Legislature(1999 - 2000)
01/26/2000 02:12 PM Senate RES
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
JOINT MEETING
HOUSE RESOURCES STANDING COMMITTEE
SENATE RESOURCES STANDING COMMITTEE
January 26, 2000
2:12 p.m.
HOUSE MEMBERS PRESENT
Representative Bill Hudson, Co-Chair
Representative Beverly Masek, Co-Chair
Representative John Cowdery, Vice Chair
Representative John Harris
Representative Jim Whitaker
Representative Reggie Joule
HOUSE MEMBERS ABSENT
Representative Ramona Barnes
Representative Carl Morgan
Representative Mary Kapsner
OTHER HOUSE MEMBERS PRESENT
Representative Dyson
Representative Ogan
Representative Williams
SENATE MEMBERS PRESENT
Senator Rick Halford, Chairman
Senator Robin Taylor, Vice Chairman
Senator Pete Kelly
Senator Lyda Green
Senator Georgianna Lincoln
Senator Jerry Mackie
SENATE MEMBERS ABSENT
Senator Sean Parnell
COMMITTEE CALENDAR
BRIEFING: FINAL JUDGMENT ON KATIE JOHN CASE
PRESENTATION BY ALASKA GASLINE PORT AUTHORITY
PREVIOUS ACTION
No previous action to record
WITNESS REGISTER
JOANNE GRACE, Assistant Attorney General
Natural Resources Section
Civil Division Anchorage
Department of Law
1031 West Fourth Avenue, Suite 200
Anchorage, Alaska 99501
POSITION STATEMENT: Reported and answered questions on the Katie
John case.
KATHRYN SWIDERSKI, Assistant Attorney General
Natural Resources Section
Civil Division Anchorage
Department of Law
1031 West Fourth Avenue, Suite 200
Anchorage, Alaska 99501
POSITION STATEMENT: Reported and answered questions on the Katie
John case.
HANK HOVE, Chairman
Alaska Gasline Port Authority
P.O. Box 71267
Fairbanks, AK 99707
POSITION STATEMENT: Presented on the Alaska LNG (liquid natural
gas) Project.
BRENT SHERFEY, Project Manager
Petroleum and Chemical North America
Bechtel Corporation
3000 Post Oak Blvd.
Houston, Texas 77056
POSITION STATEMENT: Testified on behalf of the Bechtel Corporation.
ACTION NARRATIVE
TAPE 00-3, SIDE A
Number 0001
CHAIRMAN HALFORD called the joint meeting of the House/Senate
Resources Standing Committees to order at 2:12 p.m. Members
present at the call to order were Representatives Hudson, Masek,
Harris, Joule, and Senators Halford, Taylor, Kelly, Green and
Lincoln. Representatives Whitaker and Cowdery and Senator Mackie
arrived as the meeting was in progress.
BRIEFING: FINAL JUDGMENT ON KATIE JOHN CASE
JOANNE GRACE, Assistant Attorney General, Natural Resources
Section, Civil Division Anchorage, Department of Law, came forward
to present a report on the status of the Katie John case. This
morning the state filed a notice of appeal in the Katie John case
to appeal final judgment of the district court that was entered on
January 7, 2000. The state has appealed the Katie John case before
and the Ninth Circuit court of appeals issued a decision adverse to
the state. The purpose of taking appeal from the final judgment at
this point is to try again to convince the U.S. Supreme Court to
review the Ninth Circuit decision finding that the authority of the
Federal Subsistence Board extends to navigable waters in Alaska in
which the United States has the federal reserved water rights. The
reason they have this chance to take this appeal, at this point,
five years after the Ninth Circuit issued its decision, is that the
original Ninth Circuit decision was an interlocutory appeal. That
means it was an appeal of an order by the district court that was
not a final disposition of the case. It was an intermediate appeal
of a controlling point of law but not of a final judgment.
Normally, a party in a case must wait until a federal District
Court is completely finished with the case and has entered final
judgment before they have an opportunity to appeal. In some very
rare cases, where there is a very important point of law that the
District Court has decided, a party can petition the District Court
and then petition the Ninth Circuit to consider the issue
immediately. That is what the state did in this case. In the
Katie John case the Federal District Court in 1994 ruled that the
public lands to which the subsistence priority applied extended to
all navigable waters in the State of Alaska by virtue of
navigational services. At the same time the district court ruling
did not depend on a second argument by the plaintiff in that case
that the extent of public lands should be determined by the
existence of a reserved water right in navigable waters. At that
point, the state asked for a interlocutory appeal to the Ninth
Circuit and the plaintiffs did as well. So the Ninth Circuit then
decided that public lands consisted of navigable waters in which
the United States has reserved water rights. At that point the
state petitioned the U.S. Supreme Court to review that decision.
One of the major points in opposition that the United States made
at that point was that the Supreme Court should not consider this
issue on an interlocutory appeal. The Supreme Court should wait
until the district court had completely decided the case and issued
a final judgment because considering it would be premature at that
point. The United States told the Supreme Court that they should
wait and see what the federal regulations looked like and they
should wait to see if the state amended its constitution before it
decides the issue. The case went back to the district court in
1995. The federal agencies began the process of identifying the
waters in Alaska where the right existed and the district court
case was stayed until those regulations became final in October.
Now these regulations have become final, the district court has
issued a final judgment and the state has the opportunity to appeal
that. They do have to go through the Ninth Circuit again to try to
get the Supreme Court to review the case. They don't expect the
Ninth Circuit to reconsider its decision, but jurisdictionally,
they have to appeal to the Ninth Circuit and then from that
decision, petition the Supreme Court and try to convince them to
take up the issue.
Number 108
CHAIRMAN HALFORD noted that this question strictly deals with the
water side so it does not challenge the subsistence federal law on
federal lands.
MS. GRACE agreed and said the only issue on appeal would be whether
the public land to which the right applies in the corresponding
authority of the Federal Subsistence Board to regulate includes
navigable waters in which the United States holds a reserved water
right. That would be the one issue that the state would be
appealing. It is possible that the plaintiffs would cross appeal
and argue that public lands by virtue navigational servitude, which
was an alternative theory. That was the theory that the district
court originally accepted. That public lands would include all the
navigable waters in Alaska. That may happen.
Number 127
SENATOR TAYLOR asked if the federal agencies have withdrawn the
regulations that were imposed in January regarding subsistence
fishing in marine waters.
KATHRYN SWIDERSKI, Assistant Attorney General, Natural Resources
Section, Civil Division Anchorage, Department of Law, answered that
the federal agencies have not withdrawn any of the regulations that
were published last January and became effective October 1, 1999.
Those regulations specifically exclude federal subsistence
jurisdiction in the marine waters of the Tongass and Chugach
National Forests. There are some smaller areas of marine waters
that appear to fall within their assertions of federal jurisdiction
and those have not been revised.
SENATOR TAYLOR noted there are several definitions here and it is
tough to keep track of them. They did specify that these
regulations would not be in effect in marine waters of the Tongass
and the Chugach. What about the rest of the marine waters.
Those are two withdrawals that they made that might have some
implied claim of a reserved water right. There is no withdrawal on
the rest of Alaska's coast.
MS. SWIDERSKI answered that is correct. The regulations apply to
all waters, navigable and non-navigable, that fall within the
boundaries of identified federal units. In the regulation there is
a listing of 33 federal units and then a list of about seven wild
and scenic river components, so roughly forty federal areas would
also include inland waters that are adjacent to the boundaries of
those units. Marine waters would only be included to the extent
they fall within the declared boundaries of those units.
Significant marine waters would fall similarly in the Tongass and
Chugach boundaries but those were specifically excluded from the
scope of the regulations.
SENATOR TAYLOR wanted to be clear that those have been specifically
excluded, the only ones that are included are those 40 areas
mentioned that were federal units or wild and scenic rivers.
MS. SWIDERSKI answered correct.
SENATOR TAYLOR asked how does that compare with the Supreme Court
decision in the "Volcanic" case.
MS. GRACE said the recent assertion of authority over waters in
which there is a reserved water right is not based on title to the
submerged land. The definition of public lands in Title VIII to
which the subsistence priority and the authority of the Federal
Subsistence Board applies is public lands are lands, waters and
interest therein titled to which is in the United States. The
Ninth Circuit decision in this case says that the reserved water
rights in particular navigable waters in these federal areas
(indisc.--coughing) an interest to which the United States has
title in those waters and that thereby renders those waters as
public lands. It is unrelated to the ownership of the submerged
lands. The United States isn't claiming any title or authority
based on title to a submerged land. It is based on an interest
that they have in a reserved water right in the water that the
Ninth Circuit has held--therefore rendered the public lands under
this particular definition in ANILCA [Alaska National Interest
Lands Conservation Act].
SENATOR TAYLOR asked if there are any navigable waters in Alaska
today where the federal government has title to those waters.
MS. GRACE explained that the United States doesn't claim title to
the water. There are certainly areas where they claim title to
submerged lands those are pre-statehood withdrawal areas. They
claim title to interest in the water being a right to in-stream
flows.
SENATOR TAYLOR asked if this was based on the navigable servitude
question or on the implied reservation of waters on a withdrawal.
MS. GRACE replied, "The current Ninth Circuit decision is based on
the existence of reserved water right not on the navigational
servitude. The reserved water right is a doctrine that says when
the United States reserves federal lands for a particular purpose,
such as a park or wildlife refuge, by implication it also reserves
water necessary to fulfill the purposes of the reservation. For
example, if the United States takes federal land and creates a
national park or wildlife refuge as of the date they are creating
it, it is implicitly reserving ... say if one of the primary
purposes of a park or national wildlife refuge was to protect fish
habitat, then by implication it would also be reserving sufficient
in-stream flows in the rivers within the park or wildlife refuge to
preserve fish habitat."
SENATOR TAYLOR asked if they are also reserving this in all the
post-statehood withdrawals as well as the pre-statehood
withdrawals. Are they exerting this based on the federal reserved
water rights that pre-date statehood or all.
MS. GRACE answered all of them. It is not an issue that is related
to title to the submerged land. Whenever the reservation occurs,
the water rights are created. Generally in the context of reserved
water rights, it is significant when the right is created because
it determines the right of the United States to that water vis-a-
vis other water claims. But in the context of Title VIII of ANILCA
it doesn't make any difference when the right occurs because it is
just the mere existence of the right that creates...the water right
that creates the determination that those rivers are public land
and that thereby creates the subsistence priority and the authority
of the Federal Subsistence Board to take over state management of
those fisheries.
SENATOR TAYLOR commented "That's the double shuffle of rhetoric by
which they say they're not taking back what they gave us at
statehood." He thanked her for that clarification and "was shocked
to hear they are even making that claim in areas where withdrawal
occurred after statehood but I understand the subtle distinction
you are trying to make. You're indicating what their position is;
that's not our state's position is it?"
MS. GRACE said that their position is that Congress had no intent
in creating that definition of public lands to include navigable
waters because there was a reserved water right.
SENATOR TAYLOR indicated that he is aware of litigation that
occurred in Colorado where attempts were made by the federal
government to utilize a reserved water right designation to control
in-stream flow and other uses of waters there. Colorado had the
same choice to roll over and surrender everything like Alaska is
being told and let the federal government control the waters, but
they chose to fight and each individual stream was litigated to
find out the purpose of the withdrawal to find out if water had
anything to do with it. As a consequence the federal government
ended up with about six rivers out of 600 rivers and Colorado won
the rest of them.
Number 261
MS. GRACE explained that the doctrine states that when the
reservation is created the federal government, by implication,
reserves sufficient water to fulfill the primary purpose of the
reservation.
Number 265
SENATOR TAYLOR pointed out that in Colorado the federal government
would frequently come in and list five or six purposes for which
they have withdrawn the waters. Under the court decision the
federal government was only allowed to maintain their reservation
for the primary purpose, not the secondary or tertiary. He
wondered if there is anything that indicates that when the federal
government created the Tongass National Forest that they reserved
the water rights and had a specific purpose for which they reserved
those water rights.
MS. GRACE indicated that the doctrine has been applied, generally,
in case law, as of the date the reservation was created. She is
quite sure that when the Tongass National Forest was created
primary purposes of the reservation would not have been furthered
by reserving water rights, but it is possible that the federal
government will argue that they can change the primary purpose of
a reservation after it is created and at that point implicitly
reserve water rights. She added that even though in 1907 the
primary purpose of the national forest did not include reserving
water rights, if the U.S. Congress changed the primary purpose of
the national forest to require water at that point they would argue
the right is created.
SENATOR TAYLOR explained that in Colorado the federal government
was not allowed to invent new reasons for having reserved land and
thus, by implication, water rights. They were held accountable for
what they reserved it for at the time and what the primary purpose
was at the time.
MS. GRACE agreed and replied that the they were not allowed to
create new purposes after the fact. She explained that she was
referring to an act of Congress that changed the purposes of
national forests, for example, to include recreational use.
SENATOR TAYLOR said that in 1907 it was multiple use.
MS. GRACE made her point that they may have a stronger basis for
arguing that further rights were created when Congress changed the
purposes outside the context of litigation. She referred to Title
VIII of ANILCA and said that it is not so much a question of when
the water right was created as it is a question of the mere
existence of a water right.
Number 312
SENATOR TAYLOR indicated that this is going to have huge
implications not only in Alaska, but in every western state where
there are large blocks of federal land and water flowing through
them. He wanted to know if Sandra Day O'Connor was completely out
of her mind when she wrote the decision in Dinkum Sands, which was
only three years ago, that said that Alaska not only controls the
submerged lands, but also the water above them and the fish that
swim therein.
MS. GRACE responded that the question of reserved water rights in
Alaska has never been a big issue, because there are not a lot of
competing interests claiming water rights. It was not a doctrine
that really had any application in Alaska until the Katie John
case. She indicated that it is their hope to convince the Supreme
Court to review the Ninth Circuit decision, which will eliminate
the problem about where, exactly, the right exists. If the
definition of public lands is not based on the existence of
federally reserved water rights, in essence, the issue goes away.
Number 338
SENATOR TAYLOR wondered if procedurally they are back into the
Ninth Circuit on the appeal of the Katie John case.
MS. GRACE indicated that they have to go through the Ninth Circuit,
because the Supreme Court cannot be petitioned for a review.
SENATOR TAYLOR explained that the Peratrovich case, which deals
directly with the reserved water rights claims in the Tongass
National Forest, has now been stayed by the filing of the Glacier
Bay lawsuit. He wondered why it would not be a waste of judicial
time to go through the Ninth Circuit again and go through that
briefing just to petition again on the very same subset of issues
that is encompassed in the Peratrovich case.
MS. GRACE indicated that the main issue the plaintiffs seem to be
pushing in the Peratrovich case is the question of title to the
submerged land. They did raise other claims based on navigational
servitude and possibly water rights, but they are not pursuing that
at this time because of the Katie John case. They are pursuing the
claim that the federal government has title to the submerged land
underlying the waters within the Tongass National Forest, and;
therefore, those are all public lands under ANILCA. The Supreme
Court review of the Ninth Circuit petition of the Katie John case
might have some impact on claims in the Peratrovich case, but those
aren't claims that the plaintiffs are really pursuing at this time.
Number 364
CO-CHAIR HUDSON wondered when they would be filing.
MS. GRACE indicated that they filed that morning and there is a
copy of the notice of appeal.
CO-CHAIR HUDSON wondered when the next substantive action will take
place.
MS. GRACE stated that she expected a briefing to be scheduled with
the Ninth Circuit within six to eight weeks. The briefing will
take three months, but the real issue is how quickly the Ninth
Circuit will decide on the case; some cases have been pending
before the Ninth Circuit for years. She believes that the case
will go quickly; expecting it to take less than a year. At that
point the party has 90 days to petition the Supreme Court and the
United States has about 30 days to respond; how quickly the Supreme
Court would decide whether to take the case depends on whether the
Ninth Circuit petition is filed during the Supreme Court session,
which goes from October to June. She concluded that it would take
between one and two years to find out whether or not the Supreme
Court would take the case.
CO-CHAIR HUDSON wondered what the relationship is between the two
filings: the Katie John case and the Glacier Bay case.
MS. GRACE explained that the issue in the Katie John case is
whether public lands under ANILCA include waters that are subject
to a federal reserved water right. At this point they don't
believe that the federal agencies are claiming to have a reserved
water right in marine waters, because it has been uniquely a fresh
water issue. The Glacier Bay case seeks to quiet title of the
lands underlying the marine waters, so the Glacier Bay case should
not have any impact on the Katie John decision and vice versa.
Number 403
REPRESENTATIVE DYSON wondered if there are any cases where reserved
water rights have been assumed to extend beyond the reserved lands,
for example, the tributaries of a river that flow through a federal
area.
MS. SWIDERSKI responded that she is not aware of any cases where
they have extended the water rights upstream or downstream from a
particular federal area; however, with the reserved water right
would come the right to enjoin other users, presumably upstream
users, who are interfering with the water right as it flows through
the federal area.
Number 417
SENATOR LINCOLN wondered whether or not the Katie John case would
be an issue, currently, if the subsistence issue had been resolved
during the special session.
MS. GRACE indicated that if there had been a constitutional
amendment during the special session the subsistence priority would
apply everywhere and there would not be a concern with the federal
government usurping state authority to regulate navigable waters;
the state would have authority to regulate everywhere.
SENATOR LINCOLN wondered what the impact of the judgement on the
Katie John case will be on Alaska's resources, specifically, the
fisheries.
MS. GRACE said that it would have no impact, because as it stands
the Federal Subsistence Board has authority to regulate fisheries
in the waters that the agencies have identified.
SENATOR LINCOLN asked what the basis was for the "administration"
to decide to go forward with the appeal.
Number 436
MS. GRACE explained that the Governor believes that the subsistence
priority should apply everywhere in the state. The problem with
the definition of public lands in Title VIII of ANILCA is that
there are two sides of that coin; on one side public land defines
where the subsistence priority applies, which is something that the
Governor wants to maximize, on the other side public land
determines the area where the federal government can usurp the
state authority to regulate fishing. Maximizing the public lands
as it pertains to the right minimizes the area that the state has
authority to regulate. It is her understanding that the
"administration" supports the subsistence right everywhere and
believes that it is something that must be accomplished through a
constitutional amendment. This appeal is really about the fact
that the Katie John decision took away the state's authority to
regulate its own resources. One of the main arguments in the Katie
John case is that there is a court doctrine called the "clear
statement doctrine," that says that courts will not infer a
congressional intent to usurp a traditional state police power
unless Congress makes that intent manifestly apparent. The reason
for that doctrine is to insure that federal legislation is not
interpreted in such a way to alter the delicate balance of power
between the federal and state government unless Congress has
thoroughly considered and fully intended that to be the result.
She pointed out that the argument in this case is that Congress did
not make clear in ANILCA an intent to take away the state's
authority to regulate navigable waters in which there is a federal
reserved water right. She indicated that although the Governor
does support a subsistence right everywhere and continues to fight
for that he also believes that he has to defend the state's
authority to regulate its resources where Congress really didn't
make clear any intent to usurp that authority.
Number 468
SENATOR LINCOLN wondered if they anticipate requesting additional
funds to appeal the case.
MS. GRACE indicated that she is not authorized to talk about it.
She said that it is a matter for the Department of Law.
SENATOR LINCOLN wondered how aggressively they are going to proceed
with the appeal process.
MS. GRACE said that they have discussed hiring outside counsel with
the specialized knowledge in Supreme Court practice; it is really
a specialized area and although the Department of Law has many fine
attorneys there have not been enough Supreme Court cases for the
attorneys to develop that kind of expertise.
Number 478
SENATOR KELLY clarified that the Governor does not believe in
subsistence rights everywhere as Ms. Grace stated three times in
her testimony. He does not believe in subsistence for the people
in his district; he believes in subsistence apartheid.
SENATOR TAYLOR pointed out that he was fascinated by Ms. Grace's
response to Senator Lincoln's question about the constitutional
amendment and it was very carefully worded, because the answer was
absolutely correct but only gave half the story. He stated, "In
answer to her question when she said, 'If we'd of passed a
constitutional amendment would subsistence not now be in all our
waters,' and you said, 'well, yes it would,' and that we would then
regulate them. The other half of the shoe that you didn't mention
was that that regulation is required under the federal law, as we
know we've all written letters to the Secretary of the Interior how
many different times on how many different modifications, that
federal law has to be mirrored within our state laws. And that the
ultimate resolver of all disputes on subsistence, after we've
adopted it, is going to be in federal court. Not the state court;
a federal judge sitting some place even in Anchorage or San
Francisco or the Ninth Circuit court of appeals will decide whether
or not a commercial fishery opens or closes, whether or not sport
fishing is allowed or closed, all personal use permits according to
the regulations you and I were talking about earlier, personal use
permits that all of Alaskans are used to and understand if you come
from a community too large those will not be allowed. If in fact
they have to close any fisheries to protect subsistence. It's a
nice half-answer, but it fails to mention what the ramifications
are of us adopting a law, so I'd have to question it a little
different way. Had we adopted the amendment, which ever one over
the last ten years you want to take, assuming one I guess in
compliance with what the Secretary [of the Interior] would accept,
because he is the ultimate arbitrator of every decision we make
around here whether it's good or bad; assuming we had done that
what basis would you have at this point in time to even be
appealing or stay as you have in the Peratrovich case. In fact you
would have given up that -- all of those legal arguments on the
reserved water right question that you claim this Governor wants to
defend us on, you'd of given up all those things by adopting or
conceding to the fact that the federal government does in fact have
this reserved right, which I think most of us here at the table
would dispute that they have such a right. Can you answer that?"
Number 508
MS. GRACE stated that if they had passed a constitutional amendment
then Alaska would have management of the fisheries and there would
be a subsistence priority for the rural residence of Alaska that
would apply statewide. There would be no need to litigate reserved
water rights or title to submerged land in order to determine the
scope of the right, because the scope of the right would be
statewide.
SENATOR TAYLOR responded, "To finish your sentence -- statewide and
dictated to us by the federal government on its interpretation of
what its federal law means when applied in the field."
MS. GRACE indicated that it is correct that the federal courts
would be able to review state management statewide.
SENATOR TAYLOR pointed out that at any time if they did not find
the state in compliance with their interpretation of the federal
law they would assert the very same jurisdiction they are claiming
to assert today, because the reserved water rights question would
have been forfeited.
MS. GRACE said that the reserved water rights question would just
have no relevance, not necessarily forfeited in a legal sense.
SENATOR TAYLOR stated that Alaska's right to manage its fisheries
in the navigable waters, which has been assumed throughout in the
Submerged Lands Act and the Alaska Statehood Act, would go down the
drain, because Alaska would have embraced a federal concept that
the federal government has the authority and the state would not
now be contesting it and fighting to keep it under state control.
MS. GRACE explained that the state management would be subject to
judicial review in isolated cases, but she doesn't think it is fair
to say that the state would be giving up its right to manage its
water ways; the state would have that right in a way that they
don't have it when the Federal Subsistence Board is managing
subsistence.
SENATOR TAYLOR wondered why the reserved water rights issue is not
being contested in any of the cases; why is the "administration"
dodging the issue. He mentioned the issue in Glacier Bay.
Number 538
MS. GRACE responded that the federal authority that the National
Park Service is claiming to have on fisheries in Glacier Bay
National Park is not based on a reserved water right; Title VIII
does not apply in Glacier Bay National Park. The federal authority
is based on the fact that they claim title to the submerged land;
that the submerged land is park land that the National Park Service
has authority over. The state's claim is that they are not
National Park Service lands, but state lands and that is why the
reserved water rights issue has not been raised and it is being
limited to a title issue.
SENATOR TAYLOR said, "So, we could win Glacier Bay on your brief
and the federal government would still regulate on the fisheries,
because they would say that no subsistence is allowed there ...
You're arguing only the limited technical aspects of who owns the
submerged land."
MS. GRACE explained that the fact that there is no Title VIII
subsistence right in Glacier Bay National Park really has nothing
to do with the title to the land. It is not really an issue
between the state and federal government it is something that is in
federal law.
SENATOR TAYLOR indicated that if it doesn't have anything to do
with it then why in the world is the federal government paying some
$300,000 to the fisherman so they won't crab fish there anymore.
MS. GRACE clarified what Senator Taylor was asking that if they
were to establish that those are state waters rather than park
service lands then the exception to Title VIII for Glacier Bay
National Park would not apply to those waters.
SENATOR TAYLOR responded, "Right."
MS. GRACE stated, "There would be a subsistence right in those
waters."
SENATOR TAYLOR pointed out that they haven't extended it to marine
waters yet. If the state sells a crab fishing license that says
that the fishermen are allowed to fish for crab in Southeast
Alaska, then that fishing license would still have some validity in
those waters if the state fought for their right to issue that
license in those waters.
MS. GRACE reiterated that the National Park Service is asserting
their authority on the basis that they consider the submerged land
their claim.
Number 571
SENATOR TAYLOR said that he understands their claim. He wondered
why they are not fighting on behalf of those fishermen and users of
that water. He asked why the state has failed to request a stay
pending the outcome in the Katie John case.
MS. GRACE replied that it is probably not too late to do it, but it
is extremely unlikely that they would receive such a stay. She
indicated that it is not something they have really thought about,
so they will now.
CO-CHAIR MASEK agreed with Senator Taylor that if there was a
constitutional amendment --
TAPE 00-3, SIDE B
CO-CHAIR MASEK continued that in ANILCA, unless there are changes
that go along with the constitutional amendment the state will not
get its management back. She wondered if the judgement were
overturned by the Ninth Circuit court of appeals or the U.S.
Supreme Court would the state retain its existing management
authority in navigable waters.
MS. GRACE explained that the Federal Subsistence Board, since
October 1, 1999 has taken over fisheries management for subsistence
purposes in navigable waters. She indicated that the state would
not maintain its current status, but would regain its former status
as being the regulator of fisheries in almost all waters of Alaska.
Before the Katie John case the Federal Subsistence Board had
authority to regulate fisheries in non-navigable waters on public
land, which is fairly insignificant compared to the authority they
have now.
Number 577
SENATOR MACKIE indicated that he understood some of Senator
Taylor's line of questions and some he didn't. He suggested to
Senator Taylor that some of the questioning was going toward policy
decisions and some of the policy decisions are not for Ms. Grace
and Ms. Swiderski to make.
SENATOR KELLY agreed with Senator Mackie, but also can't help but
notice the absence of the Attorney General when it comes to
discussing an incredibly important case.
CO-CHAIR HUDSON said that he feels encouraged that the
"administration" is filing on the Glacier Bay case and if they win
that one they win something substantive. He indicated that if the
state can make a clear understanding of what the federal
governments responsibilities and authorities are and what the
states are then they will be miles ahead of where they are at the
present time.
Number 542
SENATOR TAYLOR said that he appreciates Ms. Grace and Ms. Swiderski
coming before the committee, but he is disappointed in the fact
that cases that appear to be some of the narrowest most constrained
arguments and issues are not yet being addressed. He pointed out
that the overriding question is what is the federal governments
authority in Alaskan waters and what was conveyed to the state at
statehood. The argument that they are giving has been constrained
by the "administration" in the way that they've approached it.
When he hears statements like "we could win Glacier Bay" and still
have no resolution of the issue of reserved water rights that is
frightening. He indicated that possibly it is to the benefit for
political purposes for some individuals to keep that issue from
being determined. He believes that when it is determined the state
wins. He voiced his frustration about the fact that they are not
being allowed to defend the state as vigorously as the constitution
calls upon the Attorney General's office to defend it; it is that
lack of defense that has caused them to sit on the issue for ten
years. He encouraged them in every way to do what they can to
insure that the state is protected and that the matters go forward.
He wondered if the Attorney General's office would appreciate the
support of the legislature in the form of an amicus brief on the
Katie John case and Glacier Bay case.
MS. GRACE responded that it is a question for the Attorney General.
She added that the decision to appeal the final judgement on the
Katie John case is very much a decision to defend the state's
authority to regulate its resources in navigable waters, which has
been the position of the Governor since he came into office and the
appeal is a demonstration of that.
Number 474
CO-CHAIR MASEK wondered if the case challenges subsistence priority
on public lands.
MS. GRACE explained that the subsistence priority applies to public
lands and that is the way that the scope of the right was
determined; a rural resident has a right to a priority in hunting
and fishing on public lands. This case does challenge the current
definition of public lands not because the "administration" would
like to challenge the subsistence priority in that area, but
because the authority of the federal government to take over
fisheries management also applies to public lands.
CO-CHAIR MASEK wondered what would happen on the Yukon River if the
state lost the appeal on the Katie John case and the final
judgement went through.
MS. SWIDERSKI replied that if the state did not prevail on the
Katie John appeal than the status quo would remain in place and the
federal agencies, which have asserted authority over segments of
the Yukon River, would continue to manage for subsistence purposes
in those segments.
Number 448
CO-CHAIR HUDSON wondered if the courts determination on the Katie
John case would have to take into consideration the agreement
between Canada and the United States, specifically on the river
system.
MS. SWIDERSKI indicated that those obligations are overriding, so
the United States commitment to the treaties would stand and the
federal agencies would regulate within the context of meeting the
treaty obligation.
SENATOR HALFORD said that they would be looking forward to seeing
the initial briefs. He called an at-ease at 3:15 p.m. and called
the meeting back to order at 3:35 p.m.
Number 419
HANK HOVE, Chairman, Alaska Gasline Port Authority, stated,
In October of 1999 the voters of the Fairbanks Northstar
Borough and the North Slope Borough and the city of
Valdez formed a port authority for the purpose of the
construction and operation of a gas pipeline, which would
finally, after over 20 years, commercialize that vast
natural resource, which we as residents of the state of
Alaska possess on the North Slope. We have a nine member
board of directors ... composed of three individuals from
each community. In the Northslope Borough we have Mayor
George Ahmaogak, Richard Glenn and Thomas Napageak and
from the city of Valdez Mayor Dave Cobb, will be joining
us here just momentarily when he completes another
meeting, Dave Dengel and John Kelsey and from Fairbanks
myself, former Attorney General Charlie Cole and Barbara
Schuhmann. We have we think made considerable progress
since October and we have now formed a development team,
which consists fundamentally of the port authority itself
and we have secured as an EPC role player in the form of
Bechtel, which is a world renowned construction and
engineering firm. We have with us a Yukon Pacific
Corporation [YPC], which has worked for 18 years and has
expended considerable sums of money to obtain the permits
necessary to build an LNG [Liquid Natural Gas] facility
and a pipeline. We have also secured the services of
Taylor Dejongh and Merrill Lynch and also general counsel
from the lower 48 with great expertise in areas of the
this nature, O'Melveny and Myers, and our general counsel
from the state of Alaska is Walker, Walker, Wendlandt and
Osowski ... .
The overview of the project is, of course, the treatment
and transport of natural gas via pipeline from Prudhoe
Bay to Valdez. This pipeline, as permitted by Yukon
Pacific [Corporation], fundamentally parallels the
existing TAPS [Trans-Alaska Pipeline System] line and at
Valdez we would convert the natural gas to liquid natural
gas and ship it to the Far East markets, which all the
markets plan for the sale of Alaska natural gas. At
Prudhoe Bay we would build a conditioning plant, that
plant is for the purpose of removing water and carbon
dioxide from the gas as it comes up out of the field and
then transporting it to tide water in a pipeline with a
diameter of up to 48 inches and which would have future
capacity for transporting up to four billion cubic feet
of gas per day should the markets demand. At Valdez we
would construct the liquid natural gas plant that chills
the gas to a liquid and prepares it for shipment. The
chilling of the gas essentially, I'm sure many of you
already know this, essentially reduces the volume of the
gas down to one-sixteenth of its former level when it was
a vapor or a gas. The technical environmental challenges
to building a pipeline in Alaska are considerable as we
all know. As residents of this state we know that it
braces us with challenges of some of the harshes cold
weather environments in the United States, if not in the
world, and that the pipeline of the sort that is proposed
here by the port authority would be passing through areas
of continuous and discontinuous permafrost. The pipeline
would have pressures of greater than 2,000 pounds per
square inch and the gas would be chilled to a temperature
lower than 32 degrees Fahrenheit and the preservation of
the sensitive habitat of wildlife and migratory herds and
birds and streams and rivers continued native fisheries
is extremely important and was given particular attention
in the permitting process as YPC went through that
process in obtaining the permits. The challenge also
before us is that of minimizing impact on the ongoing
operation of the TAPS pipeline due to construction and
operation of the new gasline would require considerable
coordination between our contractor and Alyeska, who is
the present operator of TAPS and we also need to arrange
for the minimization of impact to existing Purdoe Bay
operations due to construction and later through the
operation of the new gas conditioning facility. So,
those are some of the challenges that face us in that
area.
In implementation challenges we find that there have been
a number of studies, and I'm sure members of this
committee are very well aware of all of them, over the
past 20 years to define a project, to design a project
and to market and fund a project. None of them have
indicated, under the typical private enterprise kind of
approach to this particular problem, none of them have
demonstrated that they have associated with any of the
plans sufficient margins to be able to attract financing
from one thing or for being able to deliver gas to its
market at a price that would find a buyer. The project
viability and the schedule driven by energy supply and
market conditions is a factor that challenges us. Our
project viability has increased because of the nature of
the public/private kind of enterprise with which we are
proposing. Where we bring certain advantages in terms of
financing and in terms of tax structure on net revenues
that markedly change the economics of a gas pipeline,
where it might formally have been at the margins or less
or lower, this project plans and [is] operated through a
port authority kind of scheme, in fact, changes the
economics of an Alaska gas pipeline in a very positive
direction. The final bullet there on this page [The
Implementation Challenges] kind of says it all in terms
of what I've already said in terms of in the past the
minimal financial benefits for a pure private sector
solution just did not work out in terms of
commercializing Alaska's gas and created a need for this
kind of innovative public/private solution.
So, why is our project different. Well, there are
substantial fiscal advantages using an Alaska gasline
port authority method. There is the matter of not having
exposed the net profits to federal income tax, which is
the most dramatic example of the advantage offered by a
port authority kind of approach to this problem. Also,
to a lesser extent in terms of importance, is the
availability to some extent to tax exempt financing for
such a project, which would not typically be available to
a strictly private sector kind of approach. Also, as
Alaskans and as a port authority formed only for one
purpose we, therefore, only have one focus and that focus
is on the commercialization of Alaska's gas. ... We have
one project that is driving us and we only will ever do
one project and that is an Alaska gas pipeline.
Regulatory efficiency is also an advantage because of our
association and their association with us of the Yukon
Pacific Corporation, which presently has many of the
permits required to, not only construct, but to operate
this pipeline. And the cost-effective technology of the
conversion to LNG that we think is an efficient method of
conversion that we planned. And the project economies,
that we think that we can bring to this project, further
enhance the possibilities and probabilities, in fact, we
think of achieving success and the schedule and speed of
development. Most other proposals that have to do with
the commercialization of Alaska gas and the construction
of the pipeline say that there is a market out there in
2010. That we think is also true, there is a market out
there in 2010, but there is also a market window open in
roughly the year 2005. So, our proposal envisions
bringing Alaska's gas to market five years sooner than
anyone else claims that it is possible to do and we think
only we could actually meet that timetable. Presently,
any other proposal would need to be permitted from the
start, from the first permit to the last permit. That is
a long and expensive process; it would take a great deal
of time and if engaged in would cause you to miss the
2005 time frame, which is the earliest that Alaska gas
can find a market. We are the only ones that can meet
that timetable.
The benefits to Alaskans are many. We will finally, for
the first time, be able to provide for gas to many of
Alaska's communities who presently do not enjoy access to
this low-cost and lower-polluting fuel. Only Anchorage,
the Mat-Su Borough and Kenai Peninsula presently in the
state of Alaska enjoy access to this fuel. If this
pipeline is constructed Alaska's second largest borough,
Fairbanks, would now have access to it; Valdez would, and
all other corridor communities up and down the pipeline
as well would have access to this efficient and lower-
cost fuel supply. And we would expect that these new energy
supplies would also stimulate business development throughout the
state, which can also have a very beneficial side effect on our
economy at a time when we're wondering what we're really going to
do about our economy. Also it provides for, when sized properly,
a potential spur line to the Cook Inlet to provide for an expanded
gas supply for consumers there and also possibly to provide for
fuel for gas-intensive industrial applications. And, finally, and
for us most importantly for us as Alaskans, the insurance of long
term gas availability.
Also to the benefit of Alaskans; during the course of
constructions of the pipeline it is the estimate of
Bechtel that over 10,000 construction jobs would be
created. This would not quite reach the magnitude of the
construction of TAPS, but none the less there would be a
very, very significant boost to the Alaskan economy for
the period of the construction of the line and would
have, also, direct contribution to the Alaska economy of
$2 to $3 billion in local purchases of goods and services
in support of the construction of the pipeline. After
construction would be completed, permanent jobs in the
form of 400 in-plant and pipeline operations jobs would
be in the economy of Alaska over the long term, for the
life of the project in fact, which would be several
decades. And, of course, then there's the indirect
service and support employment that would result in the
increased activity surrounding operations of the
pipeline. This would have a $100 million per year impact
on the Alaskan economy and would improve, by the way, not
something that we are directly responsible for, but as a
member of the United States of America citizenry I think
it's important for us to consider these smaller matters
as well, would improve a very serious balance of payments
problems to make up for all the Toyotas and Nissans and
Hondas that we have bought over the years and no doubt
will continue to purchase. And selling natural gas back
to Japan would be an excellent way to at least partially
eliminate that as a problem for the United States. And
it would very significantly contribute to the state
revenue, directly to the state of Alaska, and to its
citizens.
Gas is the cleanest burning fuel that is commercially
available and we have, in Fairbanks, as some of you may
know, a very serious air quality problem and there is an
air quality problem in Anchorage, as well, for that
matter and they presently consume gas, but we in
Fairbanks and in other places in the state will benefit
greatly in terms of the improvement in air quality as a
result of burning this clean fuel, as opposed to coal,
and as opposed to oil and to wood. And this pipeline
would be an exemplary environmental project, adhering to
the new regulations regarding air quality and it would
make it a model for future Alaska projects. And it would
be designed for the utmost safety both during the
construction phases and the operational phases.
And there are even benefits to the gas producers who are
presently engaged in the production of crude oil on the
North Slope. First, there is no capital required of them
to construct this gas line and that is a matter of some
advantage that they would then have capital available to
do other projects of other sorts, maybe not, elsewhere in
the world. We'll provide the capital for the
construction of this pipeline. It would also provide for
significant revenues as a result of the purchase of gas
from the producers on the North Slope and over the long
term would increase field life and oil recovery rate on
the North Slope.
What we are doing presently, at this moment, and in the
near term, is that we are making gas market initiatives
both including direct contacts with LNG off-takers in the
Far East. We plan a trip to the Far East sometime
probably in March, possibly even in February, for the
purpose of meeting with possible buyers in China, Taiwan,
Korea and Japan. Also, we will, sometime in the next few
months, will receive the response to our ruling request
from the IRS [Internal Revenue Service] concerning the
port authorities exemption from federal income tax. We
are very confident about the outcome of this particular
ruling, but it is -- and we asked for it, really, only in
order provide a degree of comfort to the investors in the
pipeline who without it might find it somewhat less
attractive as an investment vehicle ... .
Number 178
BRENT SHERFEY, Project Manager, Petroleum and Chemical North
America, Bechtel Corporation, indicated that first is the review of
the existing regulatory and environmental permitting and approval
processes that this project will entail. There have been many
studies done in the past, but this is probably one of the most
highly visible projects from an environmental viewpoint and will
set a precedence in the future. They are also conducting the
initial design basis for the gas plant on the North Slope for the
pipeline itself, which involves engineering and hydraulic studies.
He pointed out that the study is one of the largest procurement
programs; procurement of some of the largest pipe in the world,
which also entails delivery of 800 miles of pipe and the
construction of the facilities. The logistics program is enormous
and a study in itself. They are also concentrating on maximizing
the Alaskan content of the procurement activities; finding
suppliers and sources of material in Alaska to make sure that it is
an Alaskan project. He explained that the construction plan and
schedule is a process of sequencing the construction process and
putting it into a schedule where the 2005 completion is still
targeted. He indicated that there are such issues as working
during the winter months and windows of opportunity to ship
materials into Prudhoe Bay. Also, the issue of construction camps
along the pipeline; locating and pre-building them in an adequate
enough time to accommodate the various crews. He informed the
committee that as a part of the permitting process is the
environmental monitoring and inspection process during construction
and during operations. The assurance that all the construction
activities adhere to the regulatory requirements imposed by the
agencies in good sound business practices; this will be a major
part of their construction activity. He said that there will be a
study of the Alaska labor market assuring that there are skilled
Alaskans available for construction of the project. The operating
maintenance plan is an overall program for identifying the
operational components and maintenance components of the
facilities. He indicated that with regards to the economic
analysis they are running various scenarios. The preliminary
financial plan is taking a look at optimizing the various sources
of financing available and also taking a look at the various risks.
SENATOR KELLY asked Mr. Hove how the rest of the state benefits
from this project.
Number 037
MR. HOVE responded that any activity that they may be involved in
that produces revenue should probably be shared with Alaska,
because all citizens in the state have an interest in the North
Slope and what is there. He indicated that they proposed sharing
more than half with the State of Alaska directly to its general
fund for appropriation by the legislature for whatever purpose.
They also considered the application of about half that amount for
distribution directly to every resident of the State of Alaska and
a small fraction, about ten percent, directly to the residents in
the communities that form the port authority originally in October
of 1999. After putting aside reserves for ensuring ongoing and
efficient operations and all costs have been met and paid then all
the net amount left over will be distributed directly back to the
State of Alaska in one form or another.
TAPE 00-4, SIDE A
SENATOR LINCOLN said she hoped the lack of attendance is not viewed
as a lack of interest in the project. She knows there is a lot of
interest due to the questions posed. She declared a conflict of
interest because Valdez is part of her district. She has questions
regarding alternative routes and the impact of a merger on the port
authority.
Number 039
MR. HOVE stated he appreciates the questions being asked. He noted
the lack of attendance is not interpreted negatively. He said only
one route is being proposed. This is the route that is presently
permitted. The route goes from Prudhoe Bay through Fairbanks
paralleling TAPS to Valdez. He indicated there are other
organizations with different routing ideas, but the Alaska Gasline
Port Authority has not analyzed any of those. He thinks a time
window of 2005 needs to be made for sales to the market. Taking
the time now to permit a new route would use up so much time and
resources and cause failure to meet that marketing window. It is
his opinion that an alternative stream of revenue is needed in the
state and is needed as soon as possible.
MR. HOVE referred to the BP Amoco merger with ARCO. He indicated
the difficulties encountered have not enhanced the opportunities to
engage in substantive discussion with the producers regarding the
sale of natural gas to the port authority. He believes the merger
has had a negative effect on "their being able to remove their
focus, particularly on the part...of BP from the merger to a supply
of gas."
CO-CHAIR HUDSON said there was a recent presentation on the
proposal for the gas-to-liquids which would require a portion of
the gas to be converted to liquids then move down the pipeline
through the batch process. He does not believe there is any
negative effect on the project proposed by the Alaska Gasline Port
Authority. He asked if this is Mr. Hove's understanding.
Number 101
MR. HOVE thinks there is room for both projects. He does not feel
there is an impact in any way on their project by the existence of
the gas-to-liquid demonstration project or outright commercial
production of gas-to-liquids. He said it does not concern them so
long as there is an adequate supply of gas available to make the
project economical.
REPRESENTATIVE HARRIS referred to Mr. Hove's earlier discussion of
the IRS ruling. He wondered what would happen if the ruling is not
positive to the economics of the project.
MR. HOVE said it would not be positive. He commented it would
essentially return them to a completely private sector type of
economic model which would not allow them to offer any significant
advantage as a port authority. He explained the port authority has
never received a negative opinion on this from any counsel they
have sought. He stated,
It was more or less a Pro Forma thing and, as I indicated
before, we...are going through it fundamentally...to
assure the financial markets that we have done what we
need to do to ensure that their investment is more secure
than it might otherwise be should we not seek the ruling
and later learn that the income was not tax
exempt...We're very, very confident that it will come
through.
SENATOR KELLY asked if the IRS determination would be strictly up
or down, or something in-between.
MR. HOVE replied it is his understanding that it is an up or down
situation.
Number 150
CO-CHAIR MASEK inquired how far along the Alaska Gasline Port
Authority is with their permits and if those permits are in place.
MR. HOVE explained that everyone engaged in this process is
essentially a team player. The port authority developed the
concept and provides the legal authority for proceeding. He noted
that Williams Company, should they be successful in concluding an
agreement, will provide great expertise in the construction and
operation of gas pipelines. He further commented, "Bechtel brings
what we all know Bechtel brings ... they're probably the world's
largest engineering firm, and a terribly successful firm, too."
With respect to permits, he said YPC, another team member, is the
owner of the permits, not the port authority. All these major
players have been brought together for one purpose: to
commercialize Alaska's gas, which has been stranded on the North
Slope for over 20 years. He stressed that everyone wins here, if
everyone one plays well.
Number 190
CO-CHAIR MASEK, on the issue of construction jobs, would like to
see a plan on getting people to work on the pipeline. She also
wanted to know which agencies will be used to get Alaskans to work
on the construction of the project.
MR. HOVE said local unions need to be engaged to develop training
programs that will enable members to work on this pipeline or even
other pipelines. He thinks this needs to be done across the state
whether it is a union or a non-union situation. He mentioned that
YPC, in the course of securing permits, engaged in some project
labor agreements with union locals across a quarter of the
pipeline. There exist today agreements which relate to those
permits and address the issue of preparing Alaskan workers to work
on this project. He is vitally interested in the local hire.
CO-CHAIR MASEK asked Mr. Hove to provide later on, as the project
progresses, an outline of the plan to hire local Alaskans.
MR. HOVE expressed it would be a privilege to do so.
REPRESENTATIVE WHITAKER asked Mr. Hove to put the permitting
advantage in a time frame.
MR. HOVE estimated a new permitting process would consume three
unnecessary years of work.
REPRESENTATIVE WHITAKER wondered if it would assume a successful
culmination to that extra three years of effort.
MR. HOVE replied that would be the assumption. He asked if there
was a satisfactory outcome.
REPRESENTATIVE WHITAKER responded yes. He asked if that assumption
is not a given.
MR. HOVE said that is true.
REPRESENTATIVE WHITAKER indicated he would like to run through some
key components to taking a commodity, such as gas, to the market
place. He requested Mr. Hove provide an estimation of his
confidence level with regard to those key components. The first
component he asked Mr. Hove to address is the market.
Number 244
MR. HOVE said it is the belief that the market for Alaska gas
exists in the Far East. He explained the market exists because the
economy is recovering and growing in the Far East and will once
again become a vital and growing consumer of Alaska gas. In
addition, there is a considerable effort being undertaken for the
privatization of electric power plants. Electric power plants
presently consume either coal or oil. According to the current
plan, these power plants would be converted to burn natural gas.
It is believed this natural gas should come from Alaska in the form
of LNG. He said these are the two principal causes for a market to
be created in the Far East.
REPRESENTATIVE WHITAKER wondered what Mr. Hove's level of
confidence is with respect to penetrating that market.
MR. HOVE stated there is an assumption, based on previous
discussions with potential buyers in the Far East, that the market
does and will exist over there. He explained, "Though, what we
are going to do is engage in discussions with those markets
ourselves,...to judge for ourselves, probably this next month or
the month after, first of all, the extent of interest, and,
secondly, the level of consumption, and perhaps even to engage in
some very preliminary discussions about terms." He noted
Representative Whitaker's question would be easier to answer in a
matter of weeks. He indicated the port authority would not have
progressed to the extent they have by simply betting on a market or
expecting one to appear.
Number 0277
REPRESENTATIVE WHITAKER asked what Mr. Hove's level of confidence
is regarding financial feasibility.
MR. HOVE wondered if he meant financial feasibility by the
investor.
REPRESENTATIVE WHITAKER said that is correct.
MR. HOVE stated,
Well, actually, we often, when we get bogged down
internally discussing issues that relate to your
question, we often have to come back to the fundamental
realization that the...investors in this project are
going to be making the final determination as to whether
it's viable or not viable. They will not invest in a
market...they don't think is a viable investment...So,
we're counting, first of all, on bringing to them the
absolute best data that we can, the most accurate and
refined data that we can, in order to assure the
financial investment community that what we are proposing
is in fact real and is worthy of their attention, and,
finally, worthy of their investment.
Number 296
REPRESENTATIVE WHITAKER asked what the obstacle is that would keep
the project from moving ahead. He wondered what component of
success is lacking at this point.
MR. HOVE replied the single biggest obstacle is the lack of access
to the supply of gas from the North Slope.
REPRESENTATIVE WHITAKER inquired if there have been discussions
with the North Slope producers.
MR. HOVE said yes.
REPRESENTATIVE WHITAKER asked if there have been discussions with
ARCO.
MR. HOVE said no.
REPRESENTATIVE WHITAKER wondered if attempts had been made to have
initial discussions with them.
MR. HOVE said, "Yes, indeed, we did."
REPRESENTATIVE WHITAKER asked what their answer was.
MR. HOVE responded, "They could not talk about sale of gas until
the merger was concluded."
REPRESENTATIVE WHITAKER wondered if there have been discussions
with EXXON.
MR. HOVE replied yes.
REPRESENTATIVE WHITAKER asked how EXXON responded.
MR. HOVE indicated EXXON's response was not positive in terms of
being able to secure a supply of gas. He said there had been two
meetings with EXXON. EXXON responded to their terms sheet which
had been submitted to them in revised form twice. He explained
that EXXON does not have much hope for the port authority achieving
a supply of gas from them.
Number 317
REPRESENTATIVE WHITAKER asked if there have been discussions with
BP.
MR. HOVE said yes.
REPRESENTATIVE WHITAKER wondered what BP's response was.
MR. HOVE commented that BP feels their terms sheet is wholly
unsatisfactory and had other concerns with the proposal.
REPRESENTATIVE WHITAKER asked if there is an ongoing dialogue with
BP at this time.
MR. HOVE stated there are no scheduled meetings with any of the
producers at this time.
REPRESENTATIVE WHITAKER asked if there have been discussions with
the State of Alaska regarding its royalty gas.
MR. HOVE said there was considerable discussion going on with
Commissioner Shively and Commissioner Condon during the course of
the development of the charter agreement. He believes it was
ultimately assumed by both commissioners that "the amount of gas we
required, being (indisc.) of that which the charter agreement
called for, would be made up for the by royalty gas owned by the
State of Alaska." He pointed out this would be a wholly
unsatisfactory situation because it presumes the continuation of
the consumption of gas in those relative ratios. The problem with
this is the royalty gas would run out years before running out of
(indisc.) gas from the producers. He does not think the financial
community would look beneficially upon the circumstance for the
supply hanging upon such a tenuous thread. He said the field needs
to be drawn down so the State has a one-eighth royalty interest.
He feels if this is not done sooner there will be a gas supply
problem again.
Number 346
REPRESENTATIVE WHITAKER wondered if Mr. Hove had made the
Administration aware of that.
MR. HOVE said he had.
REPRESENTATIVE WHITAKER wondered what their response was.
MR. HOVE replied, "It was one and a half billion cubic feet a day,
and that's it."
REPRESENTATIVE WHITAKER asked if Mr. Hove has had discussions with
the Alaska North Slope sponsor group.
MR. HOVE indicated there have been two meetings.
Number 355
REPRESENTATIVE WHITAKER asked Mr. Hove how he would characterize
the meetings with everyone excluding the industry sponsor groups.
He excluded the industry sponsor groups because he feels they are
taking Mr. Hove seriously and attempting to work with him. He
thinks it is important that everyone understand that this is an
opportunity to take a huge commodity resource to market, but not
all is being done to do this.
MR. HOVE said it struck him, as a participant in these discussions,
that the producers either do not realize or choose not to recognize
the effect of their decision not to produce Alaska's gas prior to
today. He stated,
I was struck, I guess, by the fact that they think of it
as theirs. They are the owners, but they are only lease
holders, and we only leased it to them, originally, with
the intent of their doing something with it, and they
never have done anything with it. And we as the State of
Alaska in this residence have suffered for that for many,
many years...that they have a mandate, actually, or a
duty, at the very least, to contribute to the state and
to the State of Alaska and its residents, but they
haven't, and so they've made their investments elsewhere
in the world and they've produced gas elsewhere in the
world; places in the world that charge rent for keeping
gas in the ground. Only in Alaska, to the best of my
knowledge, do we offer to warehouse for free...a natural
resource for a company that has that resource under a
lease-hold interest. Only in Alaska can that occur.
Free of charge. No penalty. And that is why,
fundamentally,...we have not seen Alaska's gas come to be
produced or to reach a market because we do not extract
rent for the privilege of storing it here.
Number 392
REPRESENTATIVE HARRIS asked, "What is the philosophy of this group
as far as the use of Yukon Pacific both with its permits and its
expertise in the market place in the Orient?"
MR. HOVE responded that YPC has been engaged in all of the work
that has gone into the creation of the permits to the extent that
they exist today. He said it is not 100 percent permitted and
there are still some permits that are required to be obtained. He
indicated YPC has developed relationships with people in the
process. He feels these relationships will be extremely valuable
in the construction and operations phase. He referred back to his
mention of the existence of certain labor agreements and stated he
is very pleased that YPC engaged the environmental community
throughout the process. It is his hope this will in someway make
the job easier. He explained that YPC possesses considerable
historical knowledge and technical expertise.
Number 424
REPRESENTATIVE HARRIS asked Mr. Hove to clarify how long it would
take without the permits in place.
MR. HOVE replied it would be three years and cost over $100 million
for a newly permitted pipeline.
REPRESENTATIVE HARRIS asked, "If you can get the permits?"
MR. HOVE stated that is correct.
SENATOR KELLY requested Mr. Hove explain the tax-exempt status, how
it works, and why it works for investors.
MR. HOVE reemphasized that the tax-exempt part of the financing is
a very small part and somewhat complex. He explained,
To the extent that Alaska's gas would be consumed by
Alaskans in-state, there is an excellent chance that
bonds that could be pro-rated against the expenses to the
extent that we sell the gas. Say it's (indisc.-coughing)
then maybe 7 percent of the bonds sold to finance the
construction of the line would enjoy tax-exempt status.
SENATOR KELLY wondered about the income from the project that goes
to the investors.
MR. HOVE indicated the income would be in the form of repayment of
the bonds bearing a certain interest rate.
SENATOR KELLY asked what the tax implications are of those.
MR. HOVE responded that 93 percent of them will not enjoy tax-
exempt status and will be paying taxes on that part of the income.
Number 451
REPRESENTATIVE WHITAKER thinks Senator Kelly was also asking about
the revenue stream associated with the project and the tax
implications thereof.
MR. HOVE understood. He clarified that the net revenues would not
be exposed to federal income taxes. The distribution of the
revenues to residents of Alaska becomes ordinary income and is
subject to taxation. If the revenues were distributed to
municipalities or to the State, they would forever escape federal
taxation.
Number 471
ADJOURNMENT
CHAIRMAN HALFORD adjourned the joint meeting of the House/Senate
Resources Committees at 4:39 p.m.
| Document Name | Date/Time | Subjects |
|---|