Legislature(2017 - 2018)BARNES 124
03/27/2017 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing(s):|| Alaska Gasline Development Corporation Board of Directors | |
| Commissioner-designee - Department of Natural Resources | |
| HB155 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 155 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 27, 2017
1:08 p.m.
MEMBERS PRESENT
Representative Andy Josephson, Co-Chair
Representative Geran Tarr, Co-Chair
Representative Dean Westlake, Vice Chair
Representative Harriet Drummond
Representative Justin Parish
Representative Chris Birch
Representative DeLena Johnson
Representative George Rauscher
Representative David Talerico
MEMBERS ABSENT
Representative Mike Chenault (alternate)
Representative Chris Tuck (alternate)
COMMITTEE CALENDAR
CONFIRMATION HEARING(S):
Alaska Gasline Development Corporation Board of Directors
Warren Christian - North Pole, Alaska
Hugh Short Girdwood, Alaska
- CONFIRMATION(S) ADVANCED
COMMISSIONER-DESIGNEE Department of Natural Resources
Andrew T. Mack - Anchorage, Alaska
- CONFIRMATION(S) ADVANCED
HOUSE BILL NO. 155,
"An Act authorizing a land exchange in which certain Alaska
mental health trust land is exchanged for certain national
forest land and relating to the costs of the exchange; and
providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 155
SHORT TITLE: AK MENTAL HEALTH TRUST LAND EXCHANGE
SPONSOR(s): REPRESENTATIVE(s) ORTIZ
03/06/17 (H) READ THE FIRST TIME - REFERRALS
03/06/17 (H) RES, FIN
03/27/17 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
WARREN CHRISTIAN, Appointee
Board of Directors
Alaska Gasline Development Corporation
North Pole, Alaska
POSITION STATEMENT: Testified as appointee to the Alaska
Gasline Development Corporation Board of Directors.
HUGH SHORT, Appointee
Board of Directors
Alaska Gasline Development Corporation
Girdwood, Alaska
POSITION STATEMENT: Testified as appointee to the Alaska
Gasline Development Corporation Board of Directors.
ANDREW T. MACK, Commissioner-Designee
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Testified as appointee to the position of
commissioner of the Department of Natural Resources.
REPRESENTATIVE DAN ORTIZ
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As the prime sponsor, introduced HB 155.
WYN MENEFEE, Deputy Director
Alaska Mental Health Trust Land Office
Office of the Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation
entitled, "HB 155 - Alaska Mental Health Trust Land Exchange
with the USFS."
ACTION NARRATIVE
1:08: 13 PM
CO-CHAIR GERAN TARR called the House Resources Standing
Committee meeting to order at 1:08 p.m. Representatives Tarr,
Josephson, Birch, Parish, Talerico, and Westlake were present at
the call to order. Representatives Drummond, Johnson, and
Rauscher arrived as the meeting was in progress.
^CONFIRMATION HEARING(S):
^Alaska Gasline Development Corporation Board of Directors
1:08:49 PM
CO-CHAIR TARR announced that the first order of business would
be confirmation hearings for the appointments of Warren
Christian and Hugh Short to the Alaska Gasline Development
Corporation (AGDC) Board of Directors.
1:09:23 PM
WARREN CHRISTIAN, Appointee, Board of Directors, Alaska Gasline
Development Corporation (AGDC), testified he has lived in Alaska
for 40 years, is currently living in North Pole, and has
previously lived in Fairbanks, Anchorage, and Nenana. He said
he has worked in the oil and gas industry for over 30 years,
starting as a welder helper and working his way up through the
company to becoming president [of Doyon Associated, LLC]. For
the last 10 years he has worked for Doyon Associated, LLC, (DAL)
a partnership between Doyon [Oilfield Services, Inc.] and
Associated Pipe Line [Contractors, Inc.] Prior to that he
worked for, and was president of, Houston Contracting Company
[Alaska, Ltd.], a pipeline company owned by Arctic Slope
Regional Corporation (ASRC). He noted that he has worked on the
planning and development of many pipeline projects on the North
Slope, such as Alpine, Badami, Northstar, Meltwater, Tarn,
Exxon's Point Thomson Project, and Conoco Phillips' CD5 Project,
to name a few. He also worked on the nine-mile reroute of the
48-inch Trans Alaska Pipeline System (TAPS) in Atigun Pass.
MR. CHRISTIAN further testified that he has been involved in the
training of Alaskans. He said he is a trustee of the "Joint
Apprenticeship Training Committee for the Plumbers and
Pipefitters," and is a trustee and the secretary for the
Fairbanks Pipeline Training Center. He is a member of the
[Alaska Support Industry] Alliance, the [Resource Development
Council for Alaska] (RDC), and the Fairbanks Chamber of
Commerce. He added that he is a certified project management
professional and a certified welding inspector. Currently, he
serves on the Technical Committee for AGDC, where he actively
engages with the management team.
REPRESENTATIVE BIRCH asked what Mr. Christian sees as the top
three challenges facing the [Alaska Liquefied Natural Gas (LNG)]
Project (Alaska LNG).
MR. CHRISTIAN replied that the commercial side is the challenge
that will be most heard about, which is the cost of the project,
the market, and the financing. If this first hurdle can be
overcome, he said, another major challenge for the state is
going to be the training of Alaskans. The project's schedule
ramps up extremely quickly and most of the crafts that will work
on the project cannot be mastered in a year, but rather several
years. Therefore, the overall plan for training Alaskans needs
to be thought of and developed far in advance, otherwise
Alaskans won't be trained in time to work on the project. The
third challenge, he continued, is the safety of the workforce
and the public. Thirty-two people lost their lives when TAPS
was built and that will not be acceptable building this project.
The highest safety standards and safety procedures must be
implemented not only in the execution part, but also in the
planning and permitting phase.
1:14:39 PM
CO-CHAIR JOSEPHSON asked what Mr. Christian sees as the
project's viability at this point in time. He further asked
what future investments the legislature should continue to make
in the project.
MR. CHRISTIAN answered that the project's viability is based on
the Wood Mackenzie report [entitled, "Alaska LNG Competitiveness
Study DRAFT," dated 21 August 2016] in which a path forward
was given to get this project into the commercial range. The
items on that path are third party tolling, third party finance,
and federal exemption for taxes for state ownership, and this is
the path AGDC is on right now, he said. The model that is being
created to represent that path and the assumptions around those
items will be disseminated to the legislature. There is a path
forward, it's challenging and there is a lot of work to do, but
AGDC can get there. The future investment the permitting - is
going to take some time, he pointed out, a Record of Decision is
issued, which will take AGDC beyond its current funding and
budget that goes to the end of fiscal year 2018. After that, he
advised, AGDC is probably going to need some more funding to
complete the permitting process.
REPRESENTATIVE PARISH inquired whether Mr. Christian sees any
viable alternatives to a gas pipeline in terms of getting
Alaska's gas to market.
MR. CHRISTIAN replied he is relatively new to the AGDC board and
all the data, and is therefore swamped with binders and binders
of information to get up to speed. The amount of work that has
been done on the project is massive, he said. An excellent job
has been done on the routing, the estimates, and the
assumptions. At this time, he continued, he does not see an
alternative that AGDC would get complete in time to be near the
middle of the 2020 range.
REPRESENTATIVE RAUSCHER noted that Mr. Christian sat on the
board of the Alaska Natural Gas Development Authority (ANGDA).
He asked how Mr. Christian views what he learned while at ANGDA
versus where things are headed now.
MR. CHRISTIAN responded that his term on the ANGDA board was
short, about nine months. He said ANGDA's approach was selling
- trying to market just gas without an LNG plant or a gas
treatment plant (GTP) - whereas the AGDC project is much larger
in scope and is a completely different path. The owner
companies that formed [Alaska LNG] have done quite a bit more
work than was done on any other project to date, including
optimization studies. From his perspective, he stated, the
project under AGDC is much farther along than anything done
before.
REPRESENTATIVE RAUSCHER remarked that the project's current
challenges are big. He inquired whether Mr. Christian sees that
these challenges can be overcome, and, if so, how.
MR. CHRISTIAN agreed the project currently has many challenges.
From the short amount of time that he has been with AGDC, his
perspective is that the most important thing is to complete the
Federal Energy Regulatory Commission (FERC) process. There is
$600 million worth of data, he said, and the FERC process will
validate that data. The permit will be good for three years,
plus AGDC can probably get a two-year extension. That would
give a shelf-ready project. If AGDC cannot validate its
assumptions in the model in the next year and the market does
change three years from now, the project could be pulled off the
shelf and be ready to go. The challenges are there, he allowed,
and by the end of next year AGDC will know for sure whether it
can validate the assumptions that are in the new model.
1:20:28 PM
REPRESENTATIVE RAUSCHER asked how Mr. Christian views the
state's current position strategically, and knowing the partners
that the state has had.
MR. CHRISTIAN answered that based on the [2016] Wood Mackenzie
report, a state-led project is strategically the only path the
State of Alaska can take right now to accomplish the things that
are needed to be done. It must be a state-owned, state-run
project to file for the federal tax exemption, he advised. Many
of the Lower 48 pipeline projects go to third party financing
and have the tolling method and tariff. A producers cost of
equity is much higher than going out to third party financing.
He opined the model that AGDC is following now is the correct
model for getting to the next stage to find out whether the
project is commercial.
REPRESENTATIVE JOHNSON asked about the necessity of having an
office in Houston, Texas, and the spending of monies to maintain
personnel there.
MR. CHRISTIAN deferred to AGDC president, Keith Meyer, for an
answer, but noted Mr. Meyer has told the AGDC board that Houston
is the oil and gas capital of the U.S. He related Mr. Meyer
feels that having the Houston office staffed with key
individuals, one full-time and the others part-time, will
benefit this project. He offered his belief that the budget for
the Houston office is $400,000 through fiscal year 2018.
REPRESENTATIVE JOHNSON inquired as to when the FERC process will
be completed.
MR. CHRISTIAN replied that AGDC originally planned to file the
FERC permit [application] on June 30 [2017], but is now looking
to move that up. Once the permit [application] is filed, FERC's
review process will take 18 months and then a Record of Decision
(ROD) will be issued, which AGDC anticipates will be at the end
of 2018. After the Record of Decision, he continued, FERC will
issue a draft environmental impact statement (EIS) and take
public testimony. So, from right now it will be at least 18-24
months before AGDC has a FERC permit in hand.
REPRESENTATIVE PARISH asked for AGDC's ultimate goal.
MR. CHRISTIAN responded that there are several goals, but the
two main goals are to get Alaska's gas to market and to get gas
to Alaskans. Another goal is ensuring that Alaska contractors,
tenders, and suppliers are used.
CO-CHAIR TARR inquired whether Mr. Christian sees his role as
being on the workforce side of things. She further inquired as
to whether there are things the legislature should be thinking
about or looking at right now related to workforce development.
MR. CHRISTIAN answered yes, and said the Department of Labor and
Workforce Development is looking at those things. Before coming
to the AGDC board, he said, the department contacted him about
how to train people in the short period of time and he has been
invited several times to speak to the department's task team in
this regard. Now, as an AGDC board member, he looks forward to
having more communications around that specific topic.
1:25:43 PM
REPRESENTATIVE JOHNSON asked whether Mr. Christian sees this
project as being multiple construction projects integrated into
one, or as being one large construction project.
MR. CHRISTIAN replied that all three segments of the project put
together the LNG plant, the gas treatment plant, and the
pipeline - are what make this a mega-project. Each segment on
its own is not a mega-project. All three must be coordinated,
he explained, because once construction is started it needs to
be done as quickly as possible for the return on equity. An
effort will be made to compress the schedule, so it is the most
optimum. The key is to balance the workforce, he said. If the
pipeline is not the critical path then the LNG facility is, and
so the key is to try to schedule the pipeline around the
workforce that will be required to do the other two facilities.
This will best manage the manpower, so it is not spiking way up
and then coming way down again, he noted. Each segment will be
treated differently with a different type of contractor for each
one; but, overall, a lot of the same manpower could work on any
one of the three projects.
REPRESENTATIVE RAUSCHER inquired whether Mr. Christian sees
himself as contributing to something the AGDC board is lacking
or as a complement to what already exists.
MR. CHRISTIAN responded he is very pleased with the makeup of
the board because it includes people with financial background,
labor background, construction background, and oil and gas
background. The board is well-balanced, and members work off
each other and have very good discussions with each other. He
said he is pleased with the direction in which the board is
currently going and thinks the makeup is correct.
CO-CHAIR JOSEPHSON stated he is impressed with Mr. Christian's
qualifications because they cover many facets, and this speaks
well of the governor for appointing Mr. Christian.
REPRESENTATIVE TALERICO said he appreciates Mr. Christian's
introductory remarks about safety because ineffective safety
programs are one of the most costly things on any project.
REPRESENTATIVE JOHNSON asked whether Mr. Christian anticipates
the pipeline being rerouted to Valdez.
MR. CHRISTIAN answered that based on the information he has
seen, doing a reroute at this point would delay the project for
some time, putting it into a 2030 timeframe.
1:30:03 PM
CO-CHAIR TARR opened public testimony on Mr. Christian's
appointment and, after ascertaining no one wished to testify,
public testimony was closed.
1:30:18 PM
HUGH SHORT, Appointee, Board of Directors, Alaska Gasline
Development Corporation, testified he is currently serving as
vice chair of the AGDC Board of Directors, having first been
appointed in February 2015. He said he was born and raised in
Bethel and currently resides in Girdwood. His profession is
running Pt Capital, a private equity firm based in Anchorage
that currently has investments across the Arctic, including
Alaska and Iceland. He spends much of his time working on
identifying good investment opportunities across the top of the
globe, he continued. Before Pt Capital, he spent seven years at
Alaska Growth Capital, five years of which he spent as the
president and chief executive officer (CEO). He left that
position in 2013. From 2011-2014 he served as the chairman of
the board of the Alaska Industrial Development and Export
Authority (AIDEA), the Alaska Energy Authority (AEA), Department
of Commerce, Community & Economic Development. He said it has
been an honor to serve on the AGDC board.
MR. SHORT advised that the Alaska LNG Project is significantly
challenged right now. In a recent presentation by the Alaska
State Chamber of Commerce, he related, it was stated that the
confidence of Alaskans in this project has gone down
significantly over the past two years. One of the challenges
being faced right now is a significant headwind in the commodity
prices that drive the price of natural gas and ultimately. An
added stressor, he explained, is that the three partners in the
project did not elect to move into Front-End Engineering and
Design (FEED). The companies made their decisions based on
their "baskets" of investments in capital expenditures (CAPEX)
globally. Each company looked at its spend and made a decision
as to what is, and what is not, going to go forward globally.
[The Alaska Gasline Development Corporation] does not have a
basket across the globe, it has Alaska's gas. He said he is
proud of the leadership of Chairman Dave Cruz, and proud that
over the past eight months the board negotiated agreements with
BP, Conoco, and Exxon to be able to take a leadership position
within the project and to also look at this project from a
third-party tolling perspective, which would reduce the cost of
capital for the total project so that the tariff could be
reduced and ultimately the price to Asian customers.
1:34:27 PM
REPRESENTATIVE BIRCH inquired about how much latitude is had [by
the AGDC board] for looking at other opportunities, or other
means of monetizing the state's gas asset.
MR. SHORT replied that the board has focused on Alaska LNG as
has been conceived over the course of the last four years. By
the time the studies are done, a total of around $700 million
will have been spent to prepare for the FERC submission. He
said he has brought conversations to the board; for example, a
project in Russia is now using icebreaking LNG vessels to
transport LNG directly from the source to Asia. There are all
sorts of different projects with global climate change thinning
the ice and potentially opening up opportunities in the North.
Currently, he continued, that is not a viable alternative that
has been looked at by the board. He offered his assumption that
the board probably wouldn't look at such an alternative prior to
making a decision to pause, or to discontinue the pursuit of
Alaska LNG as is currently conceived.
REPRESENTATIVE PARISH asked whether careful consideration of an
alternative to the LNG pipeline as currently conceived would be
a useful prerequisite in deciding whether to pause the current
project.
MR. SHORT responded that a number of viable alternatives to the
800-mile gas pipeline, the gas treatment plant (GTP), and the
LNG facility were looked at in the process of Alaska LNG. The
FERC process requires alternative proposals to what is the
primary proposal. He agreed with Mr. Christian that spending a
significant amount of time, effort, or resources on alternatives
at this point might result in missing the window of 2023/2025 to
be able to hit the market.
MR. SHORT added that his efforts for 2017 are: How much can the
tariff be reduced? How much can the wellhead cost be reduced?
How much can the cost of the GTP be reduced? Can one train, two
trains, three trains be staged and leveraged into the project
over a period of time, versus building the large project all at
once? If this can be done, can customers/buyers be added, and
the math made to work? He said the big question right now is
whether the math can be made to work on the large project, and
losing focus on that at this point potentially puts at risk the
total project. Therefore, his recommendation has been, and
probably will continue to be, to focus on pushing hard to make
Alaska LNG, the 800-mile pipeline, the GTP, and the LNG facility
work as an infrastructure system.
REPRESENTATIVE PARISH inquired whether it is possible that Mr.
Short, or any member of his family, will benefit financially by
decisions being made by the AGDC board for which he is applying.
MR. SHORT answered no, and pointed out that all board members
must submit a financial disclosure. He said Alaskans are
probably going to benefit significantly from the construction of
this pipeline and ultimately that will drive the economy, but
there is no direct benefit [to himself].
REPRESENTATIVE RAUSCHER asked whether Pt Capital would be
inclined to invest in this pipeline in the future.
MR. SHORT replied that the private equity fund he manages would
not be inclined as [the pipeline] does not meet the parameters
of his company's investors. Plus, he said, his company's fund
is about $125 million, and the pipeline has a few more zeroes
behind it than that. Regarding that point, he noted that the
AGDC board is very focused on ensuring there are opportunities
for Alaskans to invest directly, such as by an election through
the permanent fund. Also, he related, the AGDC board thinks
there is an important and excellent opportunity to partner with
Alaska Native corporations.
REPRESENTATIVE RAUSCHER asked from where the bulk of funding
would eventually come.
MR. SHORT responded that a two-stage process is currently
ongoing. The first stage was an investor/buyer conference that
was held in Girdwood about three weeks ago. Attendees included
the Korea Gas Corporation (KOGAS), and representatives of the
largest buyers of gas in the world. Those representatives also
flew to Prudhoe Bay and gained an understanding of the Arctic
nature of Alaska. Since then there has been an exhibited
interest by large buyers to take another deeper look at the
opportunity to participate in purchasing Alaska's gas. The
second stage, he said, requires a third-party investor to come
in alongside the State of Alaska and provide infrastructure
finance. Today, he explained, insurance companies, large
pension funds, and sovereign wealth funds primarily drive
infrastructure finance. These large pools of money are looking
for infrastructure-type investment returns for a long period of
time, as well as looking for very low risk for those
infrastructure returns. Over the last 5-10 years, the biggest
area of focus of large sovereign and pension funds has been
infrastructure investment. He said the AGDC board believes
there are institutions that, if there is a customer and willing
sellers, would finance the project if the numbers work.
1:43:49 PM
REPRESENTATIVE RAUSCHER asked whether the large buyers that are
exhibiting interest were part of the group from the conference
that went to the North Slope.
MR. SHORT answered that [AGDC] initially put together the
conference, but the conference was 100 percent paid for by
sponsors, including all [AGDC's] partners. Since then, he said,
a number of parties have asked for more information about the
project, so he thinks the interaction between those participants
and the participants on behalf of the state has led to
additional follow-up. These are long-term relationships doing
business in Asia, he noted, and it takes a lot of trust and a
lot of time. While there is lots of variability in that, he
said he believes there is a lot of interest in this project from
conference attendees.
REPRESENTATIVE WESTLAKE commented that in looking at the resumes
of the appointees he is very impressed. He said he has known
Mr. Short for a while, knows the investment firm that Mr. Short
is talking about, and has spoken at length with one of the
associates. He expressed his wish that Mr. Short worked for the
state, but understands there is more money in the private world.
Alaska's problem, he posited, is that it is just a one-resource
state oil. Oil and gas and resource development are needed,
he continued, so he is glad Mr. Short is here. He thanked Mr.
Short and Mr. Christian for their work.
REPRESENTATIVE BIRCH offered his understanding that [Resources
Energy Inc. (REI), a consortium of Japanese companies and
municipal governments,] [has withdrawn from] a proposed LNG in
Cook Inlet. He inquired whether lessons were learned from this
and whether Mr. Short has a reading on what that says or
portends for the future for the state and this industry.
MR. SHORT replied that the differentiation between what REI was
pursuing and what Alaska LNG is pursuing is that the REI
proposal was strictly a Cook Inlet play and a fairly small
production plant of about a million tons per year. The Alaska
LNG Project is about 20 million tons, so 20 times the size, and
the gas is stranded up on the North Slope. He said looking at
REI and Alaska LNG is like looking at apples and oranges, so he
would not make any assumptions specifically to Alaska LNG based
on REI's decision. However, he continued, hanging above
everyone is the over two-year-long downturn in commodity prices,
a recession in Alaska, and [AGDC's] partners that have reduced
their CAPEX spending significantly across the board. All the
foregoing issues put "downward pressure," but when getting down
to the nuts and bolts they are two different types of projects.
1:48:08 PM
REPRESENTATIVE PARISH, regarding Mr. Short's capacity as CEO,
chairman, and co-founder of Pt Capital, noted that Andrew Mack,
appointee to the position of Commissioner-Designee of the
Department of Natural Resources, was previously an employee of
Mr. Short's. He requested Mr. Short to provide further
explanation about Pt Capital's primary investments, and what are
some of the more important elements in its portfolio.
MR. SHORT responded that he left Alaska Growth Capital in 2013.
He realized at the time that no institutional private equity
firms had been created, run, or headquartered within Alaska.
Looking elsewhere in the U.S., he continued, private equity is
anywhere between 20 and 40 percent of the capital in any market,
while Alaska did not have an institutional private equity firm.
So, he raised a seed round of funding to be able to capitalize
the company; after that, [his company] was able to raise a
private equity fund, which is about $125 million. From there
three investments were made, he said, two in Alaska and one in
Iceland. A fairly large investment was closed last week in
Reykjavik, Iceland, and [his company] now owns 50 percent of the
largest mobile phone company in Iceland.
MR. SHORT added that [his firm] is proud of its investments in
Alaska and is focused on continuing to make Alaska a place where
it invests. The types of companies invested in are operating
companies - companies that do boring things and are in business.
[Pt Capital] is not a venture capital firm, he pointed out, it
doesn't invest in start-ups, and it also doesn't invest into
large infrastructure projects as those are not the types of
returns that [his firm's] investors would like. [Pt Capital]
has nine employees in Anchorage and is proud to be the first
institutional private equity fund built in Alaska, he said. His
hope is that it is the beginning of many more financial services
to be created within the state.
1:51:26 PM
CO-CHAIR TARR opened public testimony and, after ascertaining no
one wished to testify, public testimony was closed.
1:51:44 PM
The committee took a brief at-ease.
^COMMISSIONER-DESIGNEE - Department of Natural Resources
1:52:56 PM
CO-CHAIR TARR announced that the committee would now hear from
Andrew Mack, [designee] to the position of commissioner of the
Department of Natural Resources (DNR).
1:53:25 PM
ANDREW T. MACK, Commissioner-Designee, Department of Natural
Resources (DNR), testified he took the position of commissioner-
designee of the Department of Natural Resources on July 1, 2016.
Born and raised in Soldotna, he said he went to Concordia
College and then to law school. Upon returning to Alaska he
worked in a private law firm as a criminal defense lawyer, and
then went on to work as an employee of the North Slope Borough,
and later he became a resource development consultant. He noted
that prior to taking his current position as commissioner he was
a managing director for Pt Capital.
COMMISSIONER-DESIGNEE MACK addressed a question about Pt Capital
that was asked by Representative Parish during the earlier
confirmation hearing for Hugh Short, appointee to the board of
directors of the Alaska Gasline Development Corporation (AGDC).
He said he has known Mr. Short for three decades and said Mr.
Short is one of the most innovative, hardworking, intelligent,
and business-like persons he knows in Alaska. When Mr. Short
was building his new company, the business model was to attract
investment from outside of Alaska and bring that investment to
Alaska to generate wealth in the state and to make sure that all
the fees and the business was done in the state. He expressed
his pride in having been a part of Mr. Short's team.
COMMISSIONER-DESIGNEE MACK noted that [while at Pt Capital] he
his clients worked on some of the largest public issues in
Alaska, namely the state's relationship with the federal
government, and the hard-to-get-to places in the state that have
significant resources. These places included the outer
continental shelf (OCS), the National Petroleum Reserve Alaska
(NPR-A), and the 1002 area of the Arctic National Wildlife
Refuge (ANWR). Having worked in that space, he said, he has
spent quite a bit of time understanding how to most clearly
identify priorities and get to those objectives as quickly as
possible while working with folks in the state.
1:56:33 PM
COMMISSIONER-DESIGNEE MACK stated he views his role at DNR as a
promoter of the development of Alaska's resources. It is an
obvious role and is embedded in the state's constitution, its
statutes, and its regulations, he continued. The commissioner
of DNR is a person who tries to see what is happening in the
next 5-10 years and place Alaska in the strongest position to
get there. The department has an unbelievable team that
includes Mark Wiggin, Ed Fogels, and Ed King, so there is very
significant support and help from DNR's team. He said the
commissioner's job is to be the long-term protector of the many
important agreements held by the state. These agreements start
with the [Alaska Statehood Act], flowing through the Alaska
Native Claims Settlement Act (ANCSA), and through the Alaska
National Interest Lands Conservation Act (ANILCA), and all the
principles that are built into those important documents. As it
matures, he added, the state is trying to find the best way to
manage its affairs, protect its interests, and to work
collaboratively, although sometimes issues are settled by the
courts.
COMMISSIONER-DESIGNEE MACK stated that the first thing to happen
after he took his job was Alaska LNG transitioning from an
equity-based investment as envisioned in Senate Bill 138 [passed
in the 28th Alaska State Legislature] and being refocused as the
[partner] companies downsized their teams and handed off the
project to the state. This was also done at DNR, he said. The
very specific and dedicated team at the department was
[restructured] and the "spend" was reduced while maintaining
core competencies and the ability to respond to what is going on
in the project when needed. It is a challenging situation, he
continued, but in most cases DNR is going to do everything it
has done before, although there may be "some slippage in time,"
and, if there is, DNR will come to the legislature.
COMMISSIONER-DESIGNEE MACK pointed out that recently DNR
transitioned to looking at opportunities within the new federal
administration. This includes looking at ways to get the best
outcomes on a range of resource development issues, he said,
including the state's relationship with the Bureau of Land
Management (BLM), U.S. Department of the Interior, and BLM's
Eastern Interior Resource Management Plan.
2:00:57 PM
REPRESENTATIVE BIRCH stated he is troubled by the Department of
Revenue's (DOR) domination in the ongoing debate and discussion
related to the oil and gas industry in Alaska. He said he
respects DOR, but it seems DOR has been missing the engagement
that needs to happen with industry partners regarding what needs
to be done for a path forward that attracts and retains
investment needed in the state to continue the uptick in oil
throughput through the Trans Alaska Pipeline System (TAPS). He
requested Commissioner-Designee Mack's perspective as to where
he sees the role and the balance between the revenue side and
DNR, since DNR is tasked with tracking those types of
investments, putting out the lease sales, and managing
relationships with those partners.
COMMISSIONER-DESIGNEE MACK replied that DNR has historically
done a good job at managing the leases and units on the North
Slope and ensuring the state gets what it is owed under the
contractual terms of the leases. Through the management of
units, DNR often requires work commitments, he explained, and
while there is some flexibility, the basic term is that the
lessee has an obligation to the state to continue to develop in
order to maintain and continue to operate on the lease and in
the unit. The testimony of the administration and of DOR
certainly is another aspect of that revenue base, he continued.
When testifying, [DNR] has been abundantly clear about what the
royalty revenues are, and they are very significant. The tools
and the policies that the legislature puts in place, such as
production tax and credit systems, historically have not been
and currently are not the function of DNR to talk about,
although DNR is a big believer that everything must be on the
table. [The legislature] is the policy body that makes these
important decisions, he said. An issue in [Senate Bill 138] was
the public's ability and the legislature's ability to know what
is going on. In these situations, he said, DNR is happy to work
with the body and to answer those types of questions.
2:04:53 PM
REPRESENTATIVE RAUSCHER inquired as to DNR's role in the [issue
of the Klutina Lake Road access and the revised statute of the
Mining Act of 1866 known as R.S. 2477].
COMMISSIONER-DESIGNEE MACK reiterated his opening comment that
one role of the DNR commissioner is to understand the agreements
included in the Alaska Statehood Act, ANCSA, ANILCA, and all
subsequent agreements. He said the concept at issue here is
built into these agreements, and that is access and particularly
access to public/state lands and what historical trails mean to
that. A very specific and very nuanced view taken by DNR is to
understand what this has meant to the state historically, how
these trails have been used, and what it means to the state
today and how it places the state as a practical, matter as well
as a legal matter, 10-20 years down the road.
COMMISSIONER-DESIGNEE MACK explained that in the case of
Klutina, DNR is one of the clients of the Department of Law,
along with the Department of Transportation & Public Facilities
(DOTPF), and the Alaska Department of Fish and Game (ADFG). He
said it is DNR's belief, and his personal belief, that the
Department of Law is doing a very good job of representing [the
state's] interests. Something to be cognizant of in the Klutina
case, he said, is that a piece of litigation has been ongoing
for eight years. In a courtroom setting [the state] would have
certain expectations and would perhaps prevail, but it is not a
bulletproof situation in a legal sense. He noted that DNR has
let the Department of Law know what its fundamental requests and
fundamental needs are in this case, and that DNR has been
advised as to [the position] of the other party.
COMMISSIONER-DESIGNEE MACK related that DNR believes it is
getting good representation in this complex case, which is
complex because it is a mixture of an R.S. 2477 case and a 17(b)
easement. [17(b) easements are rights reserved under the Alaska
Native Claims Settlement Act to provide access to public land
across Native private land.] He explained that an R.S. 2477
extends from the Richardson Highway to the confluence of the
Klutina River in Klutina Lake; beyond that is private land owned
by Ahtna, Incorporated, [one of the thirteen Native regional
corporations established under ANCSA]; and beyond that is BLM
land over which [the state] can assert a 17(b) easement to get
to state land that is beyond that federal land. A benefit being
discussed in this, he continued, is whether BLM can be taken out
of the picture and simply have a right-of-way over the land
owned by Ahtna to get to additional state properties to the
west. There are a lot of details and about a week ago the
governor made a statement about this. There is some
misinformation, he advised, and DNR would be happy to provide
clarifications. It has been a difficult issue due to the nature
of the facts and the [the state's] procedural posture.
2:08:56 PM
REPRESENTATIVE RAUSCHER asked how many more of these joint 17(b)
and R.S. 2477 issues are left to settle.
COMMISSIONER-DESIGNEE MACK responded that the legislature passed
a bill in 1999 that identified 600 R.S. 2477s. Regarding a
combination of R.S. 2477s with some sort of 17(b) easement or
alternative solution, he said he would get back to the committee
with an answer. As to how the state looks at these issues, he
said an example is Izembek National Wildlife Refuge, which is a
federal refuge through which the state would like to build a
road connecting the community of King Cove to the Cold Bay
Airport. [The state] has proposed a legislative solution, he
explained, but at the same time there is a very legitimate
ANILCA Title 11 claim which would potentially get that access.
Additionally, there is an R.S. 2477 claim. [The state] has kept
all three options on the table so as not to limit its legal
options in that case, particularly when viewing things long-
term. On the question as to whether what is being done today is
going to affect similar situations later, he said he would get
back to the committee with a specific answer.
REPRESENTATIVE RAUSCHER confirmed he is asking about the
precedent being created from here onward and what is the
department's position. He inquired whether there is something
that Commissioner-Designee Mack wishes DNR could do that it
doesn't have the authority to do right now.
COMMISSIONER-DESIGNEE MACK answered that one thing DNR
continually bumps up against is big, complex, heavily data-
driven federal planning documents. He said if he could just
snap his fingers he would make some changes in [DNR's]
relationship with the federal government that would place the
state in a stronger role as the manager of lands within Alaska.
REPRESENTATIVE RAUSCHER noted [the legislature] is positioning
DNR for approving expenditures for the oil industry and posited
that this is almost starting a new department to accommodate
that. He asked how DNR views this new idea.
COMMISSIONER-DESIGNEE MACK replied that the important question
is what is [the legislature's] ability as appropriators to
understand the mechanics of these programs as it discusses
budgets and proposes lots of cuts. Secondarily is the public's
right to know if there is a proposal to deeply cut another area
of government and there is another system in play. How much
should the public know under those circumstances? Those are
very important concepts, he said, and folks in the
administration have talked about the need for legislators to
know and the right and need for the public to know. [The
department] would like to work on that to get as much
information into the system as possible.
2:14:05 PM
CO-CHAIR JOSEPHSON recalled Representative Birch's perception
that DOR is dominant, and inquired whether commissioner-designee
Mack believes DNR's role is satisfactory when there are
overlapping operations between the two agencies, particularly on
questions involving the North Slope.
COMMISSIONER-DESIGNEE MACK answered that as owner of the
resource, DNR has the important responsibility to ensure what is
the initial agreement with a company in a lease sale, and then
what the company is encouraged, or required, to do under the
lease terms to place the lease in production or relinquish. The
department does have some flexibility; for example, it has
encountered and evaluated requests for royalty relief. Another
example, he said, is the Northstar development where the
operator of the unit came to the State of Alaska saying it
couldn't get to production under the current terms of the
leases, and therefore was requesting changes to those terms. It
went through a very public legislative process and was
eventually approved by this body in the 1990s and there has been
significant production. So, he continued, DNR plays an
incredibly important role in what is the revenue base, from an
owner's perspective, in the development of the state's
resources.
COMMISSIONER-DESIGNEE MACK said the question of tax is slightly
different. He pointed out that any member of the public could
easily obtain a copy of the leases and understand the lease
terms, the royalty rate, the work commitments, and the timing.
The department also views its role as being primary - royalty
comes before tax. That money is paid as a matter of contract.
However, he continued, how to incent, and how much to take, is a
separate question. He said DNR works a lot with DOR on various
issues, the most recent example being that historically a
contractor was hired to do some of the front-end modeling on the
production forecast, but DNR now does that in-house. Mr. King,
who used to work at DOR and is now at DNR, has been engaged in
the process of developing the production forecast. The
production forecast is an example of where DNR works very
fluidly in a process to come up with what is presented to [the
legislature] and the Alaska public. So, he continued, there is
quite a bit of communication and cross-pollination between DNR
and DOR and the two agencies understand what is being done.
2:18:30 PM
REPRESENTATIVE JOHNSON, returned attention to the Klutina issue,
and asked whether commissioner-designee Mack agrees with the
recommendation for settlement from the current acting attorney
general.
COMMISSIONER-DESIGNEE MACK described the way the process works.
Early in the case, he explained, DNR provided its perspective
and its "must-haves." This case has many different elements, he
said, the R.S. 2477 part and the 17(b) access over the
privately-owned Ahtna land. As a client, DNR is working in
consort with and advising the Department of Law lawyers.
COMMISSIONER-DESIGNEE MACK noted that the must-haves were
identified in a press release from the governor where it was
explained that one of DNR's requirements is that there be a full
100-foot right-of-way within the R.S. 2477 space between the
Richardson Highway and the confluence of Klutina Lake and
Klutina River, which is in the settlement documents right now.
Another requirement, he said, is that Alaska residents have
access beyond that and the preference that the BLM not be in any
way involved in the 17(b) area, which is the area beyond the
R.S. 2477 claim and state land to the southwest along the
northern shore of the lake. Also, he continued, DNR has
insisted there be multiple access points to the river and that
there be access to the river where the right-of-way intersects
the actual river itself. Additionally, places are identified
for use of trailers to launch boats, to launch boats without
motors and without trailers, and for fishing access. Other
must-haves are that there be places to pull out and reasonable
access for camping.
COMMISSIONER-DESIGNEE MACK explained that the aforementioned
things were locked into the discussion as must-haves and said
DNR believes the discussions are going reasonably well. The way
the process works, he continued, is that eventually a final
proposed settlement will come back to the clients - ADFG, DOTPF,
and DNR - and then there will be further discussion regarding
whether the clients agree. Thus far a final proposed settlement
has not yet been seen.
REPRESENTATIVE PARISH noted that a term frequently used in this
committee, and which he thinks is a bit misleading, is industry
"partners" when in fact they are "customers" because they are
purchasing the resource from the people of Alaska. He said the
resource is held in trust [by the legislature] for the people
and distributed for the people. He inquired whether
Commissioner-Designee Mack would say it is more accurate to
describe industry in Alaska as partners or customers.
COMMISSIONER-DESIGNEE MACK replied that the Alaska State
Constitution and state law drive what is done by DNR. He said
it ultimately can be boiled down to a contract, a lease is a
contract, and it is a contract between the developer and the
State of Alaska. In most cases, it is viewed as a contractual
relationship that DNR has with the developers and that probably
tends more towards a business relationship. Obligations,
duties, and expectations are built into every contract, he
added.
2:24:48 PM
REPRESENTATIVE PARISH asked whether it is more akin to a
contract where one party is a customer purchasing something or
more akin to a contract in which there are two partners with
more closely aligned roles.
COMMISSIONER-DESIGNEE MACK responded that in every contract
there are duties and obligations and failure to perform under
the contract will extinguish the contract. In this case no one
will get the benefit of the agreement and [DNR] will have to
start the process again to lease [the state's] land on the North
Slope.
REPRESENTATIVE PARISH quipped that he appreciates the artistry
of the dodge, but is asking again whether Commissioner-Designee
Mack would say it is more of a customer-seller relationship or a
relationship between partners.
COMMISSIONER-DESIGNEE MACK answered, "Clearly we own a part of
the oil, that's our royalty share of the oil, so ? we are in the
role of selling that oil for the highest value and ? that's what
we get hopefully ? with folks who are in the production sphere."
He looks at it as a very business-like agreement, he said. As
well, he looks at it as a lawyer here's the contract for the
lease and "we're gonna as owners enforce the terms of that lease
just like any business, if you want to call it a business
partner, would."
REPRESENTATIVE RAUSCHER inquired about how to get more money
from the state's oil production and other resources, and whether
there is a way to streamline the permitting system and other
variables that are stopping potential investors and instead make
Alaska more inviting.
COMMISSIONER-DESIGNEE MACK opined Alaska lacks capital to invest
and develop these projects. Whether [an investor] goes to
Canada or another country, he said, it takes an incredible
amount of capital and intensity to develop and produce products
from mines or from oil production. He advised that people must
be cognizant that what is said publicly may go across the globe,
which is happening with Alaska LNG. What is said in the capitol
building matters to people who are in the market to buy LNG, who
are in mining, and who are in oil. While there is nothing wrong
with healthy dialogue and debate, at some point there must be
talk about the opportunity and communication with folks outside
of Alaska. The amount of capital that it takes is incredible,
he reiterated. About $6.5 billion is spent annually in the oil
business on the North Slope, and it should be an objective of
the State of Alaska to spend that much or more in the mining
industry.
2:29:35 PM
REPRESENTATIVE RAUSCHER offered his understanding that the
permitting process takes about eight years for starting a mining
operation and said the investor must hope that commodity prices
are still good after that amount of time and investment. He
asked what could be done in this regard [to keep investors from
going to another country instead].
COMMISSIONER-DESIGNEE MACK replied that the aforementioned is a
good question and is partly why the Office of Project Management
and Permitting (OPMP) is within the Department of Natural
Resources. He explained that OPMP helps people to understand
what the permit challenges are and to bring timelines into a
reasonable amount of time. He offered his belief that with some
of the major oil plays on the North Slope the timeline could be
shortened, and production brought online more quickly than has
been done historically. It takes a tremendous amount of focus
and significant amount of resources, he continued, and he is not
suggesting that there is a magic wand. He said he hopes the
State of Alaska is never in a role where it is slowing down the
process of evaluating a prospect, and he doesn't think that is
happening because DNR moves faster than do other agencies.
REPRESENTATIVE RAUSCHER inquired whether more could be done for
the timber industry.
COMMISSIONER-DESIGNEE MACK answered that he was very happy to
sign the sale for some footage from Southeast Alaska's Coffman
Cove. Plus, he noted, a couple of other timber sales on state
land are on the tee and there are other resources in the
Matanuska-Susitna Valley and the Interior that have some high
prospects.
REPRESENTATIVE BIRCH noted that HB 111, an oil and gas tax bill,
has a provision that proposes the pre-approval of production
cost before that cost could be written off. He recalled that
DNR's fiscal note describing the cost went from inconsequential
to substantial. He asked how Commissioner-Designee Mack sees
this provision functionally working as last proposed.
COMMISSIONER-DESIGNEE MACK, regarding the provision in HB 111
that would require pre-approval of basic expenditures, said, "we
as an administration" have talked about the legislature's need
to know and more specifically what companies are thinking about
doing and how that affects tax and whether there is a qualifying
credit that might be reimbursable. To the extent it doesn't
violate tax code or confidences, he continued, it is an
important issue for legislators to know as appropriators. He
said he thinks that [DNR] supports the provision and the concept
behind it. As to functionally how that happens, he said [DNR]
hopes to get to a point where it can understand "what people are
coming in the door with." According to testimony, the House
Finance Committee is going to look at that provision and [DNR]
will be happy to offer suggestions on how this provision can
best be accomplished. [The department] didn't put much detail
into the fiscal note, he advised, due to uncertainty about what
would be required of [DNR] at the front end and uncertainty
about how industry might respond to this. As the process moves
along there will probably be some better detail on which [DNR]
can offer some insights.
2:35:11 PM
REPRESENTATIVE TALERICO relayed the administration probably had
the same issues as he did with BLM's approval of the Eastern
Interior Resource Management Plan. He offered his understanding
that it started out as a calving migration question along the
upper Yukon River and then grew into an enormous tract that goes
all the way down to Northway and encompasses a traditional
mining area in Alaska that includes Chicken and Eagle. He said,
"It walked right over the top of the Fortymile River area," and
that area's management plan, which in his opinion was a
violation of ANILCA. If it were up to him, he said, the
legislature would make the decision with DNR and then let the
federal government know what [the state] is doing. The Eastern
Interior Resource Management Plan has the upper portion of the
Yukon in it, he noted, yet [BLM] created the Central Yukon
Resource Management Plan, which goes over Atigun Pass up the
pipeline corridor to the North Slope. It is insulting to
everyone in Alaska to think that anything north of Atigun Pass
is part of the Yukon system, he opined. He inquired whether DNR
plans to push forward to get a change in the Eastern Interior
Resource Management Plan [Eastern Interior plan] and turn the
Yukon plan into "everything in the Yukon." He assumed that
given the change in [federal] administration there might now be
people who will listen more closely to the state's concerns.
COMMISSIONER-DESIGNEE MACK responded that [DNR] is considering
all its options with respect to the Eastern Interior plan. He
said he thinks [the administration's] favored option is to join
in part with the Fortymile Mining District and in part with
Doyon [Limited], which has slightly different concerns on the
same plan, and press forward in litigation. He said [DNR]
believes that the preferred alternative in that plan did a
number of things that were harmful and unnecessary. Parts of
the final preferred alternative were not considered in the draft
environmental impact statement (EIS); parts and pieces of the
different alternatives were combined and then some things were
added. It is a disservice to Alaskans on a number of fronts and
that is [DNR's] preferred position today, he opined. While he
doesn't want to get ahead of [the administration], he said he
thinks [DNR] will likely end up asking that that be rolled back.
He was very unhappy with the Eastern Interior plan, and with the
Central Yukon plan, that covers the North Slope and extends to
the boundaries of the state ownership interest, which is three
miles seaward of the mean high tideline in the Beaufort Sea.
Also, it weaves together, potentially, the management plan that
exists in the Arctic National Wildlife Refuge (ANWR) and the
management plan that exists in the NPR-A, with another plan. It
has significant potential negative consequences, he said. The
comment period just ended on 3/17/17, and it is very concerning,
so [DNR] is going to do everything it can to ensure that it
works for Alaska.
2:40:04 PM
CO-CHAIR TARR opened public testimony on the appointment of Mr.
Mack as Commissioner of the Department of Natural Resources and,
after ascertaining no one wished to testify, public testimony
was closed.
2:40:29 PM
CO-CHAIR JOSEPHSON [moved to advance the confirmations of Mr.
Short, Mr. Christian, and Mr. Mack.] He stated that the House
Resources Standing Committee has reviewed the qualifications of
the governor's appointees Hugh Short and Warren Christian to the
Alaska Gasline Development Corporation [Board of Directors] and
recommends their names be forwarded to a joint session for
consideration. He advised that this does not reflect intent by
any of the members to vote for or against these individuals
during any further sessions for the purposes of confirmation.
Additionally, he continued, the House Resources Standing
Committee has reviewed the qualifications of the governor's
appointee Mr. Andy Mack for commissioner of the Department of
Natural Resources and recommends that his name be forwarded to a
joint session for consideration. Again, he said, this would not
mean or reflect the intent by any member to vote for or against
Mr. Mack during any joint sessions for the purposes of
confirmation. There being no objection, the confirmations of
Mr. Short, Mr. Christian, and Mr. Mack were advanced.
2:41:22 PM
[CO-CHAIR TARR passed the gavel to Co-Chair Josephson.]
The committee took an at-ease from 2:41 p.m. to 2:43 p.m.
HB 155-AK MENTAL HEALTH TRUST LAND EXCHANGE
2:43:04 PM
CO-CHAIR JOSEPHSON announced that the final order of business
would be HOUSE BILL NO. 155, "An Act authorizing a land exchange
in which certain Alaska mental health trust land is exchanged
for certain national forest land and relating to the costs of
the exchange; and providing for an effective date."
2:43:28 PM
REPRESENTATIVE DAN ORTIZ, Alaska State Legislature, as the prime
sponsor, introduced HB 155. He explained that the bill would
authorize a land exchange between the Alaska Mental Health Trust
Authority ("Trust") and the U.S. Forest Service (USFS). The
bill would be a triple win, he said, because it would protect
viewsheds, enhance the timber industry, and help fund the
Trust's mental health programs. Lands vital to the recreation
and tourism industries would be protected, such as Ketchikan's
Deer Mountain, while at the same time the exchange would make
available other lands of comparable value to the timber
industry. Projects would be created, he continued, that would
act as a "bridge" in the industry until young-growth timber is
ready to be logged, which would address Representative
Rauscher's question about what can be done to stimulate logging
in the state. Because the bill would allow for time-sensitive
logging it would help sustain the timber industry, which is
beneficial to Southeast Alaska's economy. The Trust would gain
resources and revenue from the timber industry to fund programs
that serve some of the most vulnerable people in Alaska, he
said. The Trust provides funding to programs and services
across the state that benefit people with mental illness,
developmental disabilities, Alzheimer's disease, traumatic brain
injuries, and substance abuse disorders. He noted that the
Alaska Mental Health Trust Land Office has been working with the
U.S. Forest Service, communities, and interest groups to conduct
an administrative land exchange between the Trust and the USFS.
Additionally, he explained, U.S. Senator Lisa Murkowski and U.S.
Senator Dan Sullivan have introduced similar legislation in the
U.S. Congress with Senate Bill 131, and U.S. Representative Don
Young introduced [House Resolution] 513. Also, Senator Stedman
has introduced parallel legislation [SB 88] in the Alaska State
Senate. Overall, he said, HB 155 would increase revenue for
mental health programs and the timber industry, while still
protecting iconic lands used for recreation and tourism.
REPRESENTATIVE BIRCH asked whether an assessment of the mineral
value and other economic assessments have been done on the lands
that would be exchanged.
REPRESENTATIVE ORTIZ assured the committee the Trust would not
trade away lands for less valuable lands.
2:48:15 PM
REPRESENTATIVE JOHNSON requested the sponsor to expound on why
he thinks the Trust would not trade for lands of lesser value.
REPRESENTATIVE ORTIZ responded that the Trust was established
initially with land grants across the state and its activities
are funded through the monetization of these lands. The Trust
is bound to act in its own best interest, he said, so it can
further the goals for which it was founded. If the Trust
currently controls lands that offer large monetization potential
through mining, he wouldn't think the Trust would trade away
that land because it would go against the Trust's basic tenant
to maximize the potential of the lands it has been given.
REPRESENTATIVE RAUSCHER drew attention to the bill, beginning on
page 1, line 14, and continuing to page 2, lines 1-2, which name
the Southeast communities of Wrangell, Sitka, Juneau, Meyers
Chuck, Petersburg, and Ketchikan. He inquired whether the bill
is specific to "an area only."
REPRESENTATIVE ORTIZ answered it is his understanding that the
lands that would be exchanged with USFS are primarily lands in
Southeast Alaska and so in that sense it is region specific. In
further response to Representative Rauscher, he said the bill
could not apply to other lands in the state, but affects lands
illustrated by maps in the committee packet describing the lands
that are part of this exchange. He said his understanding is
that all the lands described on those maps are within Southeast
Alaska.
REPRESENTATIVE TALERICO offered his understanding that for the
exchange to happen, a bill must be passed by the Alaska State
Legislature as well as an action by Congress to authorize an
exchange between USFS and the Trust.
REPRESENTATIVE ORTIZ responded yes, the legislature needs to do
what it needs to do on the state's end, but the exchange won't
happen unless Congress also passes federal legislation. They
both must happen for this exchange to take place.
REPRESENTATIVE TALERICO opined moving HB 155 forward would help
with the decision-making in Congress.
REPRESENTATIVE ORTIZ agreed.
2:53:04 PM
REPRESENTATIVE RAUSCHER inquired whether this has been vetted
through all the important channels.
REPRESENTATIVE ORTIZ said yes.
REPRESENTATIVE PARISH noted the letters of opposition propose a
federal buyout of the land [instead of an exchange], but
observed that a buyout would not create jobs in the timber
industry, which is one of the primary benefits of the bill. He
asked whether there is something the legislature would need to
do to accommodate a buyout option if at a federal level it
became a possibility.
REPRESENTATIVE ORTIZ replied he is not prepared to answer that
question at this time. He agreed that a buyout option might
help the Trust and the tourism industry, but not the timber
industry, which is the third part of his "win-win-win."
REPRESENTATIVE PARISH inquired as to how many "job years" would
be enabled under the bill, job years meaning one job for one
year.
REPRESENTATIVE ORTIZ deferred to Mr. Wyn Menefee for an answer.
The bill is about making timber offerings more of a possibility,
he said, but it is out of his realm to quantify how much.
CO-CHAIR JOSEPHSON announced that a sectional analysis of HB 155
will be presented at the bill's next hearing and that a proposed
committee substitute will also be discussed at that time. He
then invited Mr. Menefee to provide a presentation on the bill.
2:55:50 PM
WYN MENEFEE, Deputy Director, Alaska Mental Health Trust Land
Office, Office of the Commissioner, Department of Natural
Resources (DNR), provided a PowerPoint presentation entitled,
"HB 155 - Alaska Mental Health Trust Land Exchange with the
USFS." Displaying slide 2, he explained that the Alaska Mental
Health Trust ("Trust") is a perpetual trust with the purpose of
improving the lives of its beneficiaries. The Trust has
programs that it funds to help create a comprehensive integrated
mental health program in Alaska, as the enabling Act dictated
for it to do. For example, he said, the Trust puts about $20
million a year in projects and activities at state agencies and
nonprofits, has provided about $3 million in grants since 2013
in Southeast Alaska, approved $10 million to help fund Medicare,
and a sundry of other things.
MR. MENEFEE turned to slide 3, and noted that the Trust puts out
money to help mental health. It needs money to do that, which
leads to the Alaska Mental Health Trust Land Office (Trust Land
Office). The job of the Trust Land Office, he said, is to make
money off the non-cash assets of the Trust and to improve the
lives of the beneficiaries. The land office manages multiple
asset classes and timber is one of those asset classes.
Although he is within the Department of Natural Resources, the
Trust Land Office basically acts as a contractor to the Alaska
Mental Health Trust Authority and manages the Trust's lands.
MR. MENEFEE provided slide 4, that illustrated Trust lands are
managed according to [four] principles as follows: make money
by maximizing long-term revenue from the land; protect and
improve the corpus; encourage diverse revenue-producing uses of
trust land; manage trust land. He said timber harvest is just
one aspect of a diverse portfolio, and the land exchange will
help diversify the Trust's portfolio and increase the Trust's
revenue stream, which will directly benefit beneficiaries. The
land exchange will protect the corpus by not allowing the timber
assets to become devalued, which could happen "if the timber
industry goes away." The Trust cannot sell timber if there is
nobody to buy it, he said, and revenue would be lost at that
point. It is very important to sell timber to a timber industry
while it still exists.
MR. MENEFEE displayed slide 5, "Land Distribution," and said the
map depicts the Trust's approximate land holdings that are
located throughout Southeast Alaska.
MR. MENEFEE addressed slide 6, that was a map showing that about
18,000 acres of Trust lands are adjacent to the communities of
Wrangell, Petersburg, Sitka, Juneau, Meyers Chuck, [and
Ketchikan]. The Trust also holds land in No Name Bay, he said.
The U.S. Forest Service has about 20,000 acres of remote land on
Prince of Wales Island and Shelter Cove. The reason for the
different acreages, he explained, is that it is an expected
amount of acreages that are being offered; however, it is an
equal value land exchange, which means that after the lands are
appraised, an equal value exchange must be done and so at the
end it won't be those acreages. Those acreages are being put on
the table and it is specific to just those parcels. It is done
in two phases, he continued. The first phase is exchanged
within one year. The key about rushing through the first year,
giving a smaller amount exchange, is the need to get timber to
market. The rest is exchanged within two years and this is when
parcels may be adjusted to equalize the value.
MR. MENEFEE brought attention to slide 7 depicting two maps, one
entitled, "Trust Land To Be Exchanged in Southeast Alaska," and
one entitled, "National Forest Service Land to be Exchanged."
He said the exchange is a consolidation [of Trust land
ownership].
3:00:55 PM
MR. MENEFEE turned to slide 8, and stated that the Trust Land
Office expects to receive between $40 and $60 million over the
next 20 years from timber sales from these parcels if they are
acquired through this exchange. Right now, he advised, trying
to cut timber on the lands currently owned by the Trust does not
go well last year's Deer Mountain episode being an example.
The communities do not want the Trust cutting timber. However,
he continued, the resources of the Trust are supposed to be
managed solely for the interests of the Trust, which means the
public can be ignored in that sense. Even if the public says it
doesn't like it, if it is in the best interests of the Trust,
the Trust is supposed to still do it. But, he said, the Trust
is trying to work it out by doing this exchange, so timber can
be cut where there is no opposition.
MR. MENEFEE stated that the Trust sees the land exchange and the
selling of the timber as a sustainable thing because trees grow
back, and another harvest will provide revenue in the future.
The land exchange will protect the timber and tourism industries
because it protects the viewsheds while giving the timber
industry the capability of having timber to market, which is
critical right now, because the timber industry is failing due
to lack of timber. He said the timber industry has multiple
layers of great economic impact because it includes stevedores,
equipment rental, maintenance, purchases, transportation, timber
fellers, and cruisers. Timber harvest on the exchanged lands
would be done in an environmentally responsible manner, he
maintained, because the Trust must follow the Alaska Forest
Resources and Practices Act.
MR. MENEFEE addressed slide 9. He explained that the Trust has
been working on this exchange for 10 years. The Trust tried to
do it administratively and entered into an agreement to initiate
with USFS to exchange these very lands. The problem, he said,
is that USFS's estimate of how much it would cost to get it done
and how long it would take goes well past when the timber
industry would fail in Alaska. "We're the only ones with timber
that potentially could be brought to market right now in any
amount that will keep the timber industry alive," he stated. He
reiterated that he is concerned about the timber industry
because if the timber industry is not viable, the Trust has
nobody to sell its timber to, and that is the devaluing of its
asset.
MR. MENEFEE stated that the Tongass Futures Roundtable [a group
of stakeholders convened by USFS, Alaska Region] had about 35
entities, everything from governments to boroughs to
conservation groups, and they all came out with the same idea
that the exchange is a good idea for the communities, the timber
industry, and the Trust. In working through this exchange, the
Trust has worked with conservation groups and other interested
parties. The Trust has modified boundaries and addressed
concerns to try to make the exchange successful. The only group
that has expressed concern in recent time, he said, is the
Southeast Alaska Conservation Council (SEACC). Primarily SEACC
has expressed concern about a litigation it has on No Name Bay.
He assured the committee that the Trust has clear title in No
Name Bay, can go forward with the exchange, and that there is
nothing in the litigation that would stop the Trust going
forward. He related that in its testimony on SB 88, [the
companion bill] in the other body, SEACC said it wanted No Name
Bay to go to USFS. He further related that SEACC has stated it
would like to have the Trust's lands purchased. However, he
continued, $40 million-$60 million doesn't seem to be available,
and the Trust does not have other options that compare with the
proposed exchange.
3:05:34 PM
MR. MENEFEE continued to slide 10, and noted USFS owns the
majority of land [in Southeast Alaska]. He said the areas on
the map colored in brown or tan cannot be cut, and the areas
colored in green could be cut, which is a small portion of the
forest. The U.S. Forest Service used to be the primary seller
of timber in Southeast Alaska; however, when USFS cut back on
the amount of timber sold each year, the timber industry started
failing and the number of jobs declined. The Trust is
attempting to bridge the interim while USFS transitions to a
sustainable young-growth harvest. It is critical right now to
get timber to market during that two-year period, he added, and
that is why the state and federal legislation needs to get
through.
MR. MENEFEE moved to slide 11, and explained that both the
federal and state legislation need to pass and are compatible.
The federal legislation directs USFS to complete the exchange,
he said, and the state legislation allows the Trust to go
forward with the exchange. Passage of both the federal and
state legislation would enable consummation of this exchange,
get the lands appraised and surveyed, and get timber to market
within the two-year timeframe.
MR. MENEFEE turned to slides 12 and 13, and concluded by
pointing out that there are many supporters of the exchange. He
reiterated that the bill is a positive revenue-generating
exchange that would help improve the lives of beneficiaries and
would help communities by preserving jobs, economies, viewsheds
and watersheds. He urged for the passage of HB 155.
REPRESENTATIVE BIRCH asked whether an appropriate assessment of
minerals has been done on the lands currently owned by the Trust
to assure that there is not another gold mine within.
MR. MENEFEE acknowledged assessing mineral potential is
difficult. However, to the best of the Trust's knowledge from
surveys that have been done, there is not a mineral potential
that would be lost.
3:09:01 PM
[HB 155 was held over.]
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 3:09 p.m.