negotiated.
1:21:57 PM
MR. MENEFEE, in response to Co-Chair Seaton, pointed out that
the most current briefing paper is dated 3/5/12 [as opposed to
2/29/12]. He related that the department had discussed going up
to 15 years [for the maximum time period of a negotiated lease],
but then decided to leave it at 10 years. He further pointed
out that this provision applies only to land leases, not oil and
gas leases.
1:23:29 PM
CO-CHAIR SEATON appreciated this, saying it has been a problem
for people having to go with a permit for leases because people
can make significant expenditures, such as building fences, only
to have the land taken away with 30-days-notice at any time
during that five-year permit. However, a difficulty with the
permit is that there is no public notice. He inquired how the
department will ensure before it does a negotiated lease that
there has been public notice and that there is not more than one
interested applicant.
MR. MENEFEE replied that when the department does a disposal of
interest it must follow the requirement in AS 38.05.945 for
public noticing of the decision, and this would still apply to
the proposed shorter process. The department must tell the
public that it is going through this decision process by posting
on its web site and by posting locally. The difference in how
this would be done is that instead of noticing and then going
through the process of preparing an auction for competitive bid,
the department would in that first notice state that it has an
application for a certain activity for a certain number of years
and that the department is going through a decision process on
this lease application. The notice will ask that anyone else
interested in this particular parcel of land let the department
know by a specified date. If there is a response, the
department would then go through an auction procedure. If there
is no response, the department would then go to direct
negotiation with the applicant, which would save time.
1:25:42 PM
CO-CHAIR SEATON maintained that notice on the web site has not
taken place for permitting, which has been a problem. He
surmised that a lease would require notice be given versus the
temporary use permit. He understood the negotiated lease would
be limited to 10 years, not 30 years.
MR. MENEFEE responded it is broken up into two parts. One part
is that for directly negotiated it is the 10-year limitation.
However, if there is no response of competitive interest from
the public notice, then the lease can be for a longer term than
10 years.
1:26:46 PM
CO-CHAIR SEATON understood Mr. Menefee to be saying that the
department would not go out for public notice if it is a 10-year
lease, it would simply be a negotiated lease. But if the lease
is for a longer term, then the department would go through a
competitive notice process. He expressed his concern about a
process that gives the department authority to do a competitive
lease and then notify the public that it did this.
MR. MENEFEE answered that the requirements for what DNR must do
for a disposal of interest are in one part of statute that is
not addressed in HB 361, so those would not change. The
department would still have to notify the public for 30 days on
both negotiated and competitive processes. The department would
still have to go through a formal best interest finding for
either process, which is required by law. The only real
difference is the time saver and an additional notice that saves
about 30 days by not having to produce an auction brochure for a
competitive sale when there is no interest.
1:28:02 PM
COMMISSIONER SULLIVAN interjected that the notice issues are
still there. The only change would be that if after notifying
the department learns no one is interested, a competitive lease
sale would not be useful because there is no competition. That
is where this change would come in.
MR. MENEFEE added that that would shave off about 30 days of
time and money because the applicant must pay for public notice
and a brochure must be prepared in an auction procedure. Three
different things would not occur if after noticing it is found
that no one else but the applicant is interested. There would
still be the public notice and the best interest decision, but
it would shave time.
1:29:01 PM
CO-CHAIR SEATON asked what is being gained because it seems like
the two processes are exactly the same if no one else is
interested - one process being that the department could do a
longer term lease for a 10-year negotiated sale that has no
competitive interest and the other process being a $10,000 limit
negotiated lease.
MR. MENEFEE responded HB 361 would provide that the short
process could automatically be done for a negotiated lease that
is under the proposed cap of $10,000 and less than 10 years,
which would mean not doing an auction, not preparing a brochure,
and not soliciting further competition. The public would be
notified about it, but it would not be done competitively and
the department could go direct. The statutes already provide
that the department can go direct as long as it is underneath
the current cap of $5,000 and under 10 years; the public is
noticed that this is happening, but competition is not solicited
for it. For example, under HB 361 an application for a 30-year
lease worth $20,000 would require that the department ask
whether anyone else wants to do this at this location or use
this land for something else. If someone does come back, then
the department would do a full auction procedure and competitive
process and the highest bidder would get it. In the event there
is no interest, the department would do the longer term lease,
but it would not have to go through the auction procedure.
Conducting an auction procedure when no one else is interested
spends a lot of time and money for no gain.
COMMISSIONER SULLIVAN pointed out that the threshold issue is
competition. If there is a solicitation and there is interest,
the department will then do what is in the interest of the state
which is to have competitive bidding to get the highest bid.
Currently, however, even if there is no competition, DNR must
still go through the process of competitive bidding with
brochures and so forth even though it is only for one entity,
which is a waste of both the state's and the applicant's time
and money.
1:32:54 PM
REPRESENTATIVE KAWASAKI, saying his question could be answered
at a later time, inquired how many leases would be affected by
the proposed change of raising the cap from $5,000 to $10,000.
1:33:16 PM
MR. MENEFEE addressed Co-Chair Seaton's question about what HB
361 would do in regard to public notice on permitting. He
explained that permitting fits under another statute, AS
38.05.850, and that under current statute there is no public
notice requirement for permitting, although DNR does put public
notice out on most of its permits. However, certain permits are
"immediate fast turnaround permits," such as DNR's over-the-
counter permit for harvesting non-timber forest products like
mushrooms. That is a land use permit and DNR does not go out
with public notice because it has already told people it would
do an over the counter in advance. So, while there are certain
instances where the department does not do further public
notice, it does use its web site and does post most everything
there. In emergency instances such as a plane crash, the
department has the flexibility to immediately authorize rescue
people to cross state land with heavy equipment to get to the
site, in which case there is no public notice. However, DNR
may, after the fact, notify the public that it did authorize
this. He clarified that the difference between leasing and
permits is that leasing is a disposal of interest for which the
legislature has mandated under statute that there be public
notice. Nothing is said about permits because they are
revocable at will and are of a shorter term of less than five
years, although DNR has done public notice on permits anyway.
1:35:04 PM
REPRESENTATIVE GARDNER asked whether the terms and the amount
are public record for those leases that come to fruition,
whether negotiated or through auction.
MR. MENEFEE replied yes, anything DNR does as an authorization
is a public record and anyone can get the actual permit or
lease. That is important because the department's decisions are
appealable and a person wishing to determine whether he or she
agrees or disagrees with DNR's decision must be able to see what
the stipulation and terms are.
1:35:42 PM
MR. MENEFEE returned to his briefing on the bill's provisions,
noting that the second objective or efficiency of HB 361 is to
allow the department discretion in renewing land leases in good
standing. The department would have the option - it would not
be mandated - to decide whether it is the right thing to do a
renewal in those cases where the person has met all terms and
conditions, made all the payments, and did what was said would
be done. A decision and public notice for the renewal would
still be required by law, but the department would not have to
go through a competitive process to extend the lease. He
recalled a question brought up in an earlier committee meeting
about whether DNR has requirements that people build what they
say they are going to build. Some of DNR's older leases do not
have such a provision, but now when DNR goes out for a lease it
has a provision. For example, one provision is that if the
lessee does not use the lease within two years in the way the
lessee said it would be used, DNR can cancel the lease. Another
provision is that to get a final lease the lessee must provide
DNR with a survey after any proposed buildings are built. A
timeline for this is included in the lease and penalties will be
applied if this is not done according to the lessee's
development plan.
COMMISSIONER SULLIVAN added that, in that way, these are
analogous to oil and gas leases, but said these changes do not
apply to oil and gas leases.
1:37:59 PM
CO-CHAIR SEATON requested Mr. Menefee to provide a list of these
types of leases and asked whether this would apply to all leases
except oil and gas.
MR. MENEFEE replied that the provision would not be for all
leases. Not included would be anything with forestry because
that is done under different statutes. Oil and gas would not be
included. A separate section deals with mining leases. Also,
in the way stated in the bill, aquaculture would not be
included. Included would be upland leases and tideland leases,
such as docks. In further response to Co-Chair Seaton, he
agreed to provide a list of what is included and a list of what
is not included.
1:39:04 PM
MR. MENEFEE moved to the third objective of HB 361, which would
be to separate statutes that have been confusing to both the
public and to department staff. Timber sales and material sales
are currently mixed together in one pot, although procedures for
each of these are different. Under HB 361, there would be
separate statutes for timber and separate statutes for material
sales. The bill would also make things more expeditious for
material sales by including provisions for the renewing of
leases and direct negotiation on material sales when
solicitation shows there is no competitive interest. Another
issue is that, currently, when DNR sells multiple contracts out
of the same materials site, it does individual decisions on each
one of those contracts. Since the public has already been told
that gravel will be taken out of such a site, HB 361 would allow
for just one decision for that site. Additionally, HB 361 has a
special purposes provision on material sales; for example,
people wanting to take material out of a river for flood control
where that material is actually contributing to the flooding and
causing the state to have to do emergency response and road
repair. This provision would allow for getting that material
out at a price less than fair market value and would apply to
communities, individuals, and commercial entities; a prime
example of this issue is Seward.
1:41:24 PM
CO-CHAIR SEATON noted that [HB 89] is currently in the Senate,
which looks at this same issue and would specifically require a
minimum of 12.5 percent of net profits. He did not think that
DNR currently has the authority to go to a net profit valuation
versus the sale by quantity. He said he is unsure how broad an
authority is being asked for under HB 361, such as providing
that the material can be sold at less than fair market value and
having the industry know what the net profit basis is when it
comes to the department. He expressed his concern that apples
and oranges are being mixed and that the impetus will be lost
for getting bedload material available for removal at the 12.5
percent net profit royalty. He requested Mr. Menefee to comment
on the definition of less than fair market value because he
fears there will not be a definition until someone negotiates it
with the department. He further noted that there were a lot of
questions from DNR and the Department of Transportation & Public
Facilities (DOTPF) about wanting engineering studies to prevent
the undercutting of bridges and so forth.
1:43:37 PM
MR. MENEFEE responded that DNR does not see the 12.5 percent in
HB 89 as conflicting with this provision in HB 361 because the
provision in HB 89 would be a more specific statute that
specifically says what is to be done for commercial operations.
When there is a more specific statute, that statute will rule
the day. So, even if HB 361 provides for below fair market
value, DNR would go with the more specific statute if there is
one. He added that HB 361 would cover the fringes of what HB 89
does not cover. For example, HB 89 could not be used if an
individual came to DNR wanting to take out material that would
not be sold and a net profit could not therefore be calculated,
but HB 361 would give the department the ability to do that at
less than fair market value if the department deems it in the
best interest of the state. The department would go through a
decision process and would look to regulations to provide some
guidance.
1:45:25 PM
MR. MENEFEE read the provision in HB 361 [page 11, lines 26-31]
regarding the disposal of materials under AS 38.05.872: "The
commissioner may convey materials at less than fair market value
to municipalities, other state and federal agencies, or other
entities, and make other arrangements for land and materials as
mitigation of a flooding area where excess material deposition
significantly contributes to the flooding, consistent with a
site-specific flood mitigation plan approved by the commissioner
and determined to be in the best interests of the public." He
said the department would have to write regulations that back
that up and in those regulations for a site specific flood
mitigation plan, the department would want to ensure that there
is proof that the materials being deposited are actually
contributing to the flood damage. The department would further
look at the engineering aspect to ensure that such removal would
not result in the washing out of a downstream bridge. With an
approved site-specific mitigation plan, any subsequent sales
that abide with that plan would be covered. He therefore
thought that HB 361 would capture Co-Chair Seaton's intention,
which is to ensure that it is sound engineering-wise and in the
public interest; additionally, it would cover noncommercial
takes of the material by a community or an individual.
1:46:52 PM
CO-CHAIR SEATON pointed out that the current price on the Kenai
Peninsula is $3.25 a [cubic] yard, but for a municipality the
price is $.50 a [cubic] yard. Also, adjacent landowners can
take out gravel and store it on their land without charge. He
inquired whether a different statutory basis is needed to keep
doing this.
MR. MENEFEE clarified that if DNR issues a public and charitable
material sale under the current statute of AS 38.05.810, and it
is at less than fair market value, DNR can under regulation use
the rate of $.50 per cubic yard. So, it is correct that any
municipality going through the process of getting a permit in
place for a material sale can do that. However, a municipality
or borough does not want to be saddled with that cost if an
individual wants to take it out and, secondly, it must be for
public purposes. Taking out material and putting it on
someone's driveway becomes a beneficial use and therefore it
does not fit under that statute; thus, DNR would have to issue a
material sale directly with that individual and charge the
higher rate because it would be used for beneficial purposes.
If it is going to benefit the public in another way, DNR is
trying to clarify that it can do that through a fair market
value. The department sees that this can happen in other areas
of the state besides Seward, so the department is looking for
clarity that it can go at less than fair market value when the
department's decision process shows that it will benefit the
public.
1:49:18 PM
COMMISSIONER SULLIVAN noted that the issues in HB 361 are quite
specific due to the department having great public servants who
are experts in the work they perform and who are also very
focused on what is required by statute. So, while something may
seem to be a small specific issue, personnel are looking for
ways that, from their experience, will make the process more
effective to save the state money and to save time for the
applicants, while also keeping in mind the state's interest.
Although the changes in HB 361 are small, when each is
aggregated in terms of efficiency and time it results in an
overall macro-savings to the state. He welcomed any ideas from
committee members about HB 361.
CO-CHAIR SEATON assured the commissioner and DNR staff that he
is not opposed to these issues.
1:51:54 PM
REPRESENTATIVE GARDNER understood that under HB 361 any decision
granting a waiver or allowing something to be done differently
will have been determined to be in the public interest. The
rationale for that decision making will be part of the public
record for people to review so that someone who disagrees will
have access to the information and the decision will be well
founded.
COMMISSIONER SULLIVAN concurred that this is correct.
1:52:22 PM
MR. MENEFEE returned to his briefing, moving to the fourth
objective of HB 361 regarding temporary water use permits. He
explained that a temporary water use authorization is not a
permanent water right; it is a temporary water use that can be
revoked or changed if something is amiss. Under temporary water
use authorization, the department has some projects that last
longer than five years, such as exploration, North Slope oil and
gas projects, and ice roads. When someone has been using the
same site and same volume, having the department go through the
same permitting procedure again for that applicant is a longer
process than is needed. This provision would shave some time,
but environmental review would still be required and the
applicant would need to be in good standing, meaning that the
applicant must have abided by all the stipulations and terms of
the permit.
CO-CHAIR SEATON understood that while temporary water use
permits could be reissued it would not mean that they become a
permanent fixture of automatic reallocation. Competing use
objections could be raised and the water reallocated.
MR. MENEFEE confirmed this would be the case. He said that when
considering the renewal of a temporary water use authorization,
the department would look to see whether there is a competing
interest. If there is, and the original company or individual
is not fully utilizing that water and there is room for another
user, the department would make that decision. Considerations
would be on a case-by-case basis.
1:54:53 PM
REPRESENTATIVE P. WILSON asked whether this exact situation took
place in Sitka.
MR. MENEFEE replied he is not familiar with the Sitka situation,
but said that it very well might be.
REPRESENTATIVE P. WILSON related that someone [in Sitka] wanted
to renew a water permit, but because DNR believed that someone
else could use some of the water not being used, the renewal is
still being looked at.
MR. MENEFEE responded that this is not limited to one or two
cases; it has happened in many places around the state.
COMMISSIONER SULLIVAN added that this issue came up a number of
times during the department's hearing process across the state.
1:55:50 PM
CO-CHAIR SEATON expressed his concern about the application
being submitted at the five-year mark. Although this would not
apply to mariculture leases, he noted that the permit period for
such leases is 10 years, but the renewal application cannot be
submitted before the end of those 10 years. If the department
is backlogged and cannot address the renewal, the operation of a
commercial lessee is therefore stopped. He asked whether there
is anything in HB 361 that would allow all leases to be applied
for before the end of the lease period to prevent a time crunch
and regulatory bind.
MR. MENEFEE answered that under the land leases there would be
no problem with someone applying in advance; DNR would encourage
them to come in before the lease expires. The department would
send them a letter before the end of the lease, as it normally
does, asking whether the lessee wishes to do this further, which
would give the department enough time so no one is out there
unauthorized. The department wants to give itself enough time
to process the paperwork to get the permit in place before the
other one expires. The five-year mark is to let the lessee know
that the maximum temporary water use authorization is five years
and as this is approaching it is the appropriate time to
reapply. It would be fine if it was done at four and a half
years, the point is that it needs to be done before it expires.
For temporary water use authorizations the typical processing
time is a maximum of about two to four weeks, although sometimes
it takes longer if the department knows the applicant does not
need the authorization for a while. Because it is a short
turnaround time for temporary water use authorizations, it is
unusual when the department cannot get an authorization out in
time. While there is a backlog for many things, this area is
not one of them, so it is unlikely that someone would have to
stop their construction to wait for reauthorization of a
temporary water use permit.
COMMISSIONER SULLIVAN interjected that this is still something
DNR is trying to address and the scenario described by Co-Chair
Seaton is something the department does not want to have happen.
1:59:04 PM
CO-CHAIR SEATON understood that specific legislation is being
considered to get around the mariculture land title lease, but
said doing this would still not be allowed until the end of the
term. He said he would appreciate the department looking into
whether a statutory provision needs to be changed so that the
renewal could be done within a year of the end of the term.
COMMISSIONER SULLIVAN allowed the co-chair has made this request
this before and apologized for the department not addressing it.
He said the department will look at the statutory provision that
applies to this issue.
MR. MENEFEE agreed this is something for which the department
can find the right language to. He said the department will
look at this to figure out a way in which it is clear that the
department does not have to wait until the end [of the lease to
renew a permit].
2:00:35 PM
MR. MENEFEE turned to the fifth objective of HB 361, which would
provide "litigation proofing". He related that the Department
of Law found that some statutes are not in full agreement or
have added to confusion, which could potentially put the state
at risk for litigation and delay projects. The department
realized it needed to clarify all the statutes that deal with
public auction and sealed bids, and this provision of HB 361
would bring them into consistency. Sections 1-4 and 7-9 of the
bill all deal with the same thing and would make the statutes
consistent so that they are legally sound.
2:01:23 PM
MR. MENEFEE discussed the sixth objective of HB 361 regarding
public notice requirements. He said this provision would not
change a huge amount of what DNR does, but the department is
trying to transition into putting an emphasis on the electronic
posting of public notices on the state public notice web site.
People would know that this is the place to go to find out about
all of the state's activities. For people who do not use
computers, the department would still post notices in local
newspapers and post offices.
CO-CHAIR FEIGE inquired whether a notice is tied to a geographic
area so that a citizen could define a geographic area.
MR. MENEFEE replied the department has evaluated this, but
presently a citizen cannot designate that e-mails be sent to him
or her; however, the ability to send notices to citizens based
on specific geographic areas may become possible in the future.
Currently, a citizen must look at the [web] site, which is
designed so that a recognizable location is included in the
title, such as the name of a specific bay and not just the
latitude and longitude.
2:03:30 PM
MR. MENEFEE continued his briefing, saying that the seventh
objective of HB 361 is about royalty exemption for small-
production miners. He explained that small-production miners,
such as placer miners, already have exemptions and usually these
miners do not pay royalty because their exemptions cover the
amount of gold that they have taken. However, these miners are
still required to go through an audit, which is a lot of
paperwork for coming to the same conclusion that a royalty is
not owed. Recognizing this, the department is suggesting that
the exemption be put into statute. The miner would still have
to file how much is produced, but would not have to do the
royalty portion. Where that exemption would start would
probably be in regulation, but the department must do some more
research to figure out the right spot for drawing a line for
where people do not have to pay a royalty. The idea is to save
time for both department staff and the small-production miners.
2:05:01 PM
CO-CHAIR SEATON asked whether DNR is working on this in
conjunction with the Department of Revenue (DOR). He related
that the committee earlier heard a bill that would do this and
both DNR and DOR objected saying that even though a net profit
of $40,000 is allowed before royalty payment is required, the
departments still wanted the filings. He surmised DNR has
concluded that [small-production miners] would not have to make
a filing. He further inquired whether DOR has agreed not to
require filings if the net profit is below $40,000.
MR. MENEFEE responded that the aforementioned bill [HB 298]
relates to the mining license tax and HB 361 relates to
royalties. He related that Ms. Johanna Bales of DOR confirmed
in an earlier conversation today that there is no problem with
this part of the bill. He noted that this provision would not
modify the mining license tax, which is controlled by and filed
through DOR.
MR. MENEFEE added that to make it easier for both DOR and the
miner, the eighth objective in HB 361 would provide that people
filing their royalty could file in the same year as their mining
tax, whether that is a calendar year or fiscal year; this would
mimic what DOR does under the mining license tax. Thus, HB 361
would provide that no extra work be done when the state is not
bringing in income, while at the same time making it easier on
the miner.
2:07:14 PM
MR. MENEFEE concluded his briefing by pointing out that the
ninth objective of HB 361 would allow the extension or renewal
of a submerged land mining lease, similar to the provisions for
temporary water use authorization and renewal of land leases.
He noted that the state's only submerged land mining leases are
off the Nome area and the lease time period is for 20 years.
The leases require that there be production and this provision
of the bill would allow extension of the lease for those lessees
who are producing and who are in good standing with the state.
He explained that the amount of acreage in these leases varies
in size, from 40 acres to 2,000 acres, so it is logical that the
lessee will not get through the whole acreage within the 20-year
time period and will want to continue the work.
REPRESENTATIVE P. WILSON surmised these leases are for the
dredging of gold.
MR. MENEFEE answered that gold dredging is occurring on these
offshore submerged mine leases. While there are multiple ways
and different types of equipment for dredging, only a small
portion of the acreage can be dealt with at one time and so only
several acres of the lease can be dredged per year.
Additionally, ice scour during winter storms can move things
around over the years, so dredging of the same area may be done
again in another year. He noted that the department can choose
to go to competition if there is competitive interest in that
mining lease.
2:10:32 PM
CO-CHAIR SEATON drew attention to page 2 of HB 361 dealing with
the Board of Agriculture and Conservation and a provision that
would [grant first option to purchase or lease agricultural land
to the adjacent landowner or adjacent lessee] for the amount of
the high bid received at public auction or by sealed bid. He
pointed out that under this proposed provision an adjacent
landowner would not have to bid because he or she would have
first option to take someone else's sealed bid, which would not
be in the best interest of the state as far as receiving the
best bid. He said if he is correct in his interpretation of
this proposed provision he would like it to be changed, but if
he is wrong he would like an explanation of the provision.
MR. MENEFEE replied that this provision would not change much
other than the sealed bid part. He agreed Co-Chair Seaton is
correct in the sense that the adjacent person would have the
right to match the high bid. This person would still have to
participate; however, he allowed, this person could conceivably
put in a low sealed bid to be participatory. He said he will
therefore get back to the committee with an answer on exactly
how this would work because he does not normally handle the
agricultural leases. The department will clarify this provision
to ensure that the state will receive the highest bid possible
if there is competition.
2:13:50 PM
CO-CHAIR SEATON noted that the idea of modifying this statute is
to arrive at a process that works best for the state as well as
residents. It would be difficult if a person worked hard to put
together a business plan and went to the auction in sealed bid
fashion only to have that work thrown away because a person
adjacent to that land could simply match that sealed bid. While
he understood why people would like to have "first dibs", he
maintained it was not in the best interest of the state. He
urged that while considering modification of this piece of
statute, DNR develop the rationale for why it would want to keep
this provision, especially under a sealed bid situation.
MR. MENEFEE requested that Mr. Cameron Leonard of the Department
of Law be given the opportunity to address the aforementioned.
CAMERON LEONARD, Senior Assistant Attorney General, Natural
Resources Section, Civil Division (Fairbanks), Department of
Law, allowed that Co-Chair Seaton's point is well taken under
the [proposed] statute as written, because an adjacent landowner
or several adjacent landowners would have the option to purchase
at the highest bid. He pointed out that there are acreage
limits for this proposed provision and this could not be done on
a parcel exceeding 320 acres. He did not know how often, in
practice, it would come up that an independent bidder who did
not have land adjacent would want to acquire agricultural
parcels of less than that size. He said he would get back to
the committee with an answer.
2:16:20 PM
CO-CHAIR SEATON commented that this is public policy being
broached. Attempts are being made to get agricultural land near
towns for young farmers so that the state can grow its next
generation of young businessmen. However, he maintained, this
could be precluded under the aforementioned provision.
COMMISSIONER SULLIVAN specified that DNR is looking from the
broader perspective of trying to provide clarity on the ability
to use sealed bids. He conceded, however, that the changes to
this particular provision might raise another issue with regard
to the prerogative rights of an adjacent owner that were not
present prior to the adding of this [proposed] language for
sealed bids. He said the department will therefore get back to
the committee on this issue as it is something the department
may have missed.
2:18:55 PM
CO-CHAIR FEIGE moved to discussion of the bill after
ascertaining that no one in the audience wished to testify.
CO-CHAIR SEATON offered his appreciation for HB 361, saying it
will streamline things for Alaskans and the state.
CO-CHAIR FEIGE announced that he did not intend to move the bill
out of committee today.
2:20:04 PM
REPRESENTATIVE DICK moved to adopt Amendment 1, labeled 27-
GH2717\A.3, Bailey, 3/5/12, which read [original punctuation
provided]:
Page 8, following line 17:
Insert a new subsection to read:
"(f) Notwithstanding (b) - (e) of this section,
for the purpose of creating incentives for the
development of peat as a heat or energy source, the
director may negotiate the sale of peat to
individuals, organized or unorganized communities,
tribal governments, or private profit or nonprofit
organizations. Under this subsection, the director
shall provide,
(1) for personal use by an individual or
for testing or product development, not more than
20,000 cubic feet of peat free of charge; or
(2) for users requiring more than 20,000
cubic yards, the required amount of peat at 20 percent
of the appraised fair market value."
REPRESENTATIVE P. WILSON objected for discussion purposes.
2:20:16 PM
REPRESENTATIVE DICK said Western Alaska has a tremendous energy
concern. Several people in this area have been looking at the
option of peat, some for as long as 15 years, but they have
always bumped into a wall, which is that the appraised fair
market value of peat makes it not pencil out. He understood,
however, that one person was able to establish a fair market
value for peat along the road system. He qualified that he is
not saying peat is going to work in Alaska, but said there is a
tremendous possibility for heating schools and other buildings
and it will remain unknown whether this is possible unless
people are given the option to try. There are a lot of startup
costs. Powering the Donlin Creek Mine with peat has been
researched. The intention of Amendment 1 is that for personal
use or for testing or product development, not more than 20,000
cubic feet of peat be given free of charge, which would give
someone the chance to get started. For users requiring more
than [20,000 cubic yards], Amendment 1 would provide the peat at
20 percent of the appraised fair market value. He requested Mr.
Menefee to speak to the issue of appraised market value because
the problem is determining a value when the product has not been
sold in Western Alaska before. The idea is not to give away
state resources, he said, but to see if peat is possible and, if
so, to ensure that the people doing it can make a decent profit.
2:23:43 PM
CO-CHAIR FEIGE asked how the peat would be harvested.
REPRESENTATIVE P. WILSON responded that she has a constituent in
Petersburg who burns peat taken from the lot in town on which
his home sits. He cuts bricks of peat, dries them in stacks
that are laid across his yard and covered with tarps, and has
now heated his house for several years with the peat. He is
making a basement to his house by cutting the peat from
underneath the house. She said the process is amazing and works
for this man. While she did not know whether this would work in
colder areas of the state, she said it sure works in Petersburg.
In response to Co-Chair Feige, she said the hole for digging out
the peat is 10 feet deep and moving out.
REPRESENTATIVE DICK added that last year he considered a bill to
do this, but because it is such a small item it seems that HB
361 is a natural place for such a provision. He asserted that
this provision speaks to a very real need and the state will
never know if peat will work financially or environmentally
unless it is explored.
2:26:35 PM
CO-CHAIR FEIGE asked whether Mr. Menefee would like to comment.
MR. MENEFEE first addressed Co-Chair Feige's question of how
peat is harvested, explaining that it can be done individually
by using a shovel knife like what has been used in Ireland for
years. Commercially it can be harvested by equipment that
rolls up the peat like a sod roller does. There is a lot of
peat in Alaska, he said, with some bogs as deep as 5,000 feet.
MR. MENEFEE, addressing Amendment 1, said as written it would
give the department the ability to go below fair market value
for peat. Because of the clarification that peat is considered
material the department would be able to sell it at material
prices normally and therefore at appraised fair market value.
However, the problem with peat is that it is very difficult to
do an appraised fair market value. The one appraisal in Alaska
was done by the University of Alaska and the university had to
go to Finland to find the value of peat in those places where it
is harvested. He suggested that if the committee chose to adopt
Amendment 1, it may want to base the value off of DNR's regional
representative sales price for material rather than appraised
fair market value. This is because the applicant must pay to do
an appraised fair market value and that will cost a lot because
it will be an international appraisal, not a local appraisal.
In a regional representative sales price, DNR would estimate
material cost and would base the reduction of value off of that
price.
2:28:48 PM
MR. MENEFEE, regarding personal use of the peat or testing or
product development, said that it does not seem to sync with the
20,000 cubic feet because that amount seems like a lot of cubic
feet for product development; however, he did not know whether
he was correct in this regard. He also pointed out that
paragraph (1) of the amendment is written in cubic feet and
paragraph (2) is written in cubic yards, which means there is a
substantial gap between 20,000 cubic feet and 20,000 cubic
yards. He did not know whether this gap was intentional, but
said DNR would not know what it is supposed to do in between
these numbers.
REPRESENTATIVE DICK informed the committee that the first number
is supposed to be yards [not feet].
2:29:41 PM
MR. MENEFEE provided a visual representation of the volume by
noting that a normal dump truck carries about 10 cubic yards.
Thus, [20,000 cubic yards] would be [2,000] dump trucks of peat
that would be given free of charge for product testing and
development.
REPRESENTATIVE DICK provided another visual representation of
volume by noting that [20,000 cubic yards] would be 0.15 miles
by 0.15 miles by 1 yard deep. He said a decent pellet machine
costs $100,000 because the cheap $5,000-$10,000 machines out of
China do not last. He reiterated that he does not want to give
away state resources, but wants to make it possible for someone
to get started and find out whether it can happen and this is
where he came up with the number of 20,000 cubic yards. He
added that if the 20,000 cubic yards stays in the ground the
state receives nothing anyway.
2:31:14 PM
REPRESENTATIVE MUNOZ, in regard to personal use, asked how much
peat would be needed per year to heat a typical a home.
PAUL VERHAGEN, Staff, Representative Alan Dick, Alaska State
Legislature, did not know but said he will get back to the
committee with an answer.
REPRESENTATIVE P. WILSON related that her aforementioned
constituent in Petersburg told her it took more peat than cords
of wood per year because peat is not as efficient as wood.
REPRESENTATIVE DICK commented that the Petersburg person is
using blocks of peat in a stove as opposed to pellets of peat in
a pellet stove which burn much more efficiently. He said he
brought up Amendment 1 for the sake of conversation and
receiving comments from the committee. He offered to withdraw
the amendment until he has answers to the questions.
CO-CHAIR FEIGE suggested the amendment be set aside for later
consideration once the questions have been answered.
2:33:03 PM
REPRESENTATIVE GARDNER inquired whether anyone else in the state
besides the gentleman in Petersburg is researching peat. She
said this could end up being a huge amount of peat if lots of
organizations and businesses start getting into it.
MR. VERHAGEN responded that quite a few people have expressed
interest and the biggest interest that he is aware of was
expressed by Donlin Creek Mine, which had a study done by the
university. While there was plenty of peat to run the mine, the
investors were not enthusiastic about a nontraditional energy
source and opted for another source. Because of what has
happened in Tok there are now quite a few other communities
working with biomass, such as Fort Yukon and Tanacross.
Numerous school districts in the state are now looking to do the
same thing as the school district in Tok did. He related that
last year Galena contacted him to say it would like to get rid
of 30,000 cubic yards of peat that was dug up during excavation
for a new building. However, this year Galena decided to use
that peat for its own biomass project, which is why Amendment 1
includes the opportunity for tribes, communities, or any entity
to begin this experiment.
2:35:18 PM
CO-CHAIR FEIGE asked whether peat falls within the current
definition of biomass.
MR. VERHAGEN answered he has confirmed with Mr. Menefee that it
does. There were some suggestions that modifications be made to
the definition, but at this point peat is in that definition.
REPRESENTATIVE MUNOZ offered her appreciation for the amendment,
saying she thinks this could be something very useful. She
suggested going with only the amendment's first paragraph,
excluding the volume amounts so that it would be up to DNR to
determine the appropriate amounts for the various users.
2:36:14 PM
CO-CHAIR SEATON stated the committee should look at the
Department of Revenue in addition to the Department of Natural
Resources because the mining license tax, [administered by DOR]
currently applies to sand, gravel, and marketable earth, so that
tax would apply to peat. He said he does not know if there is a
royalty issue. He inquired whether there is a way to look at
biomass energy projects globally; for example, whether using
willow, barley, or timber for biomass might be better than peat
in one area, but vice versa in another.
COMMISSIONER SULLIVAN replied this is a good question because
peat is only one of a number of other sources that Alaska has in
great supply for potential energy use by Alaskans. He said the
department is currently looking at wind and staff is charged
with ensuring that the state gets the best value for its
resources. However, the flip side is that when there are
markets or resources, particularly a new resource or a broad
public use source like wind-generated power that goes into
utilities, staff is trying to get a good deal for the state, but
the users of that resource are the citizens of the state, and
this creates a conundrum that must be dealt with. He said the
department will look at the amendment with regard to offering
suggestions or making clarifications. He further noted that
through its Division of Forestry, DNR has been very involved in
what is going on with biomass in Tok and other places.
2:40:43 PM
REPRESENTATIVE P. WILSON advocated setting a limit in some way
should the committee want to use this for development because
there will come a point at which it is developed and an industry
could be made out of it.
COMMISSIONER SULLIVAN agreed that the amendment would spur
development while setting a limit.
REPRESENTATIVE DICK advised he is not meaning to sabotage HB 361
by adding so much detail that it makes it hard to get it through
the legislature, but reiterated that this issue seemed to be a
natural fit with the bill. He said willow has already been
piloted and is a winner, but he is unaware of anyone moving
forward with pelletized peat, which is why he would like to
create an incentive for the pelletizing of peat.
2:42:38 PM
CO-CHAIR FEIGE set Amendment 1 aside for further consideration
when HB 361 is again before the committee.
COMMISSIONER SULLIVAN offered appreciation for the committee's
consideration of HB 361, saying that the bill fits with a number
of other bills currently moving through the legislature. He
said bringing the department's permitting system in line will
help promote economic opportunity in the state.
CO-CHAIR FEIGE complimented the work of DNR staff on HB 361. He
said the cumulative effects of the little tweaks in the bill
will have a positive effect on the way the State of Alaska does
business and the way the state is perceived as a place to do
business.
2:44:30 PM
CO-CHAIR SEATON related that the Anchorage Daily News recently
had an article about the state considering hunting rights for
private landowners in Alaska. The proposal would grant a
property right for private landowners to use or sell hunts and
would involve a new landowner permit. He asked whether the
regulation changes being talked about would advance, or in any
way incorporate, special landowner rights to resources that
currently belong to all of the public.
MR. MENEFEE responded he is unfamiliar with this proposal, but
said there is nothing in HB 361 that would affect a right that
is given to someone through a fish and game statute; HB 361 is
strictly in regard to things that would be authorized by DNR.
2:46:12 PM
CO-CHAIR SEATON said he wants to make sure that HB 361 would not
incorporate anything that would make new rights to landowners of
currently considered state resources. While he did not think
the bill would, he wanted it on the record that that is not the
bill's intention.
COMMISSIONER SULLIVAN noted that this is the first he has seen
the article and he has not been briefed on the issue. However,
he continued, the issue in the article is not related to what is
being proposed in HB 361.
MR. MENEFEE added that there could be other laws or ordinances
that base qualifying criteria on whether someone is a landowner;
that does not affect DNR's regulations on whether the department
sells land to someone. The department's regulations are
completely separate - the game resources in the state of Alaska
are not managed by DNR at all. Those regulations are strictly
through the Alaska Department of Fish & Game.
2:48:02 PM
CO-CHAIR SEATON said he realizes that but wanted to ensure there
was no connection.
COMMISSIONER SULLIVAN answered that DNR is looking at the issues
of permitting reform, efficiency, timeliness, and certainty.
Much of HB 361 is about the efficient use of staff time and
state money and doing that in conjunction with other state
agencies, including the Alaska Department of Fish & Game. Thus,
many of the ideas are not just a DNR focus but also a focus of
other agencies. He said he is unaware of any connection between
the aforementioned and the permitting issues in HB 361.
CO-CHAIR SEATON said he would appreciate DNR letting the
committee know at the next hearing on the bill if there is
something that conjoins the two.
REPRESENTATIVE P. WILSON understood Commissioner Sullivan to be
saying that DNR is looking at ways to save time and money and
other departments are doing the same.
COMMISSIONER SULLIVAN confirmed that this is correct.
2:50:20 PM
[HB 361 was held over.]
2:50:35 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:51 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB0361A.pdf |
HRES 3/5/2012 1:00:00 PM HRES 3/14/2012 1:00:00 PM |
HB 361 |
| Sectional Analysis of HB 361.pdf |
HRES 3/5/2012 1:00:00 PM HRES 3/14/2012 1:00:00 PM |
HB 361 |
| HB 361 Transmittal Letter.pdf |
HRES 3/5/2012 1:00:00 PM |
HB 361 |
| Briefing Paper_HB361_030512.pdf |
HRES 3/5/2012 1:00:00 PM HRES 3/14/2012 1:00:00 PM |
HB 361 |
| HB0361-1-2-022912-DFG-N.pdf |
HRES 3/5/2012 1:00:00 PM HRES 3/14/2012 1:00:00 PM |
HB 361 |
| HB0361-2-2-022912-DOT-N.pdf |
HRES 3/5/2012 1:00:00 PM HRES 3/14/2012 1:00:00 PM |
HB 361 |
| HB0361-3-2-022912-DNR-Y.pdf |
HRES 3/5/2012 1:00:00 PM HRES 3/14/2012 1:00:00 PM |
HB 361 |