Legislature(1995 - 1996)

04/07/1995 03:43 PM Senate RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                   SENATE RESOURCES COMMITTEE                                  
                         April 7, 1995                                         
                           3:43 P.M.                                           
 MEMBERS PRESENT                                                               
 Senator Loren Leman, Chairman                                                 
 Senator Drue Pearce, Vice Chairman                                            
 Senator Rick Halford                                                          
 Senator Robin Taylor                                                          
 Senator Georgianna Lincoln                                                    
 Senator Lyman Hoffman                                                         
  COMMITTEE MEMBERS ABSENT                                                     
 Senator Steve Frank                                                           
  COMMITTEE CALENDAR                                                           
 Relating to a ban on trawling in the eastern Gulf of Alaska east of           
 140 degrees west longitude.                                                   
 SENATE BILL NO. 147                                                           
 "An Act relating to a municipal river habitat protection tax                  
 SENATE BILL NO. 114                                                           
 "An Act relating to high cost marginal oil wells."                            
 SENATE JOINT RESOLUTION NO. 20                                                
 Relating to the Western Alaska Community Development Quota Program,           
 the inshore/offshore allocation process, and the North Pacific                
 Fishery Management Council Comprehensive Rationalization Program.             
 CS FOR HOUSE BILL NO. 169(RES)                                                
 "An Act defining the scope of the responsibility of the Department            
 of Natural Resources for regulating the mineral resources of the              
  PREVIOUS SENATE COMMITTEE ACTION                                             
 HJR 25 - No previous action to record.                                        
 SB 147 - No previous action to record.                                        
 SB 114 - See Resources minutes dated 3/8/95 and 3/17/95.                      
 SJR 20 - See Resources minutes dated 3/27/95.                                 
 HB 169 - See Resources minutes dated 3/22/95.                                 
  WITNESS REGISTER                                                             
 Katherine Buchanan, Legislative Aide                                          
 Representative Ben Grussendorf                                                
 State Capitol                                                                 
 Juneau, AK 99801-1182                                                         
  POSITION STATEMENT:  Sponsor of HJR 25.                                      
 Jerry McCune                                                                  
 United Fishermen of Alaska                                                    
 211 Fourth Street, #112                                                       
 Juneau, AK 99801                                                              
  POSITION STATEMENT:   Supported HJR 25.                                      
 Don Gilman, Mayor                                                             
 Kenai Peninsula Borough                                                       
 144 N. Binkley                                                                
 Soldotna, AK 99669                                                            
  POSITION STATEMENT:   Supported SB 147.                                      
 Richard Fappiano                                                              
 OXY U.S.A.                                                                    
  POSITION STATEMENT:   Supported SB 114.                                      
 Dale Bondurant                                                                
 HC 1, Box 1197                                                                
 Soldotna, Ak 99669                                                            
  POSITION STATEMENT:   Supported SB 147.                                      
 Jules Tileston, Director                                                      
 Division of Mining                                                            
 Department of Natural Resources                                               
 3601 C Street, Ste 800                                                        
 Anchorage, AK 99503-5935                                                      
  POSITION STATEMENT:   Opposed amendment to SB 169.                           
 Mr. Richard Fineberg                                                          
 Anchorage, AK                                                                 
  POSITION STATEMENT:   Spoke regarding SB 114.                                
  ACTION NARRATIVE                                                             
  TAPE 95-38, SIDE A                                                           
 Number 001                                                                    
         HJR 25 BAN TRAWLING IN EASTERN GULF OF ALASKA                        
 CHAIRMAN LEMAN called the Senate Resources Committee meeting to               
 order at 3:43 p.m. and announced HJR 25 to be up for consideration.           
 KATHERINE BUCHANAN, Legislative Aide to Representative Grussendorf,           
 testified that HJR 25 requests a ban on trawling in the eastern               
 Gulf of Alaska.  It is hoped the resolution can be used at the                
 North Pacific Fisheries Management Council meetings in Anchorage on           
 April 19.  Southeast Alaska has a long history of long line fishing           
 off shore and the economy is threatened by the activities of                  
 factory trawlers.  There is no economic benefit derived from                  
 factory trawlers since they are self contained.  There is concern             
 not only for the economy, but for the viability of the fisheries in           
 SENATOR LEMAN said it was his intent to move this bill as soon as             
 there was a quorum.                                                           
 JERRY MCCUNE, United Fishermen of Alaska, said the resolution                 
 basically protects the small boat fleet that is in direct                     
 competition with the highly capitalized fleet of factory trawlers.            
 It would protect well over 10,000 license holders and crew members            
 in the southeast region that depend on healthy fisheries.                     
           SB 147 MUNICIPAL RIVER HABITAT TAX CREDIT                          
 SENATOR LEMAN announced SB 147 to be up for consideration.                    
 SENATOR TORGERSON, sponsor, said SB 147 was introduced to correct             
 and change part of the original legislation established in 1994 to            
 allow for tax credits for improvements along the Kenai River as               
 long as the improvements would protect or enhance the fish habitat.           
 The current law requires ADF&G to establish criteria by regulation            
 on how the improvements and credits would be taken.  It also                  
 requires the Department to review and certify the improvements for            
 the tax credits.  These credits are only available when certified             
 by ADF&G, he explained.                                                       
 SB 147 gives ADF&G more of an oversight role and has them work more           
 directly with the Kenai Peninsula Borough.  The Municipality would            
 be required to establish the criteria by ordinance.  This revised             
 process would allow improvements to go forward so that habitat can            
 be protected and land owners would receive their credit.                      
 Number 122                                                                    
 MAYOR DON GILMAN, Kenai, noted that he had sent a position paper to           
 the committee.  SENATOR LEMAN acknowledged receipt of that paper.             
 MAYOR GILMAN said that SB 147 tries to limit what the Commissioner            
 of ADF&G could review, because there needs to be more criteria.               
 SENATOR TAYLOR said he wasn't sure why the legislature should be              
 mandating back to a taxing entity the standards by which they will            
 choose to either grant or deny a tax exemption nor does he think it           
 is appropriate for the legislature to place an executive level                
 bureaucrat in charge of either approving or disapproving an area              
 for which they may wish to grant a tax credit for.  It seems they             
 are authorized to grant credits just as they are authorized to                
 impose taxes.  Let them establish the standards for which they wish           
 to grant such taxes in their own community which is what they are             
 hurting or helping.                                                           
 MR. GILMAN responded that he couldn't argue with that at all.                 
 SENATOR TAYLOR said he would be willing to grant a much broader               
 authority to people wishing to do projects of this type.                      
 Number 222                                                                    
 GERON BRUCE, Alaska Department of Fish and Game, clarified that the           
 Department wants to know exactly what is expected of them.  They do           
 support SB 147 with that clarification.                                       
 Number 244                                                                    
 SENATOR PEARCE explained that, as the sponsor last year of the                
 Senate version of HB 306, the original intent, which she worked               
 closely with Mayor Gilman on, was to allow the borough to give                
 credits for those people who spend their monies trying to do                  
 habitat restoration and protection along the Kenai River, as kind             
 of a pilot project.  They all thought that was a laudable goal.  As           
 the committee process followed, at the request of the Department              
 and some legislators, it was decided that ADF&G would promulgate              
 regulations that would set up other criteria that the borough had             
 to use before the borough could do their tax credit ordinance.                
 Unfortunately, there still aren't regulations under the old bill,             
 but the borough is facing a January 1 deadline to have an ordinance           
 in place or they will not be able to allow any tax credits for the            
 1996 calendar year.                                                           
 She thought it was clear that it is not up to ADF&G to decide                 
 whether the scope of protection and restoration is equal to the               
 value of the tax credit, but it is up to the borough.  The only               
 thing they want ADF&G to certify is that the criteria that the                
 borough includes in their ordinance is certified by the                       
 commissioner as being helpful and of benefit to the habitat along             
 the stream bed.                                                               
 Number 282                                                                    
 DALE BONDURANT supported SB 147 saying this was an added incentive            
 to get people to save the river.                                              
 GARY HINKLE said he thought the money and control should be local.            
 He thought the permitting process still left the habitat agencies             
 in control as they ought to be.  He said that the permitting                  
 process is very involved which is a concern.  Every agencies agrees           
 with what they are going to do, but the inconsistencies between the           
 agencies' regulations make it very hard to get them to agree on any           
 one project.  The most habitat friendly projects on the river are             
 highly maintenance oriented.  The less habitat friendly will last             
 a long time, like putting rock along the bank.  Most of the habitat           
 friendly projects need to be reworked.  He asked the committee to             
 particularly realize the importance of the tax credit for the on              
 going maintenance.                                                            
 SENATOR TAYLOR asked about the 50% limitation for one year, but               
 then it says that the credit may be given for more than one.  He              
 asked if it was contemplated that these tax credits might be on-              
 going for maybe 20, 30, or 40 years.  MAYOR GILMAN said he didn't             
 think it would go on for 20 to 40 years, but there is another                 
 restriction saying it can't exceed more than 50% of whatever the              
 cost is.  It's conceivable that it could go over two or more years.           
 SENATOR TAYLOR said it was a commendable credit, but he was                   
 concerned that it was a percentage of 50% of a person's taxes which           
 could very well pay for the whole project each year.  MAYOR GILMAN            
 answered that that was correct and it depends on the value that's             
 established on the property.  He said they are talking about 50% of           
 the value, not necessarily 50% of the project.  SENATOR TAYLOR said           
 he didn't have any objection to that.                                         
 Number 380                                                                    
 SENATOR PEARCE moved to pass SB 147 from committee with individual            
 recommendations with the accompanying fiscal note.  There were no             
 objections and it was so ordered.                                             
         HJR 25 BAN TRAWLING IN EASTERN GULF OF ALASKA                        
 SENATOR LEMAN announced HJR 25 to up again for consideration.                 
 SENATOR TAYLOR moved to pass HJR 25 from committee with individual            
 recommendations.  There were no objections and it was so ordered.             
              SB 114 HIGH COST MARGINAL OIL WELLS                             
 SENATOR LEMAN announced SB 114 to be up before the committee.                 
 RICHARD FAPPIANO, Engineer, OXY U.S.A., urged a committee                     
 substitute for SB 114 that would address a large potential resource           
 on the North Slope, known as the heavy oil sands.  He explained               
 that they are a subsidiary of Occidental Petroleum that has very              
 large interests.  They have an 8.8% interest in the Milne Point               
 Unit, the smallest unit on the North Slope which is about 12 miles            
 northwest of Prudhoe Bay.  Milne Point produces from the Kuparuk              
 formation and they have no financial interest in TAPS.                        
 This unit is only producing about 25,000 barrels a day and about              
 3,000 of it is from a pilot project called the Shrader Bluff or               
 Tract 14.                                                                     
 The heavy oil sands are a prize on the North Slope, he explained.             
 It's an accumulation of heavy oil in shallow sands that is                    
 estimated to be in excess of 26 million barrels of oil, actually              
 larger than Prudhoe Bay.  It has a huge potential and a number of             
 companies have tried to make an economical project out of producing           
 the heavy oil sands.  He said that full development at Milne Point            
 would involve spending half a billion dollars - mostly in Alaska.             
 Using current technology it is uneconomical to produce.  Something            
 must change for full development.  Through the use of incentives,             
 he thought they could economically develop this resource in the               
 Milne Point unit.  They propose a five year royalty holiday for new           
 wells drilled.  In the lower 48 mostly you see are holidays from              
 severance tax, he explained, because those states are not major               
 land owners like Alaska.  He said this incentive needs to be                  
 predictable and would be simple to administer and would bring money           
 to the state where it now receives none.  This would also give the            
 state an opportunity to pilot the "royalty holiday idea."                     
 Number 500                                                                    
 SENATOR TAYLOR commented why wouldn't we be better off with a huge            
 potential like this entering into almost a joint venture situation            
 as opposed to a royalty holiday where we allow full tax credit back           
 for 50% of drilling and exploration costs and then we share from              
 there on out.                                                                 
 Number 509                                                                    
 MR. FAPPIANO said that the only concern he had with that idea was             
 that there would need to be allowances for the risk associated with           
 that investment. They needed to be certain of the credit.  His                
 experience with other states is that they set a date of expiration            
 so the earlier a company starts, the more benefit it receives.                
 SENATOR TAYLOR said his concern was that there have been great                
 technological break throughs in the oil industry recently.  He said           
 he would like us to move into a true equity position and he agreed            
 that there needed to be some way of assessing risk.                           
 MR. FAPPIANO said they had been trying a lot of things for 10 years           
 now and they haven't made any money, yet.                                     
          SJR 20 COMMUNITY DEVELOPMENT FISHING QUOTAS                         
 SENATOR LEMAN announced SJR 20 to be up for consideration.                    
 SENATOR TAYLOR moved to adopt the committee substitute to SJR 20.             
 There were no objections and it was so ordered.                               
 ANNETTE KREITZER, Legislative Aide to Senator Leman, pointed out              
 the changes in the committee substitute.                                      
 SENATOR TAYLOR said his concern was that "and crab" was still found           
 on lines 22 and 28 and needed to be deleted, because it's an                  
 expansion of federal authority.                                               
 TAPE 95-38, SIDE B                                                            
 SENATOR TAYLOR continued saying that the feds have not been                   
 involved in this resource before.  The other thing that he was                
 concerned with is that he thought there would be something in the             
 draft encouraging, to some extent, a federal entity to allocate in-           
 state resources that we have jurisdiction over, at this point.                
 SENATOR HOFFMAN responded that earlier it was stated that since we            
 had Americanized the fleet, many of the beneficiaries of the                  
 fishery in the Bering Sea are Seattle based.  He thought by                   
 including other species, the scales would be brought more to                  
 Alaskans than to people from Seattle.  Adding crab would benefit              
 more Alaskans than the Seattle based fleets.                                  
 A suggestion by the United Fishermen of Alaska of adding "Bering              
 Sea" on page 2, in front of ground fish and crab would address                
 their concerns, he said.                                                      
 SENATOR TAYLOR said he had a constituent group in Petersburg that             
 doesn't necessarily feel that UFA is representing them on that                
 point.  They pioneered most of the crab fishing in the Bering Sea.            
 He would like to see the resolution address pollock as opposed to             
 expanding out to the generic term "ground fish."                              
 Number 544                                                                    
 He thought a statement was also needed stating that in our coastal            
 waters we shall make the allocation, period.                                  
 SENATOR HOFFMAN said that Senator Taylor's concern could be                   
 addressed in another resolution dealing with the management of the            
 resources.  He is talking about community development quotas and              
 how we support them and crab has already been initiated by the                
 Alaska Crab Association.                                                      
 SENATOR HALFORD commented that on page 3, line 3 he would like to             
 see "addresses" changed to "guarantees."  Unless that is the case,            
 these programs aren't worth a hoot to us, he said.                            
 SENATOR HOFFMAN moved to change "addresses" to "guarantees."  There           
 were no objections and it was so ordered.                                     
 SENATOR TAYLOR moved on page 2, lines 22 and 28, and on page 3,               
 line 4 to delete "and crab."                                                  
 SENATOR HALFORD objected and asked if this applied only to crab in            
 the Bering Sea.  SENATOR TAYLOR said that was correct at this                 
 SENATOR HALFORD said he didn't mind with regard to the Gulf.                  
 SENATOR LEMAN asked about reallocation from existing Alaskan crab             
 fishermen.  SENATOR HOFFMAN said he didn't object to excluding                
 SENATOR LINCOLN, looking over her notes, said someone said that               
 crab is mostly outside of state waters and in federal waters.                 
 SENATOR TAYLOR said he thought a lot of our crab fishery that the             
 state has been regulating for years lies in federal waters.                   
 SENATOR HALFORD suggested adding a further resolve saying nothing             
 in this resolution shall be construed as: and then say specifically           
 the things we don't want to do, such as encouraging the IFQ's.                
 SENATOR TAYLOR said that would be fine with him.                              
 Number 440                                                                    
 SENATOR HOFFMAN said he was concerned that if this resolution was             
 going to do any good, it still had to go to the other body and                
 we're running out of time.                                                    
 SENATOR TAYLOR moved to withdraw his motion to delete "and crab."             
 There were no objections and it was so ordered.                               
 SENATOR HALFORD moved to adopt a conceptual amendment adding a                
 Whereas stating that nothing in this resolution shall be construed            
 as: Senator Taylor's problem of allocation within Alaska waters,              
 the Alaska vs. outside in a positive way, Senator Hoffman's                   
 interest, and his feeling that we should not in any way endorse the           
 IFQ process.  SENATOR TAYLOR said he would like that one also.  He            
 added that he would like another line stating that in no way should           
 this be construed as a grant of jurisdiction to the federal entity            
 by this state.  There were no objections and it was so ordered.               
 SENATOR HALFORD moved to pass SCS HJR20 (RES) from committee with             
 individual recommendations.  There were no objections and it was so           
        HB 169 DEPT. NAT RES. IS LEAD AGENCY FOR MINING                       
 SENATOR LEMAN announced HB 169 to be up for consideration.                    
 ROD MOURANT, Legislative Aide to Representative Pete Kott, said               
 this is recommendation #5 of the Alaska Minerals Commission Report            
 1995.  It designates the Department of Natural Resources as the               
 coordinating lead agency in all regulatory matters relating to                
 mineral exploration, extraction, and development.                             
 SENATOR TAYLOR asked if he had reviewed his proposed amendment.               
 MR. MOURANT said that was correct and Representative Kott fully               
 supports the amendment.                                                       
 SENATOR TAYLOR moved to adopt amendment #1 and asked for unanimous            
 Number 413                                                                    
 SENATOR LINCOLN objected so she could understand the bill better              
 and wanted to hear DNR's position on this.                                    
 SENATOR LEMAN said he thought it meant that DNR would make the                
 final determination, but other departments would participate in the           
 JULES TILESTON, Director, Division of Mining, emphasized that they            
 like the uniform approach that HB 169 has, but their interpretation           
 of coordination, as it is currently being used in the Fort Knox and           
 the Illinois Creek, is not that they have authority to direct, but            
 that it is a cooperative effort between the applicant and all of              
 the permitting agencies including local governments and native                
 He said that in their view, coordination did not mean that DNR                
 takes on the permitting or regulatory authorities of other                    
 entities.  On March 22 they suggested clarification language which            
 comes from the reclamation law which simply reads: "This chapter              
 does not alter or diminish the authority of another state agency or           
 state corporation, or the University of Alaska, or a municipality             
 under its laws or regulations."  This has worked without difficulty           
 and DNR does not seek to have final determination authority over              
 another agency's, or another government's, existing regulatory                
 authority over mining or mineral resource development activities.             
 SENATOR LEMAN asked him if that is how he interprets this                     
 amendment.  He answered that that is what he thought.                         
 SENATOR TAYLOR said he believed exactly the opposite of that.  The            
 buck has to stop someplace.  DNR should have the final authority              
 after consulting with those agencies and entities that should be              
 bringing that information to them. Giving complete veto power to              
 all the agencies forces people seeking permits to go through the              
 same process that the Kensington and the A-J are currently caught             
 up in right now.  He thought that the bill wouldn't really do                 
 anything different without the amendment.                                     
 MR. TILESTON said that right now there is no consistent approach to           
 mining and he viewed the bill, in any of the versions, as a message           
 that there needs to be a uniform approach which isn't currently               
 happening.  Under the amendment, in reality the commissioner of DNR           
 would be the one who would have to defend whatever issue affected             
 a mining venture.                                                             
 Number 287                                                                    
 SENATOR LINCOLN said she appreciated Senator Taylor's comments, but           
 she objects to the amendment, because she thought they were going             
 from one extreme to another.  Giving DNR the final say on                     
 everything is too dangerous when they earlier made a change saying            
 "may advise."                                                                 
 SENATOR LEMAN said he tended to agree with Senator Taylor in that             
 there needed to be some ultimate point at which someone takes                 
 charge and he would fully expect that DNR would do that and would             
 not change things, like water quality standards, on its own.                  
 SENATOR LINCOLN maintained her objections.  The roll was taken as             
 follows:  Senators Lincoln and Hoffman voted no; Senators Leman               
 Pearce, Halford, and Taylor voted yes; and the amendment was                  
 Number 221                                                                    
 SENATOR TAYLOR moved CSSB 169 (RES) from committee with individual            
 recommendations.  There were no objections and it was so ordered.             
 SENATOR LINCOLN asked if DNR had looked at the fiscal note with the           
 new amendment.  SENATOR LEMAN indicated that would be taken care              
              SB 114 HIGH COST MARGINAL OIL WELLS                              
 SENATOR LEMAN asked Mr. Fineberg if he wanted to testify now or at            
 a later date when the committee formally took up the bill.                    
 MR. FINEBERG said there are several points he wanted to respond to,           
 but thought it would be more useful for the committee to have the             
 bill before them at the time.                                                 
 SENATOR LEMAN adjourned the meeting at 5:05 p.m.                              

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