Legislature(1999 - 2000)
01/26/2000 02:12 PM House RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
JOINT MEETING
HOUSE RESOURCES STANDING COMMITTEE
SENATE RESOURCES STANDING COMMITTEE
January 26, 2000
2:12 p.m.
HOUSE RESOURCES MEMBERS PRESENT
Representative Bill Hudson, Co-Chair
Representative Beverly Masek, Co-Chair
Representative John Cowdery, Vice Chair
Representative John Harris
Representative Jim Whitaker
Representative Reggie Joule
HOUSE RESOURCES MEMBERS ABSENT
Representative Ramona Barnes
Representative Carl Morgan
Representative Mary Kapsner
SENATE RESOURCES MEMBERS PRESENT
Senator Rick Halford, Chairman
Senator Robin Taylor, Vice Chairman
Senator Pete Kelly
Senator Lyda Green
Senator Georgianna Lincoln
Senator Jerry Mackie
SENATE RESOURCES MEMBERS ABSENT
Senator Sean Parnell
OTHER HOUSE MEMBERS PRESENT
Representative Fred Dyson
Representative Scott Ogan
Representative Bill Williams
COMMITTEE CALENDAR
BRIEFING: FINAL JUDGMENT ON KATIE JOHN CASE
PRESENTATION BY ALASKA GASLINE PORT AUTHORITY
PREVIOUS ACTION
No previous action to record
WITNESS REGISTER
JOANNE GRACE, Assistant Attorney General
Natural Resources Section
Civil Division-Anchorage
Department of Law
1031 West Fourth Avenue, Suite 200
Anchorage, Alaska 99501
POSITION STATEMENT: Reported on and answered questions regarding
the Katie John case.
KATHRYN SWIDERSKI, Assistant Attorney General
Natural Resources Section
Civil Division-Anchorage
Department of Law
1031 West Fourth Avenue, Suite 200
Anchorage, Alaska 99501
POSITION STATEMENT: Reported on and answered questions regarding
the Katie John case.
HANK HOVE, Chairman
Alaska Gasline Port Authority
(address not provided)
POSITION STATEMENT: Presented information on the Alaska LNG
(liquid natural gas) Project.
BRENT SHERFEY, Project Manager
Petroleum and Chemical North America
Bechtel Corporation
(address not provided)
POSITION STATEMENT: Spoke on behalf of the Bechtel Corporation.
ACTION NARRATIVE
TAPE 00-3, SIDE A [HOUSE RESOURCES TAPE]
Number 0001
CHAIRMAN HALFORD of the Senate Resources Committee called the
joint meeting of the House and Senate Resources Committees to
order at 2:12 p.m. Members of the two committees present at the
call to order were Representatives Hudson, Masek, Harris and
Joule, and Senators Halford, Taylor, Kelly, Green and Lincoln.
Representatives Whitaker and Cowdery and Senator Mackie arrived
as the meeting was in progress.
BRIEFING: FINAL JUDGMENT ON KATIE JOHN CASE
JOANNE GRACE, Assistant Attorney General, Natural Resources
Section, Civil Division-Anchorage, Department of Law, came
forward to present a report on the status of the Katie John case.
She informed listeners that the state had filed a notice of
appeal that morning in the Katie John case, to appeal final
judgment of the district court that was entered on January 7,
2000. The state has appealed the Katie John case before, and the
Ninth Circuit Court of Appeals has issued a decision adverse to
the state. The purpose of taking appeal from the final judgment
at this point is to try again to convince the U.S. Supreme Court
to review the Ninth Circuit decision finding that the authority
of the Federal Subsistence Board extends to navigable waters in
Alaska in which the United States has the federal reserved water
rights.
MS. GRACE explained that the reason there is a chance to appeal
at this point, five years after the Ninth Circuit decision, is
that the original Ninth Circuit decision was an interlocutory
appeal. That means it was an appeal of an order by the district
court that was not a final disposition of the case; it was an
intermediate appeal of a controlling point of law but not of a
final judgment. Normally, a party in a case must wait until a
federal district court is completely finished with the case and
has entered final judgment before having an opportunity to
appeal. In some rare cases where there is an important point of
law that the district court has decided, however, a party can
petition the district court and then petition the Ninth Circuit
to consider the issue immediately. That is what the state did in
this case.
MS. GRACE reported that in the Katie John case, the federal
district court in 1994 ruled that the public lands to which the
subsistence priority applied extend to all navigable waters in
Alaska by virtue of navigational services. At the same time, the
district court ruling did not depend on a second argument by the
plaintiff in that case that the extent of public lands should be
determined by the existence of a reserved water right in
navigable waters. At that point, the state asked for a
interlocutory appeal to the Ninth Circuit, and the plaintiffs did
as well. So the Ninth Circuit then decided that public lands
consisted of navigable waters in which the United States has
reserved water rights. At that point, the state petitioned the
U.S. Supreme Court to review that decision.
MS. GRACE explained that one of the major points in opposition
that the United States made at that point was that the Supreme
Court should not consider this issue on an interlocutory appeal;
rather, the Supreme Court should wait until the district court
had completely decided the case and issued a final judgment
because considering it would be premature at that point. The
United States told the Supreme Court that they should wait to see
what the federal regulations looked like, and they should wait to
see if the state amended its constitution before [the court]
decides the issue.
MS. GRACE noted that the case went back to the district court in
1995. The federal agencies began the process of identifying the
waters in Alaska where the right exists, and the district court
case was stayed until those regulations became final in October.
Now these regulations have become final. The district court has
issued a final judgment, which the state has the opportunity to
appeal. They do have to go through the Ninth Circuit again to
try to get the Supreme Court to review the case. They don't
expect the Ninth Circuit to reconsider its decision, but
jurisdictionally they have to appeal to the Ninth Circuit and
then, from that decision, petition the Supreme Court and try to
convince them to take up the issue.
Number 0108
CHAIRMAN HALFORD noted that this question strictly deals with the
water side, so it does not challenge the subsistence federal law
on federal lands.
MS. GRACE agreed. She said the only issue on appeal would be
whether the public land to which the right applies in the
corresponding authority of the Federal Subsistence Board to
regulate includes navigable waters in which the United States
holds a reserved water right. That would be the one issue that
the state would be appealing. It is possible that the plaintiffs
would cross-appeal and argue that public lands by virtue of
navigational servitude - an alternative theory that the district
court originally accepted - would include all the navigable
waters in Alaska. That may happen.
Number 0127
SENATOR TAYLOR asked if the federal agencies have withdrawn the
regulations that were imposed in January regarding subsistence
fishing in marine waters.
KATHRYN SWIDERSKI, Assistant Attorney General, Natural Resources
Section, Civil Division-Anchorage, Department of Law, answered
that the federal agencies have not withdrawn any of the
regulations that were published last January and became effective
October 1, 1999. Those regulations specifically exclude federal
subsistence jurisdiction in the marine waters of the Tongass and
Chugach National Forests. There are some smaller areas of marine
waters that appear to fall within their assertions of federal
jurisdiction, and those have not been revised.
SENATOR TAYLOR noted there are several definitions here, and it
is tough to keep track of them. He said they did specify that
these regulations would not be in effect in marine waters of the
Tongass and the Chugach. What about the rest of the marine
waters? he asked. Those are two withdrawals which they made that
might have some implied claim of a reserved water right. There
is no withdrawal on the rest of Alaska's coast.
MS. SWIDERSKI said that is correct. The regulations apply to all
waters, navigable and non-navigable, that fall within the
boundaries of identified federal units. In the regulation there
is a listing of 33 federal units and then a list of about seven
wild and scenic river components, so roughly 40 federal areas
would also include inland waters that are adjacent to the
boundaries of those units. Marine waters would only be included
to the extent they fall within the declared boundaries of those
units. Significant marine waters would fall similarly in the
Tongass and Chugach boundaries, but those were specifically
excluded from the scope of the regulations.
SENATOR TAYLOR said he wanted to be clear that those have been
specifically excluded, and that the only ones included are those
40 areas mentioned that were federal units or wild and scenic
rivers.
MS. SWIDERSKI affirmed that.
SENATOR TAYLOR asked how that compares with the Supreme Court
decision in the "Volcanic (ph)" case.
MS. GRACE said the recent assertion of authority over waters in
which there is a reserved water right is not based on title to
the submerged land. The definition of public lands in Title VIII
- to which the subsistence priority and the authority of the
Federal Subsistence Board applies - is public lands are lands,
waters and interest therein, title to which is in the United
States. The Ninth Circuit decision in this case says that the
reserved water rights in particular navigable waters in these
federal areas (indisc.--coughing) an interest to which the United
States has title in those waters, and that thereby renders those
waters as public lands. It is unrelated to the ownership of the
submerged lands. The United States isn't claiming any title or
authority based on title to a submerged land. It is based on an
interest that they have in a reserved water right in the water
that the Ninth Circuit has held - therefore rendered public lands
under this particular definition in ANILCA [Alaska National
Interest Lands Conservation Act].
SENATOR TAYLOR asked if there are any navigable waters in Alaska
today where the federal government has title to those waters.
MS. GRACE explained that the United States doesn't claim title to
the water. There are certainly areas it claims title to
submerged lands; those are pre-statehood withdrawal areas. It
claims title to interest in the water, being a right to in-stream
flows.
SENATOR TAYLOR asked if this was based on the navigable servitude
question or on the implied reservation of waters on a withdrawal.
MS. GRACE replied:
The current Ninth Circuit decision is based on the
existence of [a] reserved water right, not on the
navigational servitude. The reserved water right is a
doctrine that says when the United States reserves
federal lands for a particular purpose, such as a park
or wildlife refuge, by implication it also reserves
water necessary to fulfill the purposes of the
reservation. For example, if the United States takes
federal land and creates a national park or wildlife
refuge as of the date they are creating it, it is
implicitly reserving -- say, if one of the primary
purposes of a park or national wildlife refuge was to
protect fish habitat, then by implication it would also
be reserving sufficient in-stream flows in the rivers
within the park or wildlife refuge to preserve fish
habitat.
SENATOR TAYLOR asked whether they are reserving this in all the
post-statehood withdrawals as well as the pre-statehood
withdrawals. Are they exerting this based on the federal
reserved water rights that predate statehood, or on all?
MS. GRACE answered that it is all of them. It is not an issue
related to title to the submerged land. Whenever the reservation
occurs, the water rights are created. Generally, in the context
of reserved water rights, it is significant when the right is
created, because it determines the right of the United States to
that water in relation to other water claims. But in the context
of Title VIII of ANILCA, it doesn't make any difference when the
right occurs because the mere existence of the right creates the
water right that creates the determination that those rivers are
public land, and that thereby creates the subsistence priority
and the authority of the Federal Subsistence Board to take over
state management of those fisheries.
SENATOR TAYLOR commented, "That's the double shuffle of rhetoric
by which they say they're not taking back what they gave us at
statehood." He thanked Ms. Grace for that clarification, adding
that he was shocked to hear they are even making that claim in
areas where withdrawal occurred after statehood. He concluded,
"But I understand the subtle distinction you are trying to make.
You're indicating what their position is; that's not our state's
position, is it?"
MS. GRACE said [the state's] position is that Congress had no
intent, in creating that definition of public lands, to include
navigable waters because there was a reserved water right.
SENATOR TAYLOR indicated that he is aware of litigation that
occurred in Colorado where attempts were made by the federal
government to utilize a reserved water right designation to
control in-stream flow and other uses of waters there. Colorado
had the same choice to roll over and surrender everything, like
Alaska is being told, and to let the federal government control
the waters, but they chose to fight; each individual stream was
litigated to find out the purpose of the withdrawal and whether
water had anything to do with it. As a consequence, the federal
government ended up with about 6 rivers out of 600, and Colorado
won the rest of them.
Number 0261
MS. GRACE explained that the doctrine states that when the
reservation is created the federal government, by implication,
reserves sufficient water to fulfill the primary purpose of the
reservation.
Number 0265
SENATOR TAYLOR pointed out that in Colorado the federal
government would frequently come in and list five or six purposes
for which they have withdrawn the waters. Under the court
decision, the federal government was only allowed to maintain its
reservation for the primary purpose, not the secondary or
tertiary purpose. He asked whether anything indicates that when
the federal government created the Tongass National Forest, it
reserved the water rights and had a specific purpose for doing
so.
MS. GRACE indicated the doctrine has been applied generally in
case law, as of the date the reservation was created. She is
quite sure that when the Tongass National Forest was created, the
primary purposes of the reservation would not have been furthered
by reserving water rights. However, it is possible that the
federal government will argue that it can change the primary
purpose of a reservation after it is created, and at that point
implicitly reserve water rights. She added that even though in
1907 the primary purpose of the national forest did not include
reserving water rights, if the U.S. Congress changed the primary
purpose of the national forest to require water, at that point
they would argue that the right is created.
SENATOR TAYLOR explained that in Colorado the federal government
was not allowed to invent new reasons for having reserved land
and thus, by implication, water rights. [The federal government]
was held accountable for what it reserved [the land] for at the
time and what the primary purpose was at the time.
MS. GRACE agreed. She said they were not allowed to create new
purposes after the fact. She explained that she was referring to
an Act of Congress that changed the purposes of national forests,
for example, to include recreational use.
SENATOR TAYLOR said that in 1907 it was multiple use.
MS. GRACE said they may have a stronger basis for arguing that
further rights were created when Congress changed the purposes
outside the context of litigation. She referred to Title VIII of
ANILCA. She said it is not so much a question of when the water
right was created; it is more a question of the mere existence of
a water right.
Number 0312
SENATOR TAYLOR indicated that this is going to have huge
implications not only in Alaska Western state where there are
large blocks of federal land and water flowing through them. He
wanted to know if [U.S. Supreme Court Justice] Sandra Day
O'Connor was completely out of her mind when she wrote the
decision in Dinkum Sands, which was only three years ago, that
said Alaska controls not only the submerged lands but also the
water above them and the fish that swim therein.
MS. GRACE responded that the question of reserved water rights in
Alaska has never been a big issue, because there are not a lot of
competing interests claiming water rights. It was not a doctrine
that really had any application in Alaska until the Katie John
case. She indicated that it is [the state's] hope to convince
the Supreme Court to review the Ninth Circuit decision, which
will eliminate the problem about where, exactly, the right
exists. If the definition of public lands is not based on the
existence of federally reserved water rights, in essence, the
issue goes away.
Number 0338
SENATOR TAYLOR wondered if procedurally they are back into the
Ninth Circuit on the appeal of the Katie John case.
MS. GRACE indicated that they have to go through the Ninth
Circuit, because the Supreme Court cannot be petitioned for a
review.
SENATOR TAYLOR explained that the Peratrovich case, which deals
directly with the reserved water rights claims in the Tongass
National Forest, has now been stayed by the filing of the Glacier
Bay lawsuit. He wondered why it would not be a waste of judicial
time to go through the Ninth Circuit again, and to go through
that briefing just to petition again on the very same subset of
issues that is encompassed in the Peratrovich case.
MS. GRACE indicated that the main issue the plaintiffs seem to be
pushing in the Peratrovich case is the question of title to the
submerged land. They did raise other claims based on
navigational servitude and possibly water rights, but they are
not pursuing those at this time because of the Katie John case.
They are pursuing the claim that the federal government has title
to the submerged land underlying the waters within the Tongass
National Forest and, therefore, those are all public lands under
ANILCA. The Supreme Court's review of the Ninth Circuit petition
of the Katie John case might have some impact on claims in the
Peratrovich case, but those aren't claims that the plaintiffs are
really pursuing at this time.
Number 0364
CO-CHAIR HUDSON wondered when they would be filing.
MS. GRACE indicated that they filed that morning, and there is a
copy of the notice of appeal.
CO-CHAIR HUDSON wondered when the next substantive action will
take place.
MS. GRACE stated that she expected a briefing to be scheduled
with the Ninth Circuit within six to eight weeks. The briefing
will take three months, but the real issue is how quickly the
Ninth Circuit will decide on the case; some cases have been
pending before the Ninth Circuit for years. She believes that
the case will go quickly; she expects it to take less than a
year. At that point, the party has 90 days to petition the
Supreme Court, and the United States has about 30 days to
respond. How quickly the Supreme Court would decide whether to
take the case depends on whether the Ninth Circuit petition is
filed during the Supreme Court session, which goes from October
to June. She concluded that it would take one to two years to
find out whether or not the Supreme Court would take the case.
CO-CHAIR HUDSON wondered what the relationship is between the two
filings: the Katie John case and the Glacier Bay case.
MS. GRACE explained that the issue in the Katie John case is
whether public lands under ANILCA include waters that are subject
to a federal reserved water right. At this point, they don't
believe that the federal agencies are claiming to have a reserved
water right in marine waters, because it has been uniquely a
freshwater issue. The Glacier Bay case seeks to quiet title of
the lands underlying the marine waters, so the Glacier Bay case
should not have any impact on the Katie John decision and vice
versa.
Number 0403
REPRESENTATIVE DYSON wondered if there are any cases where
reserved water rights have been assumed to extend beyond the
reserved lands, for example, the tributaries of a river that
flow through a federal area.
MS. SWIDERSKI responded that she is not aware of any cases where
they have extended the water rights upstream or downstream from a
particular federal area; however, with the reserved water right
would come the right to enjoin other users, presumably upstream
users, who are interfering with the water right as [the water]
flows through the federal area.
Number 0417
SENATOR LINCOLN wondered whether or not the Katie John case would
be an issue, currently, if the subsistence issue had been
resolved during the special session.
MS. GRACE indicated that if there had been a constitutional
amendment during the special session, the subsistence priority
would apply everywhere, and there would not be a concern with the
federal government usurping state authority to regulate navigable
waters; the state would have authority to regulate everywhere.
SENATOR LINCOLN wondered what the impact of the judgment on the
Katie John case will be on Alaska's resources, specifically, the
fisheries.
MS. GRACE said that it would have no impact because as it stands,
the Federal Subsistence Board has authority to regulate fisheries
in the waters that the agencies have identified.
SENATOR LINCOLN asked what the basis was for the Administration
to decide to go forward with the appeal.
Number 0436
MS. GRACE explained that the Governor [Knowles] believes that the
subsistence priority should apply everywhere in the state. The
problem with the definition of public lands in Title VIII of
ANILCA is that there are two sides of that coin: on one side,
public land defines where the subsistence priority applies, which
is something that the Governor wants to maximize; on the other
side, public land determines the area where the federal
government can usurp the state authority to regulate fishing.
Maximizing the public lands, as it pertains to the right,
minimizes the area that the state has authority to regulate.
MS. GRACE said it is her understanding that the Administration
supports the subsistence right everywhere and believes it is
something that must be accomplished through a constitutional
amendment. This appeal is really about the fact that the Katie
John decision took away the state's authority to regulate its own
resources. One of the main arguments in the Katie John case is
that there is a court doctrine called the "clear statement
doctrine," which says courts will not infer a congressional
intent to usurp a traditional state police power unless Congress
makes that intent manifestly apparent. The reason for that
doctrine is to ensure that federal legislation is not interpreted
in such a way as to alter the delicate balance of power between
the federal and state governments unless Congress has thoroughly
considered it and fully intended that to be the result.
MS. GRACE pointed out that the argument in this case is that
Congress did not make clear in ANILCA an intent to take away the
state's authority to regulate navigable waters in which there is
a federal reserved water right. She indicated that although the
Governor does support a subsistence right everywhere and
continues to fight for that, he also believes that he has to
defend the state's authority to regulate its resources where
Congress really didn't make clear any intent to usurp that
authority.
Number 0468
SENATOR LINCOLN wondered if they anticipate requesting additional
funds to appeal the case.
MS. GRACE indicated she is not authorized to talk about it. She
said it is a matter for the Department of Law.
SENATOR LINCOLN wondered how aggressively they are going to
proceed with the appeal process.
MS. GRACE said they have discussed hiring outside counsel with
specialized knowledge in Supreme Court practice; it is really a
specialized area, and although the Department of Law has many
fine attorneys, there have not been enough Supreme Court cases
for the attorneys to develop that kind of expertise.
Number 0478
SENATOR KELLY asserted that the Governor does not believe in
subsistence rights everywhere, as Ms. Grace stated three times in
her testimony. He does not believe in subsistence for the people
in his district; he believes in subsistence apartheid.
SENATOR TAYLOR said he was fascinated by Ms. Grace's response to
Senator Lincoln's question about the constitutional amendment,
which was very carefully worded, because the answer was
absolutely correct but only gave half the story. He stated:
In answer to her question - when she said, "If we'd
have passed a constitutional amendment, would
subsistence not now be in all our waters?," and you
said, "Well, yes, it would," and that we would then
regulate them - the other half of the shoe that you
didn't mention was that that regulation is required
under the federal law, as we know. We've all written
letters to the Secretary of the Interior how many
different times, on how many different modifications,
that federal law has to be mirrored within our state
laws, and that the ultimate resolver of all disputes on
subsistence, after we've adopted it, is going to be in
federal court, not the state court.
A federal judge sitting someplace, even in Anchorage or
San Francisco or the Ninth Circuit Court of Appeals,
will decide whether or not a commercial fishery opens
or closes, whether or not sport fishing is allowed or
closed, all personal use permits, according to the
regulations you and I were talking about earlier,
personal use permits that all of Alaskans are used to
and understand if you come from a community too large
those will not be allowed - if, in fact, they have to
close any fisheries to protect subsistence.
It's a nice half-answer, but it fails to mention what
the ramifications are of us adopting a law, so I'd have
to question it a little different way. Had we adopted
the amendment - whichever one over the last ten years
you want to take, assuming one, I guess, in compliance
with what the Secretary [of the Interior] would accept,
because he is the ultimate arbitrator of every decision
we make around here, whether it's good or bad -
assuming we had done that, what basis would you have at
this point in time to even be appealing or stay, as you
have in the Peratrovich case?
... All of those legal arguments on the reserved water
right question that you claim this Governor wants to
defend us on, you'd have given up all those things by
adopting or conceding to the fact that the federal
government does, in fact, have this reserved right,
which I think most of us here at the table would
dispute that they have such a right. Can you answer
that?
Number 0508
MS. GRACE replied that if they had passed a constitutional
amendment, then Alaska would have management of the fisheries and
there would be a statewide subsistence priority for the rural
residents of Alaska. There would be no need to litigate reserved
water rights or title to submerged land in order to determine the
scope of the right, because the scope of the right would be
statewide.
SENATOR TAYLOR responded, "To finish your sentence: statewide
and dictated to us by the federal government on its
interpretation of what its federal law means when applied in the
field."
MS. GRACE indicated it is correct that the federal courts would
be able to review state management statewide.
SENATOR TAYLOR pointed out that at any time, if [the federal
government] did not find the state in compliance with its
interpretation of the federal law, it would assert the very same
jurisdiction it claims to assert today, because the reserved
water rights question would have been forfeited.
MS. GRACE said the reserved water rights question would just have
no relevance. It would not necessarily be forfeited in a legal
sense.
SENATOR TAYLOR stated that Alaska's right to manage its fisheries
in the navigable waters, which has been assumed throughout in the
Submerged Lands Act and the Alaska Statehood Act, would go down
the drain, because Alaska would have embraced a federal concept
that the federal government has the authority, and the state
would not now be contesting it and fighting to keep it under
state control.
MS. GRACE explained that state management would be subject to
judicial review in isolated cases, but she doesn't think it is
fair to say that the state would be giving up its right to manage
its waterways; the state would have that right in a way that it
doesn't have it when the Federal Subsistence Board is managing
subsistence.
SENATOR TAYLOR asked why the reserved water rights issue is not
being contested in any of the cases, and why the Administration
dodging the issue. He mentioned the issue in Glacier Bay.
Number 0538
MS. GRACE responded that the federal authority that the National
Park Service is claiming to have on fisheries in Glacier Bay
National Park [and Preserve] is not based on a reserved water
right; Title VIII does not apply there. The federal authority is
based on the fact that it claims title to the submerged land,
that the submerged land is parkland that the National Park
Service has authority over. The state's claim is that those are
not National Park Service lands but state lands, and that is why
the reserved water rights issue has not been raised, and that is
why it is being limited to a title issue.
SENATOR TAYLOR said:
So, we could win Glacier Bay on your brief and the
federal government would still regulate on the
fisheries, because they would say that no subsistence
is allowed there .... You're arguing only the limited
technical aspects of who owns the submerged land.
MS. GRACE said the fact that there is no Title VIII subsistence
right in Glacier Bay National Park [and Preserve] really has
nothing to do with the title to the land. It is not really an
issue between the state and federal governments; it is something
that is in federal law.
SENATOR TAYLOR indicated that if it doesn't have anything to do
with it, then why is the federal government paying some $300,000
to fishermen so that they won't catch crab there anymore?
MS. GRACE stated her understanding that Senator Taylor was saying
that if they were to establish that those are state waters rather
than park service lands, then the exception to Title VIII for
Glacier Bay National Park [and Preserve] would not apply to those
waters.
SENATOR TAYLOR responded, "Right."
MS. GRACE stated, "There would be a subsistence right in those
waters."
SENATOR TAYLOR pointed out that they haven't extended it to
marine waters yet. If the state sells a crab fishing license
that says that the fishermen are allowed to fish for crab in
Southeast Alaska, then that fishing license would still have some
validity in those waters if the state fought for its right to
issue that license in those waters.
MS. GRACE reiterated that the National Park Service is asserting
authority on the basis that it considers the submerged land its
claim.
Number 0571
SENATOR TAYLOR said that he understands their claim. He wondered
why they are not fighting on behalf of those fishermen and users
of that water. He asked why the state has failed to request a
stay pending the outcome in the Katie John case.
MS. GRACE replied that it is probably not too late to do it, but
it is extremely unlikely that they would receive such a stay.
She indicated it is not something they have really thought about,
but they will now think about it.
CO-CHAIR MASEK agreed with Senator Taylor that if there were a
constitutional amendment .... [ends midspeech because of tape
change].
TAPE 00-3, SIDE B [HOUSE RESOURCES TAPE]
CO-CHAIR MASEK continued. Referring to ANILCA, she said that
unless there are changes that go along with the constitutional
amendment, the state will not get its management back. She
asked: If the judgment were overturned by the Ninth Circuit
Court of Appeals or the U.S. Supreme Court, would the state
retain its existing management authority in navigable waters?
MS. GRACE explained that the Federal Subsistence Board, since
October 1, 1999, has taken over fisheries management for
subsistence purposes in navigable waters. She indicated that
the state would not maintain its current status, but would regain
its former status as the regulator of fisheries in almost all
waters of Alaska. Before the Katie John case, the Federal
Subsistence Board had authority to regulate fisheries in non-
navigable waters on public land, which is fairly insignificant
compared to the authority it has now.
Number 0577
SENATOR MACKIE indicated he understood some, but not all, of
Senator Taylor's line of questioning. He suggested to Senator
Taylor that some of the questioning was going toward policy
decisions, and some of the policy decisions are not for Ms. Grace
and Ms. Swiderski to make.
SENATOR KELLY agreed with Senator Mackie, but said he cannot help
but notice the absence of the Attorney General when it comes to
discussing an incredibly important case.
CO-CHAIR HUDSON said he feels encouraged that the Administration
is filing on the Glacier Bay case; if they win that one, they win
something substantive. He indicated that if the state can make a
clear understanding of what the federal government's
responsibilities and authorities are, and what the state's are,
then they will be miles ahead of where they are now.
Number 0542
SENATOR TAYLOR said he appreciates Ms. Grace and Ms. Swiderski
coming before the committee, but he is disappointed that cases
which appear to relate to some of the narrowest, most constrained
arguments and issues are not yet being addressed. He pointed out
that the overriding questions are: What is the federal
government's authority in Alaskan waters? And what was conveyed
to the state at statehood? The argument that they are giving has
been constrained by the Administration in the way that they have
approached it. When he hears statements like "we could win
Glacier Bay," and still there is no resolution of the issue of
reserved water rights, that is frightening.
SENATOR TAYLOR indicated it is possibly to the benefit, for
political purposes, for some individuals to keep that issue from
being determined. He believes that when it is determined the
state wins. He voiced his frustration that they are not being
allowed to defend the state as vigorously as the constitution
calls upon the Attorney General's office to defend it; it is that
lack of defense that has caused them to sit on the issue for ten
years, he said. He encouraged doing whatever they can to ensure
that the state is protected and that the matters go forward. He
wondered if the Attorney General's office would appreciate the
support of the legislature in the form of an amicus brief on the
Katie John case and Glacier Bay case.
MS. GRACE responded that it is a question for the Attorney
General. She added that the decision to appeal the final
judgment on the Katie John case is very much a decision to defend
the state's authority to regulate its resources in navigable
waters, which has been the position of the Governor since he came
into office; the appeal is a demonstration of that.
Number 0474
CO-CHAIR MASEK wondered if the case challenges the subsistence
priority on public lands.
MS. GRACE explained that the subsistence priority applies to
public lands, and that is the way that the scope of the right was
determined: a rural resident has a right to a priority in
hunting and fishing on public lands. This case does challenge
the current definition of public lands, not because the
Administration would like to challenge the subsistence priority
in that area, but because the authority of the federal government
to take over fisheries management also applies to public lands.
CO-CHAIR MASEK wondered what would happen on the Yukon River if
the state lost the appeal on the Katie John case and the final
judgment went through.
MS. SWIDERSKI replied that if the state did not prevail on the
Katie John appeal, then the status quo would remain in place and
the federal agencies, which have asserted authority over segments
of the Yukon River, would continue to manage for subsistence
purposes in those segments.
Number 0448
CO-CHAIR HUDSON wondered if the court's determination on the
Katie John case would have to take into consideration the
agreement between Canada and the United States, specifically on
the river system.
MS. SWIDERSKI indicated those obligations are overriding, so the
United States' commitment to the treaties would stand and the
federal agencies would regulate within the context of meeting the
treaty obligation.
CHAIRMAN HALFORD said [the committees] would look forward to
seeing the initial briefs. He called an at-ease at 3:15 p.m. and
called the meeting back to order at 3:35 p.m.
Number 0419
HANK HOVE, Chairman, Alaska Gasline Port Authority, testified as
follows:
In October of 1999, the voters of the Fairbanks
Northstar Borough and the North Slope Borough and the
City of Valdez formed a port authority for the purpose
of the construction and operation of a gas pipeline,
which would finally, after over 20 years, commercialize
that vast natural resource which we as residents of the
state of Alaska possess on the North Slope. We have a
nine-member board of directors ... composed of three
individuals from each community. In the Northslope
Borough, we have Mayor George Ahmaogak, Richard Glenn
and Thomas Napageak; and from the City of Valdez, Mayor
Dave Cobb will be joining us here just momentarily when
he completes another meeting, Dave Dengel and John
Kelsey; and from Fairbanks, myself, former Attorney
General Charlie Cole, and Barbara Schuhmann.
We have, we think, made considerable progress since
October, and we have now formed a development team,
which consists fundamentally of the port authority
itself, and we have secured ... an EPC (ph) role player
in the form of Bechtel, which is a world-renowned
construction and engineering firm. We have with us
Yukon Pacific Corporation [YPC], which has worked for
18 years and has expended considerable sums of money to
obtain the permits necessary to build an LNG [liquid
natural gas] facility and a pipeline. We have also
secured the services of Taylor Dejongh and Merrill
Lynch, and also general counsel from the Lower 48 with
great expertise in areas of the this nature, O'Melveny
and Myers; and our general counsel from the state of
Alaska is Walker, Walker, Wendlandt and Osowski ... .
The overview of the project is, of course, the
treatment and transport of natural gas via pipeline
from Prudhoe Bay to Valdez. This pipeline, as
permitted by Yukon Pacific [Corporation], fundamentally
parallels the existing TAPS [Trans-Alaska Pipeline
System] line, and at Valdez we would convert the
natural gas to liquid natural gas and ship it to the
Far East markets, which all the markets plan for the
sale of Alaska natural gas. At Prudhoe Bay we would
build a conditioning plant; that plant is for the
purpose of removing water and carbon dioxide from the
gas as it comes up out of the field, and then
transporting it to tidewater in a pipeline with a
diameter of up to 48 inches, and which would have
future capacity for transporting up to four billion
cubic feet of gas per day, should the markets demand.
At Valdez we would construct the liquid natural gas
plant that chills the gas to a liquid and prepares it
for shipment. The chilling of the gas essentially ...
reduces the volume of the gas down to one-sixteenth of
its former level when it was a vapor or a gas. The
technical environmental challenges to building a
pipeline in Alaska are considerable, as we all know.
As residents of this state, we know that it braces us
with challenges of some of the harshest cold-weather
environments in the United States, if not in the world,
and that the pipeline of the sort that is proposed here
by the port authority would be passing through areas of
continuous and discontinuous permafrost.
The pipeline would have pressures of greater than 2,000
pounds per square inch, and the gas would be chilled to
a temperature lower than 32 degrees Fahrenheit. And
the preservation of the sensitive habitat of wildlife
and migratory herds and birds and streams and rivers,
continued Native fisheries, is extremely important and
was given particular attention in the permitting
process as YPC went through that process in obtaining
the permits.
The challenge also before us is that of minimizing
impact on the ongoing operation of the TAPS pipeline
due to construction and operation of the new gas line.
[It] would require considerable coordination between
our contractor and Alyeska, who is the present operator
of TAPS, and we also need to arrange for the
minimization of impact to existing Purdoe Bay
operations due to construction, and later through the
operation of the new gas conditioning facility. So,
those are some of the challenges that face us in that
area.
In implementation challenges we find that there have
been a number of studies - and I'm sure members of this
committee are very well aware of all of them - over the
past 20 years to define a project, to design a project
and to market and fund a project. ... Under the typical
private-enterprise kind of approach to this particular
problem, none of them have demonstrated that they have
associated with any of the plans sufficient margins to
be able to attract financing, [for] one thing, or for
being able to deliver gas to its market at a price that
would find a buyer.
The project viability - and the schedule driven by
energy supply and market conditions - is a factor that
challenges us. Our project viability has increased
because of the nature of the public-private kind of
enterprise ... which we are proposing. Where we bring
certain advantages in terms of financing, and in terms
of tax structure on net revenues that markedly change
the economics of a gas pipeline - where it might
formerly have been at the margins, or less or lower -
this project ... operated through a port authority kind
of scheme, in fact, changes the economics of an Alaska
gas pipeline in a very positive direction.
The final bullet there on this page ["The
Implementation Challenges"] kind of says it all, in
terms of what I've already said, in terms of in the
past the minimal financial benefits for a pure,
private-sector solution just did not work out, in terms
of commercializing Alaska's gas, and created a need for
this kind of innovative public-private solution.
So, why is our project different? Well, there are
substantial fiscal advantages [in] using an Alaska
gasline port authority method. There is the matter of
not having exposed the net profits to federal income
tax, which is the most dramatic example of the
advantage offered by a port authority kind of approach
to this problem. Also, to a lesser extent in terms of
importance, is the availability to some extent to tax-
exempt financing for such a project, which would not
typically be available to a strictly private-sector
kind of approach. Also, as Alaskans and as a port
authority formed only for one purpose, we, therefore,
only have one focus, and that focus is on the
commercialization of Alaska's gas. ... We have one
project that is driving us, and we only will ever do
one project, and that is an Alaska gas pipeline.
Regulatory efficiency is also an advantage because of
our association and their association with us of the
Yukon Pacific Corporation, which presently has many of
the permits required to not only construct but to
operate this pipeline - and the cost-effective
technology of the conversion to LNG that we think is an
efficient method of conversion that we planned. And
the project economies that we think that we can bring
to this project further enhance the possibilities and
probabilities, in fact, we think of achieving: success
and the schedule and speed of development.
Most other proposals that have to do with the
commercialization of Alaska gas and the construction of
the pipeline say that there is a market out there in
2010. That, we think, is also true, ... but there is
also a market window open in roughly the year 2005.
So, our proposal envisions bringing Alaska's gas to
market five years sooner than anyone else claims that
it is possible to do, and we think only we could
actually meet that timetable. Presently, any other
proposal would need to be permitted from the start,
from the first permit to the last permit. That is a
long and expensive process; it would take a great deal
of time and, if engaged in, would cause you to miss the
2005 time frame, which is the earliest that Alaska gas
can find a market. We are the only ones that can meet
that timetable.
The benefits to Alaskans are many. We will finally,
for the first time, be able to provide for gas to many
of Alaska's communities who presently do not enjoy
access to this low-cost and lower-polluting fuel. Only
Anchorage, the Mat-Su Borough and Kenai Peninsula
presently in the state of Alaska enjoy access to this
fuel. If this pipeline is constructed, Alaska's
second-largest borough, Fairbanks, would now have
access to it; Valdez would, and all other corridor
communities up and down the pipeline as well would have
access to this efficient and lower-cost fuel supply.
And we would expect that these new energy supplies
would also stimulate business development throughout
the state, which can also have a very beneficial side
effect on our economy, at a time when we're wondering
what we're really going to do about our economy. Also
it provides for, when sized properly, a potential spur
line to the Cook Inlet to provide for an expanded gas
supply for consumers there, and also possibly to
provide for fuel for gas-intensive industrial
applications, and, finally, and for us most importantly
- for us as Alaskans - the insurance of long-term gas
availability.
Also to the benefit of Alaskans, during the course of
constructions of the pipeline it is the estimate of
Bechtel that over 10,000 construction jobs would be
created. This would not quite reach the magnitude of
the construction of TAPS, but nonetheless there would
be a very, very significant boost to the Alaskan
economy for the period of the construction of the line
and would have, also, direct contribution to the Alaska
economy of $2 to $3 billion in local purchases of
goods and services in support of the construction of
the pipeline.
After construction would be completed, permanent jobs
in the form of 400 in-plant and pipeline operations
jobs would be in the economy of Alaska over the long
term, for the life of the project, in fact, which would
be several decades. And, of course, then there's the
indirect service and support employment that would
result in the increased activity surrounding operations
of the pipeline. This would have a $100-million-per-
year impact on the Alaskan economy and would improve -
by the way, not something that we are directly
responsible for, but as a member of the United States
of America citizenry, I think it's important for us to
consider these smaller matters as well - would improve
a very serious balance-of-payments problem to make up
for all the Toyotas and Nissans and Hondas that we have
bought over the years and no doubt will continue to
purchase. And selling natural gas back to Japan would
be an excellent way to at least partially eliminate
that as a problem for the United States. And it would
very significantly contribute to the state revenue,
directly to the State of Alaska and to its citizens.
Gas is the cleanest-burning fuel that is commercially
available, and we have in Fairbanks - as some of you
may know - a very serious air quality problem. And
there is an air quality problem in Anchorage, as well,
for that matter, and they presently consume gas. But
we in Fairbanks and in other places in the state will
benefit greatly in terms of the improvement in air
quality as a result of burning this clean fuel, as
opposed to coal, and as opposed to oil and to wood.
And this pipeline would be an exemplary environmental
project, adhering to the new regulations regarding air
quality, and it would make it a model for future Alaska
projects. And it would be designed for the utmost
safety both during the construction phases and the
operational phases.
And there are even benefits to the gas producers who
are presently engaged in the production of crude oil
on the North Slope. First, there is no capital
required of them to construct this gas line, and that
is a matter of some advantage that they would then have
capital available to do other projects of other sorts -
maybe not - elsewhere in the world. We'll provide the
capital for the construction of this pipeline. It
would also provide for significant revenues as a result
of the purchase of gas from the producers on the North
Slope and over the long term would increase field life
and oil recovery rate on the North Slope.
What we are doing presently, at this moment and in the
near term, is that we are making gas market initiatives
both including direct contacts with LNG off-takers in
the Far East. We plan a trip to the Far East sometime
probably in March, possibly even in February, for the
purpose of meeting with possible buyers in China,
Taiwan, Korea and Japan.
Also, we will, sometime in the next few months, ...
receive the response to our ruling request from the IRS
[Internal Revenue Service] concerning the port
authority's exemption from federal income tax. We are
very confident about the outcome of this particular
ruling, but it is -- and we asked for it, really, only
in order to provide a degree of comfort to the
investors in the pipeline who without it might find it
somewhat less attractive as an investment vehicle ....
Number 0178
BRENT SHERFEY, Project Manager, Petroleum and Chemical North
America, Bechtel Corporation, indicated that first is the review
of the existing regulatory and environmental permitting and
approval processes that this project will entail. There have
been many studies done in the past, but this is probably one of
the most highly visible projects from an environmental viewpoint
and will set a precedent in the future. They are also conducting
the initial design basis for the gas plant on the North Slope for
the pipeline itself, which involves engineering and hydraulic
studies.
MR. SHERFEY pointed out that the study is one of the largest
procurement programs [involving] procurement of some of the
largest pipe in the world, which also entails delivery of 800
miles of pipe and the construction of the facilities. The
logistics program is enormous and a study in itself. They are
also concentrating on maximizing the Alaskan content of the
procurement activities, finding suppliers and sources of material
in Alaska to make sure that it is an Alaskan project. He
explained that the construction plan and schedule is a process of
sequencing the construction process and putting it into a
schedule in which the 2005 completion is still targeted. He
indicated that there are such issues as working during the winter
months and windows of opportunity to ship materials into Prudhoe
Bay, as well as issues relating to construction camps along the
pipeline, specifically, locating and pre-building them in
adequate time to accommodate the various crews.
MR. SHERFEY informed the committee that part of the permitting
process is the environmental monitoring and inspection process
during construction and operations. He mentioned the assurance
that all the construction activities adhere to the regulatory
requirements imposed by the agencies in good sound business
practices; he said this will be a major part of their
construction activity. He said that there will be a study of the
Alaska labor market ensuring that there are skilled Alaskans
available for construction of the project. The operating
maintenance plan is an overall program for identifying the
operational components and maintenance components of the
facilities. He indicated that with regard to the economic
analysis, they are running various scenarios. The preliminary
financial plan is taking a look at optimizing the various sources
of financing available and also taking a look at the various
risks.
SENATOR KELLY asked Mr. Hove how the rest of the state benefits
from this project.
Number 0037
MR. HOVE responded that any activity that they may be involved in
that produces revenue should probably be shared with Alaska,
because all citizens in the state have an interest in the North
Slope and what is there. He indicated that they proposed sharing
more than half with the State of Alaska, directly to its general
fund, for appropriation by the legislature for whatever purpose.
They also considered the application of about half that amount
for distribution directly to every resident of Alaska and a small
fraction, about 10 percent, directly to residents in the
communities that formed the port authority originally in October
of 1999. After putting aside reserves for ensuring ongoing and
efficient operations, and that all costs have been met and paid,
then the net amount left over will be distributed directly back
to the State of Alaska in one form or another.
TAPE 00-4, SIDE A [HOUSE RESOURCES TAPE]
SENATOR LINCOLN said she hoped the lack of attendance was not
viewed as a lack of interest in the project. She knows there is
a lot of interest due to the questions posed. She declared a
conflict of interest because Valdez is part of her district. She
said she had questions regarding alternative routes and the
impact of a merger on the port authority.
Number 0039
MR. HOVE stated that he appreciates the questions being asked.
He noted the lack of attendance is not interpreted negatively.
He said only one route is being proposed. This is the route that
is presently permitted. The route goes from Prudhoe Bay through
Fairbanks paralleling TAPS to Valdez. He indicated there are
other organizations with different routing ideas, but the Alaska
Gasline Port Authority has not analyzed any of those. He thinks
a time window of 2005 needs to be made for sales to the market.
Taking the time now to permit a new route would use up so much
time and resources and cause failure to meet that marketing
window. It is his opinion that an alternative stream of revenue
is needed in the state and is needed as soon as possible.
MR. HOVE referred to the BP Amoco merger with ARCO. He indicated
the difficulties encountered have not enhanced the opportunities
to engage in substantive discussion with the producers regarding
the sale of natural gas to the port authority. He believes the
merger has had a negative effect on "their being able to remove
their focus, particularly on the part...of BP from the merger to
a supply of gas."
CO-CHAIR HUDSON said there was a recent presentation on the
proposal for the gas-to-liquids which would require a portion of
the gas to be converted to liquids then move down the pipeline
through the batch process. He does not believe there is any
negative effect on the project proposed by the Alaska Gasline
Port Authority. He asked if this is Mr. Hove's understanding.
Number 0101
MR. HOVE thinks there is room for both projects. He does not
feel there is an impact in any way on their project by the
existence of the gas-to-liquid demonstration project or outright
commercial production of gas-to-liquids. He said it does not
concern them so long as there is an adequate supply of gas
available to make the project economical.
REPRESENTATIVE HARRIS referred to Mr. Hove's earlier discussion
of the IRS ruling. He wondered what would happen if the ruling
is not positive to the economics of the project.
MR. HOVE said it would not be positive. He commented it would
essentially return them to a completely private sector type of
economic model which would not allow them to offer any
significant advantage as a port authority. He explained the port
authority has never received a negative opinion on this from any
counsel they have sought. He stated,
It was more or less a Pro Forma thing and, as I
indicated before, we...are going through it
fundamentally...to assure the financial markets that we
have done what we need to do to ensure that their
investment is more secure than it might otherwise be
should we not seek the ruling and later learn that the
income was not tax exempt...We're very, very confident
that it will come through.
SENATOR KELLY asked if the IRS determination would be strictly up
or down, or something in-between.
MR. HOVE replied it is his understanding that it is an up or down
situation.
Number 0150
CO-CHAIR MASEK inquired how far along the Alaska Gasline Port
Authority is with their permits and if those permits are in
place.
MR. HOVE explained that everyone engaged in this process is
essentially a team player. The port authority developed the
concept and provides the legal authority for proceeding. He
noted that Williams Company, should they be successful in
concluding an agreement, will provide great expertise in the
construction and operation of gas pipelines. He further
commented, "Bechtel brings what we all know Bechtel brings ...
they're probably the world's largest engineering firm, and a
terribly successful firm, too." With respect to permits, he said
YPC, another team member, is the owner of the permits, not the
port authority. All these major players have been brought
together for one purpose: to commercialize Alaska's gas, which
has been stranded on the North Slope for over 20 years. He
stressed that everyone wins here, if everyone plays well.
Number 0190
CO-CHAIR MASEK, on the issue of construction jobs, would like to
see a plan on getting people to work on the pipeline. She also
wanted to know which agencies will be used to get Alaskans to
work on the construction of the project.
MR. HOVE said local unions need to be engaged to develop training
programs that will enable members to work on this pipeline or
even other pipelines. He thinks this needs to be done across the
state whether it is a union or a non-union situation. He
mentioned that YPC, in the course of securing permits, engaged in
some project labor agreements with union locals across a quarter
of the pipeline. There exist today agreements which relate to
those permits and address the issue of preparing Alaskan workers
to work on this project. He is vitally interested in the local
hire.
CO-CHAIR MASEK asked Mr. Hove to provide later on, as the project
progresses, an outline of the plan to hire local Alaskans.
MR. HOVE expressed it would be a privilege to do so.
REPRESENTATIVE WHITAKER asked Mr. Hove to put the permitting
advantage in a time frame.
MR. HOVE estimated a new permitting process would consume three
unnecessary years of work.
REPRESENTATIVE WHITAKER wondered if it would assume a successful
culmination to that extra three years of effort.
MR. HOVE replied that would be the assumption. He asked if there
was a satisfactory outcome.
REPRESENTATIVE WHITAKER responded yes. He asked if that
assumption is not a given.
MR. HOVE said that is true.
REPRESENTATIVE WHITAKER indicated he would like to run through
some key components to taking a commodity, such as gas, to the
market place. He requested Mr. Hove provide an estimation of his
confidence level with regard to those key components. The first
component he asked Mr. Hove to address is the market.
Number 0244
MR. HOVE said it is the belief that the market for Alaska gas
exists in the Far East. He explained the market exists because
the economy is recovering and growing in the Far East and will
once again become a vital and growing consumer of Alaska gas. In
addition, there is a considerable effort being undertaken for the
privatization of electric power plants. Electric power plants
presently consume either coal or oil. According to the current
plan, these power plants would be converted to burn natural gas.
It is believed this natural gas should come from Alaska in the
form of LNG. He said these are the two principal causes for a
market to be created in the Far East.
REPRESENTATIVE WHITAKER wondered what Mr. Hove's level of
confidence is with respect to penetrating that market.
MR. HOVE stated there is an assumption, based on previous
discussions with potential buyers in the Far East, that the
market does and will exist over there. He explained, "Though,
what we are going to do is engage in discussions with those
markets ourselves,...to judge for ourselves, probably this next
month or the month after, first of all, the extent of interest,
and, secondly, the level of consumption, and perhaps even to
engage in some very preliminary discussions about terms." He
noted Representative Whitaker's question would be easier to
answer in a matter of weeks. He indicated the port authority
would not have progressed to the extent they have by simply
betting on a market or expecting one to appear.
Number 0277
REPRESENTATIVE WHITAKER asked what Mr. Hove's level of confidence
is regarding financial feasibility.
MR. HOVE wondered if he meant financial feasibility by the
investor.
REPRESENTATIVE WHITAKER said that is correct.
MR. HOVE stated,
Well, actually, we often, when we get bogged down
internally discussing issues that relate to your
question, we often have to come back to the fundamental
realization that the...investors in this project are
going to be making the final determination as to
whether it's viable or not viable. They will not
invest in a market...they don't think is a viable
investment...So, we're counting, first of all, on
bringing to them the absolute best data that we can,
the most accurate and refined data that we can, in
order to assure the financial investment community that
what we are proposing is in fact real and is worthy of
their attention, and, finally, worthy of their
investment.
Number 0296
REPRESENTATIVE WHITAKER asked what the obstacle is that would
keep the project from moving ahead. He wondered what component
of success is lacking at this point.
MR. HOVE replied the single biggest obstacle is the lack of
access to the supply of gas from the North Slope.
REPRESENTATIVE WHITAKER inquired if there have been discussions
with the North Slope producers.
MR. HOVE said yes.
REPRESENTATIVE WHITAKER asked if there have been discussions with
ARCO.
MR. HOVE said no.
REPRESENTATIVE WHITAKER wondered if attempts had been made to
have initial discussions with them.
MR. HOVE said, "Yes, indeed, we did."
REPRESENTATIVE WHITAKER asked what their answer was.
MR. HOVE responded, "They could not talk about sale of gas until
the merger was concluded."
REPRESENTATIVE WHITAKER wondered if there have been discussions
with Exxon.
MR. HOVE replied yes.
REPRESENTATIVE WHITAKER asked how Exxon responded.
MR. HOVE indicated Exxon's response was not positive in terms of
being able to secure a supply of gas. He said there had been two
meetings with Exxon. Exxon responded to their terms sheet, which
had been submitted to them in revised form twice. He explained
that Exxon does not have much hope for the port authority
achieving a supply of gas from them.
Number 0317
REPRESENTATIVE WHITAKER asked if there have been discussions with
BP.
MR. HOVE said yes.
REPRESENTATIVE WHITAKER wondered what BP's response was.
MR. HOVE commented that BP feels their terms sheet is wholly
unsatisfactory and had other concerns with the proposal.
REPRESENTATIVE WHITAKER asked if there is an ongoing dialogue
with BP at this time.
MR. HOVE stated there are no scheduled meetings with any of the
producers at this time.
REPRESENTATIVE WHITAKER asked if there have been discussions with
the State of Alaska regarding its royalty gas.
MR. HOVE said there was considerable discussion going on with
Commissioner Shively and Commissioner Condon during the course of
the development of the charter agreement. He believes it was
ultimately assumed by both commissioners that "the amount of gas
we required, being (indisc.) of that which the charter agreement
called for, would be made up for the by royalty gas owned by the
State of Alaska." He pointed out this would be a wholly
unsatisfactory situation because it presumes the continuation of
the consumption of gas in those relative ratios. The problem
with this is the royalty gas would run out years before running
out of (indisc.) gas from the producers. He does not think the
financial community would look beneficially upon the circumstance
for the supply hanging upon such a tenuous thread. He said the
field needs to be drawn down so the State has a one-eighth
royalty interest. He feels if this is not done sooner there will
be a gas supply problem again.
Number 0346
REPRESENTATIVE WHITAKER wondered if Mr. Hove had made the
Administration aware of that.
MR. HOVE said he had.
REPRESENTATIVE WHITAKER wondered what their response was.
MR. HOVE replied, "It was one and a half billion cubic feet a
day, and that's it."
REPRESENTATIVE WHITAKER asked if Mr. Hove has had discussions
with the Alaska North Slope sponsor group.
MR. HOVE indicated there have been two meetings.
Number 0355
REPRESENTATIVE WHITAKER asked Mr. Hove how he would characterize
the meetings with everyone excluding the industry sponsor groups.
He excluded the industry sponsor groups because he feels they are
taking Mr. Hove seriously and attempting to work with him. He
thinks it is important that everyone understand that this is an
opportunity to take a huge commodity resource to market, but not
all is being done to do this.
MR. HOVE said it struck him, as a participant in these
discussions, that the producers either do not realize or choose
not to recognize the effect of their decision not to produce
Alaska's gas prior to today. He stated:
I was struck, I guess, by the fact that they think of
it as theirs. They are the owners, but they are only
lease holders, and we only leased it to them,
originally, with the intent of their doing something
with it, and they never have done anything with it.
And we as the State of Alaska in this residence have
suffered for that for many, many years...that they have
a mandate, actually, or a duty, at the very least, to
contribute to the state and to the State of Alaska and
its residents, but they haven't, and so they've made
their investments elsewhere in the world and they've
produced gas elsewhere in the world; places in the
world that charge rent for keeping gas in the ground.
Only in Alaska, to the best of my knowledge, do we
offer to warehouse for free...a natural resource for a
company that has that resource under a lease-hold
interest. Only in Alaska can that occur. Free of
charge. No penalty. And that is why,
fundamentally,...we have not seen Alaska's gas come to
be produced or to reach a market because we do not
extract rent for the privilege of storing it here.
Number 0392
REPRESENTATIVE HARRIS asked, "What is the philosophy of this
group as far as the use of Yukon Pacific both with its permits
and its expertise in the market place in the Orient?"
MR. HOVE responded that YPC has been engaged in all of the work
that has gone into the creation of the permits to the extent that
they exist today. He said it is not 100 percent permitted and
there are still some permits that are required to be obtained.
He indicated YPC has developed relationships with people in the
process. He feels these relationships will be extremely valuable
in the construction and operations phase. He referred back to
his mention of the existence of certain labor agreements and
stated he is very pleased that YPC engaged the environmental
community throughout the process. It is his hope this will in
someway make the job easier. He explained that YPC possesses
considerable historical knowledge and technical expertise.
Number 0424
REPRESENTATIVE HARRIS asked Mr. Hove to clarify how long it would
take without the permits in place.
MR. HOVE replied it would be three years and cost over $100
million for a newly permitted pipeline.
REPRESENTATIVE HARRIS asked, "If you can get the permits?"
MR. HOVE said that is correct.
SENATOR KELLY requested Mr. Hove explain the tax-exempt status,
how it works, and why it works for investors.
MR. HOVE reemphasized that the tax-exempt part of the financing
is a very small part and somewhat complex. He explained:
To the extent that Alaska's gas would be consumed by
Alaskans in-state, there is an excellent chance that
bonds that could be pro-rated against the expenses to
the extent that we sell the gas. Say it's (indisc.-
coughing) then maybe 7 percent of the bonds sold to
finance the construction of the line would enjoy tax-
exempt status.
SENATOR KELLY wondered about the income from the project that
goes to the investors.
MR. HOVE indicated the income would be in the form of repayment
of the bonds bearing a certain interest rate.
SENATOR KELLY asked what the tax implications are of those.
MR. HOVE responded that 93 percent of them will not enjoy tax-
exempt status and will be paying taxes on that part of the
income.
Number 0451
REPRESENTATIVE WHITAKER said he thought Senator Kelly was also
asking about the revenue stream associated with the project and
the tax implications thereof.
MR. HOVE indicated he understood. He clarified that the net
revenues would not be exposed to federal income taxes. The
distribution of the revenues to residents of Alaska becomes
ordinary income and is subject to taxation. If the revenues were
distributed to municipalities or to the state, they would forever
escape federal taxation.
Number 0471
ADJOURNMENT
CHAIRMAN HALFORD adjourned the joint meeting of the House/Senate
Resources Committees at 4:39 p.m.
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